SBA oversight an afterthought as more than half a trillion spent on small businesses

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The Act, spanning 880 pages, provides $2 trillion in economic relief amidst the Coronavirus pandemic and is the largest ever passed by Congress. While the President called the package “fantastic” and congratulated Democrats and Republicans for working together in record time, others cautioned that such massive government spending creates unprecedented opportunities for fraud and abuse.

Congress recognized that potential and included three key oversight provisions in the Act. Title IV provides $500 billion dollars in corporate bailouts and creates a Special Inspector General for Pandemic Recovery and a Congressional Oversight Commission tasked with ensuring the public interest in distribution of the corporate funds. The CARES Act also establishes a Pandemic Response Accountability Committee within the Council of the Inspectors General on Integrity and Efficiency (CIGIE) to conduct general oversight of the overall $2 trillion response.

Because of the potential for commercial impropriety, most eyes are narrowly focused on Title IV and the corporate bailouts. But Title IV appropriates only $500 billion of the Act’s $2 trillion. Meanwhile, little attention has been paid to the lack of oversight in Title I of the Act (“Keeping American Workers Paid and Employed”), which appropriates $350 billion to the Small Business Administration (SBA), enabling the agency to offer loans, grants, and loan forgiveness to small businesses. The funds, designed to help small businesses ride out the pandemic, are being distributed through Paycheck Protection Loans (PPP) and Economic Injury Disaster Loans (EIDL).

Small business owners across America were so eager to benefit from the SBA’s emergency first-come, first-served loans, that funding was depleted in less than two weeks. The rapid depletion left Treasury Secretary Steve Mnuchin, and Congress scrambling, pledging to “pour more money” into the lending program. A new deal announced over the weekend would reportedly add about $300 billion toward PPP loans and $60 billion toward EIDL, bringing the total amount of money appropriated to the SBA to more than $700 billion. That would equal $200 billion more than the corporate funds appropriated in Title IV ‑‑ and more than four times greater than the entire Economic Stimulus Act of 2008, which appropriated a total of $168 billion.

Even as Congress prepares to “pour more money” into the SBA, it has only appropriated $25 million more to the Small Business Administration’s (SBA) Inspector General, which is the same amount allocated under the Act to the Department of Labor Office of the Inspector General ‑‑ and the Department of Labor is not overseeing a multi-billion dollar grant program. Compare that ratio to the $700 billion Troubled Asset Relief Program (TARP) in 2008, which included a $50 million budget for an independent Special Inspector General. That’s twice as much oversight funding for a program similar in size to the SBA’s.

The lack of funding for SBA oversight stands out. Questions about the operation of the program are already being raised, with Shake Shack, Ruth Chris, and other chain restaurants having received millions in loans supposedly intended for small businesses. No meaningful additional SBA IG funding and no Special Small Business COVID19 IG means that, beyond the normal duties of the SBA IG, all SBA oversight responsibility for $700 billion in small business bailouts will fall upon the Pandemic Response Accountability Committee inside CIGIE, which plenty of work to do already. That means those small businesses funds are “particularly susceptible to abuse.”Doubling that funding without doing more for oversight could mean double trouble for the taxpayer.