Unfortunately, the PPP Loan fall-out is far from over.  As we noted in the last blog on PPP issues, we are seeing a number of PPP Forgiveness denials for a number of different reasons, and, along with that, we are seeing the first audits and investigations as well.  Specifically, companies that already received forgiveness for loans over $2M are being audited and investigated by SBA on a rolling basis.  As part of that, SBA is asking for additional supporting documentation for the amounts claimed, expenses incurred, and the needs analysis that was performed.  Loan Recipients are encouraged to keep all documentation related to the loan in case they face an audit or investigation.  This is starting to ramp up so it is not yet clear how aggressive SBA will be on the analysis, but we can expect this to continue for the next five years as the statute of limitations on False Claims Act issues is, generally, six years.  This blog covers what you need to know.

These audits and investigations are likely not intended to catch major bad actors who are already facing penalties.  Indeed, many are familiar with the now infamous Lamborghini purchase made with SBA PPP loan dollars, as well as other suspicious, often lavish, purchases discovered through criminal investigations.  While these cases represent extreme circumstances, and as PPP Forgiveness begins to wind down, audits and investigations of loan recipients are now winding up.

Although most recipients’ behavior will not rise to the level of the Lamborghini purchase, some operate in a grey area of the law as to (1) the “needs analysis,” (2) whether firms were eligible given their specific lines of business, or (3) whether or not every dollar was clearly and demonstrably used to pay the allowable payroll costs, mortgage, rent, or utilities.  All these issues are on the table when SBA audits and investigates companies for PPP compliance and to determine whether to claw-back the forgiveness approval.  So far, these audits and investigations focus only on businesses receiving more than $2 million in PPP Loans, but we hear that as SBA is able to focus more on these audits and investigations, it will likely expand to those with loans of $1.5M or maybe even $1M.  Regardless, the government always reserves the right to audit any PPP loans or forgiveness determinations and, especially in light of Congressional calls to address fraudulent loans, we will be living with these audits and investigations for a while.

As alluded to above, the CARES Act stipulates that SBA has up to six years from the initial loan disbursement to pursue an audit or investigation.  An audit or investigation can also take place after the loan is forgiven.  Through this time, it is incredibly important to preserve all files and records related to the loan in case they are eventually needed for an audit or investigation.