How Do They Catch PPP Fraudsters

How Do They Catch PPP Fraudsters? The Detection System You Never Saw Coming

The question isn’t really how they catch PPP fraudsters. The real question is why you think they need to catch anyone at all. You already gave them everything they need. The day you submitted that application – with your real name, your real Social Security number, your real bank account, your real business tax ID – you created a permanent evidence file. The government doesn’t need to investigate you. You investigated yourself.

Welcome to the Spodek Law Group resource on PPP fraud detection. Our goal is to help you understand what’s actually happening behind the scenes – and why the detection system is far more automated, far more thorough, and far more dangerous than most people realize. The arrests you’re seeing on the news aren’t the result of brilliant detective work. They’re the result of computers matching databases. And those computers never stop running.

Here’s what we’re going to cover: how the four-step automated pipeline flags applications, how IRS data matching creates the most damaging evidence, why whistleblowers have financial incentive to report you, and what it actually looks like when the government decides your file is worth pursuing. If you’re reading this because you’re worried, you should be. But understanding the system is the first step toward protecting yourself.

You Already Gave Them Everything

Lets start with something most people dont understand. The PPP application wasnt just a loan request. It was a sworn statement under penalty of perjury. You certified that the information was accurate. You certified that you would use the funds for eligible expenses. You certified that your business existed and was operational. Those certifications arent just formalities. There federal evidence.

Think about what you provided. Your name. Your Social Security number. Your Employer Identification Number. Your bank account number – the exact account where funds would deposit. Your stated payroll. Your stated number of employees. Every single data point is now in a federal database, permanantly linked to your identity.

Heres the part that should concern you. That EIN connects to your IRS records. That bank account shows exactly where the money went after you recieved it. That employee count can be verified against payroll tax filings. You didnt just apply for a loan. You created a self-incrimination file that the government can access anytime they want.

The PPP application contains what prosecutors call “built-in impeachment.” If your stated payroll was $400,000 and your actual 2019 payroll tax filings showed $180,000, that discrepancy exists in federal databases right now. No investigation required. No witness needed. The numbers dont match. The evidence is sitting there waiting to be compared.

OK so when people ask how the government catches PPP fraudsters, there missing the point. The government dosent need to catch anyone. You caught yourself the moment you submitted information that didnt match your tax records.

The Four-Step Machine That Never Stops

The SBA built a four-step fraud detection system that runs automaticaly. Understanding this system is crucial because your application already went through it. If you submitted a questionable application, a flag probly already exists somewhere in federal databases.

Step One: Screening. Every PPP application got compared against public and private databases automaticaly. The Treasury’s Do Not Pay system. The Social Security Administration death records. The excluded parties list. The debarment databases. This wasnt a human looking at your application. This was software comparing your information against warning lists in miliseconds.

Step Two: Data Analytics. The SBA used machine learning – a type of artifical intelligence – to flag applications with anomolies. According to pandemic oversight data, this system flagged over 40,000 instances where applicants may have significantely misrepresented their income. The software dosent need to understand your business. It just needs to see numbers that dont make sense.

Step Three: Human Review. Flagged files got reviewed by actual humans. This is where someone looked at your application, saw the discrepancies, and made notes. Those notes are now part of your permanent file. If a reviewer wrote “payroll figures appear inflated” or “business address matches 15 other applications,” that observation exists in a database.

Step Four: OIG Referral. Suspicious applications got refered to the SBA Office of Inspector General for investigation. According to federal reports, the SBA refered over 669,000 potentially fraudulent loans to the OIG. Six hundred sixty-nine thousand files sitting in an investigative queue. And investigators are working through them systematicaly.

Heres the thing. Your application already went through steps one and two automaticaly. If there was any discrepancy – any mismatch between what you claimed and what databases showed – a flag was created. You might not know about it. But the flag exists. And flags eventualy get investigated.

The Database Match That Ends Careers

IRS Criminal Investigation has something no other federal agency possesses: unchallenged access to your complete tax history. This is why PPP fraud cases almost always involve IRS-CI. The numbers you put on your PPP application can be compared against the numbers you filed with the IRS. And if they dont match, you dont just have a PPP problem. You have a tax fraud problem.

Think about how this works. Your PPP loan amount was calculated based on average monthly payroll times 2.5. To get a bigger loan, you needed to show bigger payroll. But your payroll is documented in your IRS filings – Form 941 quarterly payroll tax returns, Schedule C if your a sole proprietor, W-2s and 1099s for employees and contractors.

The comparison takes seconds. PPP application says average monthly payroll was $100,000. IRS records show quarterly payroll taxes on $45,000 per quarter – meaning monthly payroll was actualy $15,000. Thats not a gray area. Thats not a misunderstanding. Thats either a $100,000 lie on the PPP application or massive tax fraud on IRS filings. Either way, your in trouble.

