Golden Fleece Award

WASHINGTON, D.C. - Rep. French Hill (AR-02) named the U.S. Small Business Administration (SBA) as the latest recipient of his Golden Fleece Award for their failure to review and restrict certain Paycheck Protection Program (PPP) loans to individuals flagged by the Treasury Department as potentially ineligible before disbursing federal funds, despite agency policies to prevent improper payments and recommendations on how to better review particular cases.

Rep. Hill said, “All agencies across the federal government have clear and unmistakable guidance to avoid operating in pay-and-chase environments, yet the U.S. Small Business Administration (SBA) blatantly ignored this policy and prioritized rapid loan processing that allowed for likely billions in potentially ineligible loans to be issued through the Paycheck Protection Program without proper vetting. This negligence directly resulted in the disbursement of improper loans and approval of forgiveness applications without appropriate review. Many of today’s economic issues – like out-of-control inflation – can be directly attributed to massive government stimuli in response to the COVID-19 pandemic. While we continue to learn about government fraud and waste in many of these programs, SBA’s actions to prevent improper payments from occurring in the first place is a slap in the face to hardworking American taxpayers."

In a letter to SBA Administrator Isabella Casillas Guzman, Rep. Hill writes:

Dear Administrator Guzman:

    I write today to inform you that the U.S. Small Business Administration (SBA) is the most recent recipient of my Golden Fleece Award. I am awarding this to SBA for your agency’s failure to control and review Paycheck Protection Program (PPP) loans on the front-end, despite agency policies to do so.

    In February, SBA’s Office of Inspector General (OIG) published a follow-up evaluation report titled SBA’s Eligibility and Forgiveness Review of PPP Loans Made to Borrowers with Treasury’s Do Not Pay Data Matches (Report 24-06). This evaluation report built on the January 2021 management alert from SBA’s OIG titled Paycheck Protection Program Loan Recipients on the Department of Treasury’s Do Not Pay List (Report 21-06). In the 2021 report, SBA’s OIG identified “serious concerns about improper payments to lenders for potentially ineligible recipients of loans under SBA’s Paycheck Protection Program (PPP) in response to the Coronavirus Disease 2019 (COVID-19) pandemic [that] … requires immediate attention and action.” Among the reports recommendations were 1) identifying PPP loans that had not been fully disbursed and stopping potential improper loan disbursements; 2) strengthening SBA controls around loans to ineligible recipients; and 3) reviewing prepayment and pre-award procedures with the Department of Treasury to use Treasury’s Do Not Pay (DNP) portal to determine loan applicant eligibility and prevent improper payments before releasing federal funds.

    The DNP list was first available in November 2011 to ensure thorough reviews on applicant eligibility occurs before the release of federal funds. PPP was initially created and funded under the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, and further subsequent COVID-19 response laws ultimately provided $813.7 billion for the program. PPP provided fully guaranteed loans for eligible businesses, individuals, and nonprofit organizations that could be forgiven if the loans were used on eligible expenses like payroll, rent, and utility payments. Borrowers were not eligible for PPP loans if they were suspended or debarred from participating in federal programs or had non-financial fraud felony conviction.

    In the February 2024 follow-up evaluation, SBA’s OIG found that SBA did not properly implement previous recommendations on pre-disbursement eligibility reviews and ignored policies to not “pay and chase” improper payments that had been dispensed before being properly vetted. Per the evaluation report, “[t]he Payment Integrity Information Act of 2019 states that for agencies to be effective, programs should not operate in a ‘pay-and-chase’ environment but, instead, should prioritize efforts to prevent improper payments and under payments from occurring.”

    This is absolutely the correct approach. A more efficient approach to reduce improper government payments is addressing and evaluating flagged cases before funds are delivered – not after the fact. SBA implemented a review plan to address potentially ineligible loans that originated in PPP round one and to work with Treasury to utilize additional data sources when reviewing potentially ineligible pre-award for loans originated in PPP round two; however, inadequate policies and procedures that prioritized rapid loan processing exposed the program to avoidable risks.

    In the 2021 OIG report, OIG identified more than 9,000 undisbursed PPP loans due to DNP data matches that totaled over $280 million that indicated the loans were potentially ineligible and required a manual review. Despite this, SBA’s review plan following the report only included reviewing loans with submitted forgiveness applications where all funds had been disbursed and used. As a result, during PPP round one, lenders disbursed 1,799 loans totaling over $89 million with known eligibility issues before those issues were resolved that should have been reviewed before disbursement but were not.

    The follow-up report also found that SBA’s manual loan reviews were not always sufficient to ensure borrowers’ eligibility. A statistical sample size concluded that SBA inappropriately cleared more than half of loans. By projection, this estimates that lenders disbursed and SBA forgave loans totaling over $1.4 billion without verifying the borrowers’ eligibility, further exposing PPP to financial losses and improper payments. Additionally, SBA did not use all of the Department of Treasury’s data sources to screen applicants for the first 2 months of PPP round two. Using only Treasury’s public data sources, SBA identified potentially ineligible applicants with loans totaling approximately $22.4 million. By comparison, SBA OIG’s reassessment of the same loan applications, using the restricted Treasury data sources, identified additional potentially ineligible loans totaling about $1.9 billion.

    We are still finding out about billions of dollars that went out the door early in the COVID-19 pandemic without guardrails in place, and SBA ignored effective agency policies to prioritize efforts to prevent improper payments and under payments from occurring in the first place. I urge SBA to immediately make any changes necessary to address these concerns and prevent similar instances of improper disbursements that strain our limited government funds.

    I am committed to ensuring effective fiscal practices at our Nation’s federal agencies. Should you require any additional authority from Congress to address these concerns, I urge you to notify us as soon as possible. I would also welcome any technical assistance you could provide to Congress to correct statutory issues that may have contributed to this problem. Thank you for your consideration and I look forward to working with you to address this important issue.