Small Business Administration overpaid $4.5B in COVID loan advance grants

A COVID emergency relief program improperly paid $4.5 billion to self-employed people — a reflection of the Small Business Administration's (SBA) inability to detect fraud, SBA Inspector General Hannibal Ware wrote in a report released Thursday.

Why it matters: SBA has already faced criticism for issues with fraud in its Paycheck Protection Program.

Details: The findings show that the SBA, which has been at the forefront of the government's pandemic response, failed to take steps to identify applications with "flawed or illogical information," Ware said.

• Its $20 billion Economic Injury Disaster Loan Advance program gave small businesses immediate grants of up to $10,000 in the months after the outbreak.
• Sole proprietors and independent contractors who only employed themselves were supposed to collect only a maximum grant of $1,000, but over 700,000 managed to get larger grants by claiming additional workers.
• It turns out the SBA did not require sole proprietors claiming employees to enter their Employer Identification Number. They instead used their Social Security numbers.

Worth noting: Some of the claims were clearly implausible. Hundreds of applicants claimed they employed over 500 workers, but that would typically make them ineligible to apply for the program.

• Fifteen applications claimed they had a million workers.
• But the SBA "never requested additional information from these sole proprietors to verify the number of employees cited on their grant applications before approving and disbursing the grants," Ware wrote.

What to watch: Ware said the government should try to reclaim the $4.5 billion it overpaid by requesting reimbursement from applicants unable to prove their claims of employees.

• Suspected fraudulent cases should be referred to the inspector general's criminal investigation division, he added.

Go deeper: Scammers have stolen over $130 million in coronavirus-related schemes