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What are the Red Flags for PPP Loan Fraud?

Federal Authorities Investigating Potential PPP Loan Fraud

Federal authorities are looking at companies and individuals who they suspect have defrauded the PPP. Below are some red flags which could trigger a PPP investigation.

The federal Paycheck Protection Program comes with a lot of rules. The SBA acknowledged that the PPP loan application had a lot of compliance burdens, and the fact there was limited information made initially available to applicants. The SBA offered a grace period during which companies could return PPP loans they received improperly without any penalty. This grace period has expired. The SBA-OIG, the DOJ, and other federal agencies are now targeting companies suspected of engaging in PPP loan fraud.

If your company received a PPP loan, it’s possible you might be at risk if you made a mistake. You could be at risk, as a company owner, board member, executive, etc. There are many pitfalls. Executing an effective and timely defense is crucial. All companies who received PPP loans are advised to conduct an internal PPP compliance investigation to make sure there are no pitfalls. At Spodek Law Group, we can help with PPP loan fraud audits, investigations, and criminal defense.

Top 10 Reasons For PPP Loan Fraud

1. No Documentation To Support Your Company’s PPP Loan Application Representations

Companies that make representations during the PPP loan application process have to be able to support those representations. Under the terms of the PPP program, companies have to be able to show:

  • They are applying for PPP because there was uncertainty due to economic conditions, which require the loan to support ongoing operations.
  • There are fewer than 500 employees, qualify as a small business concern, or meet one of the other PPP eligibility standards
  • The owners of the business are eligible to participate in SBA programs such as PPP.

During a PPP loan audit or investigations, agencies will assess the loan recipient’s eligibility, in addition they’ll look for whether companies have documentation on hand to justify the representations they made on their loan application.

2. Multiple PPP Loan Applications Submitted to Many Lenders

Under the CARES Act, companies can only get 1 PPP loan from one lender. Getting more than one PPP loan, or stacking PPP loans, is prohibited. Companies which applied with multiple lenders could face allegations for attempting to stack multiple PPP loans. Even if only one PPP loan was obtained, attempting to get more than one loan can lead to criminal charges being filed. Individuals and companies charged with attempts can face the same penalties that apply – as if it was a successful completion of a criminal offense.

3. No Adoption of PPP Compliance Policies

The CARES Act established requirements for how companies can use PPP loan funds. Strictly, once you get PPP funds, companies must adopt policies and procedures to ensure continuous PPP compliance. It’s important that companies be only allowed to use the funds they received from PPP for specific authorized purposes. These purposes include payroll and related expense, payment of insurance premiums, payment of utility bills, and other things related to the business. In order to account for the disbursements from the PPP loan, companies should deposit the loan into a specific account – and not commingle their PPP loan funds with other company assets.

4. No Adequate Documentation of PPP Loan Expenditures

When you use your PPP loan funds, companies should document their expenditures in order to show they have used their PPP loan for authorized purposes only. In many cases, this means more than recording the transaction in Quickbooks. It means having documentation. It’s important that the use of PPP loan funds was not for personal expenses. Under the terms of the PPP program, utilizing funds for personal expenses was prohibited. The DOJ has already initiated federal cases against individuals who misused PPP funds for personal expenses.

5. Inadequate Documentation Regarding Loan Forgiveness Certification

Another aspect of the PPP program is that it is forgivable, assuming it was used for the right reasons. When seeking forgiveness, companies have to provide documentation, and certify as to the accuracy of the documentation. Inadequate or questionable documentation can be a red flag.

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