Watchdog Says $684 Million in Pandemic Loans Went to ‘Potentially Ineligible’ Nonprofits

President Joe Biden speaks about the American Rescue Plan and the Paycheck Protection Program (PPP) for small businesses in response to coronavirus in the Eisenhower Executive Office Building in Washington, D.C., on Feb. 22, 2021. Saul Loeb/AFP via Getty Images

The Small Business Administration (SBA) likely distributed hundreds of millions of dollars’ worth of Paycheck Protection Program (PPP) loans to nonprofits that may not have been eligible to receive such funds, according to the Office of the Inspector General (OIG) of the SBA.

The PPP was established under the Trump administration and aimed at helping small businesses and nonprofits to continue paying their employees. As of Aug. 8, 2020, the SBA approved 136,355 loans worth more than $35 billion to nonprofits, of which more than $33 billion have been forgiven, according to an OIG report on Sept. 26.

To qualify for a PPP loan, a nonprofit is required to employ no more than 500 workers or meet the SBA’s employee-based size standard for its primary industry.

“Based on data analysis, we identified 179 PPP loans, totaling approximately $684 million, made to potentially ineligible nonprofits that may have exceeded the SBA’s requirements for business size, known as size standards, at the time of application,” says the report.

The OIG reviewed PPP loans granted to three large nonprofits—Planned Parenthood from Illinois, Goodwill from Southwestern Pennsylvania, and the YMCA from the Rockies.

According to the report, Planned Parenthood received more than $3.8 million under the PPP program. The OIG investigation found that the organization qualified for the funds.

Goodwill, which received more than $6 million, was found to have been ineligible at the time of applying for PPP loans, but subsequently became eligible after a March 2021 update to the lending criteria. The YMCA did not meet the requirements at the time of application and thereafter.

The OIG recommended that the SBA review the 179 suspect PPP loans and seek repayment of the $3.5 million loan granted to the YMCA. The SBA management agreed to review 27 of the 179 PPP loans as well as the YMCA loan.

PPP Fund Misutilization

It was alleged earlier that the PPP program has been been severely misused. A July study by economists from the Federal Reserve Bank of St. Louis, for example, called the PPP loan program “critical but imperfect.”

Though the initiative saved 3 million jobs in the second quarter of 2020, it was so poorly targeted that a huge portion of the benefits ended up in the hands of unintended recipients, the researchers found.

“Due to differences in the typical incomes of those varied constituencies, it also ended up being quite regressive compared with other major COVID-19 relief programs, as it benefited high-income households much more,” the economists said. Around 72 percent of the funds are estimated to have gone to households classified in the top 20 percent in terms of income.

Celebrities such as Jay-Z, with a net worth of $1.3 billion, Kanye West, who has a net worth of $2 billion, and Reese Witherspoon, whose net worth is estimated to be $400 million, received funds under the PPP program.

Recently, Illinois police arrested 15 people after it was found that they allegedly applied for and received PPP loans, using the money to bail themselves out of prison.