Accused of Inflating Payroll Costs on Your PPP Application: What You Need to Know

Someone from the government has contacted you about your PPP loan. They're saying your payroll numbers were inflated. Your stomach drops. You think back to those frantic days in 2020 when you were scrambling to save your business, filling out forms you didnt fully understand, trying to get an application submitted before the money ran out.

And now theyre calling it fraud.

Heres the thing - being accused of inflating payroll costs isnt the same as being guilty of fraud. Not even close. And understanding that diffrence might be the most important thing you learn today.

At Spodek Law Group, we beleive every accused person deserves to understand what theyre actualy facing. Our mission is to provide honest, aggressive representation that treats you like family - not like a case number. Todd Spodek and our team have defended clients against PPP fraud allegations, and we know the reality is far more complicated than the government wants you to beleive.

Lets talk about whats really happening when the government says you inflated your payroll.

Why "Inflated" Dosent Always Mean Fraud

The first thing to understand is that federal fraud charges require proof of INTENT. Its not enough for the government to show that your numbers were wrong. They have to prove you KNEW your numbers were wrong when you submitted them, and that you did it on purpose to get money you werent entitled to.

OK so think about what that means for your situation.

Did you genuinely beleive your payroll calculation was correct when you submitted it? Did you rely on guidance from your lender, your accountant, or information available at the time? Did you make an honest mistake in a complicated calculation?

If so, youre not a fraudster. Your someone who made an error - or didnt even make an error, just calculated things differently than the government thinks you should have.

The government compares your PPP application to your tax records. When they see a discrepancy, they assume the worst. But that assumption is wrong more often than prosecutors want to admit.

The Chaos Nobody Talks About

Lets be honest about what was happening when you applied for your PPP loan.

It was spring 2020. The economy was collapsing. Your business might have been shut down or operating at a fraction of capacity. The government announced this emergency loan program. Money was limited and going fast. Everyone was scrambling.

The rules were changing constantly. The SBA was issuing new guidance every few days. Lenders were interpreting requirements differently. What counted as "payroll costs" wasnt always clear. The calculation methodology wasnt standardized.

Your lender probly told you to hurry. Get your application in fast before the money runs out. Dont wait for your accountant - figure it out yourself. Just estimate if you dont have exact numbers.

And you did exactly what they told you to do.

Now, months or years later, investigators are applying standards that may not have been clear at the time. Theyre comparing your rushed estimates to detailed tax records. Theyre treating any discrepancy as evidence of criminal intent.

This isnt fair. And its not how the law is supposed to work.

The Payroll Calculation Problem

Let that sink in - even with detailed instructions, experienced accountants got PPP payroll calculations wrong.

The rules were genuinely complicated:

You had to calculate average monthly payroll, but which months counted? The application required 12 months of payroll, but which 12 months? The year before the loan? Calendar year 2019? What if your business was seasonal and some months were drasticly different than others?

You had to determine which employees counted. Full-time employees were included, but what about part-time workers? What about contractors who might actualy be employees? What about employees who were furloughed?

You had to figure out which compensation categories qualified. Wages were covered, but what about bonuses? Commissions? Tips? Benefits? Retirement contributions? State and local taxes?

You had to account for owner compensation, which had special rules and caps that most business owners didnt fully understand.

Getting any of these elements wrong could produce a number that looks "inflated" compared to tax records - even though you were genuinley trying to follow the rules.

When Your Lender Told You What to Include

Heres something that can be very powerful in your defense: reliance on professional advice.

Many lenders gave specific guidance about how to calculate payroll costs. They had their own forms, their own instructions, their own interpretation of the rules. If you followed what your lender told you, thats not fraud - its reasonable reliance on the financial institution that was supposed to help you navigate the program.

Weve seen cases where lenders told borrowers to include compensation categories that the SBA later decided shouldnt count. We've seen cases where lenders suggested calculation methods that produced higher numbers than other methods would have. We've seen cases where lenders rushed borrowers through the process without adequate time to verify figures.

If you have emails, notes, or any documentation showing what your lender told you, preserve it immediatly. This evidence can be crucial to your defense.

The same applies if you used an accountant, a bookkeeper, or any other professional. If they told you to calculate payroll a certain way, and you relied on their expertise, thats a powerful defense against fraud charges.

The Math Error vs Fraud Distinction

Making a mathematical mistake is not a federal crime.

If you added wrong, if you used the wrong time period by accident, if you misread your own records, if you transposed digits, if you made any of the countless errors that humans make when working with numbers - thats not fraud.

Fraud requires knowing that your number was wrong and submitting it anyway with the intent to deceive. The government has to prove what was in your head when you filled out that application. Proving someone's state of mind is hard - especialy when the calculation was genuinley confusing and honest mistakes were common.

Think about it this way: if you asked ten accountants to calculate PPP payroll for the same business using the same records, would they all get the same number? Almost certainly not. The variation between reasonable calculations is exactly why a discrepancy isnt automatically fraud.

The Tax Record Comparison Problem

The government's favorite evidence in PPP cases is comparing your loan application to your tax filings. When the numbers dont match, they claim fraud.