Carl Delano Torjagbo in Georgia learned this the hard way. He was convicted by a federal jury of bank fraud, wire fraud, and money laundering after investigators compared his PPP applications to his tax filings. He faces up to 170 years in federal prison. The detection method wasnt sophisticated surveillance. It was database comparison. Numbers that didnt match.

If your PPP payroll numbers dont match your IRS filings, that discrepancy already exists in federal databases. Its just waiting for someone to look.

When Someone Who Knows You Turns You In

Heres something that should make you uncomfortable. Reporting PPP fraud is financialy lucrative. Under the False Claims Act, whistleblowers can recieve 15 to 30 percent of any funds the government recovers. That creates a powerfull incentive for anyone who knows about your situation to come forward.

The numbers are staggering. In fiscal year 2024, whistleblowers filed a record 979 qui tam lawsuits. Recoveries from whistleblower cases exceeded $2.4 billion. Thats real money going to real people who reported fraud.

Think about who knows about your PPP loan. Your accountant. Your bookkeeper. Your business partner. Your ex-spouse. Your former employees. Your current employees. Anyone who had visibility into your payroll, your operations, your actual employee count. Any one of them could file a qui tam lawsuit and potentialy earn millions.

A former employee at Victory Automotive Group filed a whistleblower lawsuit and recieved $1.62 million when the company settled for $9 million. An insider at Unified Care Services helped recover $18 million – and earned $2 million personally. These arnt abstract statistics. These are regular people who saw fraud, reported it, and got rich.

The worst part? Qui tam lawsuits are filed under seal. You wont know someone reported you until the government decides to intervene. By then, investigators have already reviewed the allegations, already pulled records, already built a preliminary case. The first you hear about it might be a subpoena or a knock on your door.

Look at who might have a grudge against you. The employee you fired. The business partner who feels cheated. The ex-spouse going through a bitter divorce. They dont need to prove fraud themselves. They just need to report it. The government does the rest. And if the government recovers money, the whistleblower gets paid.

The Multi-Agency Pile-On

PPP fraud dosent get investigated by one agency. It gets investigated by a task force. And task force structure means evidence flows freely between agencies. What the FBI discovers gets shared with IRS-CI. What IRS-CI finds in tax records gets shared with DOJ prosecutors. What the Secret Service uncovers in financial records becomes available to everyone.

The COVID-19 Fraud Enforcement Task Force coordinates investigations involving multiple agencies. The SBA Office of Inspector General leads PPP-specific cases. The FBI handles bank records, interviews, and arrests. IRS Criminal Investigation brings the tax fraud angle – and they almost always find one. The Secret Service contributes financial crimes expertise. And DOJ prosecutors tie it all together into charges.

This multi-agency approach is why PPP fraud cases often involve stacked charges. Bank fraud carries up to 30 years. Wire fraud carries up to 20 years. Money laundering carries up to 20 years. Tax fraud carries up to 5 years. When agencies collaborate, they dont just find one crime. They find every crime connected to the original fraud.

According to task force data, the government has charged more then 3,500 defendants criminally, recovered more then $2 billion in fraud losses, and seized or forfeited over $1.4 billion. The Pandemic Analytics Center of Excellence has provided investigative support to over 47 federal law enforcement partners on more then 780 pandemic-related investigations.

Heres the kicker. Those 780 investigations represent years of work. The cases just now resulting in convictions were opened in 2022, 2023, 2024. The pipeline is full. New cases continue opening. And the statute of limitations dosent expire until 2030 or later for most PPP loans. They have time.

The Hotline That Never Sleeps

Beyond automated detection, theres another system working against you: the SBA OIG Hotline. Since the pandemic started, this hotline has recieved over 250,000 complaints about PPP and EIDL fraud. Thats a quarter million tips from people who saw something and said something.

The SBA didnt have enough investigators to review all those complaints manually. So they built something smarter. Data scientists developed a Hotline Complaint Risk Model that uses natural language processing to analyze each complaint. The system assigns risk scores automaticaly, flagging complaints with the highest probablity of fraud. From those 250,000 complaints, analysts identified over 90,000 actionable leads.

Think about what that means. Ninety thousand specific tips that investigators are working through. Each one pointing to a specific business, a specific loan, a specific allegation. Someone saw what you did. Someone reported it. And now an algorithm has ranked your complaint by how likley it is to result in a successful prosecution.

The complaints come from everywhere. Competitors who saw your business get a loan it didnt deserve. Neighbors who noticed the new car you bought with PPP money. Employees who knew the payroll numbers were fake. Family members caught in bitter disputes. Even random people who saw your social media posts and reported them to the government.

