Any company who borrowed PPP funds is at risk of facing an audit. The SBA is auditing virtually any company that received PPP loans of $2 million or more. The SBA, the DOJ, and other federal agencies are also targeting recipients in loan fraud investigations.
If you borrowed funds, you might be at risk of getting targeted. If your company received $2 million or more from PPP, the answer is simple: under the current SBA policy - you will be audited. In addition to being audited, your company would be the target of an investigation - and it could come from many different agencies simultaneously.
Federal Agencies are going after banks which issued fraudulent PPP loans
One source of a potential PPP fraud investigation could be the bank which issued your PPP loan. The DOJ has sent grand jury subpoenas to banks in order to get records as part of a broader, and systemic, investigation into COVID loan abuse. Regulators are extremely concerned that banks lent funds under PPP but didn't put in steps to protect federal fraud programs from fraudulent borrowers. Banks were granted protection - assuming they could demonstrate that they relied on the borrower's documentation and certifications when issuing PPP loans. This grace doesn't extend to banks who willingly and knowingly facilitated fraudulent loan applications. It's clear that the DOJ and other federal agencies are targeting borrowers who illegally got PPP funds. The DOJ has filed charges against many companies, and executives, who were alleged to have committed PPP fraud. Many banks are reporting PPP loan fraud to the government for things such as:
- realizing fake shell companies were created in order to file ppp loan applications
- falsifying payroll information in order to get ppp loans
- filing ppp loan applications on behalf of companies and then diverting the funds
- submitting fraudulent certifications for ppp loan applications
- using ppp loans for personal expenses
The DOJ, the SBA, and other authorities, are looking very closely at PPP loan applications and other information in order to discover fraud and abuse. With the issuance of subpoenas to PPP lenders - this is opening up a new source of evidence that federal prosecutors are using to prosecute fraudulent applicants. Because banks played such a crucial role in processing loans, they have immense information which can be used as evidence.
Are banks providing information about PPP borrowers?
Many PPP loan recipients are losing sleep because they don't know the answer to one simple question: are banks, that get subpoenas, protecting borrowers? Some are, and some are not. It is difficult to see a situation where banks fight the subpoena. But it also makes sense that they would fight. Many banks will be hesitant to disclose information to the government about their clients private information. But - if a bank is accused of giving too many fraudulent loans, it could leave the bank open to potential federal prosecution for PPP loan fraud. Banks have an inherent interest in complying with government investigations to protect their relationship.
What do business owners need to know about banks potentially sharing their PPP loan application with the DOJ?
Rather than looking for information from individual applicants, the DOJ is analyzing the bank records, and flagging companies that appear to have participated in PPP loan fraud. If banks provide records, the DOJ will be looking to get any/all evidence of fraud under PPP. This includes violations of the PPP program ranging from loan stacking, to submitting false data, and misusing PPP funds.
What are the risks associated with being investigated for PPP loan fraud and PPP funds abuse
For anyone who is accused of committing fraud, the risk of prosecution can be huge. The DOJ is actively pursuing criminal charges in many cases, such as: wire fraud, bank fraud, making false statements, and more. These fines can carry financial fines, and federal prison time. Companies and individuals must act swiftly in order to protect themselves. You must be prepared to do everything possible to prevent charges from being filed in PPP loan fraud investigations.
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What issues are triggering PPP loan fraud investigations?
Did your companies application comply with the program? There are many terms and conditions for PPP eligibility. If you submit an application, you're stating that you meet the eligibility criteria.
Do you have the documentation to prove you were compliant? Even if you were compliant, if the documentation isn't readily accessible - then you could be prosecuted for PPP fraud. It's critical you be able to prove it.
Did you separate your PPP funds, so that their use could be tracked? One major aspect of PPP funds is that they can only be used for specific purposes and business expenses. In order to demonstrate correct use of PPP funds, companies should have separated them into different accounts in order to document the expenditures. If PPP loan funds were used for personal expenses and other incorrect expenditures, this can result in a DOJ PPP loan fraud investigation. All expenditures from PPP funds should be tracked and documented.