Financing

Feds say they stopped $3B in pandemic restaurant aid from going astray

About 31,000 requests for aid were rejected for being invalid or outright fraudulent, according to the SBA. Now it's investigating 720 RRF grants that may be bogus.
The SBA found far less fraud in its RRF program than it did in the PPP initiative. | Photo: Shutterstock

About 31,000 requests for aid from the Restaurant Revitalization Fund (RRF) were rejected by federal regulators as invalid or outright con jobs, saving the $28.6 billion program from losing $3 billion in bogus payments, a new study says.

But the screening process failed to stop 720 suspected fraudsters from collecting $215 million in RRF grant money, according to the report, a self-issued report card from the U.S. Small Business Administration (SBA.)

The agency said those suspected cheats have been reported to federal authorities for investigation and possible legal action.

Still, the SBA found that restaurants were less prone than other types of small businesses to bilk the aid programs that were implemented on the fly during the pandemic.

It calculated that just 0.75% of the money paid through the restaurant-focused RRF may have been channeled to cheats, compared to a fraud rate of 3% across all the small-business aid programs that were launched during the crisis. The SBA estimates that $36 billion of the $1.2 trillion distributed in total to small businesses was pocketed by fraudsters.

The agency noted that cheating was particularly prevalent within the government’s first big relief program for all types of businesses, the Paycheck Protection Program (PPP), which was hatched days after coronavirus was detected in the U.S. Through the program, companies could borrow up to $10 million in a low-interest loan that would be forgiven if the money was spent on payroll and other expenses specified by the SBA.

The SBA report also cited a relatively high level of fraud within another broad-based aid program, the Economic Injury Disaster Loan program (EIDL). The program provided loans of up to $2 million to small businesses that could prove they’d suffered a catastrophic financial setback from the pandemic.

Both the PPP and the EIDL were widely used by restaurants.

The SBA attributed the low level of fraud within the RRF to tighter safeguards rather than any pronounced morality within the restaurant business. 

It noted that 86% of the fraud instances uncovered by the agency within its four main pandemic aid programs occurred during the first nine months of the crisis. The agency learned from those early infractions and stiffened its precautions accordingly.

The report reveals that artificial-intelligence technology was used to flag areas where the programs could be conned. But the SBA stressed that stepped-up human scrutiny of aid requests was extremely effective in thwarting fraud.

The RRF program was launched in May 2021, or more than a year after the PPP and EIDL were implemented.

The fourth major COVID-19 aid program run by the SBA was the Shuttered Venue Operators Grant (SVOG) initiative, which was intended to keep theaters and other entertainment venues afloat while performances were suspended.  Some dinner-theater restaurants were eligible for loans under that program.

The RRF channeled most of its $28.6 billion allocation to about 100,000 restaurant operations, with some funds held back to pay for litigation. The program was structured to give preference to restaurants run by women and the economically and socially disadvantaged. That intended bias was challenged successfully in court as illegal, forcing the SBA to claw back some of the first grants it issued.

The program burned through its funding within about three weeks. Despite repeated efforts to get a re-up of the program from Congress, lawmakers allowed the initiative to lapse.

The 31-page SBA report issued yesterday is entitled “Protecting the Integrity of the Pandemic Relief Programs.” Among its objectives is reassuring policy makers and beneficiaries of the programs that the agency has taken steps to lessen the risk of frauds in any subsequent relief initiatives the SBA may undertake.

The full report can be downloaded from here.

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