Corporate Audits for PPP Loan Fraud

Last Updated on: 16th March 2025, 04:39 pm

CORPORATE AUDITS FOR PPP LOAN FRAUD

You’ve probably heard about PPP loans. Those loans that were designed to help businesses survive during the pandemic have also become a magnet for criminal investigations. Federal agencies are cracking down on companies they suspect of lying to get Paycheck Protection Program (PPP) funds. This crackdown, that was triggered by widespread allegations of fraud, has led to a wave of corporate audits. If your business collected PPP money, even if you believed you were doing everything correctly, you might be in the government’s crosshairs. Federal auditors and investigators want to see if you met the qualifications, used the money properly, and reported facts accurately. Failure to pass this scrutiny can result in massive penalties, criminal charges, or both.

I’m not here to scare you. I’m here to tell you the plain truth: The Department of Justice (DOJ) and the Small Business Administration (SBA.gov) have been aggressively reviewing PPP loan recipients. This includes small companies, large enterprises, and everything in between. Agents are looking for evidence of fraud, which can be false statements about employee counts, grossly inflated payroll expenses, or the misuse of loan funds for non-eligible expenses. Corporations that were sloppy or deceptive in their loan applications are at the highest risk. But even well-intentioned business owners can stumble if they overlooked key rules or misunderstood the documentation requirements. The audits have begun, and they aren’t going away anytime soon.

We are Spodek Law Group, a nationwide federal defense law firm created by Todd Spodek. Our attorneys have extensive experience dealing with white-collar crimes and government fraud allegations. We stay on top of new regulations, enforcement trends, and best practices for defending corporate clients facing PPP audits. Our approach is blunt, practical, and fierce. We will cut through the nonsense and tell you exactly what you need to do, because the stakes are too high for sugarcoating. A single audit that unveils questionable records can lead to a criminal indictment. Once that indictment lands, your reputation is on the line, your finances can collapse, and your freedom might be at risk. This is real talk, not some corporate PR spin.

WHY ARE PPP LOANS UNDER HEAVY SCRUTINY?

The government that disbursed PPP loans wants to ensure the funds were used correctly. When the program started, the rules were somewhat loose, because officials rushed to help businesses. That rush created an environment ripe for abuse. Now, investigators who were tasked with tracking down fraud have discovered numerous red flags, like suspicious payroll numbers, phantom employees, or inflated revenue claims. The Small Business Administration and the U.S. Treasury are collaborating with the FBI, the IRS, and other agencies to audit these loans.

What does an audit look like? Auditors might demand payroll records, bank statements, and memos, emails, phone call records, etc. They might interview your accountants or request emails that discuss the PPP application. If they find a mismatch, or if your records look manipulated, they can label you a fraudster and file a case against you. Fraud that is proven in federal court often results in felony convictions. Felony convictions that involve financial crimes usually come with prison terms, large fines, and an order to pay restitution. That’s enough to bankrupt many businesses and ruin the lives of everyone involved.

EXAMPLES OF POSSIBLE FRAUD

People sometimes assume that only blatant lies qualify as fraud. In reality, the government’s definition is broader. There are multiple ways your company can get entangled in PPP loan trouble:

• Overstated Payroll: A business that was claiming to have more employees than it really had can be accused of inflating loan eligibility.
• Fake Business Entities: A shell corporation that was created just to receive PPP funds, with no legitimate operations, will draw immediate suspicion.
• Misuse of Funds: The money that was supposed to cover payroll expenses is used instead to buy luxury cars, pay personal debts, or invest in unrelated ventures.
• False Certifications: Owners who certified that their company was struggling due to COVID-19, when it wasn’t, may face charges of making a false statement.

ONE VIEWPOINT VS. ANOTHER

Some corporate leaders argue that the rules for PPP loans were confusing from the start. They believe any mistakes on their part were innocent. Others believe that if you took the money, you should have known the guidelines and complied perfectly. Both viewpoints hold some validity, but neither excuses you from an audit. If the auditors discover red flags, they will not care whether you blame confusing regulations. They will want accountability. At Spodek Law Group, we can show good-faith efforts to comply, highlight how quickly the loan program was rolled out, and challenge the government’s interpretation of events. However, we won’t sugarcoat the risks. If you made glaring errors or padded your numbers, you could face serious repercussions.

Remember: The government is not your friend here and they have a job to do – protect people. Even if you believe the prosecutor is “just doing a routine check,” you must treat every question as a threat. Many people talk themselves into bigger problems by oversharing or by hastily turning over documents without a legal review, it’s ok to protect yourself by saying no to giving up documents. Once the government has enough evidence to suspect fraud, they can ramp up the case against you, leading to criminal charges for bank fraud, wire fraud, or making false statements to the SBA. Felony charges that carry hefty prison sentences and large fines can upend your life overnight.

