Suppliers may be surprised to learn that within weeks of launching the Paycheck Protection Program, the Department of Justice (the DOJ) filed its first criminal charges against applicants for such offenses as making false statements to a financial institution and bank fraud. In fact, the DOJ announced 25 separate PPP fraud cases totaling nearly $120 million between May 5 and August 21.
Sure, everyone expects the DOJ to pursue the most nefarious offenders. In many of these cases, applicants petitioned funds for fake or inactive companies. In others, they misappropriated funds for cars, jewelry, personal entertainment, and real estate. In all cases, the DOJ is questioning the legitimacy of the business or alleging misuse of funds.
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Why Should Suppliers Care?
While most suppliers used funds for legitimate businesses and actual employees – not Rolexes, Lamborghinis, and golf trips – many legitimate borrowers may have used funds inadvertently for unauthorized purposes. For example, the DOJ is alleging in one case that transfers from a borrowing company to a personal brokerage account for “personal benefit” constitutes fraud. Fraud issues aside, the ambiguous definition of personal benefit puts all payments to owners from borrowing companies in dangerous territory.
Strings Attached
Like it or not, the government is going to have an opinion on how companies use borrowed funds. Suppliers can avoid trouble by matching every incoming PPP dollar to an outgoing PPP-eligible expense. And before authorizing management bonuses or big investments, ask “Would this have been a good idea if we didn’t receive stimulus money to cover our payroll?”
SOURCE LINKS
https://www.justice.gov/news?keys=PPP&items_per_page=50
https://www.justice.gov/opa/pr/washington-tech-executive-charged-covid-relief-fraud-and-money-laundering
Sure, everyone expects the DOJ to pursue the most nefarious offenders. In many of these cases, applicants petitioned funds for fake or inactive companies. In others, they misappropriated funds for cars, jewelry, personal entertainment, and real estate. In all cases, the DOJ is questioning the legitimacy of the business or alleging misuse of funds.
[Feeling isolated by remote work? Need answers to those pesky reimbursement questions that pop up? (K)notes Plus gives you access to our research team and unlimited email consulting.]
Why Should Suppliers Care?
While most suppliers used funds for legitimate businesses and actual employees – not Rolexes, Lamborghinis, and golf trips – many legitimate borrowers may have used funds inadvertently for unauthorized purposes. For example, the DOJ is alleging in one case that transfers from a borrowing company to a personal brokerage account for “personal benefit” constitutes fraud. Fraud issues aside, the ambiguous definition of personal benefit puts all payments to owners from borrowing companies in dangerous territory.
Strings Attached
Like it or not, the government is going to have an opinion on how companies use borrowed funds. Suppliers can avoid trouble by matching every incoming PPP dollar to an outgoing PPP-eligible expense. And before authorizing management bonuses or big investments, ask “Would this have been a good idea if we didn’t receive stimulus money to cover our payroll?”
SOURCE LINKS
https://www.justice.gov/news?keys=PPP&items_per_page=50
https://www.justice.gov/opa/pr/washington-tech-executive-charged-covid-relief-fraud-and-money-laundering
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