The COVID-19 pandemic was a difficult time for small business owners. In an effort to help entrepreneurs survive these economically difficult times, the government offered various financial incentives. Some were in the form of tax incentives, others loans. One example is the COVID-19 Economic Injury Disaster Loans (EIDL).
The EIDL helped small businesses, renters, and homeowners in areas affected by the pandemic. Business owners could apply for this form of financial relief by providing information about their operations and the impact of the pandemic to the Small Business Administration (SBA). The business owner would affirm that all information provided was true, and the SBA would review and determine eligibility.
Like many programs at that time, guidance for business owners was limited. Many did their best to complete applications accurately, but mistakes were made. In some cases, however, the government views these mistakes as more than simple errors—it believes the inaccuracies rise to the level of fraud. In those situations, investigations often begin as audits and then escalate. Understanding what can trigger an audit is critical for businesses that participated in pandemic relief programs.
A recent case highlights three important lessons for those who took part in the EIDL program.
#1: The government will investigate EIDL applications
The government can and will review details within EIDL applications. In a recent case, prosecutors alleged that a business owner intentionally provided false information to fraudulently obtain funds. According to the government, misstatements related to gross revenue and cost of goods sold resulted in more than one million dollars in ill-gotten gains.
These reviews often involve a close comparison of loan applications with tax filings, banking records, and other documentation. When discrepancies are found, agencies may initiate examinations similar to other federal audits. Businesses should understand how audits typically proceed once the government begins asking questions.
#2: Misinformation could lead to criminal penalties
If investigators believe they have gathered sufficient evidence of wrongdoing, the government may pursue criminal charges. These charges can carry serious consequences, including substantial financial penalties and imprisonment. What may initially appear to be a routine audit can quickly turn adversarial if authorities believe false or misleading information was provided.
This underscores the importance of understanding potential outcomes and post-audit options, including audit reconsideration, when disputes arise over the accuracy of filings or applications.
#3: EIDL fraud can lead to additional criminal charges
Allegations related to EIDL applications are often only the starting point. The government will review the full scope of conduct to determine whether additional criminal violations occurred. In the case referenced above, prosecutors pursued wire fraud charges related to the fraudulent EIDL application. After reviewing the evidence, the court agreed with the government and sentenced the defendant to six years and nine months in prison for that case and a second related COVID-19 fraud matter.
This case is one of many examples showing how aggressively the government continues to scrutinize pandemic-era relief programs. What begins as an audit or document request can quickly escalate into a broader investigation.
Those who find themselves under review are wise to take the matter seriously. The attorneys at Goldburd McCone have experience handling EIDL-related audits and investigations and can help advocate for your interests, working to limit exposure and pursue the most favorable outcome possible.