Businesses that have received loans under the Paycheck Protection Program (PPP) should be aware of the possibility that they’ll be audited by the U.S. Small Business Administration’s (SBA) Office of Inspector General, with support from the IRS and other federal agencies. The SBA will automatically audit every loan that’s more than $2 million after the borrower applies for forgiveness, but smaller loans may be subject to scrutiny, too.

Although the SBA has established an audit safe harbor for loans of $2 million or less, that carveout applies only to the examination of the borrower’s good faith certification on the loan application that the “current economic uncertainty makes the loan request necessary to support the ongoing operations” of the business. The SBA also recently notified lenders that it’s eliminating the loan necessity requirement for loans of more than $2 million. Those borrowers will no longer need to complete a burdensome Loan Necessity Questionnaire.

All borrowers, however, still might be audited on matters such as eligibility (for example, the number of employees), calculation of the loan amount, how the funds were used and entitlement to forgiveness. Borrowers that receive adverse audit findings may be required to repay their loans and, depending on the missteps uncovered, could face civil penalties and prosecution under the federal False Claims Act.

Businesses that received loans of more than $2 million shouldn’t wait to prepare for their audits. They can begin to work with their CPAs now to gather and organize the documents and information that auditors are likely to request, including:

  • Financial statements,
  • Income and employment tax returns,
  • Payroll records for all pay periods within the applicable covered period,
  • Calculation of full-time equivalent employees, and
  • Bank and other records related to how the funds were used (for example, canceled checks, utility bills, leases and mortgage statements).

Note that some of this documentation will overlap with that required when filing the application for loan forgiveness.

Act now

Businesses nearly always have a lot on their plates, so it’s not surprising that some might not have been laser-focused on the various dates relevant to their PPP loans. Now is the time to ensure that you file your forgiveness application in a timely manner and have the necessary documentation gathered to survive the SBA audit that may follow. Contact us for assistance.

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Bert Mills, CPA, is the Managing Partner at Moore Colson. In his role, Bert sets the vision and mission of the Firm and works closely with the Firm’s leadership to drive and implement strategies. 

Andy Starnes, CPA, is a Partner and Tax Services Practice Leader Moore Colson. Andy’s specialties include corporate tax compliance and planning, business consulting and multi-generational planning with a focus on the construction, professional services and staffing industries.

Moore Colson CPAs and Advisors Chris Arnone Audit Practice Leader

Chris Arnone, CPA, is a Partner and Business Assurance Practice Leader at Moore Colson. Chris has over 20 years of experience providing audit, accounting and consulting services for companies in the transportation, manufacturing, distribution, staffing, private equity and venture capital industries.


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