WASHINGTON - A report from the Office of Inspector General of the U.S. Small Business Administration published on Tuesday details complaints of thousands of instances involving suspected fraud from financial institutions apparently receiving economic assistance from the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Paycheck Protection Program and Health Care Enhancement Act.
“Our preliminary review reveals strong indicators of widespread potential fraud in the program,” the inspector general wrote in the report.
The report, titled “Serious Concerns of Potential Fraud in the Economic Injury Disaster Loan Program Pertaining to the Response to COVID-19,” says that the SBA inspector general’s office has received complaints of more than 5,000 instances in which suspected fraudulent activity has taken advantage of funds distributed from aid programs.
“Nearly 3,800 of those reported instances of suspected fraud came from only six financial institutions. An additional 1,220 reports of suspected fraudulent transactions have come in from other financial institutions,” the report says.
According to the report, suspected fraudulent activities reported by various financial institutions to the inspector general include:
- Accounts established using stolen identities
- Account holders unable to explain origins of deposits or identify business names on loans
- Account holders claiming to use the funds to open a business
- Account holders attempting to transfer funds into investment accounts
- Account holders attempting to transfer funds to foreign accounts
- Loan deposits being made into accounts with no other account activity that were established remotely just before receiving the loan funds
- Economic injury loan funds made to agricultural businesses being deposited in accounts of unrelated third parties located in different states than the business •
- Account holders attempting to withdraw loan funds in cash or transfer the funds to other newly established accounts
- Economic injury loans or advance grants being deposited into personal accounts--with no evidence of business activity--of customers of the financial institution
The inspector general added in the report that a concerning amount of duplicate loans have been distributed by the SBA to various businesses. The report states that to date, nearly $35 million of $45.6 million in approved duplicate small business loans have been disbursed by the agency.
In one account, one business which was not named was reportedly approved for a loan four times, subsequently receiving four separate loans.
“We believe the duplicate payments or loan approvals were made to applicants who applied more than once for assistance. SBA processed the multiple applications submitted because the agency does not have effective controls in place to determine if the applicants had previously applied for and received financial help,” the report states.
Since the onset of the coronavirus pandemic, fraud has been a pivotal issue in the economic recovery of various businesses struggling to stay afloat during the crisis.
Just one day before the inspector general’s report was published, a Florida man was arrested on July 27 after federal authorities said he used $3.9 million in Paycheck Protection Program (PPP) loans to purchase a Lamborghini sports car for himself.
The money that David T. Hines, 29, received was from the the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a federal law enacted on March 29. Some of the funds from the act were intended to provide emergency financial assistance to millions of Americans who have been negatively impacted by the economic effects of the COVID-19 pandemic.
The source of the funds that were distributed to Hines came from a portion of the CARES Act which authorized up to $349 billion in forgivable loans to small businesses for various expenses through PPP loans.
Instead, the Miami resident allegedly used the funds to purchase a 2020 Lamborghini Huracan valued at $318,000. Federal authorities said they seized $3.4 million from various bank accounts at the time of Hines’ arrest.
This story was reported from Los Angeles.