The streamlining of the approval process for Paycheck Protection Program loans to small businesses has created a “significant” risk of fraud, according to the federal government’s internal watchdog.

The Government Accountability Office said in a report that the Small Business Administration required only “minimal” underwriting from lenders, leaving the $670 billion program “vulnerable to exploitation by those who wish to circumvent eligibility requirements or pursue criminal activities.”

“Because of the number of loans approved, the speed with which they were processed, and the limited safeguards, there is a significant risk that some fraudulent or inflated applications were approved,” the GAO warned. “In addition, the lack of clear guidance has increased the likelihood that borrowers may misuse loan proceeds or be surprised they do not qualify for full loan forgiveness.”

The PPP is the centerpiece of the $2 trillion CARES Act passed by Congress to mitigate the economic impact of the coronavirus pandemic. To date, it has made 4.7 million loans to struggling small businesses worth more than $516 billion.

Borrowers, who have 24 weeks to use the money, are eligible for forgiveness if they use at least 60% of it on payroll costs.

As CNBC reports, “Since borrowers needed money fast — the first $349 billion PPP allotment ran out in less than two weeks — the SBA streamlined the program and allowed lenders to rely on borrower certifications when they applied in order to determine the qualifying loan amount.”

To obtain a loan, applicants must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”

The GAO noted, however, that the SBA limited underwriting to, among other things, confirming receipt of borrower certifications and supporting payroll documentation and that it “provided minimal additional information to borrowers on the required good faith necessity certifications.”

The watchdog said it has recommended that the SBA “develop and implement plans to identify and respond to risks in PPP to ensure program integrity, achieve program effectiveness, and address potential fraud.”

“SBA neither agreed nor disagreed, but GAO believes implementation of its recommendation is essential,” it added.

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One response to “Watchdog Warns of ‘Significant’ PPP Fraud Risk”

  1. Isnt’ this true with most government give-a-ways and bailouts? The taxpayer will be glad to pick up the tab.

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