Internal U.S. small business watchdog launches inquiry into duplicate pandemic loans

FILE PHOTO: U.S. Rep. James Clyburn (D-SC) talks to reporters ahead of a vote in the U.S. House of Representatives on a coronavirus economic aid package on Capitol Hill in Washington, U.S., March 13, 2020. REUTERS/Yuri Gripas

WASHINGTON (Reuters) - The U.S. Small Business Administration’s internal watchdog has launched an inquiry into a technical glitch that led many small businesses to receive duplicate loans through a high-profile federal coronavirus aid program.

A spokesman for the SBA Office of the Inspector General confirmed that the office has begun a review of the issue, which Reuters reported last month may have led to hundreds of millions of dollars in duplicate loans being approved under the $660 billion Paycheck Protection Program (PPP).

The review comes after U.S. Representative James Clyburn, a South Carolina Democrat who is chairman of the Select Subcommittee on the Coronavirus Crisis, pressed the SBA watchdog in a letter to investigate the issue, citing the Reuters report.

The duplicate loan issue may have created “significant opportunities” for fraud and potentially wasted more than $100 million in taxpayer dollars, Clyburn said in the June 23 letter addressed to SBA Inspector General Hannibal “Mike” Ware. He said it was “critical” to probe the issue as soon as possible.

Representatives of the SBA did not respond immediately to a request for comment on Tuesday.

The SBA launched the program on April 3 to help keep workers at struggling businesses employed. In the race to get funds out the door, the program encountered paperwork, technology and fairness issues.

In the case of the duplicate loan approvals, a blind spot in SBA’s loan processing system failed to catch when some borrowers submitted applications multiple times, typically through different lenders, Reuters reported.

Lenders are still grappling with unwinding duplicate loans across several banks and retrieving the cash where those loans have been deposited, according to one person with direct knowledge of the matter.

The government has said it will only guarantee one loan per borrower, which means lenders, rather than the taxpayer, are likely to be on the hook for the error.

Reporting by Chris Prentice in Washington; Additional reporting by Pete Schroeder in Washington; Editing by Michelle Price and Matthew Lewis