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The SBA PPP Loan funds have been replenished recently and are currently being disbursed among many small businesses throughout the U.S. Recently, Treasury Secretary Steven Mnuchin announced that all SBA PPP Loans of over $2 million will be subject to an audit. That being said, businesses who take out smaller loans may also be audited, but every business that takes out a loan of more than $2 million can count on a visit from the IRS within the next few years.
This new protocol was likely implemented due to larger businesses like Shake Shack and the Los Angeles Lakers deciding to give back their PPP Loans after requirements were tightened by the SBA.
This new information can create anxiety for some small businesses who are unsure whether or not they meet the criteria and are confused about how to utilize the funds properly. What does this audit mean for these businesses and how can you prepare?
If you have taken out a loan and are audited by the IRS at a later date, you will be required to provide a payroll report, showing you allocated the SBA PPP resources to payroll, utilities, rent, and the other funds that qualify for loan forgiveness.
Mnuchin also explained that audited companies will be carefully reviewed based on whether or not the company needs the funding. If companies are unable to show proof that they needed the loan, they will not have their loans forgiven.
The program was designed specifically for small businesses with 500 employees or less, but after the first round of funding was depleted by larger businesses receiving the loans, Mnuchin decided to implement a new, stricter protocol with the implementation of audits and a few loan forgiveness adjustments.
PPP Loan Forgiveness
In order to apply for forgiveness, a business owner must include payroll and non-payroll costs that were spent over the eight-week period, since the SBA PPP funds were put into your account. Business owners are also required to bring back the same number of employees as pre-coronavirus. You must also identify who qualifies as a full-time employee, in order to ensure you bring back the same amount of employees pre-pandemic.
The costs that will be considered forgiven are payroll costs during the eight-week period, beginning at the first disbursement. As well as mortgage interest on a property, business rent or lease payments for real or personal property, and any utility payments during the eight week period before February 15.
Payroll costs that will be forgiven must be employees whose total compensation, excluding health insurance, retirement, contributions, and other benefits, cannot go beyond $100,000 prorated for the eight weeks.
In the forgiveness application, you should also include any payroll paperwork, accounting records, and other information that illustrates your effort to maintain normal business with the loan amount.
There are still a few loan forgiveness terms being adjusted for the SBA PPP Loan. First, Congress is looking to extend the time period for submitting your forgiveness application, potentially going up to 24 weeks. As well as potentially making the ‘spend’ period to 12 weeks instead of eight.
To ensure all your funds are allocated correctly, use our TGG PPP Payroll Tracker. At TGG, we want to help you get your funding and get your loans forgiven! As you continue to navigate funding for your business, visit our COVID-19 Resource page to find out what the best option for your company is and how to be prepared for applying for these programs.
How PPP Loan Audits Work
PPP loan audits are an essential part of ensuring that the Paycheck Protection Program (PPP) funds are used appropriately. PPP loans audited by the Small Business Administration (SBA) are selected based on certain criteria such as loan amount, borrower’s industry, and loan status.
The PPP loan auditing process involves examining the borrower’s documentation, including payroll records, tax filings, and other financial statements, to verify that the loan funds were used for eligible expenses. The auditors may also conduct interviews with the borrower’s management team to obtain further information.
The purpose of the PPP loan audit is to identify any potential fraud or misuse of funds and to ensure that borrowers comply with the PPP loan program’s rules and regulations.
How to Prepare for an SBA PPP Loan Audit
Preparing for a PPP loan audit by the Small Business Administration (SBA) can be a daunting task for any borrower. It is crucial to be proactive and organized to ensure a smooth and successful PPP loan audit process.
The first step is to gather all the necessary documents and records related to the loan. It is advisable to review the loan forgiveness application and make sure that all expenses are appropriately documented.
Businesses should keep accurate and detailed records of how the loan funds were used and maintain a clear audit trail. It is recommended to seek the guidance of a professional accountant or attorney to ensure that all the documentation and records are in compliance with the PPP loan program’s rules and regulations.
PPP Loan Audit After Forgiveness
The PPP loan audit period does not end with loan forgiveness, as borrowers may still be subject to an SBA PPP loan audit after forgiveness. The SBA may audit a borrower’s PPP loan up to six years after the loan is forgiven.
The PPP loan audit after forgiveness is conducted to ensure that the borrower has used the loan funds for eligible expenses and complied with all the rules and regulations of the PPP loan program.
The SBA may request additional information or clarification during the PPP loan audit after forgiveness. Therefore, it is recommended that borrowers keep all the relevant records for at least six years after the PPP loan’s forgiveness date.
What the SBA Looks for During an Audit
During an SBA audit, the Small Business Administration (SBA) will review a borrower’s documentation to ensure that they have complied with the Paycheck Protection Program (PPP) loan rules and regulations.
The SBA considers a few key aspects during an audit, including the eligibility of the borrower and the loan, the loan amount, and the use of the loan funds.
The SBA will also examine the borrower’s documentation to ensure that they have maintained records of how the loan funds were spent.
How Long Will PPP Loans Be Investigated?
The investigation period for PPP loans depends on various factors, including the loan amount and the borrower’s industry. The Small Business Administration can conduct a PPP loan audit up to six years after the loan is forgiven.
The SBA will usually begin the PPP loan audit process within one year after the borrower has received loan forgiveness. I there is suspicion of fraud or other criminal activity, the investigation period may take longer. If additional information is requested by the SBA, this can also extend the investigation period.
How TGG Can Help
TGG is committed to helping our clients get their loans forgiven. With our TGG PPP Payroll Tracker, you can ensure that all of your funds are allocated for correctly.
Our financial experts are here to assist you with every step of the process, whether you’re being audited or want to apply for forgiveness.
We also offer forecasting tools for small business to help you predict and maximize the future successes of your business. Get in touch with us today to learn more about what we can do for you!
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Sarah Lamond is a Consulting CFO with TGG. She focuses on improving company’s operating performance through strategic analysis of financial and other operating data. As a CFO, Sarah is responsible for developing financial and operational strategies as well as relying on metrics to maintain or improve business performance along with building relationships with clients. Her goal is to drive revenue and profitability for her clients while still providing insight, guidance, financial foresight and industry experience.
