SBA Payment Protection Program Considerations

COVID-19 Alert

In response to the COVID-19 pandemic in the United States, the CARES Act (“the Act”) was passed by Congress and signed into law by President Trump on March 27, 2020. Among other programs, the Act included the SBA Paycheck Protection Program (“PPP”), an extension of the SBA Section 7(a) program that provides up to $349 billion in 100% SBA-guaranteed loans for eligible small businesses and nonprofit organizations, including loan forgiveness provisions where loan proceeds are used for qualifying expenditures.

As trusted business advisors, firms are being asked to advise and assist clients with PPP application process. We have received several questions from our clients regarding such services over the last few days and would like to share our insights with you.

Can my firm assist attest clients with the SBA application process without impairing independence?

The AICPA published Ethical implications to consider for COVID-19 PPP loan applications which  may also be accessed from the AICPA’s SBA Paycheck Protection Program resources for CPAs page. The AICPA notes that assisting clients with the PPP loan application is a non-attest service, and that independence will not be impaired provided CPAs comply with the interpretations of the Nonattest Services subtopic of the AICPA Code of Professional Conduct.

The AICPA also notes that the majority of the certifications and authorizations in the “Representations, Authorizations and Certifications” section of the PPP loan application are management responsibilities. The signature required on page 2 of the application is required to be made by the company applying for the loan or its authorized representative. As such, signing as a client’s authorized representative would impair independence on an attest client because the CPA would be exercising management authority on behalf of the client. Obtaining a PPP loan from a lender that is an existing audit client would also impair independence.

If my firm assists clients with the calculation of average payroll costs but does not assist in preparing the application itself, will fees for this service be considered agent fees?

The Treasury Department published a Paycheck Protection Program Lender Information Sheet that outlines the maximum fees that an agent may charge for assistance in preparing an application and notes that (a) agent fees will be paid out of lender fees by the lender, (b) the lender will pay the agent, and (c) that agents may not collect any fees from the applicant.

SBA Form 159, Fee Disclosure and Compensation Agreement is completed and signed by an SBA Lender and an applicant when an agent is to be paid in connection with an SBA loan application. Form 159 discusses Compensation that must be disclosed and includes “Financial statement preparation specifically for the loan application.” The form also describes fees paid to individuals for services in connection with the SBA loan application that are not required to be disclosed and includes “Applicants accountant performing services in the normal course of business.”

This creates some ambiguity that, as of the date of this alert, has yet to be clearly resolved. We currently believe that a regulator would likely view the calculation of average monthly payroll costs as financial statement preparation specifically for the loan application rather than services performed in the normal course of business and therefore such services are likely to fall under agent fees.

We would also note that In the AICPA Statement on CPAs as Agents for PPP applications, the AICPA stated that it is reasonable that fees charged by firms to clients related to advising a small business regarding which loan and tax relief programs are best for their particular situation would fall outside the provisions of these provisions. The AICPA also notes though that many firms they have heard from do not intend to charge their clients for assistance with the PPP application process for various reasons.

Does my professional liability insurance policy cover these services? Will my firm be covered if we provide these services on a pro bono basis to our clients?

Many of our clients enjoy a broad definition of professional services in their policies, which often extends to work performed without a fee, provided that the work is undertaken with the consent of and on behalf of the firm. To date, we have not yet seen any insurers provide statements or guidance outlining their views on these services that would lead us to conclude such services would not be covered. It is important to note that policies contain other terms and conditions that could affect coverage depending on the unique facts and circumstances associated with a particular claim.

We encourage our clients to contact their representatives for assistance evaluating their policies.

Are there risk management “best practices” that we should consider when providing these services?

Owen Bailitz, CPA, CFE and a Principal in our Accounting Firm Risk Management Consulting Services Practice, offers the following reminders for firms assisting clients with PPP applications.

• Pay close attention to the guidance offered by the AICPA as the situation remains fluid.
• Provide clear, written guidance to professionals regarding the provision of such services.
• Use engagement letters that clearly outline the services to be provided and include a limitation of liability clause, where permitted. Some firms have added terms to such letters that note the firm will use best efforts in helping with the application but that the client must hold the firm harmless from any claims involving the services, including but not limited to availability of funds, terms and conditions attached, and the use of proceeds.
• Be wary of accepting work for businesses with which you have had no prior contact or were not referred to you by a trusted source, particularly businesses in existence less than a year.
• Though no assurance is being provided, exercise appropriate professional skepticism when reviewing the information provided by the application as the risk of fraud is high with a government relief program like this.

Here to Serve You During These Challenging Times

We have remained open for business since the onset of the COVID-19 pandemic in the United States as we transitioned quickly to a 100% remote worker arrangement in early March. Please contact Jay Moroney and Owen Bailitz for assistance with risk management concerns or your account team with policy and coverage questions.

For more of EPIC’s coronavirus coverage, visit epicbrokers.com/coronavirus