An "Avalanche of Fraud" in the SBA $10,000 Grant Program
A report released Wednesday by the SBA inspector general identified tens of billions of dollars in potentially fraudulent transactions in the SBA EIDL grant program. If you were one of the millions of legitimate small-businesses that was hoping for some or all of the $10,000 SBA EIDL grant, here's an inside look at why you may have missed out on the stimulus funding — and the staggering extent of the fraud that took place.
About the SBA's $10,000 Grant Program
When the $2.2 trillion CARES Act was signed into law in March 2020, there were many provisions designed to help small business survive the coronavirus pandemic and government lockdowns. One of the most popular programs was the $10,000 grant program through the Economic Injury and Disaster Loan (EIDL) program. $20 billion was put toward this program, which promised fast $10,000 Advances (aka grants) to eligible small businesses.
In fact, if you watched our YouTube channel we covered this program on a near daily basis, and we helped tens of thousands of people track and apply for these grants. However, according to our data, almost 1/3rd of all applicants never received all or part of the $10,000 grant. Instead, fraudsters found ways to scam the SBA's computer system and make off with this money.
The Rampant Reports of Fraud
As reported across social media (as reviewed by Bloomberg News) many people caught on fast to the program's pot of money. According to Bloomberg News, "In some neighborhoods in Chicago and Miami, it seemed like everyone made a bogus application to the Small Business Administration's Covid-19 EIDL Loan program".
They add, "Professional thieves from Russia to Nigeria cashed in. Low-level employees at the agency watched helplessly as misspent money flew out the door."
These accounts by Bloomberg are based on interviews with frontline SBA workers and outside fraud investigators, and on a review of thousands of social-media postings.
The Failing's of the SBA Computer System
According to Bloomberg, the SBA's much-vaunted new computer system, built by an outside contractor for $750 million, proved blind to certain types of fraud and sometimes awarded grants even when it spotted disqualifying features.
In the SBA's report, the inspector general says tens of billions dollars have potentially been lost in fraudulent transactions. He also disclosed that $450 million in doubtful payments have already been seized by law enforcement.
To get the money out quickly (the program said the grants could be distributed in a few days, although most people waited at least 3 weeks if not longer), the computer had to automate nearly every part of the process. This was the point of the program, but also i's downfall: Getting money out quickly means decisions need to be automated and normal due diligence was often skipped.
The SBA's computer system, by late April, was churning through more than 100,000 applications a day, a rate of more than one per second. The automated system was designed to have "checks" however many people grew wise to how to "beat" the system.
The Helplessness of Loan Officers
According the the research by Bloomberg, loan officers saw applications from farmers located in the middle of a city, or multiple small businesses in the same single-family home with 10 employees — the exact amount to get the full $10,000 grant.
One phony business with $24,000 in annual revenue and exactly 10 employees showed up again and again according to some of the loan officers.
One loan officer said he was spotting dozens of grants each day that had clearly gone to scammers or ineligible applicants. The officer spoke on the condition of anonymity because he still works at the agency.
Another loan officer, who noticed similar patterns, reported one such transaction to his superior who refused to stop a suspected fraudulent $10,000 grant. The supervisor remarked, "You'll learn soon how things are done around here."
The Social Media Scam Discussions
On YouTube posts and on Telegram channels, professional scammers shared step-by-step tutorials describing how to defeat the SBA's defenses.
According to Bloomberg, one fraudster wrote on a Telegram channel in September, "You can learn everything in 10 minutes and start applying". This person was offering a tutorial for $30. This individual was even offering stolen social security numbers and bank account information.
The SBA said Wednesday that it has referred more than 80,000 loans for criminal investigation, but so far there's no sign of a comprehensive push by law enforcement to tackle the fraud.
The Legitimate Businesses That Are Still Waiting
The pressure for quick decisions has allowed these billions of dollars to be potentially obtained by fraudsters at the expense of legitimate businesses. This is incredibly unfortunate as millions of small businesses struggle to stay open and pay rent.
For those still waiting we continue to help with self-reporting progress, however the recent approvals progress has been incredibly slow. The grant funding has run out but the loan funding is still ongoing.
If you're one of the businesses patiently waiting — or you're an individual that wants to stay up-to-date on these issues including the new stimulus bill, you can subscribe to our YouTube channel as well.
Read the full Bloomberg investigative report here.
Further Reading
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