The Small Business Administration (SBA) failed to implement critical fraud detection measures until after it had distributed hundreds of billions of dollars in Covid-19 relief, National Review reports that a government watchdog report has revealed. Once the agency did begin flagging fraud, the majority of its fraud referrals lacked the necessary information for further action, according to the Government Accountability Office (GAO), an independent agency that audits the federal government.

The GAO released a report earlier this week detailing significant shortcomings in the SBA’s fraud detection process for its two major Covid-19 loan initiatives: the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. These programs were designed to provide emergency financial assistance to small businesses struggling during the pandemic.

To combat Covid-relief fraud, the SBA established a four-step detection process. This process included screening applications for inconsistencies, analyzing data for anomalies, conducting human-led reviews of flagged files, and referring likely fraud cases to the agency’s inspector general. However, the GAO determined that the SBA did not fully implement this process until over $525 billion in PPP funds and over $210 billion in EIDL funds had already been distributed.

“SBA did not implement the process until more than half of the programs’ funding had been approved, thus limiting its impact in preventing fraud. Specifically, for COVID-EIDL, over $210 billion of an eventual $385 billion (or about 55 percent) had already been disbursed before the full process was implemented. For the PPP, over $525 billion of an eventual $800 billion (or about 66 percent) had already been approved,” the GAO report states.

Once the fraud detection process was finally in place, its fourth step—fraud referrals—proved largely ineffective. The SBA failed to include sufficient details in approximately 2 million of the 3 million fraud referrals it sent to the agency’s inspector general. As a result, investigators were unable to fully pursue many cases of potential fraud or refer them to the Justice Department for prosecution.

Between 2020 and 2022, the SBA distributed over $1 trillion in pandemic loans to more than 10 million small businesses in an effort to keep them afloat. Estimates of total Covid-relief fraud vary widely, ranging from $200 billion to as much as $1 trillion in misused taxpayer funds when factoring in small business loans, expanded unemployment benefits, and other government assistance programs.

Senator Joni Ernst (R., Iowa), chair of the Senate Small Business Committee, sharply criticized the SBA’s oversight failures. “Bad actors stole hundreds of billions because the SBA completely failed to enact basic safeguards for fraud,” Ernst said. “Thankfully, DOGE, Administrator Loeffler, and I have been quite busy uncovering every dollar stolen. I will work to ensure that the criminals are held accountable and taxpayers get their money back.”

SBA Administrator Kelly Loeffler has vowed to crack down on Covid-relief fraud and ensure stronger oversight of fraudulent loan disbursements under the Biden administration. She has expressed enthusiasm for working with the Trump administration’s Department of Government Efficiency to detect and recover hundreds of millions of fraudulent loans sent out by the SBA.

In response to the GAO’s findings, the watchdog agency recommended that the SBA collaborate with its inspector general’s office to develop a plan for addressing likely EIDL fraud. The SBA agreed with the recommendation and has reportedly begun taking steps to implement it.