Eighteen months after the release of the Paycheck Protection Program, it is fair to say the program has been generally successful. However, one giant drawback is its susceptibility to fraud. According to our guest, Allison Greenfield of Forensic Resolutions Inc., the fraud is widespread enough to raise red flags. Get her view on who is responsible for monitoring for PPP fraud, why time lags may be preventing us from getting a full picture of the deception, and more in this CPA Conversations podcast.
By Bill Hayes, Pennsylvania CPA Journal Managing Editor
With 18 months having passed since the release of the Paycheck Protection Program, it's a good time to review how the initiative has performed. That includes both ways in which it has helped and, unfortunately, ways by which it has been taken advantage of. Today, we will look at fraud aspects of the Paycheck Protection Program with Allison Greenfield, an associate with Forensic Resolutions Inc.
As of when this podcast will be released, we will be about 18 months, I believe, out from when the Paycheck Protection Program, or PPP, was released. What are your general impressions of how effective it's been or how subjected it's been to fraud? Has the fraud been widespread or has there just been a few, maybe highly publicized examples?
[Greenfield] I think it's been very widespread. According to my research, there's been over a hundred defendants in over 70 criminal cases and that's only as of June.
I think the biggest issue with the PPP loans was there was a quick turnaround between applications being received and the loans going out. So, I don't know how much time they took to verify all the information on the applications, which has led to so much fraud. There's also been about 11.5 million PPP loans that have been awarded. With that many loans, there has to be some level of fraud being involved.
Are there aspects of the PPP that make it particularly susceptible to fraud schemes?
[Greenfield] I think the quick turnaround is really the main issue with making it susceptible to fraud. However, the other aspect of the PPP loans has been if the loan's going to be a grant or is it to be a loan. That forgivable portion of the loan and making sure that loan is being used for the specific use requirements that will allow it to be forgivable. That's going to also add to where the fraud is.
You say that it may be some time before we get a full picture of the fraud perpetrated in connection to the PPP. Why is that? What are the factors that affect that time lag?
[Greenfield] I think with a lot of people, when they applied for the loan, they switched people from 1099 to W2s, and people don't realize that you don't see your W2 for a whole year, for over a year. They're not going to be able to verify if that person was a W2 or a 1099 until the end of the year, or in two years when they start looking at the individual's tax returns.
That's what I think is causing that lag period. And just the sheer number of loans.
Who’s responsible for monitoring the PPP for fraud? Does the borrower have any responsibility in helping that organization monitor or track fraud?
[Greenfield] IRS Criminal Investigations, the Small Business Administration, and the FBI are investigating the fraud. The DOJ is the one that prosecutes. However, I think there is some level that should be on the borrower because they're going to have to support that they received this money. This is what it was used for and we're following everything that we’re supposed to be following.
Especially because it's a government loan, which typically has higher requirement standards.
What can CPAs do to ensure that their clients' loan forgiveness packages are filled out appropriately and what responsibility do they have to monitor for potential fraud, if any?
[Greenfield] Well, I think CPAs are going to have to monitor and they're responsible for just doing their own due diligence, which is a huge part of being a CPA; do these expenses make logical sense? Do you see a big change in percentages of sales and income that don't support expenses? Or with everything going on in the economy, does something not make sense? Another issue is, were there any luxury purchases, real estate, cars, trips, things of that nature that do not make sense for what's going on?
Was it normal for them to be traveling or is a random trip questionable for their nature?
Are there any recent cases I wonder that jump out at you as an example of what we need to be looking for when we're considering the damage fraud can cause when it's related to the PPP?
[Greenfield] Many of the cases I've seen show the luxury cars, the trips, people buying second, third houses. There have also been accountants, submitting multiple applications that are all fraudulent for various clients and things of that nature. But I think the biggest thing that has stood out to me is the amount of jail time that is being issued for PPP loan people that have been caught committing fraud. I've seen as little as six months to up to 17 years of jail time. We never really see that much jail time, it just shows how serious they are taking fraud for these loans.