As everyone who has been tracking the COVID-19 relief programs since 2020 knows, at the outset there was massive confusion about the programs’ requirements as well as fear that funding could run out before businesses with uncertain futures could secure assistance. Now, two years later, we have heard from numerous clients who have received notice that the Small Business Administration (SBA) intends to audit the Paycheck Protection Program (PPP) Loan or Economic Injury Disaster Loan (EIDL) applications, and even of cases in which SBA is auditing both the original application and forgiveness well after forgiveness was granted. In light of this development, it is crucial that contractors keep detailed and accurate records related to their loans.
Under the False Claims Act, the government generally has six years to investigate and go after companies believed to have presented false statements, and this timeline would apply to the PPP and EIDL programs. However, new bills advanced by the House’s Small Business Committee (HR 7352 for PPP and HR 7334 for EIDL), would extend the current six-year statute of limitations for fraud prosecutions to 10 years—mirroring the framework for bank fraud prosecutions. The PPP bill includes all PPP-related fraud, while the EIDL bill includes both the initial EIDL advances as well as the targeted advances. This legislation comes in response to the estimated $80 billion spent on fraudulent PPP and EIDL loans and the scrutiny that SBA is receiving from Congress and the inspector general’s office.
These bills are likely to pass because of the public impression that fraud was rampant in the programs and the push to claw back funds where possible. We also expect that these audits, including post-forgiveness audits, will continue for many years, especially now that the statute of limitations may be extended an additional four years. Thus, we can envision criminal and civil claims filed against firms as late as 2031 for alleged PPP fraud and 2032 for alleged EIDL fraud.
The status of these bills is evolving. PilieroMazza is monitoring their progress and will provide more guidance when the government releases more information. In the meantime, it will be especially important for government contractors to keep well-organized records of PPP and EIDL expenditures in case an investigation arises. For questions on these bills or PPP and EIDL generally, please contact Cy Alba, the author of this blog, or the Firm’s COVID-19 Response Team.