SBA’s Use of Hold Codes for Potentially Fraudulent PPP Loans Referred by Lenders

The Office of Inspector General (OIG) is issuing this management advisory to bring attention to concerns regarding SBA’s use of hold codes for potentially fraudulent Paycheck Protection Program (PPP) loans referred by lenders. 

Opportunities exist for SBA to enhance its handling of lender-referred PPP loans suspected of fraud or illegal activity and its process for capturing these loans to ensure they are promptly flagged to mitigate fraud risk and financial loss. SBA’s Office of Credit Risk Management (OCRM) established a project for lenders to refer PPP loans suspected of fraud or illegal activity; however, we found that SBA did not flag all suspicious loans referred by lenders with a hold code 50 or capture all the loans in its summary workbook. 

SBA did not flag all PPP loans referred by lenders as suspected of fraud or illegal activity because OCRM wanted to validate the referred loan information with lenders first and this delayed response for flagging the loans was inconsistent with SBA’s established procedures and how other program offices handled lender referrals. Flagging a suspicious loan triggers a targeted review during both forgiveness and post-forgiveness examinations, providing an opportunity to mitigate improper payment due to fraud. To maximize this opportunity, SBA should immediately flag and review all suspicious loans referred by lenders and establish procedures to ensure all referred loans are captured in OCRM’s summary workbook.

Implementing our recommendations will enhance program integrity and mitigate fraud risk and financial loss by ensuring only eligible applicants receive program funding and that opportunities are identified to recover fraudulent or ill-gotten funds. SBA management partially agreed with four recommendations and agreed with one recommendation.