But heres what they dont tell you: tax records arent designed to capture exactly the same categories as PPP payroll costs.

Your tax forms show wages you reported to the IRS. PPP payroll costs include wages but also include things that might not appear the same way on tax returns - certain benefits, state taxes, owner draws that werent reported as wages.

Your quarterly 941s show what you paid employees and reported to the IRS. But PPP calculations might include employees who started work after those reports were filed, or compensation that was accrued but not yet reported.

The discrepancy investigators love to highlight might simply reflect the diffrence between tax reporting requirements and PPP eligibility categories. Its not proof of intent to deceive - its proof that the government is comparing apples to oranges.

Round Numbers Arent Evidence of Fraud

Investigators often get suspicious when PPP loan amounts are suspiciously round numbers. A loan for exactly $250,000 looks like someone just made up a number, right?

Not necessarily.

The PPP rules explicitly allowed estimates when exact figures werent available. Many small businesses dont have sophisticated payroll systems. They have approximate records, rough figures, reasonable estimates.

A round number might simply reflect the reality of small business recordkeeping. It might be the result of legitimate rounding during calculation. It might be exactly what the lender told the borrower to submit.

The government sees a round number and assumes the worst. A good defense attorney sees a round number and asks: what was reasonable under the circumstances?

The Scale That Matters

Federal prosecutors love to announce big PPP fraud numbers. Billions of dollars stolen. Thousands of fraudsters caught. Maximum sentences sought.

But most PPP "fraud" cases arent sophisticated criminal enterprises. Theyre small business owners who made calculation errors or honest mistakes.

Consider the diffrence: Someone who creates a fake business, fabricates employees, submits completely falsified documents, and diverts loan proceeds to buy luxury items - thats obvious fraud.

Someone who calculated their legitimate business's payroll using a method that produced a number 10% or 20% higher than the government now thinks was correct - is that really the same thing?

The answer should be no. But prosecutors sometimes treat minor discrepancies the same as outright fabrication because conviction statistics look good regardless of what the defendant actualy did.

This is why defense counsel matters. Someone needs to make sure the punishment fits the reality, not just the accusation.

What to Do If Youre Being Investigated

If federal agents have contacted you about your PPP loan, heres what you need to know right now.

First, stop talking. Anything you say can and will be used against you. Even statements you think are helpful - like explaining that you just made a mistake - can be twisted into evidence of guilt. Exercise your right to remain silent.

Second, dont destroy anything. Evidence preservation is critical, and destroying documents is a seperate federal crime. Keep everything related to your PPP loan - application materials, lender communications, payroll records, bank statements, all of it.

Third, gather your evidence. Look for anything that shows what guidance was available when you applied, what your lender told you, what calculation method you used and why. This evidence might make the diffrence between conviction and acquittal.

Fourth, get experienced defense counsel immediatly. PPP fraud cases are complex, and the earlier you have representation, the better your options. At Spodek Law Group, our phones are answered 24/7 because we understand that federal investigations dont respect business hours. You can reach us at 212-300-5196.

The Intent Question Is Everything

Heres what it comes down to: did you intend to deceive the government and obtain money you werent entitled to?

If you genuinley beleived your payroll calculation was correct, you didnt commit fraud.

If you relied on professional advice about how to calculate payroll, you didnt commit fraud.

If you made an honest mathematical error, you didnt commit fraud.

If the rules were confusing and you interpreted them reasonably, you didnt commit fraud.

The government wants you to think that any discrepancy equals guilt. Thats not how the law works. They have to prove beyond a reasonable doubt that you had criminal intent. That proof is often much harder to establish than the accusation suggests.

Why Most People Dont Go to Trial

Heres an unfortunate reality: most federal defendants plead guilty without ever testing the government's case at trial.

Why? Because federal prosecutors threaten massive sentences if you go to trial and lose. They offer reduced charges if you plead guilty. People get scared. They take deals even when they might have won at trial.

But pleading guilty means a federal conviction on your record forever. It means potential prison time, even if less than the maximum. It means fines, restitution, supervised release. It means telling every future employer, every licensing board, everyone who asks that youre a convicted felon.

Before you plead guilty to anything, you need an honest assessment of the government's actual evidence. How strong is their case on intent? What evidence do you have that supports your defense? What are the realistic risks and benefits of each option?

At Spodek Law Group, we provide that honest assessment. Todd Spodek built this firm on treating every client like family. That means giving you the truth about your situation, not just telling you what you want to hear - and it means fighting for you when the evidence supports a defense.

The Bottom Line

Being accused of inflating payroll costs on your PPP application is serious. But an accusation isnt a conviction. The government has to prove intent beyond a reasonable doubt, and thats not as easy as investigators want you to beleive.

The PPP program was rolled out in chaos. Guidance was confusing. Lenders gave bad advice. Honest mistakes were inevitable. These realities matter - they create defenses that many accused borrowers never realize they have.

If youre facing investigation or charges related to PPP payroll calculations, dont assume the worst. Dont plead guilty without understanding your options. And dont try to navigate this alone.

Contact Spodek Law Group today at 212-300-5196. Lets talk about your situation and what defenses might be available to you.

Your future is too important to surrender without a fight.