Many small business owners received forgivable loans as part of the CARES Act Paycheck Protection Program (PPP). If you received a PPP loan, you may be audited by the SBA to ensure funds were used for their intended purpose. Businesses receiving more than $2 million in PPP loans will be fully audited before the loans are forgiven, and spot checks will be made for smaller loans.
Below are some FAQ’s regarding what to expect if your PPP loan is audited.
When might an audit happen?
PPP loan audits will be performed when businesses seek loan forgiveness. However, the borrower must retain PPP documentation files for six years after the date the loan is forgiven or repaid in full.
What are some things that the SBA may verify?
The auditor will verify that the certifications made when applying for the PPP loan were accurate and truthful. They will review the following:
- Eligibility: was the borrower eligible for the PPP loan based on the rules and guidance available at the time of application?
- Loan amount and loan use: did the borrower calculate the loan amount correctly, and did the borrower use the loan funds for allowed expenses under the CARES Act?
- Loan forgiveness: is the borrower eligible for forgiveness on the claimed amount?
How do I make sure that I’m using my PPP funds correctly?
If you want the loan to be forgiven, at least 60% of the funds must be spent on payroll and employee benefits, and the remaining 40% on utilities, rent, and mortgage interest. This will be verified by examination of your payroll records and expense documentation.
If you spend the funds on anything else, you could be subject to additional liability or even charges of fraud.
What could happen as the result of an audit?
If the SBA determines you are ineligible for the loan or forgiveness amount, your forgiveness application may be denied and they may request you repay the outstanding loan balance. You may choose to appeal the SBA’s determination.
What is the appeal process?
An appeal must be filed within 30 calendar days after either:
- receipt of the final SBA loan review decision, or
- notification by the lender of the final SBA loan review decision, whichever is earlier.
Once an appeal is filed, a judge will issue a decision within 45 calendar days.
Do I Need A CPA for a PPP Audit?
Your CPA can help you find and prepare the documents requested during an audit. Having a CPA manage the process is not required but can help things run more smoothly.
The experienced professionals at RJI CPAs can help you navigate a PPP loan audit and mitigate its potential impact to your business.
Manuel J. Ramirez, CPA MST FABFA
Manuel is Chairman/International Tax Partner at RJI CPAs, with specific experience in international and multi-state taxation, M&A transactions, and representation before the IRS and state regulatory agencies. Manuel can be reached at 949-852-1600 or MRamirez@rjicpas.com.
Fernando Jimenez, CPA, MST, CEO
Fernando Jimenez is the Chief Executive Officer and tax partner of RJI CPAs. Fernando has experience in corporate re-organizations, buy/sell transactions, representation before the IRS and state agencies, succession and operations planning, and transactional analysis. He can be reached at 949.852.1600 or fjimenez@rjicpas.com.
About RJI CPAs
Established in 1980, RJI CPAs specializes in audit, accounting, corporate and international tax issues for publicly traded and privately held companies. RJI is PCAOB registered and the Southern California member firm of DFK International, the 8th largest global accounting network.
