According to reports, the statute of limitations for an audit or investigation by SBA is generally six years. If the SBA chooses to audit you, the agency will forward a written notice to your lender. Note that your lender is then expected to let you know within 5 business days.

They may also have to follow up by requesting additional details or documentation, or the SBA may contact you directly for the necessary information. However, while your loan is being audited, your lender can’t approve a loan forgiveness application.

Note that the Small Business Administration (SBA) is auditing the Paycheck Protection Program (PPP) loan forgiveness applications for both First Draw and Second Draw PPP loans, and this includes nonprofit organizations that obtained loans.

As part of these audits, the SBA will be requesting certain documentation that supports the loan calculation, affiliation, the eligible expenses incurred, and the loan necessity analysis. Currently, SBA audits have been mainly for loans of $2 million and above, but the SBA may still choose to review and audit smaller loans.

Most often, the borrower’s bank stands as the go-between in the SBA audit, with all correspondence going through the bank. The SBA tends to give an extremely tight time frame for the borrower to respond. Have in mind that failure to respond in a timely manner could warrant an unfavorable decision against the entity that received the loan.

If the SBA notes that you weren’t qualified for your PPP loan, they will request for repayment of your outstanding loan balance and let your lender know that you do not qualify for loan forgiveness. Nevertheless, if you repay your loan after receiving notification, the SBA won’t have any need to seek administrative enforcement or refer you to other agencies.

Meanwhile, if the SBA notes that you have been spending PPP loan funds on ineligible expenses, you will be mandated to repay your loan. Most often, you will be referred to other agencies such as the IRS or Federal Bureau of Investigation and subject to criminal prosecution.

If you do not concur with the SBA’s audit decisions or findings, note that you still reserve the right to appeal to the SBA’s Office of Hearings and Appeals. Have it in mind that your appeal will need to be filed and submitted within a deadline of 30 days of the SBA notifying you or your lender of its loan review decision.

Once your appeal has been received, it will be assigned to a judge, who will be tasked with issuing an initial decision within 45 days. You then have 30 days to request a review before the decision becomes final.

How to Prepare For Your PPP Audit

PPP loan forgiveness applications require borrowers to make available all supporting documentation to justify all eligible expenses.

All these will be reviewed by the lender servicing the PPP loan and possibly the SBA during the loan forgiveness applications audit, which is more or less based on the total amount of eligible expenses made during the 8-week or 24-week covered period following the first disbursement of PPP loan funds. To get you prepared for your PPP audit, here are the things you need to know:

  1. Keep Careful Payroll & Accounting Records

To be eligible for PPP loan forgiveness, you must have spent at least 60% of your funds on payroll expenses. You will also have to keep substantial payroll records as you will need them to verify that the funds were properly spent. It is recommended that you document all payroll expenses to guarantee that your loan forgiveness application will be accurate.

In addition, remember to keep other accounting records even those not required for your PPP loan forgiveness application. Consider doing this with formidable accounting software especially since it makes it convenient and easier to access.

  1. Understand What Information Will Be Needed For Your PPP Audit

For your PPP Loan forgiveness application to be successful, all information provided will need to be verified. Also, have it in mind that all information found in your PPP loan and forgiveness applications may also require verification during an audit. Some of the documents you will need for a PPP audit include:

  • Payroll records
  • Accounting records
  • Bank statements
  • Voided checks, invoices, receipts, or other proof of expenses

However, note that this is not in any way a comprehensive list. Don’t forget that the SBA could potentially request additional information during the audit process.

  1. Note the PPP Audit Timeline

It is imperative to note that there are no stipulated timelines for when PPP audits will occur. Just as was noted above, the statute of limitations for an audit or investigation by SBA is generally six years. Businesses that obtained loans exceeding $2 million are subject to an audit when seeking forgiveness, during which time the SBA can analyze:

  • The borrower’s eligibility to obtain the funding under SBA guidelines and the CARES Act
  • The amount of the loan and use of the proceeds
  • Eligibility for the PPP loan forgiveness amount you requested

Have it in mind that entities that obtained smaller loans may also be subject to an audit. Also note that even if a loan is forgiven, the SBA can start an audit or investigation up to six years after the date of loan forgiveness.

  1. Consider Working With An Accountant

Truth be told, you don’t necessarily need an accountant to scale through your PPP audit. As long as you provided the right information in your application and have all the necessary documentation, the application and audit process should be smooth and convenient.

Also, note that businesses that leveraged accounting software for their accounting records will also find it easier to navigate an audit without an accountant. However, working with an experienced accountant can make things less stressful and even easier. Note that an accounting expert can help you put your records in order and prepare your response for the audit.

Additionally, if you don’t have the time to dabble with all the stress or processes that come with a PPP loan forgiveness application, or maybe you don’t want to take on the process of an audit alone, then it is recommended you work with an accountant.


PPP loan borrowers are always tasked with showing proof that buttresses their eligibility for loan forgiveness. Note that the best way to get ready for an audit is to ensure that you adhere to all procedures and that you keep all necessary documentation for at least 6 years with the guidelines noted above will help you get ready for an audit, and will save you time and stress.