How to Handle a Federal Audit of Your PPP Spending

How to Handle a Federal Audit of Your PPP Spending

The Paycheck Protection Program (PPP) provided much-needed financial relief to small businesses during the COVID-19 pandemic. However, the government is now auditing PPP spending to ensure funds were used appropriately. If your business received over $150,000 in PPP loans, you may face an audit. While this can be stressful, being prepared will help the process go smoothly.

Understand the Audit Process

All PPP loans over $2 million automatically trigger an SBA audit once the lender submits the loan forgiveness application^[1]. Smaller loans can also be randomly audited. The SBA notifies your lender, who then informs you within 5 days.

The SBA reviews your eligibility, loan amount calculation, use of proceeds, and forgiveness eligibility. They ensure you used at least 60% on payroll and spent funds during the covered period on eligible expenses. The SBA can request paperwork like payroll reports, bank statements, tax filings, and more.

Gather Documentation

Compile a file with documentation proving your eligibility and proper spending^[2]:

• PPP loan application and forgiveness paperwork
• Payroll reports and tax filings
• Bank statements showing PPP deposit and spending
• Invoices, purchase orders, rent checks for non-payroll costs
• Board resolutions approving PPP loan

Keep detailed records explaining your need for the PPP funds and plans to retain employees. Respond to SBA requests promptly and thoroughly.

Correct Any Issues

If the audit identifies any problems like calculations errors or ineligible expenses, work quickly to resolve them, even if you disagree. Submit corrected paperwork or repay misused funds. This shows good faith effort to comply ^[3].

Appeal Audit Decisions

You can appeal SBA rulings to the Office of Hearings and Appeals within 30 days. Provide evidence showing the decision was factually or legally erroneous. Explain the relief sought and include supporting documentation ^[4]. Though rare, district court appeals are also possible if OHA denies.

Avoid Future Issues

Even after forgiveness, SBA can investigate within 6 years if fraud is suspected, so maintain documentation. Also carefully track and report employee retention credit and other COVID aid to avoid issues ^[5].

Facing a PPP audit can be intimidating, but staying organized and transparent will help demonstrate your compliance. Consult a lawyer if you have questions on handling an audit or appeal.

See Reddit discussions on PPP audits here and here. Get legal perspectives from sites like Avvo, LawInfo, and FindLaw.