SBA approved loans with signs of fraud early in pandemic, House report says
An oversight committee says a contractor on the loan program netted $340 million for the work of six employees
By: Yeganeh Torbati
The Small Business Administration barely reviewed many applications for emergency relief early in the pandemic and directed employees to approve applications with obvious signs of fraud, according to a report released Tuesday by a congressional oversight committee.
The report, which examined the agency’s actions during the Trump administration, also found that the contractor hired by the SBA to handle the relief applications, called RER Solutions Inc., was a small business that could not handle the flood of applications during the worst days of the economic crisis caused by the pandemic, even though it was ultimately paid $738 million in a 2020 no-bid contract to do so. The company subcontracted much of the labor to two other firms, but it still received $340 million for the work of six employees in one year, the report found.
The Economic Injury Disaster Loan (EIDL) program is administered by the SBA and offers low-interest loans to businesses in areas struck by disasters. With the onset of the coronavirus pandemic in the United States in March 2020, millions of businesses were suddenly eligible for relief, and Congress also set aside funds under the program to provide grants that do not have to be repaid.
“Today’s report underscores once again the Trump administration’s failure to act as an effective guardian of Americans’ taxpayer dollars in responding to the economic crisis triggered by the coronavirus pandemic,” said Rep. James E. Clyburn (D-S.C.), chairman of the select subcommittee on the coronavirus crisis. “They failed to take reasonable steps to prevent EIDL funds from being lost to fraud, and they wasted additional public funds by overpaying a contractor that did little to implement the program.”
Government watchdogs have repeatedly raised concerns about fraud in the EIDL program, and federal investigators have found instances of identity theft, fictitious businesses, fake or exaggerated employee counts, and misuse of program funds.
Between March 2020 and May 2021, the EIDL program provided about $230 billion in loans and grants to businesses and nonprofits, according to the Government Accountability Office. This represented an astronomical increase in workload for the SBA. From March 2020 to February 2021, the agency approved nearly 4 million loan and grant applications. That’s more than the agency had approved in the previous six decades: Between 1953 and March 2020, the SBA approved 2.2 million loan applications.
The agency turned to an existing contractor, RER Solutions, for help. RER previously received a $10 million annual contract from the SBA for its work on economic disaster applications, but this amount ballooned to $738 million for work on the pandemic-era loans, the largest contract given by the federal government to respond to the economic effects of the virus, the committee found. The contract was granted without a competitive bidding process, instead being done through modifications of RER Solutions’ existing contract.
In the report released Tuesday, the subcommittee found that the SBA asked one of RER’s subcontractors to create a “batch” approval function that would allow government employees to approve loan applications en masse without any review.
“As a result, as many as 1.6 million, or 41 percent, of the 3.9 million loan applications that were ultimately approved may have been approved with no actual review by an SBA employee,” the committee found. “SBA’s directives further indicate that some applications were included in these batches for approval without review despite the presence of fraud indicators.”
The SBA curtailed its use of batch approval in August 2020 after a critical report from an agency watchdog, the report stated.
RER did not immediately respond to requests for comment.
“The Trump Administration prioritized speed over certainty, a choice that left the door wide open to fraudsters, exposing taxpayer dollars to fraud, waste, and abuse,” an SBA spokesperson said in a statement to The Washington Post. “From Day One, the Biden-Harris SBA focused on delivering small business relief quickly and efficiently without compromising the integrity of our programs. Today’s report from the Select Committee recognizes the success of the Biden Administration’s reforms that curtailed fraud, protected taxpayers and ensured that vital relief funds benefited the small businesses Congress intended to help. ”
When applications were considered by SBA officials, reviewers were instructed to approve submissions even if there was evidence of fraud, such as information that couldn’t be validated, evidence the applicant had died or failed identity verification.
RER subcontracted part of the project to Rocket Loans, an online personal loan company. Another subcontractor was Rapid Financial Services, a Rocket-affiliated company, which “provided most of the labor and technology needed to fulfill the contract,” the committee said.
Rocket and Rapid did not immediately respond to requests for comment.
Out of the $738 million the SBA paid on the contract through February 2021, RER received $357 million, Rocket received $233 million, and Rapid received $148 million. Six RER employees, 20 Rocket employees and 163 Rapid employees worked on the project, the committee stated. The committee found that after paying for costs associated with the project, RER netted $340 million. Rocket Loans is part of Rocket Companies, whose chairman is billionaire Dan Gilbert, who cultivated a relationship with President Donald Trump’s family during his administration.
The committee’s report is based on 17,000 pages of documents from the SBA and the contractors, staff briefings with the agency and the companies, and testimony by the SBA inspector general.