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The SBA May Have Paid Out More Than $1 Billion in PPP Loans to Fraudulent Applications
A risk-management expert told Entrepreneur the stimulus program was likely exploited by serial fraudsters.
Yesterday, the Small Business Administration accepted the final applications for loans from the Paycheck Protection Program, but not before the Government Accountability Office (GAO) released a report that notes the program may have awarded loans for a number of fraudulent applications.
The scope of potential fraudulent activity was not outlined in the GAO report, but according to Tom Miller, CEO of the risk-management firm ClearForce, the problem was pervasive. In an interview published Wednesday on Entrepreneur.com, Miller estimated that there may have been “more than a billion dollars worth of verified criminal fraud within the PPP program.”
Miller arrived at that number by looking at the number of PPP applicants “who lied on their applications and said they had not been convicted of a felony, when in fact they had been convicted of a fraud or financial felony.”
“We did analysis around this and found that of the applicants who fraudulently reported that they did not have felony convictions ?— about half of those felonies were related to fraud and financial theft,” Miller says. “So these are professional, serial fraudsters. In the past, they have defrauded the government or a financial institution or another individual, and here they are again in the system trying to access more money. And from our analysis, these crimes weren’t being committed in some gray area of the five- or six-year window. The convictions were fairly well distributed across [the last five years]. Almost 20 percent of the fraud that we picked up on occurred just in the last 12 months.”
Even as the SBA begins to identify fraudsters, they face marked challenges in prosecuting them, as they’ll have to prove that applicants deliberately misrepresented their businesses.
“Was it willful deceit?" Miller asks. "Or is this just an inexperienced small-business owner who's never filled out a government loan application and didn't understand the way PPP was calculated? For the government, that becomes tricky, and nobody really wants the government's heavy hand of oversight going after people who may have inadvertently made mistakes. But if they can focus on these serial fraudsters, we estimate there's more than a billion dollars worth of that verified criminal fraud within the program.”
