Best Practices: SBA Continues To Make Progress On Addressing COVID-19 Fraud Recommendations

While the SBA’s current focus is adjusting to a new administration and protecting the zero-subsidy status of the program through the adjustments to the 7(a) Lender’s Annual Service Fee and the SBA Guaranty Fee (see SBA Information Notice 5000-8657858 effective March 24, 2025), it is also continuing to address the 77 pandemic-related recommendations it had received from the Office of Inspector General (“OIG”) through June 2023, including those related to the Paycheck Protection Program (“PPP”).

In a new white report issued on March 31, 2025 titled “COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape Recommendations Update” (Report 25-10), the OIG states open recommendations have been reduced to 15 recommendations as of December 31, 2024.  While there are two recommendations that the SBA and OIG are still trying to decide on what action to take, four of the recommendations have been closed recently and the rest have actions being worked on.

Some of the remaining recommendations that SBA is working to address include:

• Reviewing OIG identified potential duplicate disbursements for eligibility, and if ineligible taking appropriate action to recover any improper payments;
• Reviewing 179 PPP loans, totaling approximately $684 million, for compliance with affiliation and size standards to ensure eligibility requirements were met, and taking appropriate action to recover any improper payments if they were not;
• Reviewing applications of sole proprietors and independent contractors that included employees but not an Employer Identification Number; and remedying the $3.5 billion disbursed to sole proprietors and $1 billion disbursed to independent contractors that exceeded the amount allowed by SBA’s policy;
• Updating its standard operating procedures to include enterprise-wide privacy risk mitigation practices; and
• Procuring new tools to address the OIG recommendations to:
  • Transition information systems and common controls to an ongoing authorization process (when eligible for such a process) with the formal approval of the respective authorizing officials or reauthorize information systems and common controls as needed on a time or event-driven basis in accordance with agency risk tolerance as required by OMB Circular No. A-130 and SOP 90 47 6;
  • Review and update plans of action and milestones at least quarterly as required by SOP 90 47 6; and
  • Implement an automated process to document and monitor system changes as recommended by the National Institute of Standards and Technology Special Publication 800-53 Rev. 5.

While some of these actions will take some time to implement, SBA will continue to work on the open recommendations and advise on any updates to the standard operating procedures as they become effective.  Lenders should continue to monitor any official releases from the SBA for updates to its policies and procedures.  For questions regarding the changes to SBA loan fees or other actions or notices by the SBA, contact the attorneys at Starfield & Smith at 215-542-7070 or email us at info@starfieldsmith.com.