WASHINGTON -- A post-Sept. 11 loan program was a disaster in the making because the government could not verify that most loans actually went to businesses affected by the attacks, a federal official told Congress on Thursday.

One lawmaker noted that money even made its way to a custard shop in Texas.

"This was really a program that had potential for disaster," said Eric Thorson, the inspector general for the Small Business Administration. The agency administered the program.

Thorson said his office could not determine in 85 percent of the loan cases it examined whether the businesses qualified for some of the billions of dollars handed out after the terrorist attacks on New York and Washington.

In stories last year, The Associated Press showed how the SBA program spread money far and wide across the country.

Lawmakers conducting a review of $21 billion in aid for New York ridiculed the notion that many of the far-flung recipients of the loans had suffered any negative impact from the attacks.

Rep. Michael McCaul, R-Texas, noted that in his district, a custard shop was one of 122 businesses in the Austin area that received such loans, which totaled $47 million.

"I for one could hardly argue that any of these loans are in any way, shape or form related to the Sept. 11 attacks," McCaul said at a hearing of a House Homeland Security subcommittee.

Reached by telephone by the AP, the owner of Shakes Frozen Custard shop outside Austin, Texas, said he was never told his $635,000 loan through a private lender was intended for businesses affected by Sept. 11.

"No one was more surprised than me, and I don't want to get something I'm not entitled to," said Mark Blankenship. "As a matter of fact, I would love to get rid of that loan because it's eating me up with the variable interest rate."

At the hearing, Thorson said the program was not intended to be limited to businesses in the New York or Washington area. But he said he was offended when he heard about some of the places the money was going.

Early in the loan program, lawmakers complained the SBA was not getting enough financial aid to businesses in need. The agency then loosened the rules and said businesses from across the country could apply.

Thorson said the SBA sent a signal to lenders that "virtually every small business had suffered some direct or indirect adverse impact and could likely qualify for a STAR loan," and that the agency told lenders they "would not second-guess their eligibility justifications."

An audit of the program found that 50 of 59 borrowers' samples were unable to show whether the borrowers were adversely affected by the attacks and the economic downturn that followed.

Of 42 borrowers that were interviewed, only two said they were aware they had received a loan intended for businesses hurt by Sept. 11.

The AP reported many loans went to local outlets of some of America's most famous and lucrative companies, including Dunkin' Donuts, Quiznos, Subway and Dairy Queen. Other recipients included dentists and chiropractors.

The inspector general recommended that any future special loan programs should:

_require applicants to justify how their business was harmed.

_require lenders to submit documentation.

_have effective internal controls and oversight in place.

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