Economic Injury Loan Program: Additional Measures Needed to Improve Communication with Applicants and Eliminate the Risks of Fraud

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What GAO Found

Applicants and recipients of Economic Injury Loans (EIDLs) varied in business size, years of operation and industry based on GAO Small Business Administration (SBA) data analysis from March 2020 to February 2021:

  • Business size. The majority of EIDL applicants (about 81 percent) and EIDL recipients (about 86 percent) were small businesses (10 or fewer employees).
  • Years in service. The majority of EIDL applicants (about 63 percent) have worked for less than 5 years. However, businesses that have been in business for more than 5 years received the majority of the total EIDL loan and had higher approval rates compared to newer businesses.
  • Industry. Consumer services and transportation companies accounted for the largest proportion of applicants, while legal services and hospitality companies were approved for loans at the highest rates (see chart).

Top Loan Applicants and Approval Frequencies by Business Industry

In addition, small businesses in counties with higher median household income, better Internet access, and a more diverse population tended to receive more loans per 1000 businesses and larger loans.

EIDL applicants faced a number of challenges, according to applicants and other business stakeholders surveyed by the GAO between August 2020 and February 2021. For example, applicants from five discussion groups and multiple stakeholders identified lack of information and uncertainty about the status of the proposal as major concerns. In addition, until February 2021, the SBA did not provide potential applicants with important information such as limits on loan amounts and definitions of certain program conditions. The lack of important information about the program and the status of the application put pressure on SBA resources and negatively affected the experience of applicants. For example, SBA’s customer support team faced a dramatic increase in the number of calls that resulted in long wait times, and SBA data showed that 5.3 million applications were duplicated. SBA planning documents outline the public outreach to be undertaken in the aftermath of a disaster, but do not detail the type or timing of information. Developing and implementing a comprehensive communications strategy that includes these details can improve the quality, clarity, and timeliness of the information the SBA provides to its applicants and resource partners in the aftermath of a disaster.

GAO’s current review of the COVID-19-related EIDL program has shown that the program is sensitive to providing funding to inappropriate and fraudulent applicants. For example, as reported by the GAO in January 2021, the SBA has approved at least 3,000 loans totaling approximately $ 156 million for businesses that, according to SBA policy, were not eligible for the EIDL program, such as real estate developers and multi-level marketers, as of on September 30, 2020. In addition, the GAO found that between May and October 2020, more than 900 US financial institutions filed over 20,000 EIDL-related suspicious activity reports with the Financial Crime Network. In addition, GAO’s analysis of 51 Department of Justice cases involving allegations of EIDL loan fraud as of March 2021 revealed that the cases involved identity theft, false testimony, fictitious or inflated employee counts, and misuse of proceeds.

In its response to COVID-19, the SBA has made some changes to address these risks. For example, starting in June 2020, the SBA took action to improve the ability of loan officers to delay funding for fraudulent applicants. However, the SBA has yet to implement the GAO’s recommendations to address EIDL’s programmatic risks.

  • In January 2021, the GAO recommended that the SBA analyze data across the entire EIDL portfolio to identify potentially inappropriate and fraudulent applications (GAO-21-265). The SBA disagreed or disagreed with this recommendation. However, in May 2021, SBA officials said the agency was in the process of developing an analysis to apply certain fraud indicators to all app data.
  • In March 2021, the GAO recommended that the SBA (1) implement a comprehensive oversight plan to identify and respond to risks in the EIDL program, (2) conduct and document a fraud risk assessment, and (3) develop a strategy to address program evaluation issues. risks of fraud on an ongoing basis (GAO-21-387). The SBA agreed with all three recommendations. In May 2021, SBA officials said the agency had begun a fraud risk assessment for the program.

Full implementation of these recommendations will help the SBA save billions of dollars in taxpayer money and improve the performance of the EIDL program.

Why GAO Conducted This Study

Between March 2020 and February 2021, the SBA provided approximately 3.8 million low-interest EIDL loans and 5.8 million grants (called advances) totaling $ 224 billion to help small businesses affected by COVID- nineteen. Borrowers can use these low-interest loans and advances to pay operating and other costs.

The CARES Act includes a provision stating that the GAO controls funds allocated to the fight against the COVID-19 pandemic. This report examines, inter alia, the characteristics of applicants and beneficiaries of programs; the problems faced by the EIDL applicants and the extent to which they have been addressed by the SBA; and the steps the SBA has taken to address the risks of fraud and provide funds to inappropriate candidates.

The GAO reviewed documents from SBA, an EIDL contractor, and two of its subcontractors. In addition, the GAO analyzed loan application data, held five discussion groups with applicants, and interviewed staff at the SBA, six small business development centers and six business associations. The GAO also analyzed socio-economic, demographic and geographic data about EIDL participants.



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