- February 19, 2025
- White Collar Crime
Rising PPP Loan Fraud Audits: What Business Owners Must Know
During the early months of the COVID-19 pandemic, the Small Business Administration operated a financial assistance program called the Paycheck Protection Program (PPP). This program extended loans to eligible businesses to help cover payroll, employee benefits, and other permissible expenses, which the SBA would forgive if the borrower met certain qualifications. The PPP sought to help businesses keep employees on the payroll during furloughs necessitated by stay-at-home orders and economic factors caused by the pandemic.
However, stories have emerged about companies that should not have qualified for PPP loans receiving funds or business owners who used PPP funds for improper purposes, including to fund personal purchases. In recent months, we have seen an uptick in federal government audits of businesses that received PPP loans and stricter enforcement against companies that used funds for unauthorized or improper purposes.
Why Are PPP Loan Audits Increasing?
The federal government received negative press following stories of companies receiving PPP loans even though they did not have a financial need for the funds and of business owners who misused PPP funds, including to fund the purchase of personal homes or vehicles. The government has sought to crack down on cases of fraudulent PPP loans, including those involving falsified payroll records, misrepresentation of business size or financials, and misuse of loan funds. Although the SBA, the agency responsible for administering the PPP, has taken the lead in conducting loan audits, other federal agencies, such as the IRS and DOJ, have gotten involved in audits that indicated fraudulent activity.
What Triggers a PPP Loan Audit?
Under PPP rules, businesses that received over $2 million in loans automatically become subject to review, which can lead to a formal audit. The SBA has extended a safe harbor to smaller businesses that took out less money based on those companies’ certification of the need for funds; however, smaller businesses can face PPP loan audits when the SBA receives information indicating that a small business made fraudulent misrepresentations on its loan application or has misused PPP funds.
How to Prepare for a PPP Loan Audit
Companies notified of forthcoming PPP loan audits can prepare by taking specific steps, including:
- Gathering and preserving critical records, including company financial statements, payroll records, and tax filings
- Preparing a thorough record of the use of PPP funds
- Conducting an internal audit with attorneys and financial professionals
Potential Consequences of PPP Loan Fraud
When the SBA or other federal agencies discover PPP loan fraud, businesses or their owners and managers can face consequences such as:
- Civil penalties, including fines and restitution orders
- Criminal prosecution for fraud
- Harmed business or professional reputation
- Financial strain from paying fines/restitution and reduced business due to loss of reputation
Contact a Federal Criminal Defense Attorney Today
If your business has been the target of a PPP audit due to suspicions of fraud, you need an experienced federal criminal defense lawyer to advocate for your rights and interests. As a former federal prosecutor, Attorney John Freeman knows both how the government pursues fraud causes and how to win these tough cases. Contact the Law Office of John Freeman today for a confidential consultation to learn more about your next steps.