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Unpacking the PPP money

And how to avoid mismanagement of funds

June 24, 2020  |  Corey Butler

Unpacking the PPP money There’s a lot to unpack and understand about the Paycheck Protection Program (PPP), especially in terms of how to correctly use the funds to avoid issues — including a whistleblower suit — in the future.
The PPP, primarily created for small businesses, has been surrounded by uncertainty and confusion since it was created as part of the CARES Act in response to the COVID-19 pandemic. The statute requires borrowers to certify that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations” of the borrower. The key determination of “necessity” is inherently subjective.  
Three weeks after PPP loan applications were first being accepted, the Small Business Administration (SBA) issued guidance that muddied the waters by stating that the certification of necessity must take into account the borrower’s current business activity and “their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”  
The idea of what may be “significantly detrimental” to one borrower may be very different from the view of another borrower. For example, is it significantly detrimental to a business to tap out its credit line to make payroll? 
Many commentators suggest the SBA’s guidance around sources of liquidity was inspired by news reports of large, successful businesses accessing PPP funds even though the public might think they did not need them as much as smaller businesses. The controversy generated by those news reports convinced many bigger businesses to return their PPP funds. A large boon to these grants were that they could be transferred to a grant given the money was mostly used for payroll expenses, mortgage/rent and utility costs.
The uncertainty and subjectivity of the rules around PPP, coupled with the controversy that surrounds it, makes it likely that there may be differences of opinion on the necessity of the PPP loan for a particular business. An employee may disagree with a business owner that the PPP loan is appropriate, for example. 
Because PPP loans are a federal program, there is a risk that an employee might instigate a whistleblower action under the False Claims Act (also known as the Lincoln Law) if they feel the business should not have received a PPP loan. The Lincoln Law is the federal government’s defense for fraud against the government.
Defense against whistleblower suits
To defend against whistleblower suits, as well as challenges to the certification of necessity by the SBA, many borrowers are documenting their thought process at the time of the PPP loan application. Items that could be included in such a document are:
  • Signs of revenue decreases, such as delayed or cancelled projects.
  • Collection issues, such as slow pay or unpaid invoices; requests for extended terms.
  • Supply chain issues.
  • Impacts of plant/office shutdown if employees get sick.
  • Discussion of potential staff reductions.
  • Ability to access additional credit lines if need be.
By documenting these factors, as contemporaneously as possible to the receipt of the loan, a borrower can show why they felt the PPP loan was necessary. This could go a long way to fending off a challenge to the propriety of the loan request.
Thank you to Mike Crabtree, CPA, JD, a partner at Boulay for his contributions to this blog.

Topics: Clients, Accounting & Auditing, Government, Taxation-Business

Corey Butler

Corey Butler is the MNCPA communications manager, working to enhance members’ professional reputations through content, media relations and public affairs. Corey keeps busy outside of the MNCPA spending time with his wife and children, serving on his local school board, volunteering in his community and catching up on long-lost hobbies. Corey enjoys the works of John Steinbeck and J.K. Rowling, and Paul Bunyan, Robin Hood and Santa Claus lore. You may reach him at 952-885-5530 or

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