PENALTIES AND CONSEQUENCES

Any corporation that was found guilty of PPP loan fraud can face situations such as, but not limited to:

• Criminal Convictions: A felony record, which destroys your chances of getting future government contracts or certain licenses.
• Fines and Restitution: The judge that handles your sentencing can order you to pay large sums of money, possibly exceeding the original loan amount.
• Seized Assets: The government that believes you gained from fraud can freeze your bank accounts or seize property.
• Prison Time: Major fraud convictions often include incarceration for the company’s officers or owners.

Some business owners who consider themselves safe are shocked when the U.S. Attorney’s Office announces indictments. The fact that your company is legitimate, or that you have good intentions, does not protect you if the paperwork or the usage of funds appears suspicious. Even if a judge eventually finds you not guilty, the investigation can cost you enormous legal fees and tarnish your reputation.

HOW AN AUDIT UNFOLDS

You get a notice. The SBA or another agency informs you that your company is being audited for PPP loan compliance. This might come via a letter, an email, or a phone call from an assigned investigator – sometimes they might come to your place of business. The notice will likely request specific records, including bank statements, payroll logs, and tax documents.

They dig deep. An audit is not surface-level. Agents can compare your tax returns against the payroll claims in your loan application. They may examine bank transactions to see if you really spent the PPP money on authorized purposes, like wages or rent. If they see random payments to personal accounts or suspicious wire transfers, they might accuse you of misusing the funds.

You respond (hopefully with a lawyer). At this point, you have to make decisions about what to share, how to share it, and whether to challenge the scope of the audit being done. Handing over everything without legal guidance can lead to more questions, and deeper probes. You want to limit the information being given, because once it’s given – it cannot be taken back. Holding back documents can spark accusations of obstruction. An attorney can balance these conflicting pressures and protect your rights – attorneys know how to navigate these conversations. If you ignore the audit, or reply slowly, the government may escalate the situation, potentially turning a civil inquiry into a criminal investigation.

Outcome is determined. If the auditors see inconsistencies, they could refer your case to the DOJ for prosecution. If things check out, you might get a letter saying the audit is complete. But do not assume it ends there – it is impossible to assume that. Sometimes, smaller red flags can spark investigations. The government has major resources and a strong mandate to punish PPP fraud. They will not hesitate to bring charges if they believe wrongdoing occurred.

STRATEGIES WE USE TO DEFEND YOU

Our team at Spodek Law Group has a simple philosophy: We tell you the blunt truth about your situation. Then we design a plan to keep you out of prison, minimize financial losses, and protect your business if possible. Some common defense tactics include:

Early Intervention: We step in as soon as you learn about the audit or criminal probe. This allows us to review your documents, identify potential weaknesses, and address them before the government inflames the situation. We might also prepare a story that shows how you relied on official guidance from the SBA or your bank with screenshots, and documents. If we can prove you acted in good faith, it can reduce the chance of indictment. The point is to show there wasn’t criminal intent, it was just a mistake.

Challenge the Evidence: We check if the government’s evidence was gathered legally. Evidence that was improperly obtained may be excluded. We also see whether the investigators are twisting facts or misreading your records. Our attorneys know how to highlight inconsistencies in the prosecution’s claims.

Negotiated Resolutions: If the evidence is strong, sometimes the best move is to negotiate. That does not mean surrender. It means we push to reduce felony charges to lesser offenses or to negotiate a settlement that spares you from a crippling prison sentence. A plea deal, that is carefully crafted, can save your business and your family from total disaster.

MY BLUNT ADVICE TO YOU

Stop hoping this issue goes away it will not. The government is serious about prosecuting PPP fraud, and they are not likely to show mercy if they suspect you gamed the system – and they will get mad if you ignore them. Procrastination is your enemy, because it gives investigators more time to build a case without any pushback from a qualified defense – you want to push back so investigators do not limitlessly build and collect evidence. If you wait until you are served with criminal charges, you have already lost valuable time to shape the narrative. A PPP audit that was announced can quickly snowball into a grand jury investigation.

Pick up the phone, call Spodek Law Group, and face this head-on. Don’t bother feeding us excuses like “I didn’t think the rules applied to me” or “We were in a rush and forgot some details.” We have heard it all, and we don’t tolerate sloppy thinking – we will be blunt, and tell you what to expect. Our job is to close the gaps that might expose you to legal trouble. But we can only do that effectively if you commit to thorough preparation, full honesty about what happened, and a willingness to do the hard work necessary for your defense.

DISCLAIMER: NOT LEGAL ADVICE

This article, that you are reading, is not formal legal advice. Every case is different obviously, and you need an attorney who can tailor a defense strategy to your specific facts and who is aware of your exact situation. Reading about potential fraud issues does not create an attorney-client relationship with our firm – reading words shouldn’t be what you build your defense strategy on. That relationship only arises when you sign a formal agreement with Spodek Law Group. Until then, everything here is for informational purposes, based on our experience representing clients in federal fraud matters. If you need more details, refer to official government sources like sba.gov and justice.gov, which explain the PPP program and the penalties for fraud.