GAO Report Identifies Gaps in Paycheck Protection Program Implementation and Oversight

5 min

On June 25, 2020, the Government Accountability Office (GAO) released a report entitled COVID-19: Opportunities to Improve Federal Response and Recovery Efforts pursuant to its mandate under the CARES Act to report bimonthly on GAO’s oversight efforts relating to the government’s COVID-19 response, including the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) and other federal relief efforts. 

The GAO reported that, as of June 2020, the government had appropriated $2.6 trillion in funds, including $670 billion allocated to the PPP. As of June 12, 2020, the SBA had processed more than 4.6 million PPP loans, totaling $512 billion, through private lenders, and had incurred approximately $2 billion in lender fees.

Problems with PPP Implementation

The GAO recognized in its report that the SBA had moved quickly to respond to the economic effect of COVID-19, but, because of the haste with which the PPP was rolled out, confusion has ensued throughout the program.

  • At the program’s outset, lenders and borrowers had numerous questions regarding eligibility. The SBA’s staggered release of multiple interim rules and rolling iterations of a Frequently Asked Questions (FAQ) document did not alleviate the confusion surrounding the program.
  • Delayed guidance regarding loan forgiveness resulted in a lack of clarity as to how loan proceeds must be used to be eligible for forgiveness, leading to “additional economic stress for employees” and some small businesses returning their loans because they were concerned that they would not qualify for loan forgiveness.
  • The good faith certifications were problematic. The GAO opined that “clearer explanations of the good faith necessity certification in SBA’s initial interim final rule … could have helped avoid uncertainty concerning loan eligibility.” That initial rule, however, “provided minimal additional information to borrowers on the required good faith necessity certifications.” Then, “20 days after the program launched,” the SBA released an FAQ stating that it was unlikely that publicly traded companies with access to capital would be able to make the good faith certification.

Perhaps as a result of borrower confusion about the program rules, “more than 170,000 loans totaling about $38.5 billion had been canceled as of May 31, 2020,” with cancellations continuing to be reported. 

Potential for Fraud

The GAO found that the PPP’s streamlined application process – which relied heavily on borrower certifications – left significant integrity gaps, making the program “vulnerable to exploitation by those who wish to circumvent eligibility requirements or pursue criminal activities.” Potential areas of concern identified by the GAO include:

  • Inflating payroll expenses to qualify for a larger PPP loan;
  • Misrepresenting the number of employees to appear eligible for a PPP loan; and
  • Certifying that a PPP loan will be used to pay employees but then diverting the loan proceeds for personal use.

Gaps in SBA Oversight

The GAO noted that “[b]ecause the SBA had limited time to implement up-front safeguards for the loan approval process and assess program risks, ongoing oversight will be critical.” It then identified several gaps in the SBA’s oversight:

  • The SBA had not explained to the GAO how it planned to conduct its review of the approximately 30,000 loans over $2 million. Nor had the SBA advised the GAO of “any specific oversight plans for the more than 4 million loans of less than $2 million, including how it would identify which loans to review and the number of reviews planned.”
    • In a footnote, the GAO stated that the SBA disclosed (after the GAO’s cutoff date for the report) that it plans to facilitate reviews of loans over $2 million “in part through electronic screening of borrower and loan characteristics that may confirm the validity” of application certifications.
    • The SBA also later advised the GAO that it may select loans under $2 million “through appropriate statistical sampling or in response to specific reports or evidence of fraud or noncompliance.”
  • In addition to the “significant risk that some fraudulent or inflated applications were approved” as a result of the speed and volume at which PPP loans were approved, the GAO commented that “the lack of clear guidance has increased the likelihood that borrowers may misuse loan proceeds or be surprised if they do not qualify for full loan forgiveness.”
  • The GAO recommended that the SBA “develop and implement plans to identify and respond to risks in the Paycheck Protection Program (PPP), including in loans of $2 million or less” to “ensure program integrity, achieve program effectiveness, and address potential fraud in the program.” The SBA “neither agreed nor disagreed” with this recommendation.

Other Problematic Areas

Another area the GAO identified as problematic is the potential for improper unemployment insurance (UI) payments to employees who also have received compensation through the PPP. The GAO determined that the Department of Labor (DOL) currently lacks a mechanism to capture information in real time about UI claimants who may receive wages paid from PPP loan proceeds. The GAO recommended that DOL, in consultation with the SBA and Treasury, “immediately provide information to state unemployment agencies that specifically address PPP loans and the risk of improper payments associated with these loans. DOL neither agreed nor disagreed with the recommendation, but noted it was planning forthcoming guidance.”

The GAO also reported on the “implementation challenges” associated with the Economic Injury Disaster Loan (EIDL) program, which included:

  • Technological problems with the SBA’s application portal
  • SBA-imposed limits on the size of EIDLs and EIDL advances
  • Delays in processing loans and advances
  • Lack of communication from SBA about borrowers’ application status


The GAO advised that its assessment of the PPP program will continue, stating: “We have additional work underway on PPP, including on the types of lenders making PPP loans, the borrowers receiving the loans, and the safeguards that SBA has implemented to help ensure that lenders and borrowers complied with program requirements.”