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Small Business Administration reportedly banned employees from using the word fraud

Small Business Administration ‘banned employees from using the word fraud’ in handling $212billion pandemic disaster loan program

  • New report describes the order given to SBA employees handling the loans
  • They were told not to use the term ‘fraud’ when processing applications
  • Instruction was apparently to avoid targeted public records requests
  • SBA says it is committed to detecting and preventing fraud in the program

Employees at the Small Business Administration were told not to use the word ‘fraud’ while processing applications for pandemic disaster loans, according to a new report.

Workers reviewing requests for the Small Business Administration’s $212 billion Covid-19 Economic Injury Disaster Loan (EIDL) program were told to use alternative phrases such as ‘duplicate,’ four employees told Bloomberg.

One manager told staff that ‘fraud is the new ‘F’ word,’ according to one of the people. 

Employees were told that this was to prevent public records requests targeted on the keyword ‘fraud,’ but said that the alternative terms proposed to different teams varied, potentially raising issues for auditing the program.

Employees at the Small Business Administration were told not to use the word ‘fraud’ while processing applications for pandemic disaster loans, according to a new report

In a statement, the SBA said it ‘strongly denies that staff processing EIDL loans were discouraged from identifying suspected fraud.’

‘If red flags are triggered through system controls or manual review, actions are taken to put the loan application on hold so the agency can conduct additional due diligence,’ the agency said.

‘SBA takes fraud very seriously and is partnering with its Office of Inspector General and other government agencies to investigate and ensure fraud is prosecuted.’

The EIDL program has distributed 3.6 million loans worth $192 billion to small businesses since March, as well as 5.8 million grants totaling $20 billion that don’t have to be repaid. 

It’s distinct from the SBA’s $525 billion Paycheck Protection Program, which relied on banks to distribute forgivable loans meant to cover payroll.

Both programs, intended to help small businesses stay afloat in the pandemic, have been plagued by allegations of fraudulent applications.

Jovita Carranza, the SBA administrator, has said an inspector general's report overstated the risk of EIDL fraud

Jovita Carranza, the SBA administrator, has said an inspector general’s report overstated the risk of EIDL fraud

In one case, two Florida neighbors were accused of inventing farms they claimed to run out of their yards in the middle of Miami to scam the assistance programs out of $1.1 million.

The Department of Justice said that it had charged at least 57 defendants for attempting to steal more than $175 million from pandemic assistance program. 

SBA loan officers are not expected to prove fraud, only to flag suspect applications. 

Loan officers told Bloomberg they received conflicting instructions on how to note their suspicions about dubious applications.

Some said they were told to mark suspicious applications as ‘duplicates’ in the agency’s internal loan system. 

Others said they were told to annotate questionable files with terms like ‘unusual’ or ‘inconsistency.’ 

The reported variations raise concerns about how easy it will be to audit the program.

A report last month from the agency’s inspector general found the SBA’s program was vulnerable to fraud, and identified tens of billions of dollars in applications that he said need further inspection. 

Jovita Carranza, the SBA administrator, has said the report overstated the risk of EIDL fraud. 

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