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SBA disburses $1.49B in COVID-19 relief without budgets matching grant awards: inspector general

Watchdog report shows Small Business Administration's lax oversight led to unsupported payments, lack of transparency and accountability.

Published: July 16, 2022 1:01pm

Updated: July 16, 2022 11:30pm

The Golden Horseshoe is a weekly designation from Just The News intended to highlight egregious examples of wasteful taxpayer spending by the government. The award is named for the horseshoe-shaped toilet seats for military airplanes that cost the Pentagon a whopping $640 each back in the 1980s.

This week's Golden Horseshoe goes to the Small Business Administration for awarding $1.49 billion in COVID-19 relief grants that did not match their budget requests, according to the agency's Office of Inspector General.

Finding that the agency's administration of grants to businesses under the COVID-19 Shuttered Venue Operators Grant program suffered from poor oversight, SBA Inspector General Hannibal "Mike" Ware questioned a large percentage of the awards.

"Approved budgets represent the financial plan for grant awards in the federal award process," notes the inspection report. "As such, it is fundamental that the applicant's approved budget reconciles with the grant award. However, in our review of SVOG grant awards, we found that SBA disbursed $1.49 billion to 1,849 SVOG recipients, 15 percent of the total, without ensuring the budgets matched the grant awards." 

The watchdog found many shuttered venues received more funds than they requested, while some received less.

"SBA issued at least 744 grant awards, totaling $576 million, that were greater than the corresponding approved budgets," the internal agency watchdog found. "In some cases, the full grant award amount was disbursed without an updated budget being provided. SBA did not plan to remedy this issue before awarding the grant and in some instances before disbursing payment."

Examples cited by the IG include:

  • A motion picture theater operator received $6.4 million but provided a budget that supported only $5 million.
  • A theatrical producer received $3.1 million, even though he requested and provided a budget that supported only $2.9 million.
  • A live performing arts organization operator received $10 million despite a budget supporting only $8.5 million.

The IG reviewed 10 sample awards totaling $33.2 million and found none had proper documentation, meaning all were "unauthorized commitments," according to the report.

The inspector general found that SBA abandoned a requirement that grants to moderate-to-high-risk recipients be disbursed in contingent, risk-conscious installments, opting instead to disburse funds in single advance payments regardless of risk. The switch to lump sum payments was made under the Biden administration, on June 10, 2021.

"Even after determining multiple disbursements would better protect grant funds from fraud or misuse, SBA switched to a riskier single advance payment for all grantees," the inspectors found. "This payment method may have hastened award disbursement, but the agency removed internal controls that would have better protected taxpayer funds. Multiple disbursements enable program officials to verify that grant recipients used award funds for allowable activities before disbursing additional funds. As a result, SBA is unable to monitor the grantee's use of the proceeds until the end of the award when closing out the grant."

SBA agreed or partly agreed with four of the six recommendations made in the inspection report and disagreed with two.

After analyzing the three grants cited above in which recipients received more funds than they requested, the SBA "concluded they were awarded with adequate supporting documents in accordance with SVOG Program policy," Francisco Sanchez, Jr., associate administrator for the Office of Disaster Assistance, wrote in a letter to Ware. "Therefore, no recovery is needed. All three grantees are currently in the standard process of reconfirming their budgets via the SVOG Final Budget."  

The SBA has no plans to reclaim overpayments.

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