We are barely into round 2 of the PPP money applications, and for the first round of PPP applications the forgiveness phase is well underway.  We have a couple people who participated in our CERT training program get audit notices for the Paycheck Protection Program.  They applied for the PPP money early in the game last March, and then they applied for forgiveness of the PPP loan they got.  Now they are being audited by the SBA.

The banks they worked with have issued audit notices to them and are requesting justification for the original amount of money requested through the PPP program.  They are also requesting justification for the forgiveness applied for.  I am sure the folks will be fine with their audits, because I have talked to them, and they appear to have played by the rules and weren’t trying to pull any funny business on the Small Business Administration, the government agency that administers the PPP program and EIDL program. 

The audits are being conducted through the lender that processed the PPP loan applications and forgiveness applications.  The businesses being audited are having a relatively easy time reconstructing what they did to make the original loan application and the forgiveness application. 

The point I would like to make is many of these loans will be audited.  The SBA has six years to make their audit requests.  It is going to be very hard to reconstruct everything five years from now.  You need to prepare now.

We have said this before, but it is worth repeating here.  You need to keep your loan applications and your forgiveness applications.  Then you have to keep all of the supporting documentation.

You have already had to justify the original numbers you submitted for your PPP loan.  You had to have all of the W2 information and the 941 information to calculate your request for the PPP loan.  You need to copy all of that information and put it in a folder.  You need to do it now.  You also should collect all of the cancelled paychecks for the payroll period you based your original application on.  You will need all of the documentation for the utilities, mortgage, rental bills and anything else you used to justify your original application for the PPP.  You will need the mortgage contracts and rental contracts.  You will need cancelled checks or proof of payment for all of the expenses you included in your original PPP application.

You should not have included 1099 information you paid to other people, so you shouldn’t need that information. 

If you applied for loan forgiveness, you needed to show all of the W2 information for both the period when you spent the PPP money and for the period you compared it with in order to justify the forgiveness.  Remember you had to show that your payroll hadn’t dropped by more than 25% or you lost some of the forgiveness, so you have to prove that.  W2s, 941s, cancelled checks, rental bills, utility bills, everything that entered into your calculations, has to be documented and proven.

All of this has to be done now, because in five or six years, you won’t be able to do it.  You may have retired and sold your company in six years.  The secretaries and accounting folks that put everything together for these loans and forgiveness applications may be gone in six years.  In five years when the audit comes, the SBA isn’t going to accept anything as an excuse.  You signed that you are personally liable for the loans and the requests for forgiveness.  If you can’t prove all this stuff through the company, you’re out of luck.  The SBA will take it out of your skin personally. 

This could all be a nightmare.  You need everything in files.  Hard copy files and electronic files.  Have both sets of files.  Make sure they are preserved.  Even for bigger companies, if you signed the loan application or forgiveness application, you are personally liable.  In a bigger company, that means you go bankrupt when the audit comes and you can’t prove everything.  That’s not good!!

Attached are two of the letters that one client has gotten.  They will help you see what they are looking for. 

We all bought into the PPP program.  Now is the time – CAVEAT EMPTOR

Lee and Ben