In reaction to the COVID-19 pandemic, the government worked quickly to pass the Coronavirus Aid, Relief, and Economic Security (CARES) Act, offering financial relief to individuals and smaller businesses. Many small business owners have obtained (or are waiting to receive) their share of billions of dollars used on the Paycheck Protection Program (PPP) — forgivable loans you can use for payroll costs, rent, mortgage interest, or utilities.
The program has faced some backlash. Longer waits than anticipated to receive funds is a big complaint among small business owners. This frustration was further compounded if this been revealed that public companies had been approved for millions of dollars in funding underneath the PPP. Although some public companies opted to return the funds, the damage had been done — and many struggling small businesses continue to be left wondering the loans were approved.
In response to the backlash, Treasury Secretary Steven Mnuchin announced that before loans are forgiven, firms that receive funding is going to be audited. In the following paragraphs, we’re going to discuss what we currently know about PPP tax audits. We’ll take a look at what businesses will be audited, what these audits will look like, and answer some FAQs about the PPP audits. We’ll continue to monitor this situation and will update this short article as more information becomes available.
Who Can get Audited?
If you’re a person receiving a PPP loan, you might be wondering in case your business is going to be audited. Rapid answer? Maybe. Any business which has received PPP funding may be susceptible to undergo an audit before loans are forgiven.
On April 28, Treasury Secretary Steven Mnuchin announced that any company that receives a lot more than $2 million like a loan is going to be audited. Before loans are forgiven, each business must undergo a complete audit.
If you receive less than $2 million, you might still be audited. While spot checks is going to be performed on smaller amounts, anyone that has applied for and received PPP loan funds might be audited before receiving loan forgiveness.
As area of the PPP application process, applicants are required to certify that all tax information provided can be shared by the lender to the Small Business Administration and authorized representatives from the SBA Office of Inspector General for review and SBA program compliance.
Why Exist Going To Be PPP Audits?
Currently, to receive funding, PPP applicants are only required to certify in good faith that they need the money and will spend it for approved purposes. These audits will make sure the data provided during the application was accurate which there was a genuine need for getting a loan.
Over 200 public companies were issued huge amount of money in loan funds, among them AutoNation, the la Lakers, and also the parent companies of Ruth’s Chris Steak House and Shake Shack. Although some of these companies returned loan funds following public backlash, it left many wondering why a course designed for smaller businesses was benefiting larger public companies.
Mnuchin clarified the program was intended for small businesses and not for bigger businesses with liquidity. The Department of the Treasury also updated its FAQs to reflect this. Within the document last updated on May 3, 2022, the following is stated:
“[B]efore submitting a PPP application, all borrowers should review carefully the necessary certification that “[c]urrent economic uncertainty makes this loan request essential to support the ongoing operations from the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity as well as their capability to access other sources of liquidity sufficient to support their ongoing operations in a fashion that isn't significantly detrimental to the business. For example, it's unlikely that the public company with substantial market price and access to capital markets can make the required certification in good faith, and the like a business should be ready to show SBA, upon request, the foundation for its certification.”
It’s already round two of PPP funding, and many small business owners haven't yet secure the funds needed to keep their businesses open or fully staffed. A complete audit for businesses that received larger loans and spot checks for smaller loans will help be sure that the businesses that have took part in the program are qualified to receive loan forgiveness.
How PPP Audits Work
At this time, there isn’t a lot of information about how exactly PPP audits work, but there must be more details coming forth within the weeks ahead. For the time being, though, this is exactly what we know.
Mnuchin told the Wall Street Journal that certain of what would be evaluated in the audit is payroll reports. These payroll reports will be accustomed to prove that companies spent at least 60% from the loan proceeds toward payroll costs. There are a few exceptions for this rule:
- Employees did not return despite getting a good faith offer to return to their jobs with similar wages and hours
- The business was unable to find qualified employees
- Business operations were unable to be restored towards the pre-coronavirus levels as a result of restrictions on operations
It can also be safe to assume that businesses may be inspired to provide proof of other approved expenses beyond payroll. You are very likely that any information provided within the PPP application might be evaluated in an audit.
As the Department of Treasury provides more guidance on PPP loan audits, we'll continue to supply the most updated information in this article.
PPP Audit FAQs
Will My PPP Loan Be Audited?
Your PPP loan might be audited to make sure funds were used for his or her intended purpose. All loans over $2 million will be fully audited, while spot checks is going to be performed on smaller loans. One thing to remember, though, is the fact that any PPP loan could be audited.
How Will PPP Loan Audits Work?
Little is famous right now as to exactly how PPP loan audits will work. Those who are audited will need to provide payroll reports proving that a minimum of 60% of loan proceeds were utilised for payroll costs. Additional documentation may also be required. As of now, there aren't any set timelines or more information on these audits, but we expect to find out more within the weeks ahead.
What Information Will have to be Verified For My PPP Loan Audit?
According towards the Treasury Secretary, payroll reports will need to be verified. It is also safely assumed that any information provided in your PPP application may also require verification throughout an audit.
When Will I Face A PPP Loan Tax Audit?
PPP loan tax audits will be performed when businesses seek loan forgiveness. Now, however, there aren’t any timelines available as to when these audits may occur. We will update this article whenever we have more information.
Do I Need A cpa To Navigate A PPP Audit?
From what we know now, you don’t need an accountant to navigate your PPP audit. So long as you provided accurate information inside your application and have documentation backing up your payroll expenses and how loan funds were spent, you should be fine. Most companies that use accounting software will be able to navigate an audit with no accountant, although having one in your corner can certainly make things less stressful. Of course, this may all change because the Department from the Treasury releases more information on PPP audit requirements.
Other Resources For Cornavirus-Affected Businesses
The word “audit” can strike fear in the most organized business owner, but there’s pointless to fear the PPP audit. Though very little is famous at the moment, you shouldn’t have anything to be worried about, provided you gave accurate info on your PPP application and put funds toward approved expenses.
Haven’t applied for your PPP loan? Whether you’re a sole proprietor, self-employed, or own a small business, there exists a number of resources within our COVID-19 hub that will help you navigate the PPP process, learn about other funding options, or read our guides to surviving the financial fallout from the coronavirus.
Finally, don’t forget to check back in on this post for updated information as it’s released. It’s our goal to provide you with probably the most up-to-date information to help small business owners through this troubling time. Good luck!
