Documentation Requirements to Prove Legitimate PPP Loan Use

Thanks for visiting Spodek Law Group – a second-generation law firm managed by Todd Spodek. We’ve defended federal cases for over 40 years combined. If you’re facing an SBA audit or investigation into your PPP loan, documentation is everything. Without proper records proving how you spent the funds, you can’t defend against fraud allegations. The government assumes missing documentation means fraudulent use – and that assumption can lead to criminal charges.

We help clients respond to SBA audits and DOJ investigations. The difference between civil repayment and criminal prosecution often comes down to documentation. Complete, organized records prove legitimate use. Missing or contradictory records suggest fraud. We’ll explain what documentation you need, how to organize it, and what to do if your records are incomplete.

What the SBA Requires

The SBA recommends keeping all PPP-related records for ten years from the date you received the loan, used the funds, or got forgiveness – whichever is later. This isn’t optional when you’re under investigation. If you can’t produce records from 2020, the government will question whether you used funds legitimately.

Bank statements are mandatory. Every account where PPP funds were deposited or spent. The SBA wants to trace the money from disbursement through expenditure. Complete statements showing all transactions, not excerpts or summaries.

Payroll records must show who you paid, how much, and when. This includes payroll registers, pay stubs, cancelled checks or ACH confirmations for payroll deposits, Forms 941 showing quarterly payroll taxes, W-2s or 1099s for workers, state unemployment filings showing wages paid.

Non-payroll expense documentation includes: mortgage statements showing business mortgage interest paid, lease agreements and cancelled rent checks, utility bills and payment confirmations, invoices from suppliers with proof of payment, documentation of health insurance premiums and retirement contributions.

Your original loan application and forgiveness application must be maintained with all supporting documentation. Worksheets showing how you calculated loan amounts and forgiveness amounts are critical – they show your thought process and support good faith.

What Makes Documentation Credible

Contemporaneous records are powerful. Documents created at the time of the transaction carry more weight than documents created during an audit. Your 2020 payroll registers prove you paid employees then. Creating payroll registers in 2025 when the SBA audits you looks like fabrication.

Consistency across documents matters. Your bank statements should match your payroll records. Your Form 941 should match your W-2s. Your forgiveness application should match your bank statements. When documents contradict each other, the SBA suspects fraud.

We represented a client whose forgiveness application claimed $65,000 in payroll costs but whose Form 941 showed $52,000 in wages for the covered period. The $13,000 discrepancy triggered an audit. We explained the difference – the client included employer-paid health insurance and retirement contributions in the $65,000, which weren’t reported on the 941 but were legitimate payroll costs. We provided documentation of those benefits. The SBA accepted the explanation.

Third-party verification strengthens your case. Payroll processed through ADP or Paychex – those companies have records confirming what you paid. Rent paid to a property management company – they have records. Bank statements from your lender confirm transactions. Third-party records are harder to fabricate than internal documents.

Detailed records are better than summaries. Don’t just provide a spreadsheet saying “payroll: $60,000.” Provide the underlying records – every pay period, every employee, every check or ACH transfer. Summaries make auditors suspicious. Detailed records give them confidence.

Electronic vs. Paper Records

Electronic records are acceptable and often easier to organize. PDFs of bank statements, payroll reports exported from accounting software, scanned receipts. Make sure files are legible and complete.

But electronic records must be authentic. If you provide bank statements as PDFs, auditors might verify them with your bank. If you altered the PDFs, that’s document fabrication – a federal crime. Only provide authentic records.

Paper records are fine if that’s what you have. Make copies before submitting to the SBA – you need to keep the originals. Organize them logically: payroll records together, rent payments together, utility payments together. Label everything clearly.

Some businesses lost records – fire, flood, computer crash. If you lost documentation, explain what happened and provide whatever records you can reconstruct. Third-party sources might have copies: your bank can provide statements going back several years, your payroll company might have archives, your accountant might have files.

Common Documentation Failures

No bank statements is fatal to your case. How do you prove you spent PPP funds on authorized expenses without bank records showing the transactions? You can’t. The government assumes you spent the money on personal expenses.

Get bank statements from your bank. They keep records for years and can provide copies, usually for a fee. If accounts are closed, request archived records. If the bank merged or was acquired, contact the successor bank.

Incomplete payroll records create problems. You have some pay stubs but not all. You have W-2s but no payroll registers. You have cancelled checks but no documentation of what they were for. Auditors fill gaps with assumptions unfavorable to you.

Reconstruct payroll records from available sources. Your tax returns show total payroll for the year. Your bank statements show payroll deposits. Your W-2s show what each employee earned. Combine these to create a complete picture even if your original payroll registers are lost.

Altered documents destroy credibility. We’ve seen clients who changed dates on invoices, inflated amounts on payroll records, created fake receipts. The SBA has forensic accountants who catch alterations. Once they find one altered document, they assume everything is fake.

Never alter documents. If you have a problem with your records, explain it honestly. Missing documentation is better than fabricated documentation. One is a civil issue, the other is criminal fraud.

Documentation that doesn’t match your applications is dangerous. Your loan application said you had 15 employees. Your payroll records show 8 employees. That discrepancy suggests you lied on the application. Your forgiveness application claimed $70,000 in rent payments. Your lease agreement shows $40,000 annual rent. That gap raises fraud questions.

