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SBA Distributed $684 Million in PPP Loans to ‘Potentially Ineligible’ Nonprofits

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A government watchdog says the Small Business Administration (SBA) issued $684 million in Paycheck Protection Program (PPP) loans during the COVID-19 pandemic to dozens of nonprofit organizations. nonprofits who might not have been eligible to receive the money.

The SBA’s Office of Inspector General (OIG) released a report on Monday that found 179 nonprofits may have been too large to qualify for the loans, which were designed for groups of fewer than 500 employees or were relatively small compared to others in their field. The report says one group in particular, the YMCA of the Rockies, received more than $3.5 million in PPP loans that it shouldn’t have received because it had more than 500 employees at the time of its application.

“We recommend that the SBA review the 179 PPP loans, totaling approximately $684 million, to ensure eligibility requirements are met and seek redress or reimbursement for any loans found to be ineligible, and seek redress or repayment of the PPP loan we reviewed for YMCA totaling $3.5 million,” OIG said.

A restaurant owner puts a ‘Closed’ sign during the COVID-19 pandemic. (Stock)

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Investigators reviewed another PPP loan worth $3.8 million to Planned Parenthood of Illinois, but determined that this group was eligible for the loan. A third loan worth more than $6 million to Goodwill of Southwestern Pennsylvania should not have been granted, but said Goodwill later became eligible for compliance when PPP lending guidelines were changed .

The federal government has provided more than $800 billion in loans to businesses and nonprofits during the pandemic so they can continue making payrolls after government authorities imposed restrictions on a wide range of economic activities. Most of the loans have been forgiven, with the OIG saying that of the $35 billion in PPP loans issued by the SBA, 98% have been forgiven.

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SBA Administrator Isabel Casillas Guzman speaks at an event in Brooklyn on July 28, 2022. (Andrea Renault/CNP/Bloomberg via Getty Images)

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While the OIG asked the SBA to review all 179 bad loans, the SBA said it would only review 27. The OIG said it would push for a full review. “Consistent with our audit follow-up policy, we will attempt to reach agreement with management on this unresolved recommendation,” the OIG report said.

PPP loans are coming under increasing scrutiny as both Republicans and Democrats have acknowledged the program is vulnerable to fraud. This month, Sen. Dick Durbin, D-Ill., said he believed much of the PPP funding was “wasted and stolen,” and said someone appears to have received loans under the name of his son for the Durbin Construction Co.

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President Biden replaces the cap of his pen as he signs the Paycheck Protection Program Expansion Act at the White House, March 30, 2021. (Reuters/Jonathan Ernst/File Photo/Reuters)

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“There is no Durbin Construction Co.,” Durbin said. “Someone had stolen his identity and secured [a] $140,000 loan.”

Last week, police in Illinois arrested more than a dozen people who allegedly tried to use PPP loans to get out of jail. Federal agencies have identified 25 people who faced felony charges while applying for PPP loans for bogus businesses.