Editorial: Disasters and easy money

Monday, July 17, 2006 | 7:16 a.m.

The inspector general of the Small Business Administration told a familiar story to a congressional committee last week. A post-Sept. 11 federal loan program was badly mismanaged, with money going to businesses that a recent audit determined had not been affected at all by the terrorist attacks.

Eric Thorson, the inspector general, told the House Homeland Security subcommittee that of the loan cases his office examined, 85 percent were found to be highly questionable.

Auditors in his office were examining the loans - amounting to tens of billions of dollars - to determine if the businesses that received them suffered negative impacts from the attacks. What the auditors found was that a majority of the loans went to businesses that sustained no discernible impacts from 9/11 whatsoever.

If the story sounds familiar, it's because the Government Accountability Office earlier this summer blew the whistle on the post-Hurricane Katrina aid program operated by the Federal Emergency Management Agency. The GAO, the investigative arm of Congress, found that of the money handed out by FEMA, at least $1 billion went to con artists.

At the SBA, the loan program was flung open to just about everyone after members of Congress complained about its slow pace. Thorson told the subcommittee that the SBA then informed lenders that "virtually every small business had suffered some direct or indirect adverse impact and could likely qualify for (an SBA emergency) loan. He said the agency told lenders that it "would not second-guess their eligibility justifications."

One result was that 122 businesses in Austin, Texas, including a custard shop, received emergency SBA loans totaling $47 million. With the lenders essentially having been given carte blanche authority, they made approvals right and left all over the country.

The mismanagement of this program came to light last year in stories written by the Associated Press. Most of the businesses interviewed by the AP said they did not realize the lenders were fulfilling their loans with money set aside for businesses harmed by 9/11.

With the country in debt by $8.5 trillion, the Bush administration needs a course in managing money. At the least, following emergencies, beneficiaries of government cash should have to provide documentation of who they are and why they qualify for it.