Address discrepancies immediately. Don’t wait for the SBA to find them. Explain what happened – you counted contractors as employees, you included multiple properties, you misunderstood the calculation. Proactive explanation is more credible than reactive excuses.

Organizing Documentation for an Audit

When the SBA sends an audit letter, they’ll request specific documentation. Read the request carefully and provide exactly what they ask for. Don’t send extra documents they didn’t request – that invites additional questions. Don’t omit requested documents – that looks like you’re hiding something.

Create an organized response. Use a table of contents listing each document you’re providing. Label documents clearly: “Bank Statements for Business Account ending in 1234, January 2020 – June 2020.” Make it easy for the auditor to find what they need.

Provide a narrative explanation with your documentation. A cover letter or memo explaining your PPP loan use, how you calculated forgiveness, what each category of documents shows. Walk the auditor through your records – don’t make them piece it together.

Highlight key information. If the SBA asked for proof of payroll costs and you’re submitting 50 pages of bank statements, mark the payroll deposits. Use sticky notes or highlights showing where the relevant transactions are. Make the auditor’s job easier.

Keep copies of everything you submit. You might need to reference these documents later. If the audit escalates to investigation, you’ll need your records to defend yourself.

When You Can’t Provide What They Want

If you don’t have documentation the SBA requests, explain why in writing. Don’t ignore the request or make excuses – that suggests you’re hiding fraud. Be honest: “I don’t have payroll registers from 2020 because my business used a payroll service that has since closed and I can’t access those records.”

Offer alternatives. You don’t have payroll registers, but you have Forms 941, W-2s, and bank statements showing payroll deposits. Those sources collectively prove the same information. The SBA might accept alternative documentation if it’s credible.

Affidavits can fill gaps. Your own sworn statement about how you used PPP funds has limited value – you’re biased. But affidavits from employees, vendors, or your accountant can support your claims. An employee stating “I worked for the business during 2020 and received the wages shown on my W-2” helps prove payroll costs.

Sometimes you can’t provide adequate documentation. Your records are lost, you didn’t keep records, or you used funds improperly and don’t have documentation supporting proper use. At that point, you’re facing partial or complete denial of forgiveness and potentially criminal investigation.

Get legal advice before responding. A lawyer can help you navigate the impossible situation – how to respond honestly without incriminating yourself, whether to assert Fifth Amendment rights, how to minimize civil and criminal exposure.

Documentation in Criminal Investigations

When the FBI or SBA Inspector General investigates PPP fraud, documentation becomes evidence. They’ll subpoena your bank records, your tax returns, records from third parties. They’ll compare everything to your loan application and forgiveness application looking for discrepancies.

Your documents are used to prove or disprove fraud. Complete, consistent records support your innocence – they show you actually used funds as claimed. Missing or contradictory records suggest guilt – why would innocent person not have records, and why would records contradict the applications?

Don’t produce documents to criminal investigators without a lawyer. What you provide becomes evidence. How you organize it, what you emphasize, what you omit – all analyzed by prosecutors. A lawyer helps you respond appropriately without making strategic mistakes.

Don’t create documents during an investigation. If you didn’t have contemporaneous payroll records, don’t create them now to fill the gap. Prosecutors can prove when documents were created. Creating records during an investigation looks like fabrication even if the information is accurate.

The government will use forensic analysis. They examine metadata on electronic files showing creation dates. They analyze paper documents for paper stock, ink, printer characteristics. They compare signatures to detect forgeries. If you’ve altered or created documents, they’ll catch it.

Invocation of Fifth Amendment rights is an option. If producing documents would incriminate you, you can refuse based on the Fifth Amendment. This doesn’t work for all documents – corporate records aren’t protected. But personal documents in some circumstances might be.

Asserting Fifth Amendment rights has consequences. In civil proceedings, courts can draw adverse inferences from assertion. The SBA might deny forgiveness based on your refusal to produce records. But criminal conviction has worse consequences than civil denial – losing your freedom versus losing money.

Get Legal Help Before Responding

At Spodek Law Group, we help clients organize and present documentation in response to SBA audits and criminal investigations. We review your records, identify gaps, explain discrepancies, and develop a response strategy that protects your rights.

Todd Spodek is a second-generation criminal defense lawyer with years of federal court experience. Our team includes former prosecutors who understand how documentation is used in PPP fraud cases. We know what makes documentation credible and what raises red flags.

We help you gather records from third-party sources when your own records are incomplete. We work with accountants to reconstruct payroll and expense information. We prepare affidavits from witnesses supporting your version of events.

If your documentation has problems – discrepancies with your applications, missing records, alterations – we assess your exposure and develop a strategy. Sometimes full cooperation with supplemental documentation resolves issues. Sometimes asserting rights and limiting what you produce is smarter. The right strategy depends on your specific facts.

Documentation requirements for PPP loans are extensive and unforgiving. The government expects complete records going back to 2020, organized and ready to produce on demand. If you’re facing an audit or investigation and your documentation isn’t perfect, call us. We’re available 24/7 and handle cases nationwide.

Don’t respond to SBA audit requests alone. What you provide and how you provide it affects whether the case stays civil or becomes criminal. Don’t wait until charges are filed – by then, what you produced during the audit becomes evidence against you. Call Spodek Law Group for a confidential consultation about your documentation and your options.