The SBA May Be Going Too Far In Trying To Prevent PPP Fraud
The companies that took [Paycheck] The money from the Protection Plan to help them get through the first few months of the pandemic has an account. The Small Business Administration continues with a loan necessity questionnaire, at least to those who took $ 2 million or more. Arent Fox attorney Justin Goldberg said the SBA could act unfairly in some cases, using hindsight to question the motives of small business owners. He spoke to Federal Drive with Tom Temin.
Tom Temin: Mr. Goldberg, nice to have you.
Justin Goldberg: Good to be with you.
Tom Temin: So what do you find out about this quiz from SBA? I guess in the first case it only goes to for-profit companies that took the money?
Justin Goldberg: Yes, this is part of a series of actions by the SBA, since the release of the Paycheck Protection Program, that have caught borrowers off guard and go against the spirit of what Congress wanted to. For example, this form was deployed on the eve of Thanksgiving, it was not notified publicly, it was sent directly to lenders, not borrowers, and then only received a lot of notice because Politico was done. by signaling it. And it also analyzes the decisions that were made at the height of the COVID pandemic in March, when things were really bad in New York City and other parts of the Northeast – and tries to guess which decisions were. caught in the heat of the crisis.
Tom Temin: Well, this idea of going to the lenders, how would they know the need because they only have the information that was submitted to them by the companies?
Justin Goldberg: They were specifically told not to question the need. In the CARES Act itself, the regulations communicated to them are based on certificates from borrowers. It’s supposed to be easy. This is meant to get the money as fast as possible. We want people to keep their jobs. And your job is not to guess the decisions and certifications the borrower has made. And the only certification the borrower needed to do in this regard was that the current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. It was that easy.
Tom Temin: OK. Well, there’s a tension here, so I guess, because the SBA had to follow these rules. At the same time, there is this giant post facto audit device that has yet to be fully developed for this pandemic spending. And there’s the Inspectors General and so forth, the GAO, lots of organizations involved – how can they follow these original rules to just withdraw the money, and yet have an account to see if the money has gone to worthy entities?
Justin Goldberg: You raise a big point about this catch-22, that there is a device that comes behind that is completely separate from the main SBA, which sends the loans to the banks that make the loans. And there are the inspectors general, there are the auditors, there are people whose job at the SBA is to insure and without fraud, and none of the borrowers who got these loans are against this process. It is more a question of targeting the bad actors, those who have committed fraud, and not the family restaurant which must maintain its activities. These keep its employees working until the holidays. That is not what it is for. And the problem with this quiz is that it tries to highlight areas to audit. It takes specific borrowers, those with private equity funds, those who have made distributions to their owners even though a lot of small businesses are in partnerships. And that’s how small business owners get paid. So it’s really a question of identifying certain categories of borrowers for verification and for us, it is very problematic.
Tom Temin: And what about giant corporations that have crossed the $ 2 million threshold?
Justin Goldberg: There is a problem that goes both ways, because, for example, Ruth’s Chris [Steak House] took the money and then returned it because of all the terrible publicity. The Lakers did the same. And Ruth’s Chris has laid off employees since he returned the money. This goes against the spirit of – if Congress wanted to segment borrowers or didn’t allow borrowers that were private equity funded or were listed on a financial exchange, it could have done so. They haven’t asked the SBA to step in after the fact and do this is unfair primarily to the employees who have been made redundant because the pandemic is now worse than ever.
Tom Temin: Of course, I would have liked to write this headline: “The steak house makes the pork.” We are talking to Justin Goldberg. He’s a lawyer and Arent Fox. And so you must have clients asking you what to do? What do you tell them to do if they receive one of these letters?
Justin Goldberg: We tell them to be honest, direct and luckily we have been expecting this for months. We therefore advised our clients to have their papers in order, to have an analysis prepared that shows why the loan was necessary. Almost all of our clients, I remember when everyone was applying, it was such a crazy time. The world was closing. They didn’t know if they would be in business in two weeks, let alone three months or ten months. So it is very easy for them to show that they need the loan. And them, almost everyone has used the money to keep the employees paid and to keep the people employed. That was the whole point.
Tom Temin: And what about the nonprofit sector because it has a wide range of everything from your local parish, for example, to some of those big associations with 10,000 members and huge budgets. Shouldn’t we also, do you think, go to them also to verify the need?
Justin Goldberg: Nonprofits are a special category, as many of them are run by endowments and are small. And then also, they rely on gifts, which is usually helpful in a good economy, but not at the end of the world, people are building up their capital and not using it for charity. So I know a lot of nonprofits that we advise, whether they are charities, boards of directors, endowments, museums, or other types of entities that are just trying to serve the public good, they may have a few employees that they do not have the money to pay apart from his programmer, apart from the renewal of a federal grant, which is really uncertain given the difficulty of pass anything in Congress. So I think almost everyone I’ve seen is trying to do the right thing. They are just trying to play by the rules of the program, take the money and pay their employees. It’s really nothing more than that.
Tom Temin: So best advice, fill out the questionnaire if you get one. And if not, let Congress know if you’re upset?
Justin Goldberg: Yes. And I think the second part you mentioned is kind of a better approach. I think the public needs to be aware of what’s going on, especially since Congress could pass a new COVID relief bill with a new second round of PPP. It’s completely hypocritical to do that and then go and criticize the people who took it the first time. I think Congress in the past has kind of held back the SBA. And they did it in the PPP Flexibility Act. Congress must do it, once again, here. And this questionnaire, if used, should not be used to target borrowers for audit purposes. If this is an anonymous SBA information tool, that’s fine. But it should not be used to identify certain borrowers and jeopardize their forgiveness or delay it for years when they need to get that forgiveness and that money relieved. And they expected it based on the terms of the Paycheck Protection Program.
Tom Temin: OK. Justin Goldberg is a lawyer with Arent Fox. Thanks for joining me.
Justin Goldberg: Thank you very much, enjoy.
Tom Temin: We’ll post this interview with a link to his article on FederalNewsNetwork.com/FederalDrive. Listen to Federal Drive on demand and on your device. Subscribe to Apple Podcasts or wherever you get your shows.