A rushed emergency aid program for small companies devastated by the pandemic improperly sent nearly $3.7 billion to recipients prohibited from receiving federal funds, according to a government audit released on Tuesday.
The finding adds to a mountain of evidence chronicling what the Small Business Administration’s inspector general, Hannibal Ware, called an “unprecedented amount of fraud” in the agency’s pandemic relief efforts. In October, Mr. Ware’s office chastised the agency for improperly doling out billions in relief money to self-employed people who made “flawed or illogical” claims of having additional workers on their payroll.
Its Economic Injury Disaster Loan program distributed more than $210 billion last year in loans and grants. The program was organized in a hurry by the Trump administration as millions of businesses temporarily shut down because of the coronavirus and was designed to quickly send out money to help companies keep up on their bills.
But the agency failed to do a legally required check of applicants’ identifying details against the Treasury Department’s Do Not Pay system, according to Tuesday’s report from Mr. Ware’s office.
The Do Not Pay system was set up in 2011 to reduce improper payments to people who are dead, convicted of tax fraud or barred from receiving federal contracts, among other red flags. Mr. Ware found 117,135 applicants who got grants and 75,180 recipients who got loans despite matches in the system indicating a “high likelihood” that the payments were improper.
Isabella Casillas Guzman, who became the agency’s administrator in March, said at a House hearing this month that she had heightened the agency’s fraud controls over its Covid-19 relief programs. “The guardrails did not exist” last year, under the prior administration, she said.
In a response included in Mr. Ware’s report, the Small Business Administration said that on April 6, 2021 — more than a year after the disaster loan program began — it started checking Do Not Pay records before sending out funds. The agency also said it would review the loans and grants previously made to recipients who were flagged as ineligible.
“We agree with the S.B.A. Office of Inspector General that the Trump administration should have applied this risk management tool, and, therefore, the S.B.A. has done just that under the Biden-Harris administration,” Han Nguyen, an agency spokesman, said on Tuesday.
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