What You Need to Know About PPP Loan Audits

The SBA decided, in consultation with the Department of Treasury, that it will review all loans in excess of $2 million following the lender’s submission of the borrower’s loan forgiveness application. That being said, the SBA has reserved the right to also audit loans in any amount at any time, and will likely “spot check” loans in lower amounts.

Since the first round of funding was depleted so quickly, and many large businesses were approved for loans they didn’t need, the SBA is stepping up efforts to make sure every loan is going to the right business, for the right amount, for the right purpose.

When would an audit happen? PPP loan audits will be performed when a business seeks loan forgiveness. However, the borrower must retain PPP documentation files for six years after the date the loan was forgiven or repaid in full.

What are some items that the SBA may verify?

  • Eligibility: Was the borrower eligible for the PPP loan based on the rules and guidance available at the time of application?
  • Loan amount and loan use: Did the borrower calculate the loan amount correctly, and did the borrower use the loan funds for allowed expenses under the CARES Act?
  • Loan forgiveness: Is the borrower eligible for forgiveness on the claimed amount?

Are you using PPP funds correctly? If you are looking for the loan to be forgiven, at least 60% of the fund must be spent on payroll and employee benefits, while the remaining 40% on utilities, rent and mortgage interest. This will be verified by examination of your payroll records and expense documentation. If you spend funds on anything else, you could be subject to additional liability or even charges of fraud.

What could happen as the result of an audit? If you are ineligible for the loan or forgiveness amount, your forgiveness application may be rejected by the SBA and they may demand you repay the outstanding loan balance. You may choose to appeal the SBA’s decision.

How can you appeal? Your appeal must be filed within 30 calendar days after: 1. The receipt of the final SAB loan review decision, or; 2. Notification by the lender of the final SBA loan review decision; whichever is earlier. Once the appeal is filed, a judge will issue a decision within 45 calendar days.

Do you need a CPA for a PPP Audit? Although it is not required to have a CPA during this process, having one will help with finding and preparing documents that will be requested during an audit.

Talley’s professionals have spent hundreds of hours reviewing the law, regulations and SBA PPP FAQs issued on an almost daily basis and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or forgiveness audit process.