Economic Personal injury Catastrophe Loan System: Extra Steps Needed to Make improvements to Communication with Applicants and Address Fraud Dangers

What GAO Discovered

Financial Injury Disaster Financial loan (EIDL) candidates and recipients diverse in terms of enterprise measurement, a long time in operation, and field, primarily based on GAO’s analysis of Small Small business Administration (SBA) information from March 2020 via February 2021:

  • Business enterprise dimensions. A greater part of EIDL candidates (about 81 %) and EIDL recipients (about 86 p.c) ended up more compact firms (10 or much less personnel).
  • Years in procedure. A the greater part of EIDL applicants (about 63 %) had been in operation for a lot less than 5 many years. Nevertheless, enterprises in procedure for a lot more than 5 years acquired the greater part of whole EIDL bank loan bucks and experienced larger acceptance fees in comparison to more recent organizations.
  • Sector. Corporations in the own expert services and transportation industries manufactured up the greatest share of candidates, though all those in the legal products and services and lodging industries were being permitted for loans at the greatest rates (see figure).

Best Loan Applicants and Approval Fees by Organization Market

In addition, modest enterprises in counties with better median residence earnings, improved web accessibility, and far more numerous populations frequently acquired more financial loans for each 1,000 corporations and greater financial loans.

EIDL candidates have faced a number of troubles, according to candidates and other organization stakeholders GAO interviewed in between August 2020 and February 2021. For case in point, candidates from five dialogue teams and various stakeholders cited deficiency of information and uncertainty about application standing as major issues. In addition, right up until February 2021, SBA did not give essential information to probable applicants, these as boundaries on bank loan amounts and definitions of selected method terms. Deficiency of vital plan data and application position place stress on SBA’s means and negatively afflicted applicants’ practical experience. For instance, SBA’s shopper support line seasoned call surges that resulted in extended wait occasions, and SBA’s information showed that 5.3 million purposes have been duplicates. SBA’s planning paperwork describe in standard terms the public outreach to be performed pursuing disasters, but they do not depth the type or timing of the facts to be offered. Creating and applying a in depth communication system that contains these facts could enhance the high-quality, clarity, and timeliness of information SBA offers to its applicants and source associates subsequent catastrophic disasters.

GAO’s ongoing assessment of the EIDL program similar to COVID-19 has uncovered that the plan is vulnerable to delivering funding to ineligible and fraudulent candidates. For case in point, as GAO noted in January 2021, SBA experienced authorised at minimum 3,000 financial loans totaling about $156 million to corporations that SBA guidelines condition had been ineligible for the EIDL application, such as true estate builders and multilevel marketers, as of September 30, 2020. In addition, GAO identified that concerning May and Oct 2020, more than 900 U.S. economic establishments submitted additional than 20,000 suspicious activity reports linked to the EIDL system with the Money Crimes Enforcement Community. Further, GAO’s evaluation of 51 Office of Justice cases involving fraud costs for EIDL financial loans as of March 2021 observed that these instances included id theft, bogus attestation, fictitious or inflated personnel counts, and misuse of proceeds.

In excess of the course of its COVID-19 reaction, SBA has created some adjustments to address these threats. For example, commencing in June 2020, SBA took actions to enhance financial loan officers’ ability to withhold funding for applicants suspected of fraud. Nevertheless, SBA has not nevertheless executed recommendations GAO has previously built to address EIDL plan risks.

  • In January 2021, GAO encouraged that SBA carry out info analytics throughout the EIDL portfolio to detect likely ineligible and fraudulent programs (GAO-21-265). SBA did not concur or disagree with this recommendation. However, in Could 2021, SBA officers mentioned the agency was in the process of creating examination to implement sure fraud indicators to all application knowledge.  
  • In March 2021, GAO advisable that SBA (1) carry out a thorough oversight approach to establish and react to pitfalls in the EIDL application, (2) conduct and doc a fraud threat evaluation, and (3)  develop a method to address the program’s assessed fraud threats on a continuous basis (GAO-21-387). SBA agreed with all three suggestions. In May 2021, SBA officials mentioned that the agency had started off to evaluate fraud risk for the application.

Absolutely utilizing these suggestions would enable SBA to safeguard billions of pounds of taxpayer money and boost the procedure of the EIDL method.

Why GAO Did This Examine

Involving March 2020 and February 2021, SBA presented about 3.8 million minimal-interest EIDL financial loans and 5.8 million grants (called developments) totaling $224 billion to help compact companies adversely influenced by COVID-19. Debtors can use these small-interest financial loans and advancements to shell out for operating and other expenses.

The CARES Act involves a provision for GAO to watch resources delivered for the COVID-19 pandemic. This report examines, amid other goals, the attributes of program candidates and recipients the problems EIDL applicants professional and the extent to which SBA has dealt with them and the steps SBA has taken to address hazards of fraud and provision of cash to ineligible candidates.

GAO reviewed files from SBA, an EIDL contractor, and two of its subcontractors. In addition, GAO analyzed personal loan application facts, executed five dialogue teams with candidates, and interviewed team from SBA, 6 Little Company Improvement Facilities, and 6 business associations. GAO also analyzed socioeconomic, demographic, and geographic data on EIDL system individuals.