Federal Government to Audit Paycheck Protection Program Loans Exceeding $2 Million

On April 28th, the day after the second round of PPP loans began, Treasury Secretary Steve Mnuchin stated that any business receiving more the $2 million in Paycheck Protection Program loans will be fully audited. Loans under $2 million will be spot checked. Secretary Mnuchin also stated, “Anybody that took the money that they shouldn’t have taken — one, it won’t be forgiven, and two, they may be subject to criminal liability, which is a big deal.”

The CARES Act established the Paycheck Protection Program (PPP), implemented by the Small Business Administration (SBA), to provide businesses with funds to pay up to eight weeks of payroll costs including benefits, interest on mortgages, rent and utilities. Loans for these purposes, with at least 75% used for payroll, may be fully forgiven. Forgiveness is also based on the employer maintaining or quickly rehiring employees and maintaining salary levels.

In the lead up to Secretary Mnuchin’s public comments, the Treasury Department, in conjunction with the SBA, issued updates to its PPP Loans Frequently Asked Questions guidance. The guidance addresses borrower and lender questions relating to the implementation of the PPP. Recently issued FAQ Questions 31 and 37 emphasize potential PPP borrowers, private and public companies of all sizes, should first consider all other sources of liquidity sufficient to support their ongoing operations before pursuing a PPP loan. Specifically, before submitting a PPP application, all borrowers should carefully review the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must “certify in good faith” their loan request is “necessary.”

The CARES Act created the oversight bodies of the Special Inspector General for Pandemic Response and the Pandemic Response Accountability Committee (PRAC). The Special Inspector General’s duty is to “conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loan guarantees and other investments” made by the Treasury Department pursuant to the Act. PRAC’s investigative focus will be on detecting and preventing “fraud, waste, abuse, and mismanagement” of funds provided under the Act. PRAC is authorized to use Inspectors General from other government agencies to conduct such investigations. It also has its own power to conduct investigations related to relief funds.

Flannery | Georgalis and its team of former federal prosecutors, IRS agents and a savings and loan examiner are available to assist as the federal government’s PPP loan oversight intensifies. Please contact Paul Flannery – (216) 367-2094, paul@flannerygeorgalis.com or Chris Georgalis – (216) 367-2095, chris@flannerygeorgalis.com.