What GAO found

The applicants and recipients of Economic Injury Disaster Loan (EIDL) differed in terms of company size, years of operation, and industry, based on GAO's Small Business Administration (SBA) analysis from March 2020 to February 2021:

  • Company size. The majority of EIDL applicants (around 81 percent) and EIDL recipients (around 86 percent) were smaller companies (10 or fewer employees).
  • Years in operation. The majority of the EIDL applicants (approx. 63 percent) had been with the company for less than 5 years. However, companies that have been in business for more than 5 years received the majority of the total EIDL loan amounts and had higher approval ratings compared to newer companies.
  • Industry. The largest proportion of applicants came from companies in the personal services and transport sectors, while companies from the legal services and accommodation sectors received the highest loan rates (see figure).

Top Loan Applicants and Approval Rates by Industry

In addition, small businesses in counties with higher median household incomes, better internet access, and more diverse populations generally received more credit per 1,000 businesses and larger credits.

EIDL applicants faced a number of challenges, according to applicants and other business stakeholders interviewed by GAO between August 2020 and February 2021. For example, applicants from five discussion groups and multiple stakeholders cited lack of information and uncertainty about application status as the main concerns. In addition, until February 2021, the SBA did not provide any key information to potential applicants, such as credit limits and definitions of certain program conditions. The lack of key program information and application status put a strain on SBA's resources and negatively impacted applicants' experience. For example, SBA's customer service line experienced peak calls that resulted in long waiting times, and SBA's data showed that 5.3 million applications were duplicates. The SBA's planning documents generally describe the public relations work to be carried out after a disaster, but they do not contain any information on the type or timing of the information to be provided. Developing and implementing a comprehensive communications strategy that includes these details could improve the quality, clarity, and timeliness of the information SBA makes available to its applicants and resource partners following disastrous disasters.

GAO's ongoing review of the EIDL program related to COVID-19 has revealed that the program is susceptible to funding unauthorized and fraudulent applicants. For example, as GAO reported in January 2021, the SBA had by 30. In addition, GAO found that between May and October 2020, over 900 U.S. financial institutions reported more than 20,000 reports of suspicious activity related to the EIDL program in financial crimes Enforcement Network have submitted. Additionally, GAO's analysis of 51 Justice Department fraud allegations in March 2021 found that these cases were identity theft, false attestations, fictitious or excessive headcount, and revenue abuse.

In the course of its COVID-19 response, SBA made a few changes to address these risks. For example, starting in June 2020, the SBA has taken steps to improve the ability of loan officers to withhold funding from applicants suspected of fraud. However, the SBA has not yet implemented recommendations that GAO previously made to address the risks of the EIDL program.

  • In January 2021, GAO recommended that the SBA conduct data analysis across the EIDL portfolio to identify potentially ineligible and fraudulent claims (GAO-21-265). SBA disagreed or disapproved of this recommendation. However, in May 2021, SBA officials announced that the agency was in the process of developing an analysis to apply certain fraud indicators to all application data.
  • In March 2021, the GAO recommended that the SBA (1) implement a comprehensive oversight plan to identify and respond to risks in the EIDL program, (2) conduct and document a fraud risk assessment, and (3) develop a strategy to the fraud risks assessed by the program on an ongoing basis (GAO-21-387). The SBA agreed to all three recommendations. In May 2021, SBA officials said the agency had started assessing the fraud risk for the program.

Fully implementing these recommendations would help the SBA protect billions of dollars in taxpayers' money and improve the functioning of the EIDL program.

Why GAO conducted this study

Between March 2020 and February 2021, SBA provided approximately 3.8 million EIDL low-interest loans and 5.8 million grants (called advances) totaling $ 224 billion to help small businesses adversely affected by COVID-19 were affected. These low-interest loans and advances allow borrowers to pay for business and other expenses.

The CARES Act contains a provision for GAO to monitor funding for the COVID-19 pandemic. This report examines, among other things, the characteristics of program applicants and recipients; the challenges EIDL applicants have faced and the extent to which SBA has faced them; and the steps the SBA has taken to address the risk of fraud and the provision of funds to ineligible applicants.

GAO reviewed documents from SBA, an EIDL contractor, and two of its subcontractors. In addition, GAO analyzed loan application data, conducted five discussion groups with applicants, and interviewed employees from SBA, six small business development centers, and six business associations. GAO also analyzed socio-economic, demographic, and geographic data about participants in the EIDL program.

source https://seapointrealtors.com/2021/07/30/economic-injury-disaster-loan-program-additional-actions-needed-to-improve-communication-with-applicants-and-address-fraud-risks/

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