Fake Employees, Fake Businesses, and Lavish Spending Mar the Paycheck Protection Program

By Sandi Leyva

With fast money comes fast fraud, and the arrests and jail terms are only just beginning for individuals who applied for PPP money under false pretenses and have already been caught. You’ve seen the headlines, where people from every walk of life including reality TV stars, rappers, a Wal-Mart manager, and even an NFL player have been arrested on charges of PPP loan fraud.

PPP fraud has likely already impacted your firm. The extent of the fraud is the real story.

According to respondents of an ongoing survey being conducted in September 2020 by CPA Trendlines and Accountant’s Accelerator, preliminary results show that just over 1 out of every five accounting professionals offering PPP services (22 percent) has had to walk away from at least one PPP engagement. And one firm has had to walk away from more than five PPP engagements.

(Take the survey and get the results: https://www.surveymonkey.com/r/PPPCPAT )

Many of the PPP fraud cases to date include individuals that have fabricated both businesses and employees to secure the PPP funds. They made up businesses with names like “Smith Family, Inc.” and “Happy Days Business, LLC.” They falsified tax documents and payroll records. One person misrepresented the country that the employees worked in. The amount of the loans ranged from $190,000 to more than $20 million.

The criminals used the PPP money for jewelry, a mortgage payoff, car, to flee the country, child support, car loans, credit card debt, a boat, a Ferrari, personal investments, and even to fund a Medicare scheme. Our search found cases in these states: California, Florida, Virginia, New York, Texas, Georgia, Rhode Island, Oklahoma, Massachusetts, Ohio, and Illinois. However, I suspect it won’t be long before all states are affected.

The arrested individuals have been charged with a variety of offenses, including wire fraud, conspiracy to commit fraud, federal bank fraud charges, false statements to the SBA, forgery, falsely applying to the PPP program, false statements to a financial institution, and engaging in unlawful monetary transactions, to name a few.

These cases were easily caught. In the next few months, the more subtle cases will begin appearing when the forgiveness applications are submitted.

What does this mean for your firm? Since many firms are providing PPP forgiveness services, professionals should incorporate a higher level of due diligence in their procedures, especially with new clients they aren’t as familiar with.

It may also mean walking away from current clients that are too aggressive. One survey respondent commented, “We’ve walked away from two PPP engagements; It came to our knowledge that a client was involved in an activity that compromised the ethics of our firm and we disengaged from ALL services.”

The firm’s partners will need to communicate with staff about where to draw the line on PPP clients. Another survey respondent said, “If the client is taking the funds for personal use or a risky position, then we will not work with them.”

Firms will also need to decide whether they want to start assisting in the middle of the process. In other words, they come to you for help with forgiveness, but the firm wasn’t involved in the loan acquisition. One survey respondent wrote, “I have a client that didn’t come to me to get the loan but later asked how to handle. I would have declined them, as they had no economic need for the PPP.”

One thing is fairly predictable: “Audits will pick up,” said Bradley Burnett, tax attorney and instructor of the PPP Forgiveness webinars being conducted by Accountant’s Accelerator and CPA Trendlines.

Join the PPP practice management survey to get the full results here: https://www.surveymonkey.com/r/PPPCPAT

Get PPP Forgiveness Training here:

More resources: The Congressional report on PPP data: https://coronavirus.house.gov/sites/democrats.coronavirus.house.gov/files/2020-09-01.PPP%20Interim%20Report.pdf