PPP loans greater than $2 million to be audited by the U.S. government
With the second phase of the Paycheck Protection Program administered by the Small Business Administration underway, Treasury Secretary Steven Mnuchin said April 28 that the government will perform an audit on all companies receiving more than $2 million through the coronavirus relief program.
Mnuchin said the administration will require that the SBA do a “full review” of any loan over $2 million before loan forgiveness would be offered. He added that “it was not a program designed for public companies that had liquidity.”
The announcement came on the heels of revelations that several publicly traded corporations had applied for and received PPP funding. Two well-known examples: Ruth’s Hospitality Group, owner of Ruth’s Chris Steak House, which took a $20 million PPP loan and AutoNation, which received $77 million. Both companies have said they would return the money. They were among several larger businesses caving to public and political pressure to give back their loans.
More than 220 publicly traded companies have applied for PPP loans totaling nearly $1 billion. In making the announcement, Mnuchin said businesses that had other ways to shore up their finances should never have applied for the program, even though they were eligible. The Treasury Department has issued updated guidance intended to clarify that only businesses that truly need the loans to survive should be getting them.
PPP loans authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act were intended to help businesses with 500 or fewer employees facing economic hardship as a result of COVID-19 induced temporary shutdowns or severely disrupted commerce. However, several provisions in the initial $2.2 trillion bill signed into law on March 27 allowed larger companies to apply for loans as well. President Trump signed legislation April 24 replenishing the program with another $310 billion.
Businesses can apply for PPP loans of up to $10 million to cover two months of expenses, which can be fully forgiven if they spend all the money on payroll, rent, and utilities. They are also required to maintain or return to pre-pandemic staffing levels by the end of June. Under the legislation, publicly traded firms and businesses with access to other sources of capital were eligible for loans if they could claim in good faith that their finances were threatened by the virus outbreak and they planned to use the money to keep workers employed.
Both rounds of funding have been hampered by glitches, centered on too many banks trying to jam loans into the SBA loan portal. Additionally, oversight of the more than $2 trillion CARES Act has been a key issue for lawmakers, amid concerns the funds would go to companies that do not need it.
Sen. Elizabeth Warren, D-Mass, wrote a letter to the SBA Inspector General for the U.S. Small Business Administration last week urging a “broad investigation into the program’s implementation.” The administration has pushed back against several of the oversight functions supported by the Democratic Party, including the removal of lead watchdog Glenn Fine just days after he was appointed to the role.
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