Mnuchin: SBA PPP Loans Over $2M Face Audits Before Forgiveness

Any small business getting an emergency coronavirus loan from the Small Business Administration (SBA) greater than $2 million will be subject to an audit, Treasury Secretary Steven Mnuchin said.

“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,” Mnuchin told the Wall Street Journal in a Tuesday (April 28) report.

Mnuchin said Paycheck Protection Program (PPP) loans will be scrutinized to assess whether the business really needed the funding, which is supposed to help struggling small businesses keep people employed. Companies that can’t show proof of need will not have those loans forgiven.

Mnuchin said the law is clear that borrowers, not banks, “face criminal liability for making certifications that weren’t true.”

Mnuchin’s comments come a day after applications opened for the second round of $310 billion in PPP funding after the first round of $349 billion was depleted in less than two weeks. Although the forgivable PPP loans are intended for businesses with less than 500 employees, big companies, public firms and national chains got loans.

“This was a program designed for small businesses. It was not a program that was designed for public companies that had liquidity,” Mnuchin told CNBC.

Data analytics firm FactSquared indicated that over 220 public firms went after a minimum of $870 million in funding.

“Some of these companies should be apologizing,” Mnuchin told the WSJ. “The owners should be apologizing that they took this, not just giving the money back.”

Conducting audits of so many businesses could prove to be a near-impossible undertaking. The SBA usually leaves audits to the individual lenders. To make the PPP move faster, Congress allowed banks to skip the time-consuming process of verification.

“The bank doesn’t have a lot of incentive” to investigate, Richard Prisinzano, a budget expert at the University of Pennsylvania, told the WSJ. “They’ll do bare-minimum checks.”

The SBA has struggled to process the huge volume of PPP loans due to old technology, lack of manpower and other issues.