PPP Loan Audits: What You Need to Know
The Paycheck Protection Program (PPP) is one of the most popular COVID-19 relief programs offered by the Small Business Administration (SBA). There have been more than 132,000 and 150,000 loans issued in New Jersey and Pennsylvania, respectively. When initially implemented, the Trump Administration focused on a lightning-fast rollout to ensure needed funding could be quickly disbursed. This resulted in dozens of updates being issued over several months because there was little time to craft comprehensive regulations. Given this, many borrowers that did not meet requirements, including the loan necessity certification, were awarded loans.
Although the SBA has stated there will be investigations into loans of $2M or more, they reserve the right to review any loan, regardless of amount. In fact, the GAO has recommended that the SBA develop and implement plans to identify and respond to risks in PPP to address possible fraud, this includes loans under $2M. The process has already started as it was recently reported there are 212 open SBA investigations. The news has left many wondering how to prepare if they are selected for a PPP audit. To help clients, prospects, and others, Klatzkin has provided a summary of the key details below.
Potential Audit Scope
Based on what we know so far, it seems likely the SBA may examine the following areas:
- Eligibility – Ensuring a borrower has met all eligibility requirements is undoubtedly an area that will be examined. This will include objective items such as the total number of employees, business start date, and confirmation it has not filed for bankruptcy. In addition, the certifications that were made during the application process, which include the “uncertainty of current economic conditions” and loan necessity will also be evaluated.
- Loan Amount – Any investigation will likely include a review of the calculations used to determine the loan amount. If an applicant received a PPP1 and PPP2, then a review of the calculations for both loans may be conducted.
- Use of Disbursed Funds – The types of covered expenses which borrowers are permitted to use funds to pay has changed since the program was initially launched. However, it is likely investigators will analyze how proceeds were spent and if there were any discrepancies.
- Loan Forgiveness – It is also likely the SBA will examine the borrower’s forgiveness application to uncover issues or errors which resulted in an inflated forgiveness amount.
Preparing for an SBA Audit
Unfortunately, the SBA has not issued any information or guidance on the review or audit process. However, this does not mean borrowers cannot take steps to prepare in the event of an audit notification. There are three steps to consider taking, including:
- Organizing and Maintaining Loan Documentation – It has been said that the devil is in the details, and the PPP is not an exception. As a result, it is essential to compile and organize all PPP-related documentation. This may include information used to determine loan qualification, records demonstrating access to other sources of capital, bank statements, copies of covered expense payments, payroll records, appropriate accounting records, and all communication with lenders.
- Monitoring PPP Expenses – If the covered period has not ended, it is important to monitor PPP expenses to ensure compliance with regulations proactively. Consider categorizing expenses to ensure it will be easy to document how and when covered expenses were paid. Regularly run reports to identify any issues and make corrections as needed.
- Communication Management – It is also important to designate one individual to be the point of contact for all communications with the SBA. Ensure all questions about the loan are directed to this individual and make them responsible for required record maintenance.
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The future of the PPP is in question as funding has been exhausted and only a limited number of new applications are being accepted. If additional funds are not allocated, it is expected more attention will be focused on compliance and enforcement measures. If you have questions about preparing for a PPP loan audit or needing assistance with another PPP-related issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.