Bailout Blunder: Feds issued $692 million in duplicate PPP loans, didn't recoup all funds

The duplicate loans flagged by the Small Business Administration's inspector general are latest example of flaws in the Paycheck Protection Program, which has been riddled with fraud.

Updated: March 17, 2021 - 2:46pm

The government issued hundreds of millions of dollars in duplicate Paycheck Protection Program (PPP) forgivable loans during the pandemic and hasn't recouped all of the money, according to a new watchdog report that highlights the latest blunder in the COVID-19 relief program for small businesses.

Congress has passed more than $650 billion for the PPP program since the pandemic started, leaving the Small Business Administration to partner with lenders to issue the forgivable loans to qualified applicants. But the process lacked critical screening and safeguards to prevent fraud and duplicates, a new report this week disclosed.

"SBA did not always have sufficient controls in place to detect and prevent duplicate PPP loans," the SBA inspector general reported Monday. "As a result, lenders made more than one PPP loan disbursement to 4,260 borrowers with the same tax identification number and borrowers with the same business name and address. These disbursements totaled about $692 million for PPP loans approved from April 3 through August 9, 2020," the SBA Inspector General reported.

In May 2020, SBA identified problems with the method for processing PPP loans, finding that it "did not detect all duplicate loan applications," which led to duplicate loan numbers getting issued.

"SBA stated it turned off controls for its electronic loan application system which also led to duplicate loan numbers. SBA also stated it would rely on loan reviews to identify and resolve duplicate disbursements. Although SBA continuously implemented controls, there were still duplicate loans approved through the close of the PPP in August 2020," the report also read.

The reasons for the duplicate loans identified in the IG report were that a "computer script used to detect duplicates stopped working, lenders submitted PPP application using employer identification number or Social Security number interchangeably, and borrowers applied for PPP loans with more than one lender."

The IG report said most of the duplicate loan money hasn't been recouped.

"According to SBA, as of July 2020, at least 32 borrowers returned the funds from the second PPP loan to the lender. At least 154 borrowers have not returned duplicate PPP disbursements. However, SBA did not provide the related dollar amount or share any loan specific information," the IG report read. "In addition, loans related to the 186 borrowers with multiple PPP loans did not account for the full scope of the duplicates that we or SBA identified under the program. As a result, there is no assurance that SBA identified and ensured lenders recovered all duplicate PPP disbursements."

The IG office found that the SBA agreed with report's findings and its recommendations.

"Management plans to review and resolve duplicate loans by recovering improper payments and preventing loan forgiveness on ineligible loans. Management also plans to enhance controls to ensure they align with program requirements and are functioning at all times," the report said.

The analysis was "initiated in response to a House of Representatives Select Subcommittee on the Coronavirus Crisis request" that the IG review vulnerabilities in the SBA loan processing system.

The duplicate loan situation is just the latest controversy that has plagued PPP. Fraudsters have taken advantage of the program's limited verification requirements and its goal to move money to business owners quickly.

Last year, Just the News reported on PPP's loose verification rules for recipients when the program was created under the $2.2 trillion CARES Act in March 2020.

In October 2020, the Congressional Select Subcommittee on the Coronavirus Crisis found there to be potentially $4 billion that was issued to fraudulent recipients. 

Most recently, Mukund Mohan pleaded guilty to obtaining more than $5.5 million in PPP loans and "laundering the proceeds," the Justice Department announced this week. 

"Mohan submitted at least eight fraudulent PPP loan applications on behalf of six different companies to federally insured financial institutions," DOJ said.  "In support of the fraudulent loan applications, Mohan made numerous false and misleading statements about the companies’ respective business operations and payroll expenses."

Earlier this month, two women from Georgia were charged with scamming the PPP program of over $3.5 million in forgivable loans.

There have been many other reported cases of individuals obtaining fraudulent loans. In December, it was reported that 57 people were charged with stealing about $175 million of taxpayer funds under the program. 

A family in Florida obtained more than $7 million in PPP loans for a ministry that they claimed was being run from a closed office.