Across news media outlets reports of the increase in PPP audits have grown steadily since Treasury Secretary Steve Mnuchin announced that all Paycheck Protection Program loans above $2 million will be audited.
Public companies with “substantial market value” and the ability to raise money through capital markets were not the intended recipients of the Small Business Payroll Protection funds. Those funds were meant to help small businesses, as the name of the administering agency (the Small Business Administration SBA) would suggest.
Forgiveness for loans under $150K is automatic and requires only that the recipient keep records for 3 years should an audit occur. While the recipient does still have to file, no documentation proving the correct usage of the funds is necessary to be granted forgiveness on these smaller loans. AS business owners may remember, criteria for forgiveness shifted from the original statement that: “if the recipient of the funds uses 75% of those funds to pay payroll costs and the remaining 25% for operating expenses and used all of the funds within 8 weeks” the PPP loans would be forgiven. That bar shifted in percentages and length of time allotted causing many business owners to wonder how and when which criteria would be applied when it came time to file for forgiveness. The goal, in the midst of the massive unemployment wave, is to keep employees on the payroll.
“Anybody that took the money that shouldn’t have taken the money, one, it won’t be forgiven and two, they may be subject to criminal liability, which is a big deal,” Mnuchin said in an interview on Fox Business. “I encourage everybody to look at this and pay back these loans now so we can recycle the money if you made a mistake.”
While the smallest loans are essentially auto-forgiven, businesses between $150k – $2m amount mentioned by Mnuchin should take heed. Impeccable financial records will be necessary to ensure loan forgiveness should you be aduited. Business owners should put SBA PPP funds into a separate account, pay ONLY payroll costs with 60% – 75% of the funds and use a spreadsheet or other tool to track where the money goes.
Regardless of need, audits will come and it’s always best to have finances in order, reports at the ready and a clear process for compliance in place.