News stories continue to pour in about Paycheck Protection Program loan fraud (see
https://www.nbcnews.com/business/economy/congressional-investigation-finds-over-1-billion-ppp-fraud-n1239001). The Paycheck Protection Program (“PPP”) was authorized as part of the Coronavirus Aid, Relief, and Economic Security Act to provide forgivable loans to eligible small businesses. Under the PPP, small businesses can apply for loans that must be used for payroll expenses, interest on mortgage, rent, and/or utilities only. The amount of a PPP loan that a business could receive is generally 2.5 times (or 250%) the business’s average monthly payroll cost. The United States Small Business Administration oversees the PPP, but individual PPP loans are issued by private, approved lenders and banks, which are federally insured financial institutions.
How does the government identify potential fraud? They review the following, among other things:
- The PPP Borrower Application Form – An applicant must provide information related to their loan application, including the amount of the business’s average monthly payroll, the number of employees, and the purpose of the loan, with options for payroll, lease/mortgage interest, utilities, etc. The lender will use this information to calculate the amount of the loan that a business is eligible to receive. The Application Form also requires certain representations and certifications, including certifications as to the accuracy of the information included in the application itself and in any supporting documents and a certification that the funds will be used to retain workers and maintain payroll or to make mortgage interest payments, lease payments, and utility payments. So, anything on this form, anything, that is incorrect can be an issue.
- IRS Form 941 – These are Employer’s Quarterly Federal Tax Returns. Generally, in an application for PPP, one needs to upload Form 941s to supplement the application. These forms are used to report payroll for each quarter and must be provided for 2019 and 2020, at least. Any figures on the uploaded forms that don’t match IRS records will raise a flag.
- Bank statements – A PPP application requires the business to upload recent bank statements. Here, one can get in trouble if the statements uploaded don’t match bank records. Also, the government can confirm previous payroll by reviewing these statements, and can use them to confirm business revenue and expenses.
- W2s – If these are uploaded as part of the application, they must match IRS records.
- Articles of Incorporation – The government will have records from the Secretary of State as to when a business was officially incorporated. Any officers currently listed on the Secretary of State may have criminal liability should a PPP loan application be defective.
To understand what charges can result from issues with a PPP Loan application, please click here: https://www.conawayandstrickler.com/blog/2020/06/could-you-face-prosecution-for-paycheck-protection-program-ppp-loan-fraud/
Additional documentation can be required for a PPP loan to be processed successfully. If your business has had its PPP loan proceeds frozen for any reason, it is wise to contact us immediately. We can work with the banks and investigators to ensure a positive resolution.