Protecting PPP Loan Recipients from Civil and Criminal Investigations by Richard Fechter, JD, CAMS, CFE

Posted on November 23, 2020 by Richard Fechter

As millions of business owners and independent contractors seek forgiveness of much-needed Paycheck Protection Program (PPP) loans they received in the wake of the COVID-19 pandemic, many are surprised to find themselves the subject of fraud investigations by the federal government.

Last week, the Justice Department announced it already has publicly charged more than 80 PPP loan recipients with attempting to steal more than $260 million in federal funding and has several thousand additional investigations underway. While it is true that many PPP loan recipients took advantage of the program for unlawful gain, many qualified borrowers are facing inquires and may find they unintentionally made errors in spending their funding, perhaps due to the many changes the government made to the program. Now is the time to look back and prepare for a strong defense, should it be necessary.

To qualify for PPP loan forgiveness, borrowers must demonstrate economic uncertainty at the time of their funding requests, and they must maintain their full-time equivalent employees and limit the use of loan proceeds during the crisis period to pay only approved expenses, including payroll, rent, mortgage interest and utilities. If they did not segregate PPP funds from their operating accounts from the onset, borrowers must be prepared to demonstrate that they did not deplete their loan amounts for any expenses other than those allowed by the PPP guidelines. This would entail the use of accurate recordkeeping, including receipts and bank statements to prove appropriate and allowable use of received funding, as well as financial statements to prove economic uncertainty.

In fact, as part of its new audit procedures, the SBA recently issued a new Form 3509, PPP Loan Necessity Questionnaire, asking borrowers to provide documentation supporting their original PPP application certification of economic necessity. Following are some of the questions borrowers should consider before applying for loan forgiveness, as they may impact the ultimate decision:

How can legal counsel prepare their firms and clients for a likely tsunami of PPP-related civil and criminal charges? First, ensure books and records are up to date and double-check all documentation, now, before applying for forgiveness. Second, if you have not already prepared your necessity justification, get started on it immediately. Now is the time for attorneys to reach out to clients, helping them prepare required PPP loan justification and documentation and engaging outside accountants to assist, as needed.

If you have any questions about the PPP or other programs offering financial relief to businesses in the wake of the COVID-19 pandemic, please contact the Forensic and Advisory Services Group at Berkowitz Pollack Brant Advisors + CPAs at (305) 379-7000 or at