Businesses that borrow money through the federal Paycheck Protection Program (PPP) can expect to be audited before the loans are forgiven, Treasury Secretary Steven Mnuchin told The Wall Street Journal.
“One of the things that will be required is you will have to show a payroll report that you actually spent the money on payroll and other items that qualify for forgiveness,” he said.
As reported Tuesday (April 28), Mnuchin told CNBC the government will perform a full audit on any company that borrowed more than $2 million from PPP being overseen by the Small Business Administration (SBA) would face full audits, with spot checks for smaller amounts.
But Tuesday night, Mnuchin told the paper all loans will be audited.
The SBA has issued $660 billion in loans that can be forgiven if borrowers use them to retain or rehire employees. Borrowers must certify 75 percent of the money was spent on payroll. Paycheck loans are designed for places with 500 or fewer workers and have a maximum payout of $10 million.
Typically, the Treasury depends on lenders to audit the small business loans it backs. But to get the money out the door quickly, Congress allowed banks to skip the step of checking for fraud or errors, as long as borrowers provided documentation.
“The bank doesn’t have a lot of incentive” to investigate, said Richard Prisinzano, a budget expert at the University of Pennsylvania, told the newspaper. “They’ll do bare-minimum checks.”
Given the amount of money at stake, the SBA is left to verify whether PPP recipients kept most of their workforce before the loans become grants.
Verifying how SBA loans have been used in the past has posed problems for the agency.
The WSJ reported a 2011 audit of SBA lending found the agency’s inspector general discovered documentation deficiencies in 40 percent of the loans it reviewed resulting in “inappropriate or unsupported loan approvals.”
“The disasters the SBA has had to deal with in the past pale in comparison to what they have to deal with now,” Jonathan Bean, a Southern Illinois University economic historian, told the news outlet. “The SBA is a shoestring agency with several thousand employees. It’s literally impossible for them to do the kind of job that taxpayers would desire.”
While the SBA saw its budget grow with $2.8 billion for salaries and expenses on top of its $1 billion budget, the money was expected to be used for handling new disaster lending.
The SBA didn’t respond to requests for comment, the WSJ reported. But lenders say the agency and Treasury have yet to provide guidance on loan forgiveness.