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The Small Business Administration's (SBA) Office of Inspector General (OIG) last week issued a report on its review of the paycheck protection program's initial implementation, which it determined was not done effectively. The OIG outlined recommendations to verify eligibility of loan recipients, address fraud vulnerabilities, and ensure the PPP is meeting its objectives.

The PPP launched in April 2020 following passage of the CARES Act. The OIG report reviewed loan data through June 24.

Of note, the OIG found reported loan-level data was inaccurate and incomplete, including for demographic information in underserved markets, potentially providing unreliable information for the SBA and Congress to evaluate program objectives.

The OIG determined that SBA's formal guidance for underserved and rural markets was not sufficient to ensure PPP lenders were prioritizing underserved areas in the initial round of funding, as was intended by the CARES Act. Although the SBA had indicated PPP applications would be processed on a "first come, first served" basis, the OIG found that some lenders prioritized larger loans in the first week of the program launch.

"Without clear and timely guidance to prompt lenders to prioritize these borrowers, underserved borrowers may not have obtained critical capital needed to withstand the pandemic," the report stated.

NAFCU has urged the SBA to provide credit unions with dedicated processing windows to ensure the smallest and hardest hit businesses in these communities can effectively access PPP loans. As the PPP reopened last week, the SBA granted access to community financial institutions first.

The OIG also identified instances of ineligible loans made and potential fraud: 123 loans totaling $156 million were made to borrowers that had 5,000 employees or more – far above the 500-employee max. An update from the Department of Justice last month revealed the agency has secured charges against more than 90 individuals who fraudulently obtained PPP loans, with losses totaling more than $250 million.

The report outlined six recommendations for the SBA to improve the PPP. The SBA has taken steps to resolve them, noting strengthened and newly implemented internal controls to review loan applications to prevent fraud and prevent ineligible loans from being approved or funded.

NAFCU will continue to keep credit unions informed of updated guidance and changes to the PPP as its new authorization continues through March 31. Learn more about procedural notices released in the past few days related to first- and second-draw loans here.