How Does the Government Find PPP Fraud?

How Does the Government Find PPP Fraud? They Don’t Investigate – They Just Compare

The government doesn’t “investigate” PPP fraud the way you imagine. There’s no detective following leads. There’s no agent piecing together evidence from witness interviews. There’s no slow unraveling of a case. What actually happens is much simpler, much faster, and much harder to escape: they run a database query.

Welcome to the Spodek Law Group resource on how PPP fraud detection actually works. Our goal is to help you understand something most borrowers never realize until it’s too late: you already gave them all the evidence they need. Your PPP application contains your claimed payroll. Your IRS records contain your actual payroll. The SBA has access to both. When those numbers don’t match – and the mismatch only takes milliseconds to detect – you get flagged. Not by a suspicious agent. Not by a tip from a competitor. By an algorithm that noticed the discrepancy before any human ever looked at your file.

That’s the answer to “how does the government find PPP fraud.” They don’t find it. They compare it. The evidence already exists in multiple federal databases. Detection is automatic. Investigation is just paperwork after the fact. If your numbers don’t add up, you’ve already been caught. You just don’t know it yet.

Detection Isnt Investigation – Its Database Comparison

Heres the thing most people dont understand about PPP fraud detection. There is no investigation in the traditional sense. Theres no agent building a case from scratch. What happens instead is data matching – the SBA’s systems compare what you claimed on your application to what you reported to the IRS. Your PPP form says you had $400,000 in annual payroll. Your quarterly 941 filings say you paid $80,000. The discrepancy is automatic. The flag is automatic. The referral to the Office of Inspector General is automatic.

Think about that for a second. You filled out both forms yourself. You submitted both sets of numbers. You created the evidence of fraud with your own hands. The government didnt have to gather anything. They just had to compare what you already gave them. Detection isnt detective work. Its database work. And the databases are all connected.

According to the GAO’s investigation into SBA fraud detection, the agency uses “data analytics tools to examine data anomolies, sometimes using a type of artifical intelligence called machine learning to help identify files with data anomolies in need of review.” The system dosent need tips. It dosent need whistleblowers. It finds discrepancies automaticaly, flags them for human review, and builds referral packages for prosecution. By the time any person looks at your file, the algorithm has already decided your suspicious.

The Files They Already Have On You

Heres something that should make you uncomfortable. The IRS dosent need to subpoena your tax returns. They already have them. Every 1040 you filed. Every Schedule C. Every W-2 your supposedly issued to employees. Every quarterly 941 showing payroll tax deposits. All of it is sitting in IRS databases, accessable to IRS Criminal Investigation without asking anyones permission. Without even telling you there looking.

OK so think about what that means. You claimed $400,000 in payroll to get your PPP loan. But your 941 filings show you only deposited payroll taxes on $80,000. The IRS can see both numbers. They can compare them in seconds. They dont need to interview your employees. They dont need bank statements. The discrepancy is right there in data they already posess. Your caught before any investigation even begins.

The SBA has its own database of every PPP application. They know what you claimed, what you certified, what documents you uploaded. Banks file Suspicious Activity Reports when they notice anomolies. The Pandemic Response Accountability Committee uses “iteritive, multi-tiered data analytics techniques” to cross-reference information across agencies. The government dosent need to build a case. The case builds itself from data you provided.

The 669,000 Referrals That Happened Automaticaly

Heres a number that should concern you. The SBA referred over 669,000 potentialy fraudulent PPP and COVID-EIDL loans to the SBA OIG for investigation. Not after detailed human review. After data analytics and automated screening. Nearly 700,000 loans flagged by algorithms looking for discrepancies.

Let that sink in. The government isnt prioritizing which loans to investigate based on tips or complaints. There running every loan through automated fraud detection. If your numbers dont match – if your claimed payroll dosent align with your tax filings, if your employee count dosent make sense for your industry, if your address shows multiple businesses that all got loans – you got flagged. Automaticaly. Without any human deciding you looked suspicious.

The SBA OIG uses what they call “link analysis” to identify fraud clusters. If your loan shares an IP address with ten other applications, if your bank account recieved funds that quickly moved to accounts associated with other suspicious loans, if your business address appears on multiple applications – the algorithm catches it. The technology isnt looking for obvious fraud. Its looking for patterns. And patterns are extremly hard to hide when your dealing with interconnected federal databases.

The referral happened months or years ago. The investigation is already underway. You just dont know about it yet.

