Restaurant Revitalization Fund: Opportunities Exist to Improve Oversight
Fast Facts
In March 2021, Congress appropriated $28.6 billion to the Small Business Administration to help the food service industry weather the COVID-19 pandemic. About 40% of eligible applicants received awards from the resulting Restaurant Revitalization Fund before it was depleted.
SBA took steps to detect fraudulent or ineligible applications. For instance, it prevented over 30,000 suspicious applications from receiving awards. But it flagged 4,000 award recipients for suspected fraud and isn't taking timely action to address them. We recommended that SBA do so.
Number of Restaurant Revitalization Fund Applications by Eligibility and Funding Status
Highlights
What GAO Found
The Restaurant Revitalization Fund was established in March 2021 to support eligible entities suffering revenue losses from the COVID-19 pandemic. The Small Business Administration (SBA) began accepting applications and awarding funds in May 2021. SBA stopped accepting applications in July 2021 with the program oversubscribed and almost all its funds disbursed.
Restaurant Revitalization Fund Award Disbursements, May 3–July 1, 2021
Just over 100,000 businesses received funding (40 percent of eligible applicants). The median award was about $126,000. Most recipients (72 percent) reported they were owned by women, veterans, or members of socially and economically disadvantaged groups. About 43 percent had 2019 revenue of $500,000 or less.
SBA emphasized pre-award controls to detect fraudulent or ineligible applications but has not assessed their effectiveness. While SBA prevented over 30,000 suspicious applications from receiving awards, GAO identified systemic control weaknesses. For example, SBA considered applications made through external vendors to be low-risk, but over 4,000 recipients who applied through such a channel have been flagged for suspected fraud or ineligibility, including an alleged fraudster who received $8 million. Assessing controls and addressing deficiencies would help SBA better ensure program integrity.
SBA requires recipients to report annually on fund use, but has taken limited steps to enforce reporting requirements and identify fraudulent or ineligible awards. The first reports were due in December 2021, but 32 percent were overdue as of June 2022. And SBA has not proactively used data analytics or information from enforcement entities to identify potentially fraudulent award recipients. SBA does not immediately investigate all potentially fraudulent awards, and instead waits for recipients to submit final reports (which might not be until April 30, 2023). Taking additional steps to identify and address potentially fraudulent awards in a timely manner could help SBA recover funds.
Why GAO Did This Study
In 2020 and 2021, restaurants, bars, and other food service businesses experienced substantial revenue loss and unemployment resulting from the COVID-19 pandemic. In March 2021, Congress appropriated $28.6 billion to SBA for a Restaurant Revitalization Fund to assist the industry.
The CARES Act includes a provision for GAO to monitor federal efforts to respond to the COVID-19 pandemic. Among its objectives, this report examines recipient characteristics, SBA's internal controls and fraud risk management practices, and SBA's efforts to monitor recipients.
GAO reviewed SBA documentation, analyzed SBA data on the program's applicants and recipients, and interviewed SBA officials and representatives of industry associations.
Recommendations
GAO makes seven recommendations to SBA, including to assess pre-award controls and address deficiencies, strengthen post-award reporting, take additional steps to identify fraudulent or ineligible awards, and develop and implement a plan to address potentially fraudulent award recipients in a timely manner. SBA agreed or partially agreed with two recommendations. SBA disagreed with five recommendations, including to assess pre-award controls and implement a plan to address fraudulent or ineligible awards. GAO maintains that all of the recommendations are valid, as discussed in this report.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Small Business Administration | The Associate Administrator for the Office of Capital Access should conduct and document an assessment of the RRF pre-award controls and address or mitigate deficiencies. (Recommendation 1) |
Open
In January 2023, SBA stated that it would conduct a review of RRF awards and use the results to inform the effectiveness of pre-award controls. This recommendation will remain open until SBA (1) provides documentation of its review, and (2) addresses or mitigates any deficiencies identified.
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| Small Business Administration | The Associate Administrator for the Office of Capital Access should assess how the design of RRF pre-award controls may have adversely affected applicants from U.S. territories, and identify and document steps to mitigate this issue for future programs. (Recommendation 2) |
Open
In January 2023, SBA stated that it would offer to participate in a government-wide dialogue to address systemic weaknesses related to IRS and territories' tax validation systems. This recommendation will remain open until SBA (1) assesses how the design of RRF pre-award controls may have adversely affected applicants from U.S. territories, and (2) documents steps to mitigate this issue for future programs.
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| Small Business Administration | The Associate Administrator for the Office of Capital Access should develop and implement policies and procedures for addressing RRF recipients who do not meet annual reporting requirements. (Recommendation 3) |
Open
In January 2023, SBA stated that recipients have until March 2023 to exhaust RRF funds. SBA stated that the agency will review a sample of RRF awards and use the results of this review to inform the effectiveness of its post-award procedures. This recommendation will remain open until SBA develops and implements policies and procedures for addressing RRF award recipients who do not meet annual reporting requirements.
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| Small Business Administration | The Associate Administrator for the Office of Capital Access should enhance RRF post-award reporting procedures by adding requirements for recipients to report their operating status. (Recommendation 4) |
Open
In January 2023, SBA stated that it was weighing potential solutions, such as adding functionality in the RRF platform to allow recipients to report their operating status. This recommendation will remain open until SBA enhances its post-award reporting procedures to require recipients to report their operating status.
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| Small Business Administration |
Priority Rec.
The Associate Administrator for the Office of Capital Access should develop and implement data analytics across RRF awards as a means to detect potentially fraudulent award recipients. (Recommendation 5) |
Closed – Implemented
In response to our recommendation, SBA's Office of Financial Program Operations worked with the Office of the Chief Data Officer to conduct data analytics for the RRF program. Specifically, SBA cross-checked RRF recipient identifiers (such as address, tax identification numbers, and phone numbers) against recipients that had been flagged for fraud or identity theft in RRF and other SBA pandemic programs (Paycheck Protection Program and Economic Injury Disaster Loans). In June 2023, SBA provided GAO with the results of this analysis, which found almost 8,000 RRF awards were related to other awards flagged for identity theft or fraud. SBA said it will manually review the awards identified through the data analytics.
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| Small Business Administration |
Priority Rec.
The Associate Administrator for the Office of Capital Access should develop, document, and implement procedures to use enforcement data on suspected fraud in other SBA programs, such as PPP, to identify potential fraud in RRF recipients. (Recommendation 6) |
Open
In January 2023, SBA stated that it was reviewing 10% of RRF awards to confirm eligibility and use of funds compliance. This recommendation will remain open until SBA provides evidence of using enforcement data (e.g., information on suspicious borrowers provided by the Department of Justice or SBA's Office of Inspector General) on suspected fraud in other SBA programs to identify potential fraud in RRF recipients.
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| Small Business Administration |
Priority Rec.
The Associate Administrator for the Office of Capital Access should develop and implement a plan to respond to potentially fraudulent and ineligible RRF awards in a prompt and consistent manner. This plan should include coordinating with the OIG to align efforts to address fraud. (Recommendation 7) |
Open
In January 2023, SBA stated that it follows standard operating procedures to refer suspicious activity to the OIG. We noted in our report, however, that SBA's post-award review procedures for RRF state that flagged awards will be reviewed when the recipients certify that they have spent their entire award or after they submit their final use-of-funds report (not when fraud is initially suspected). This recommendation will remain open until SBA develops and implements a plan to respond to potentially fraudulent and ineligible awards in a prompt manner. This plan should include coordinating with the OIG.
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