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Audits Show Fraud Permeates Through Federal COVID-19 Relief Programs

SAN FRANCISCO (KPIX 5) -- A pair of audits of the Small Business Administration that are about to be released find "significant evidence" the SBA approved hundreds of millions of taxpayer dollars in potentially fraudulent loans.

A KPIX 5 investigation revealed just how easy it was to apply to the SBA's Paycheck Protection Program. We discovered a South Bay man registered four companies in May at an address in an affluent suburb and one month later got more than a million dollars in PPP loans. He didn't want to talk to us and the SBA didn't either.

The PPP program is no longer accepting applications. But another lesser-known SBA program is still open, with billions still to award. And the fraudsters are applying in droves. The crime spree is leaving millions of Americans struggling to deal with identity theft.

"It was just a shock," said Craig Franklin when he received a pack of letters in the mail from the unemployment office in Albuquerque, New Mexico.

"I haven't been to New Mexico since 1963," he said. "So I sent back immediately a fax saying, 'This is fraud! Do not process!'"

Loan Fraud

Then he went to check his credit report and got more disturbing news. "The first thing I found out was that I had applied for a small business loan for $5,000 to open up my own deli in Texas," said Franklin. "I can barely make peanut butter sandwiches, let alone open a deli."

He says the Small Business Administration was not surprised to hear from him. "For the last two months, she says, we've just been day and night working on fraud cases," said Franklin.

"It has just been a huge increase," said Shamika Walker, an attorney with the Federal Trade Commission. The FTC collects reports from ID theft victims and helps them with a recovery plan.

"It's scary and it can take years to untangle yourself from identity theft. It's something that's not your own doing. You know, you have to go through all of these different steps to try to recover," said Walker.

Nationwide, the FTC has received close to 224,000 complaints relating to COVID-19 and stimulus fraud, peaking to 1,990 in a single day in May. "Those complaints have mentioned words like 'stimulus,' 'pandemic.' So that's why we think this is all related."

The fraudsters applying for a loan in Franklin's name were trying to steal from an SBA program similar to PPP called the COVID-19 Economic Injury Disaster Loan or EIDL for short. It turns out Franklin was far from the only victim.

Hannibal Ware with the SBA's Office of the Inspector General testified this month to a small business subcommittee that the EIDL program, currently funded with $374 billion taxpayer dollars, is under assault by fraudsters.

"They lowered the guard rails for the EIDL program specifically by removing and weakening the controls. And we have found for a fact that those actions increased fraud and risk significantly," said Ware.

The Inspector General found the SBA repeatedly ignored red flags, such as account holders attempting to transfer funds to foreign accounts, applicants changing bank accounts just before receiving funds and multiple applicants using the same email address and bank account.

"Who is minding the store?" asked Rep. Judy Chu (D-Pasadena) who chaired the Washington hearing. "I was really shocked with the Inspector General's report because he said that nearly 440 financial institutions called their office regarding cases of abuse. Yet the SBA had no ability to take that up and do something about it."

The SBA turned down our request for an interview but sent a statement saying "evidence of waste, fraud and abuse with any of SBA's loan programs is not tolerated and should be reported."

Franklin guesses they're just overwhelmed. "My guess is there are more scammers out there than there are government workers to be able to keep track of them," said Franklin. "So it's really a cockroach situation."

He still can't get through to New Mexico to stop the fraudulent unemployment claim. But he was able to stop the $5,000 SBA loan in his name. Now he's bracing for what could happen next.

"I mean, I'm getting letters with my Social Security number on there. My Social Security number's getting shopped around," said Franklin. "So yeah, you worry about that."

Chu said she plans to hold another hearing soon to hold the SBA's feet to the fire, and make sure the agency is listening to the Inspector General's warnings.


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