What To Know About PPP Program and Fraud

Good news to all those that accepted Payroll Protection Monies. The SBA has opened its portal and lenders begin to accept forgiveness appliations. The review process will certainly uncover more potential fraud. Here’s how to be aware and help prevent the issue.

As we know the Paycheck Protection Program (PPP) has provided much needed funds to more than 5.2 million small businesses. With this program their has been a tremendous amount of fraud that has been uncovered by the U.S. Department of Justice. More than 37 matters have been uncovered and charges filed across the country.

A common thread among fraud perpetrators is the falsification of documents to lenders and misrepresentation of certifications in loan applications. Falsified documents have included false bank statements, tax returns, insurance reports and payroll records.

Is It Being Addressed?

In April 2020, a report about the SBA’s loan program, the Office of Inspector General warned about certain areas of risk in 7a loan programs. With the increased loan volume, loan amounts, and expedited loan applications, it made it more difficult for the SBA to identify which loans were fraudulent.

Here are some examples:

  1. Clear Requirements and Timely Communication To Lending Partners

    The GAO stated that publishing answers to questions and frequently updating guidelines on a regular basis, left many borrowers confused. After the SBA posted the loan forgiveness application in May, it unfortunately delayed in posting the guidelines for loan forgiveness.
  2. Establishing Clear Paper Controls In The Loan Approval Process

    The SBA’s interim final rule allowed lenders to rely on borrowers’ certifications to determine borrowers’ eligibility and use of loan proceeds. This process limited the lender review of documents provided by the borrower to determine the loan amount and if the business is eligible.
  3. Establish A Quality Assurance Program

    THE SBA announced efforts back in May that implemented safeguards after loan approval. The government also announced that it will perform full audits on companies receiving more than 2 million in PPP Loans before allowing forgiveness debt.

What Does This Mean For Borrowers

Here are five recommendations for borrowers that can prepare them for the forgiveness process.

1. Accurately summarize the ways economic uncertainty – those that existed or were anticipated at the time you submitted your PPP application – made the loan necessary to support ongoing operations.

2. Document your assessment of access to other sources of liquidity.

3. Use PPP funds only for the authorized purposes. If you are unsure – ask your CPA, attorney or other trusted advisor.

4. Document, Document, Document.  Maintain and retain accurate and complete records.

5. Make sure you understand and stay current on evolving loan forgiveness requirements.