Banks are flagging certain things as suspicious and handing those cases over to the government. Let’s say your business is only a couple of weeks old when you applied for the loan—automatic red flag. Very few businesses were able to open a couple of months before the pandemic and grow their payroll that fast. A lot of people took out these loans through their existing banks, so the banks are also able to look at their personal history. The bank could see that a person who never has more than a couple thousand in their account is suddenly claiming they have a $10,000-a-month payroll supporting five different employees. That’s another red flag.
People might try to report employees on their payroll sheets who are fraudulent and don’t exist, which the bank will catch when it verifies employees. Other schemers might use people’s information without their knowledge, which will create conflict when those fake employees come up on someone else’s payroll when the bank runs employees through the IRS. This would be another red flag that would produce a follow-up investigation.
The problem with these loans is that people had to submit documentation, which can be verified when the bank goes to the original source. Schemers either had to submit false bank records or false W2s or 1099s that go to the IRS. They’re able to go back to the source material and verify it. If they can’t verify it, it will be considered fraudulent. Now that the loan process is over, banks are going back through and giving these loans a closer eye to detect any suspicious information.
The last thing that can shine light on fraud and lead to indictment is lack of knowledge from fraudulent business owners. Most people don’t know how to falsify documents and commit financial fraud. So sophisticated schemers are reaching out to them and offering help, but the problem is that these people are lazy. Rather than create a new bank statement for the business they’re helping commit fraud, they’re just changing a couple of names on a template. The bank then realizes they’ve received the same documentation from other companies, leading to investigations into all of those businesses.
What Happens During the Investigation?
Usually the first step in an investigation will be verification from the source material of the documentation you provided. If you’ve submitted bank statements flagged for potential fraud, they’re going to subpoena the bank and get those statement originals. If they’re not the same, that’s fraud. Their investigation can conclude right there. Same thing with the IRS. Investigators will check on the employees you reported in the last two years of your taxes, and because the IRS is a government agency, verifying W2s or 1099s is easy.
Another step might be contacting the individual employees you reported on your documentation. In addition, I suspect they will also be contacting you accountant, if you have one, who helped you prepare these documents. Some accountants might be in trouble if they’ve helped their clients submit fraudulent documentation, which will come back on them.
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