SBA’s Actions to Address Forgiven PPP Loans Subsequently Flagged as Potentially Ineligible

This report presents the results of our management advisory bringing the Small Business Administration’s (SBA) attention to concerns regarding forgiven Paycheck Protection Program (PPP) loans subsequently flagged as potentially ineligible using hold code 70 (potential clawback) for which the agency has not completed its review to facilitate recovery of improper payments for ineligible loans. A hold code is an identifier placed on a loan in the agency’s system indicating a potential issue needs to be resolved. SBA uses hold code 70 to flag forgiven PPP loans for which it subsequently suspects the borrower is potentially ineligible for the loan or for loan forgiveness. It is imperative that SBA completes its review to promote program integrity and mitigate financial loss by seeking recovery of improper payments for ineligible loans.

The unprecedented demand for PPP funds and the need to quickly award loans gave way to a pay and chase environment that relied heavily on post-payment reviews and resolving subsequent hold codes to ensure program integrity. SBA was required to issue PPP regulations no later than 15 days from the date the CARES Act was enacted (March 27, 2020) and lenders were to disburse loans within 10 days of approving applications and SBA reduced or eliminated key upfront controls as it sought to expedite aid.

As of May 24, 2024, SBA had forgiven over 10.5 million PPP loans, totaling over $750 billion, 37,938 of which (totaling approximately $4.6 billion) had an open hold code 70 (potential clawback). SBA’s guidance stipulates that all loans for which a forgiveness payment has been made and later determined to be potentially ineligible will be flagged using hold code 70 regardless of size; however, it also stipulates that if a forgiven loan is less than or equal to the $25,000 de minimis threshold, it may be considered immaterial, and recovery may not be prioritized. Of the 37,938 PPP loans subsequently flagged with a hold code 70, there were 26,234 loans, totaling $454 million, that were less than or equal to $25,000.

We found SBA did not complete its review process for the 37,938 PPP loans, totaling approximately $4.6 billion, that were flagged with a hold code 70 (potential clawback). Specifically, SBA only completed the first two steps of its four-step review process for loan and/or forgiveness amounts in which the reviewer and approver recommended the amount be denied in part or in full or for loans in which the approver disagreed with the reviewer’s loan review recommendation.

Management agreed with our recommendations to complete reviews for the 37,938 potentially ineligible PPP flagged with hold code 70 and to develop criteria to formalize policies and procedures for recovering improper payments for all loans subsequently flagged with hold code 70 and later deemed ineligible.