Last week saw banks and fintechs scrambling to stand up platforms to process Paycheck Protection Program loans, and now the struggle is to keep the platforms running while weeding out potentially fraudulent applications.

Fraud is a common trend with government relief programs. In fact, fraud estimates for previous stimulus programs indicate that the Small Business Administration’s PPP loans could lose billions, making identification- and document-verification processes critical for banks processing the new loans.

After the 2008 crisis, the SBA estimated 0.53%, or $6.5 million, of 7(a) loans — the administration’s primary program for providing financial assistance to small businesses — had an “improper” pay rate for the fiscal year 2008. Such payments occur when federal funds go to the wrong recipient, the recipient receives the incorrect amount, or when the recipient improperly uses the federal funds.

“If this fraud rate was to hold flat with the $349 billion in loans, then the expectation would be about $1.9 billion in fraud that will occur when the money is disbursed,” said Frank McKenna, chief fraud strategist at PointPredictive. “Using a more pessimistic estimate of 10%, which is what some government officials have indicated is the fraud rate when stimulus packages are created, we could be looking at about $36 billion in fraud.”

In fact, an audit of the SBA’s 2008 improper payment rate report by the Office of the Inspector General estimated an improper payment rate of 27%. “In any case, we will lose billions in this loan program, even given the most conservative of estimates,” McKenna said.

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The biggest fraud concern in processing PPP loans will be verifying the number and salary details of employees, McKenna said. “There’s a huge incentive, just for how this program is written, for small businesses to inflate the number of employees to get a bigger check,” he said, noting that this would likely come in the form of forged paystubs and other documentation.

Another fraud risk is in determining the legitimacy of the business. “Is it a real business or is it a shell company that has been created out of thin air?” McKenna said, adding that banks are catering to their existing customers due to this risk.

With these risks in mind, smaller banks are accepting applications from businesses within their networks and footprints, relying on the familiarity employees have with community businesses.

Farm Bureau Bank is extending PPP loans to borrowers who are members of the larger Farm Bureau network, said Chief Operations Technology Officer Mark Cromer. It will also use the cloud-based tool BizChecks to validate application data and cross reference with a separate database to verify identities.

Similarly, Boston-based Berkshire Bank will cross reference applicants’ quarterly filings, paid health benefits statements, and use documents provided by payroll companies that have developed specific CARES Act modules, said Greg Poelhmann, senior vice president of 44 Business Capital, the bank’s SBA lending arm. He said Berkshire is accepting PPP loan applications from existing business customers within the bank’s footprint.

It is unclear who will be held responsible for processed SBA loans that are later discovered to be fraudulent.

“I don’t think the SBA ever guaranteed that lenders won’t be held responsible for the fraud,” McKenna said. “I think in the end, lenders will be held responsible and I think they know that,” he said, noting that during the mortgage crisis, Fannie Mae and Freddie Mac pushed the defaulted and fraudulent loans back onto the lenders on technicalities. “Banks took those billions in losses and they’re now thinking back to that time and saying they don’t really trust the government to necessarily cover us if there’s any fraud,” he said.

Happy State Bank CEO J. Pat Hickman echoed McKenna, noting there is a “distrust” for the SBA among some banks. The Texas-based bank has $3.8 billion in assets and is the 21st-largest bank in Texas.

“Inevitably, when one of those loans go bad — and some of them do — to get the SBA to pay on their guarantee is more painful than going to the dentist,” Hickman said. “It is painful, it is time consuming and they kill you with paperwork.”