PPP Loan Audits: Who Might Be Audited & What to Expect

The CARES Act created the Paycheck Protection Program (PPP) in March 2020, and since then, nearly 5 million small businesses received loans through this program. PPP loans were especially attractive to business owners because the loans could be forgiven if a designated portion was used for payroll expenses within a given period. However, guidelines found in the PPP Interim Final Rules explain that the loans and loan forgiveness are based on self-reported information, and due to the reliance on borrower-provided documentation, the Small Business Administration (SBA) will be auditing certain loans.

Who Is Likely to Be Audited?

The SBA decided that it will audit all loans exceeding $2 million, once the lender has submitted the borrower’s loan forgiveness application. If you borrowed less than $2 million, this does not mean that you will not be audited. In fact, the SBA has reserved the right to audit loans in any amount and is likely to spot check loans for smaller amounts than the $2 million.

When Will I Know If I’m Chosen for an Audit?

You can expect an audit once you have submitted your forgiveness application through your lender. Once the SBA decides to audit a loan it will notify the lender in writing, and then lender will then have five business days to inform the borrower in writing of the audit.

What Should I Do to Prepare for an Audit?

All borrowers who received a PPP loan should retain all documentation related to the loan and  to corresponding expenses for six years after the date the loan is forgiven or paid in full. The borrower must allow authorized representatives from the SBA, including representatives of its Office of Inspector General, to access the documents upon request.

What Will the SBA Look for as Part of an Audit?

If a PPP loan is audited, the SBA will consider the following factors:

  • Was the borrower eligible for a PPP loan under the CARES Act and SBA rules at the time the borrower applied for the funds?
  • Was the loan amount calculated correctly?
  • Were the funds received from the PPP loan used for the purposes outlined by the CARES Act, with the fundamental purpose of keeping workers paid and employed. Funds must have been spent on allowable uses specified in the CARES Act: payroll costs, interest on mortgages, rent, utilities, and interest on any other debt obligations incurred prior to February 15, 2020.
  • Was the loan forgiveness amount calculated correctly on the forgiveness application?

If I’m Audited, Can I Respond to the Audit?

Yes, you may respond to an audit inquiry. The SBA may also request additional information through the lender or directly from you as the borrower. If you do not respond to SBA requests, the SBA can decided that the borrower was ineligible for the loan or forgiveness, in whole or part. Therefore, prompt response to any SBA requests is crucial to the outcome of the audit.

May I Appeal an Audit Decision?

Yes, you may appeal an audit. You must file the appeal within 30 calendar days after the earlier of 1) your receipt of the final SBA loan review decision, or 2) notification by the lender of the final SBA loan review decision. Please note that the appeal does not extend the deferral period of the loan.

Please be aware that the guidelines for PPP are constantly changing, including the audit process. Therefore the above information is subject to change. We recommend that if you are audited by the SBA for your PPP loan that you seek the guidance of professionals.

Amanda McBride | Cassidy CPA

By Amanda McBride


  1. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
By |2020-11-13T17:27:11+00:00November 13th, 2020|Coronavirus, Employers|0 Comments