Your Bank Has Been Watching Since Day One

Your lender has obligations you probly never thought about. When banks detect fraud – or even suspect fraud – there required to file Suspicious Activity Reports. The 30-day SAR clock starts the moment they notice something wrong. And heres the part that should worry you: they cant tell you they filed. Its illegal for them to warn you. That SAR goes into a federal database, sits there waiting, and eventualy gets connected to other investigations targeting your loan.

Think about all the ways your bank could have noticed problems. You deposited $150,000 in PPP funds. A week later, you transferred $100,000 to a personal account. You bought a car. You made a down payment on a house. Your spending pattern dosent match what a business would do with payroll funds. The banks compliance systems flag it. A SAR gets filed. You have no idea any of this happened. Months later, when investigators pull your records, that SAR is waiting for them.

Banks arnt just passive processors. There required to perform due dilligence. There required to report suspicious activity. There required to keep records. And becuase they face there own regulatory consequences for missing fraud, there incentivized to over-report rather then under-report. If theres any question about your loan, it probly got flagged. You just dont know about it.

The Multi-Agency Task Force Thats Already Coordinating

Heres something that makes PPP fraud detection even more inescapable. Its not just one agency looking. The DOJ Criminal Fraud Section created dedicated strike forces specificaly for pandemic relief fraud. The COVID-19 Fraud Enforcement Task Force coordinates between the FBI, IRS Criminal Investigation, SBA OIG, and other federal agencies. Evidence flows freely between them. The bank records the FBI pulled are available to IRS-CI. The tax discrepancies IRS-CI found are available to DOJ prosecutors. Witness interviews from one agency get shared with all the others.

Think about what that means for hiding fraud. In a normal investigation, you might hope that one agency dosent talk to another. You might hope information stays siloed. With pandemic fraud, thats not how it works. Every agency involved in detection shares there findings with every other agency involved in prosecution. The task force structure eliminates gaps. If the SBA flagged your loan, the FBI knows. If your bank filed a SAR, the IRS knows. If a whistleblower filed a qui tam, the DOJ knows. And there all working together.

The coordination extends to sentancing too. Federal judges are seeing case after case of PPP fraud. There developing expertise. There developing frustration. Defendants sentenced now are recieving far harsher penaltys then defendants sentenced in 2021 or 2022. The era of probation for PPP fraud is essentialy over. Judges are including prison time in nearly every sentancing – regardless of the amount involved. The multi-agency coordination that caught you is now matched by judicial attitudes that ensure punishment.

The Public Database Anyone Can Search

OK so heres something most borrowers never considered. Your PPP loan is public record. Anyone can look it up. Your business name, your address, your exact loan amount, your lender, how many employees you claimed – all of it is searchable on multiple websites. ProPublica built a tracker. FederalPay.org has another. The SBA released the data publically. Anyone with an internet connection can find your loan in thirty seconds.

What do they see when they look? Everything you claimed. If your a three-person shop and you claimed twenty employees, thats visible. If your a home-based business and you claimed $500,000 in payroll, thats visible. Competitors can see it. Ex-employees can see it. Journalists writing stories about PPP fraud can see it. Data miners running algorithms to identify suspicious loans can see it. And any of them can compare what you claimed to what they know about your actual business.

The public database has become a tool for crowdsourced fraud detection. One individual filed qui tam cases against hundreds of country clubs after analyzing public data and identifying patterns that suggested fraud. Journalists at major news outlets have written articles naming specific businesses whose loans appeared suspicious based on nothing but public data analysis. Your PPP loan isnt just in federal databases that require investigation to access. Its on the internet. Anyone can search. And the searches are happening right now.

The Whistleblower Who Already Knows

Heres the part that keeps people up at night. Your former bookkeeper knows you inflated payroll numbers. They know exactaly what you did becuase they helped you do it. And under the False Claims Act, they can get 15 to 30 percent of whatever the government recovers. Whistleblower law firms are activley soliciting these cases. There running ads. There reaching out to people who might have inside knowledge. There explaining how much money can be made by reporting fraud.

Who has inside knowledge of your business? Ex-employees who saw your payroll records. Former partners who know your actual revenue. Competitors who know your industry averages. Even ex-spouses who had access to financial information during the marriage. Any of these people can file a qui tam lawsuit. And you wont know about it – sometimes for years – becuase the case proceeds under seal while the government investigates.

Think about everyone who left your company unhappily. Think about anyone who might have a grudge. Think about anyone who knows the truth about your PPP application and might want a six-figure payday for reporting it. These arnt hypotheticals. In Virginia, Joe Slaiby paid $350,000 after a whistleblower suit exposed that he falsified payroll records for seven PPP loans. One individual filed cases against hundreds of country clubs based on nothing but public data analysis. The people hunting for fraud arnt just government agents. There private citizens with financial incentive to find you.

