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Statement of the Hon. Judy Chu on Preventing Fraud and Abuse of PPP and EIDL: An Update with the SBA Office of Inspector General and the Government Accountability Office

The COVID-19 pandemic has fundamentally altered the way America’s small businesses operate. Mandatory closures to protect public health have significantly impacted their bottom line and viability. To help small businesses weather the pandemic, Congress has passed a series of legislative packages.

On March 6th, The Coronavirus Preparedness and Response Supplemental Appropriations Act became law and authorized SBA’s Disaster Assistance Program to use available funds to issue Economic Injury Disaster Loans (EIDL) to small businesses affected by the pandemic. On March 27th, The CARES Act was signed into law and created the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Emergency Advance. And SBA acted extremely quickly to implement these critical economic relief programs in order to deliver emergency funding to small business owners to keep them afloat.

Over the past nearly six months, more than 5.2 million PPP loans and approximately 3.5 million EIDL applications have been approved. That’s an incredible amount of federal assistance to America’s small businesses, and I commend SBA’s staff for creating the infrastructure to set these programs up so quickly.

SBA was asked to undertake an enormously challenging task in implementing these programs in just a few days, and this Committee recognizes that some mistakes were expected. But Congress and the American people must have confidence that the Administration is taking seriously their responsibility to mitigate fraud and ensure that this assistance is available to all eligible small businesses. Today, I hope to learn more from the SBA Inspector General and the Government Accountability Office (GAO) about your findings and discuss ways to improve the delivery of SBA services to small businesses.

On July 28th the SBA Office of Inspector General (OIG) released a report detailing potential incidents of fraud in the EIDL program. Initial investigations found tens of millions of dollars in duplicate loans and serious concerns about suspected fraud, including instances of accounts established with stolen identities, attempted award transfers to foreign accounts, and deposits into personal accounts that have no evidence of business activity. And, without swift action from SBA, these fraudulent activities will only become more widespread as Congress debates legislation to allocate more emergency assistance as the economic impact of the pandemic stretches on. .

I understand that SBA responded to this report by stating that they have internal controls in place to address these types of fraud. Yet, recent reporting from the Project on Government Oversight (POGO) casts doubt on just how effective those internal controls are.

The POGO report stated that anti-fraud polices were not fully implemented during EIDL processing, software was not up-to-date, and that SBA was struggling in mid-August to handle fraudulent applications. As the Chairwoman of the Investigations, Oversight, and Regulations Subcommittee, I am concerned with these reports and hope we can have a constructive discussion to address these findings today.

In addition to the IG’s report, the GAO released reports on August 31st and September 21st detailing concerns with SBA’s oversight of the PPP and their ability to accurately collect and interpret applicant data.

The September report outlines extremely concerning gaps in the availability of demographic information and serious data reliability issues. The report also details potential fraud that the SBA referred to both the IG and the Department of Justice. More than 40 fraud-related cases are currently under investigation. Additionally, the report finds that SBA has failed to adequately prepare borrowers and lenders for the PPP forgiveness process. And demonstrating the seriousness of this problem, last week SBA announced that they had received 96,000 forgiveness applications – representing less than 2% of the loans disbursed – yet still has not processed a single one.

But perhaps most troubling to me are reports that GAO has had difficulty even completing their audit objectives because SBA has not been forthcoming with documentation and access to data.

Today, I would like to learn more about where SBA stands in implementing internal fraud controls, where the deficiencies lie, and what this Subcommittee can do to support SBA in their efforts to prevent fraud in both EIDL and PPP.

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