Industry Trends

PPP Fraud, Auditor Abuse, and the New W-4

Caleb Newquist Editor-at-Large, Gusto 
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PPP fraud

Even if you discount the sheer size of the Paycheck Protection Program—$525 billion at last check—fraud was inevitable. The application process was thrown together. The rules changed countless times. And no requirement to demonstrate the need for relief other than “current economic uncertainty makes this loan request necessary” was bound to attract bad actors.

Still, the scope and audaciousness of some PPP fraud has surprised people. Chris Hurn, the CEO of one lender, Fountainhead Commercial Capital, told the New York Times about what he witnessed: 

At least a dozen times, “someone tried to defraud us, got turned down and then followed up to taunt us that they got their loan,” said Mr. Hurn, Fountainhead’s chief executive.

[…]

“We couldn’t believe how many people were trying to take advantage and game the system,” said Mr. Hurn, whose firm made more than 8,000 loans. “A lot of my employees, including me, were a little frustrated with humanity.”

Misanthropic feelings aside, I find myself wondering a couple different things:

1. Was giving money to businesses the right thing to do? Should the money have been given directly to people instead? Putting restrictions on how and when the money could be spent created difficult conditions for businesses—so would giving the money to people directly have been simpler? Instead of 1% of borrowers getting 25% of the money, would it have been received directly by the people who needed it most? Would it have resulted in less fraud? 

2. How much fraud are we willing to tolerate? Fraud is present in virtually every aspect of our lives: economic, government, health care, commercial, technological. It’s just there, happening all the time. And in many cases, we’re okay with it because its negative effects don’t exceed the benefit of the underlying program or mechanism. We’re not going to ban all insurance companies, for example, simply because there’s insurance fraud.

PPP, for all its flaws, did get a large number of funds into the hands of people who needed it. By the same token, a lot of money has wound up with unintended recipients. To be fair, some of those unintended recipients were acting in good faith. But, as we keep learning, a growing number of them were not. If PPP 2.0 is going to be a thing, hopefully some of those defects can be resolved.

Does anyone miss auditing?

I respect auditors and their work. I used to be one, after all. It’s a hard, thankless job, done by competent professionals whose toil is overlooked the vast majority of the time, but then relentlessly scrutinized and ridiculed when things go awry. Now, you may be skeptical of my sincerity because I have spent a lot of time scrutinizing and ridiculing auditors, so your doubts could be well founded. Hey, you’d be a good auditor!

But despite my admiration, there are reasons why I am no longer an auditor. Let’s just say it wasn’t for me. I was recently reminded of why that is when I read this tiresome article about the CEO of Emerson Electric, David Farr, and his experiences leading that company through the pandemic. A little over halfway through, you’ll find this passage, that I’m sure will cause painful memories for some of you:

Mr. Farr had just gotten off the phone with KPMG LLC, Emerson’s auditors since 1938, and he was steaming. The problem: It was June and they were still working from home.

“Look. I make s—, and you can’t tell me how I’m making s— when you’re sitting in your goddamn living room,” Mr. Farr recalled yelling days after the interaction. “Get your a— out to my factories, look at my people on the line, and tell me if they’re telling me the truth or lying. That’s what you’re supposed to do. That’s why I pay you $25 million a year.”

Okay, so we have an angry client who:

  1. Explains condescendingly what his business does.
  2. Presumes to understand how auditing works.
  3. Demands action despite dangerous and unpredictable circumstances.
  4. Reiterates that he knows how auditing works.
  5. Complains about how much he pays for an audit.

That’s a handful of abuses that auditors put up with regularly, all from a single source! I can only speak for myself, obviously, but: Who needs that? Nobody, that’s who. The sooner the robots can handle the auditing, the better. They’ll be able to double their fees for all the whizbang technology and the verbal abuse won’t phase them one bit.

A new W-4! Anybody? Anybody?

Good news, we’ve updated our post on filling out a form W-4 for 2021! Bad news: Most people don’t care.

The IRS blessed taxpayers with a new Form W-4 back in late 2019, with the hope that the updated form would improve their inability to properly estimate withholding (a herculean task for civvies, obviously). Unfortunately, the IRS failed to properly gauge the enthusiasm of its target audience for improved tax forms, and only slightly more than a quarter of Americans have used the new form.

I know what’s going on here. The 2021 form barely changed and Taylor Swift has put out two albums in less than six months. It’s understandable.

Fresh from Gusto

  • My colleague Jaclyn Anku has shared three stories of firms growing their businesses with People Advisory Certification (now with CPE credits!).
  • Also, on the most recent On the Margins Live, Will Lopez and I spoke to Jaclyn and CPE Academy’s Scott Zarret about the future of CPE education.

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Updated: January 21, 2021

Caleb Newquist
Caleb Newquist Caleb is Editor-at-Large at Gusto. In 2009, he became the founding editor of Going Concern, the one-of-a-kind voice on the accounting profession, serving in the role for 9 years. Prior to Going Concern, Caleb worked as a CPA for nearly 6 years in New York and Denver. He lives in Denver with his wife, two daughters, and two cats.

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