The Sealed Lawsuit You Dont Know About

Qui tam lawsuits are filed under seal. This is a legal term meaning the lawsuit is kept secret from you – the defendant – while the government investigates wheather to join the case. The seal period can last 60 days. It routinley gets extended to months. Sometimes years. During that entire time, a lawsuit is working against you and you have no idea it exists.

Heres how that process works. A whistleblower – maybe your former bookkeeper, maybe a competitor who analyzed public data – files a complaint. The complaint goes to the Department of Justice. DOJ has at least 60 days to investigate and decide wheather to intervene. They almost always ask for extensions. While there investigating, there pulling your bank records, comparing your tax filings to your PPP claims, interviewing witnesses. Your the subject of an active federal investigation and you have no clue.

The first indication might be a subpoena for documents. It might be federal agents showing up at your business. It might be a letter from DOJ explaining your a target. By then the investigation has been running for months. The case is largely built. Your options are significantely narrower then they would have been if you had gotten ahead of it.

Right now, there might be a sealed qui tam lawsuit with your name on it. You literaly cannot know until the seal is lifted.

Forgiveness Didnt Close Your File

Alot of borrowers assume that once forgiveness was granted, the matter was closed. They assume the government reviewed there application, approved it, and moved on. That assumption is completly wrong. Forgiveness approval meant almost nothing. The same system that approved loans without checking is now reviewing every claim you made.

Look at what actualy happened. The PPP program was designed for speed. Loans were approved in days. Forgiveness was granted with minimal review. The government prioritized getting money out the door, not verifying claims. That speed created the fraud problem. Now the government is going back through every file with the verification that should have happened originaly. Your forgiveness dosent protect you. It adds another set of claims to compare against your original application.

When you applied for forgiveness, you certified that you spent the funds on eligible expenses. You submitted documentation. You made representations. If those representations dont match what actualy happened – if you claimed payroll expenses you didnt actualy pay, if you certified employee headcounts that were inflated – you now have two fraudulent applications instead of one. The forgiveness process didnt absolve you. It potentialy doubled your exposure.

Why The Clock Runs Until 2030

Congress extended the statute of limitations for PPP fraud to ten years. If you took out a loan in April 2020, the government has until April 2030 to charge you. They are in no rush. Cases are being built methodicaly, prosecutions are being prioritized, and sentances are getting longer. According to federal data, defendants sentenced in 2024-2025 are recieving prison terms 40% longer on average then defendants sentenced in 2021-2022 for identical conduct.

Heres what that timeline means for you. Even if nothing has happened yet – no subpoenas, no agents at your door, no letters from DOJ – it dosent mean your safe. It might mean your case hasnt reached the top of the pile yet. It might mean the qui tam lawsuit is still under seal. It might mean investigators are still gathering evidence. The ten-year window gives them plenty of time to be thorough. And there being thorough.

At Spodek Law Group, Todd Spodek and our team of federal defense attorneys understand how PPP fraud detection actualy works. We’ve seen clients blindsided by investigations they didnt know were happening. We’ve seen the damage that comes from assuming forgiveness meant safety. We’ve seen how sealed qui tam lawsuits develope into federal prosecutions. The question isnt wheather the government can find PPP fraud. Its wheather theyve already found yours.

Heres what we know from defending these cases. Early intervention matters enormosly. Clients who come to us before the subpoena arrives have options that clients who wait dont have. There may be paths to voluntary disclosure. There may be ways to cooperate that reduce exposure. There may be defenses that need to be preserved before investigators make contact. Waiting until agents show up narrows every option. The investigation has been running for months by that point. The case is largely built. Your playing defense from a much weaker position.

The reality is that most PPP borrowers who committed fraud have already been detected. The algorithms ran years ago. The referrals were made. The qui tam suits were filed. What hasnt happened yet is prosecution – and that gap between detection and prosecution is shrinking every month. The government is working through the backlog. There prioritizing larger amounts and more egregious conduct. But the clock runs until 2030. Eventually, they get to everyone.

If your worried about what your PPP application contained, if you know your numbers might not withstand scrutiny, if youve already recieved any communication from federal agencies – call us at 212-300-5196. The consultation is confidential. We can help you understand what the databases show, what whistleblowers might know, and what options exist before detection becomes prosecution.

The government isnt investigating PPP fraud. There just comparing data. And the data dosent lie.

You provided the evidence yourself. The question is what you do before they finish comparing it.