Heres the thing that should terrify you. You have no way of knowing if someone filed a complaint about you. The hotline is confidential. The complainant is protected. The investigation happens in secret until prosecutors decide to act. By the time you find out, the complaint has already been scored, already been reviewed, already been assigned to an investigator.

The Forgiveness Trap

Many people think loan forgiveness means there safe. The SBA approved the forgiveness. The bank closed the account. Its over. Right?

Wrong. Forgiveness actualy created more evidence against you, not less.

When you applied for forgiveness, you submitted another certification. You stated that you used the funds for eligible expenses – payroll, rent, utilities, mortgage interest. You provided documentation. You signed under penalty of perjury again. If that certification was false, you didnt just commit PPP fraud once. You committed it twice.

Think about the prosecutorial advantage this creates. The original application might have some ambiguity. Maybe you genuinly misunderstood the payroll calculation. Maybe the numbers were confusing. But the forgiveness application? That came later. You had time to review what you actualy spent the money on. You knew the funds went to a car, or a vacation, or personal expenses. And you certified anyway that they went to eligible business purposes.

The forgiveness certification is often more damning then the original application. It shows continued intent. It shows you knew what you were doing. It eliminates the “honest mistake” defense because you had months to review your spending before signing.

Prosecutors love forgiveness fraud cases. The evidence is cleaner. The intent is clearer. The defendant had every oportunity to come clean and instead doubled down with a second false certification. Juries understand this narative easily: you lied to get the money, then you lied again to keep it.

If you certified forgiveness for funds you didnt actualy use properly, you didnt close the loop. You created another charge.

What Detection Actually Looks Like

Most people imagine fraud detection as surveillance, undercover agents, wiretaps. The reality is much more mundane – and much more dangerous because of how boring it is.

Detection usualy starts with a computer. Software compares your PPP application against IRS records. If the payroll numbers dont match, a flag gets created. No human looked at your file yet. The discrepancy just exists in a database, waiting to be reviewed.

Then someone reviews the flag. An analyst looks at your application, sees the mismatch, and decides wheather to escalate. If your payroll was inflated by 10%, maybe they note it and move on. If it was inflated by 300%, they open a formal investigation.

Investigation means pulling more records. Bank statements showing where PPP funds actualy went. Tax returns showing your real income. Corporate filings showing when your business was actualy formed. Employment records showing how many employees you actualy had. Each record either confirms the fraud or provides an explanation. Usually, it confirms the fraud.

The first contact might be a subpoena for documents. It might be a letter requesting information. It might be an agent leaving a business card at your door. It might be a phone call asking if you have “a few minutes to clear something up.”

Let that sink in. By the time they contact you, investigators have probly already pulled your bank records, already reviewed your tax filings, already compared your PPP application against multiple databases. The “friendly conversation” they want to have isnt fishing. Its confirmation. They already have the evidence. They want to see if youll admit to it.

The Window Before Its Too Late

If your reading this because your worried about a PPP loan, you need to understand where you stand. The detection system is automated, comprehensive, and relentless. But that dosent mean your options are gone.

The government has limited resources. Over 669,000 loans were refered for investigation. They cant prosecute everyone. Priority goes to large schemes, coordinated fraud, facilitators with client lists, and cases with clear evidence. Smaller cases, ambiguous situations, and people who cooperate often get treated diferently.

Early intervention matters. The clients who fare best are those who get legal representation before charges are filed, before interviews happen, before statements are made that become evidence. Once investigators contact you, the window for getting ahead of the situation starts closing. Once you make statements without a lawyer, you may have already damaged your defense.

At Spodek Law Group, Todd Spodek and our team of federal defense attorneys have handled PPP fraud investigations at every stage. We understand how the detection system works. We know what triggers investigations and what prosecutors prioritize. We know the difference between cases that result in prosecution and cases that get resolved other ways.

If your preparer is under investigation, if youve recieved any communication from federal agencies, if you know your PPP numbers didnt match your tax filings – call us at 212-300-5196. The consultation is confidential. We can evaluate your situation and help you understand wheather your actually at risk, and if so, what can be done about it.

The detection system is always running. Computers are always matching databases. Flags are always being created and reviewed. Whistleblowers are filing complaints. Former employees are calculating how much they could earn by turning you in. The question isnt wheather fraud gets detected. The question is what you do before that detection reaches your door.

The people who wait until investigators contact them have already lost ground. The people who wait until charges are filed have lost even more. The people who talk without a lawyer, who try to explain, who think cooperation without representation will help – they often make everything worse.

You built the evidence file when you submitted that application. The only thing left to decide is how you respond before they come looking.