Follow-up Inspection of SBA’s Internal Controls to Prevent COVID-19 EIDLs to Ineligible Applicants

This report presents the results of our follow-up inspection to assess the effectiveness of the U.S. Small Business Administration’s (SBA) enhanced internal controls to prevent Coronavirus Disease 2019 (COVID-19) Economic Injury Disaster Loans (EIDL) to ineligible applicants.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act prohibited the agency from requiring tax return transcripts to prove eligibility. Congress eliminated this restriction 9 months later with the Consolidated Appropriations Act, 2021. We found SBA did not implement the tax transcript requirement in a timely manner, potentially disbursing COVID-19 EIDLs to ineligible entities. For about 4 months after Congress removed the tax return prohibition, SBA made 133,832 COVID-19 EIDL disbursements, totaling about $8.5 billion without proving applicant eligibility using official tax information. Of that amount, more than $92 million was disbursed to businesses with suspect Taxpayer Identification Numbers.

We reviewed 30 of these loans approved before SBA implemented the requirement for tax return transcripts and found that 16 of them, totaling about $1.1 million, should not have been approved. Specifically, we found disbursements to 13 businesses that did not exist on or before January 31, 2020, or had an unknown start date. We also found three businesses that did exist on or before January 31, 2020, but had other red flags, including change of registered agent shortly before the application date, evidence of falsified documents, or evidence the applicant did not own the business.

We recommended SBA recover funds disbursed to ineligible applicants identified in our sample and review the remaining COVID-19 EIDL disbursements with suspect tax ID numbers to determine if the business applicant was legitimate and met CARES Act eligibility requirements. SBA agreed with our recommendations and plans to review the 20 loans identified in the report to determine if the applicant business qualifies for assistance under the COVID-19 EIDL eligibility criteria and attempt to recover funds provided to ineligible businesses.