2020 was a challenging year for many business owners. The ongoing global pandemic not only brought on a health crisis, but an economic crisis to match. While many companies were able to stay open because they were deemed to be essential workers, many others struggled to maintain their day-to-day operating costs on their own and turned to the government’s SBA PPP and EIDL programs for support.
SBA informed lenders Tuesday, May 4th that the PPP general fund was out of money. The remaining funds ($8 billion) are set aside for community financial institutions (CFIs). CFIs work with businesses in underserved communities. An additional $6 billion is being held in reserve for PPP applications that are still under review.
Between stimulus checks, PPP loans, and EIDL funds, the government was able to help many businesses and individuals hold on through these challenging times.
While government support was critical to many businesses, it has recently come to light that not all recipients of the distributed PPP loans were eligible to receive such financial support. The Small Business Administration (SBA) announced that they would begin auditing loan recipients following the revelation that many recipients of PPP funds applied under false pretenses.
It was initially declared that any business that received a loan of $2 million or more would be audited by SBA to confirm the correct receipt and usage of their loan. Now as we surpass a full year since the initial release of PPP funds, IRS Criminal Investigation Division says they have reviewed more than “350 cases and $440 million in tax and money laundering cases have been investigated in the last year.” As a result, they intend to continue similar audits going forward based on their findings thus far.
Some instances included people attempting to take advantage of the benefits set forth by the Coronavirus Aid, Relief, and Economic Security (CARES) Act include establishing fake businesses to claim eligibility or even claiming loans for businesses that were closed years prior.
For those businesses that received PPP funds but did not keep close track of the funds, those who commingled funds with operating funds and did not adequately document the ways n which those funds were used, the specter of audit may loom large. Loans under $150K have largely been written off as forgiven. Applicants who ask for forgiveness must keep records of the expenses paid with the PPP funds for 3 years (we suggest 5).
In the event of an SBA audit, there is a very limited window in which the audited party can respond, provide paperwork and verify the correct usage of PPP funds. If you are audited by SBA, call the law offices of John Milikowsky immediately. We have resolved over 300 cases of IRS, EDD, and other government audits and we can guide you through the rocky waters of your audit.