Small-Business Aid Program Has Significant Fraud Risk, GAO Says

Report cites volume of loans approved, speed in processing and limited safeguards; improvements recommended

By Yuka Hayashi. Excerpts:

"The $670 billion Paycheck Protection Program to help struggling small businesses survive fallout from the coronavirus pandemic faces a “significant risk” of fraud because of confusing rules and lack of safeguards, a Government Accountability Office report has found.

In its haste to get money to businesses quickly, the Small Business Administration allowed banks to rely on borrowers’ own certifications to determine their eligibility for loans, which can be forgiven if borrowers meet certain conditions, the report noted.

Shortcomings in the program were compounded by rules issued by the Treasury Department and the SBA after the program had been launched, leaving borrowers and lenders further confused and increasing the likelihood that funds are misused, the GAO said.

“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 said in the report released Thursday. “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.”"