The SBA’s inspector general released an alert this week, outlining “serious concerns” of “widespread” potential fraud in the economic injury disaster loan program related to the COVID-19 response.
The New York Credit Union Association has been monitoring EIDL scams, and recently provided answers to FAQs for credit unions.
Tuesday, Hannibal “Mike” Ware, inspector general, sent an alert to Jovita Carranza, SBA administrator, stating that OIG has been “inundated” with contacts to investigative field offices from financial institutions across the nation and its complaint hotline.
“We have received complaints of more than 5,000 instances of suspected fraud from financial institutions receiving economic injury loan deposits,” Ware stated in the alert. “Nearly 3,800 of those reported instances of suspected fraud came from only six financial institutions. An additional 1,220 reports of suspected fraudulent transactions have come in from other financial institutions.”
Ware stated that financial institutions are in a unique position to help the SBA confirm the validity of claims borrowers make and help reduce losses by canceling loans or advances made to borrowers who submitted fraudulent applications. However, at the time of its review, SBA did not have a process or partnership in place with financial institutions to review instances of suspected fraud, he said.
According to the alert, examples of suspicious activity reported by financial institutions include:
- accounts established using stolen identities;
- account holders unable to explain origins of deposits or identify business names on loans;
- account holders claiming to use the funds to open a business;
- account holders attempting to transfer funds into investment accounts;
- account holders attempting to transfer funds to foreign accounts;
- loan deposits being made into accounts with no other account activity that were established remotely just before receiving the loan funds;
- economic injury loan funds made to agricultural businesses being deposited in accounts of unrelated third parties located in different states than the businesses;
- account holders attempting to withdraw loan funds in cash or transfer the funds to other newly established accounts; and
- economic injury loans or advance grants being deposited into personal accounts — with no evidence of business activity — of customers of the financial institution.
Ware urged the SBA to take immediate action to reduce or eliminate fraud risks by strengthening existing controls and implementing internal controls to address potential fraud. He said that strong controls will ensure the EIDL program can “effectively and efficiently help eligible disaster victims who have suffered real economic injury because of the COVID-19 pandemic.”
The alert can be accessed on the SBA website.