Fraud

The SBA Gave Grants To Thousands Of Businesses That Don’t Exist

JM Ashby
Written by JM Ashby

The Paycheck Protection Program (PPP) has been a shitshow that appears to be rife with fraud, but don't sleep on the Small Business Administration's (SBA) other emergency loan program, the Economic Injury Disaster Loan (EIDL) program.

It's not as if this is a competition between two disasters, but the scale of potential fraud in this case is staggering and possibly far worse than the paycheck program.

Bloomberg Businessweek reviewed the publicly available data for the EIDL program and found that the SBA has dispersed far more loans than there are businesses. Tens of thousands of grants have been doled out to entities that don't exist.

In some parts of the country the SBA approved far more $10,000 Economic Injury Disaster Loan (EIDL) grants than the number of eligible businesses, the analysis found. The epicenter was six adjacent congressional districts in the Chicago area, where 81,000 grants were approved even though there are only 19,000 eligible recipients. That’s more than $600 million going to phantom entrepreneurs.

Bloomberg identified 52 congressional districts across the nation where the number of $10,000 grants exceeded the number of eligible small businesses, for a total of $1.3 billion in suspect payments. Illinois’s 2nd District, which includes a swath of Chicago and its suburbs, had the greatest excess, with 24,278 grants going to businesses that listed addresses there. But the most recent U.S. Census Bureau data show that only 1,925 small businesses in the district have at least 10 employees, the number required to qualify for the maximum $10,000 grant. Districts in Georgia, Texas, Florida, and other states also showed payments to more than the number of eligible companies. The Census data are from 2017, and the number of businesses in each district may have changed since then. But the discrepancies uncovered in Bloomberg’s analysis are so large that potential increases in business activity alone can’t explain them.

The suspect payments far exceed the $47.8 million that SBA Inspector General Hannibal “Mike” Ware identified in a preliminary report in July that warned of “potentially rampant fraud” in the $20 billion grant program. Ware declined to comment on Bloomberg’s findings about the full program until his staff had a chance to review them. But in an interview, he didn’t sound surprised. “The level of fraud we’ve seen in this has been pretty pervasive,” he said.

The words "holy shit" came out of my mouth more than once when I read this.

To be clear, the SBA says many loans have been denied approval, but these grants were an advance on a loan and they were immediately paid out. This is money out the door.

Bloomberg identified more than $1 billion in grants to "phantom" businesses that may not exist and the program only had $20 billion available. At $20 billion, the program is significantly smaller than the $600 billion Paycheck Protection Program, however it looks like a much larger percentage of EIDL grants were fraudulent.

The scale of fraud is mindboggling. The SBA says they've acted under pressure to distribute money as quickly as possible, but maybe that shouldn't be the goal if this is what that leads to.

I feel like if the economy and even individual people were more stable as a whole, our policies wouldn't be as recklessly urgent as they have been or have to be. Too many average Americans and even businesses survive on a month-to-month basis with little backstop or support behind them. That was true before the coronavirus pandemic and it has to be recognized going forward. Low wages and rickety safety nets are ultimately harmful to everyone. Surging inequality undoubtedly contributes to this level of waste and fraud.

I have no idea how the Biden administration will even begin to unravel this mess among the pile of other messes.

The EIDL grant program inspired several types of scams, Ware said. In one, criminals recruit people by offering to help obtain a $10,000 government grant in exchange for a fee. Each recruit provides personal ID and bank account information, often without understanding that the arrangement is illegal. The scammers use the information to submit a phony application.

Ware said he and his law enforcement partners shut websites and call centers that were set up to troll for recruits. “It’s organized,” he said, “to the point where—you know what, I’ll leave it at that, because I don’t believe I can say it publicly at this point.” The FBI, the Secret Service, and other agencies are probing fraud across the SBA’s programs, Ware said.

  • muselet

    It’s almost as if the Small Business Administration is poorly-equipped to administer emergency grants. Could it be that this is outside its core competencies?

    ”The level of fraud we’ve seen in this has been pretty pervasive,” he said.

    That is seventh-level black belt understatement. Most impressive.

    The FBI, the Secret Service, and other agencies are probing fraud across the SBA’s programs, Ware said.

    Best of luck to them.

    If scammers manage to skim off 5% of a program’s total available money, that program wasn’t designed very well. Yes, I understand the urgency with which the economic implosion needed to be addressed, and yes, I know I’m recycling the argument I’ve already made with regard to the Paycheck Protection Program. But relying on good faith when big bags of government money are available is really dumb, almost as dumb as relying on law enforcement—and the courts—to deal with the criminals in the aftermath of fraud.

    –alopecia