New Government Accountability Office (GAO) Report: Update on the Paycheck Protection Program’s (PPP) Loan Audit Process

As part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Government Accountability Office (GAO) is required to report bimonthly on its ongoing monitoring and oversight related to the COVID-19 pandemic. The efforts made by GAO—including the recommendations outlined in these reports—are designed to ensure the funds provided by the government are managed appropriately by the various federal agencies.
 
On September 21, 2020, GAO released its third report regarding its oversight of the federal government's COVID-19 pandemic response. The report, Federal Efforts Could Be Strengthened by Timely and Concerted Actions, is a supplement to the previous June 25 report and includes an assessment of the Small Business Administration's (SBA) Paycheck Protection Program (PPP).
 
The GAO report provides helpful insights into the SBA's plans for its PPP loan review and loan forgiveness processes. Since the SBA has not yet finalized the loan review process, it is important to stay up to date on the latest guidance and remember that the final process could look different. GAO’s report highlights areas communicated to the SBA that need additional guidance and clarity.
 
The GAO report indicates the following with regard to the SBA plan to review PPP loans:
 
Loans less than $2 million
All loans less than $2 million will "undergo an automated review to flag potentially questionable loans." Selected loans will be manually reviewed to assess, for example, whether a borrower:
  • Was eligible for the PPP loan,
  • Correctly calculated the loan amount,
  • Used the loan proceeds only for allowable purposes, and
  • Was entitled to forgiveness in the amount claimed.
 
Loans greater than $2 million
The SBA intends to review all loans greater than $2 million. The SBA will focus on borrower good faith certifications concerning the economic necessity of the loan request and will conduct an "as necessary" review of these loans for "compliance with general program requirements."
 
The SBA is working with outside contractors to conduct the reviews. A contractor will use an "automated review tool" to review all loans and will perform additional manual loan reviews "based on risks detected by the automated review tool." The contractor will also review the borrower's economic necessity certification.
 
After the contractor completes its review, the SBA will then perform additional reviews assigning SBA contract and federal staff on all these loans. From there, the SBA will use a contractor to undertake a separate quality assurance review of sample of loans. The SBA will also be reviewing loans that have been identified as potential noncompliance or fraud risks through statistical sampling "based on various loan characteristics." This process has already begun.
 
Other highlights
The SBA also stated to the GAO that "SBA will put all lender decisions granting full or partial loan forgiveness through the automated review tool provided by one of its contractors." This is a key factor that all recipients of the PPP loan should be aware of, as it means that every decision will be reviewed.
 
The SBA will refer questionable loans to the SBA Office of the Inspector General or to the U.S. Department of Justice for further investigation, a process that has already led to the filing of more than 40 fraud-related cases.
 
The GAO did note in its report that, as of August 14, 2020, "SBA was still developing its processes for reviewing lenders' forgiveness decisions," and as of September 8, 2020, the SBA had received approximately 56,000 loan forgiveness decisions from lenders.
 
Since the loan review and forgiveness processes continue to evolve, it’s essential for organizations to stay informed about updated guidance from the SBA and GAO.
 
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