AccountingCFO AdviceThe Secret to a No-Sweat Compliance Audit is an Outsourced CFO

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The thought of a compliance audit makes most people sweat. Currently, the SBA is conducting first-round PPP audits. Oh! The drama! If you’ve read our PPP guide, you already know that the SBA is committed to ensuring that taxpayer-funded PPP loans went to COVID-impacted small businesses to keep employees on the payroll.

Sadly, the SBA Office of Inspector General (SBA-OIG) is overflowing with potential pandemic loan fraud cases for PPP and the EIDL loan programs. Whistleblower complaints are flooding the SBA-OIG’s Hotline. The cases are piling up from the referrals made by federal, state, and local agencies.

 

Unsure of your PPP compliance? Get our handy infographic on the likelihood of a PPP audit.

 

inDinero clients have a team of accounting and tax expertise to ensure accurate financials are fit for business management, investors, and taxes. When the need arises, inDinero’s clients have access to a fractional CFO with industry experience, accounting expertise, and audit acumen.

Are you in need of a CFO to take an audit off your plate? An outsourced CFO is an excellent alternative to a costly executive search for a CFO when your business or nonprofit faces an audit.

To illustrate why an outsourced CFO is a key to a no-sweat audit, let’s take a look at the hottest type of compliance audit out there: the PPP audit.

 

Do you know what tips off PPP auditors and investigators to potential fraud?

As we’ve said before, the SBA Office of Inspector General reserves the right to look into any PPP loan to assess the reported information’s accuracy and honesty. PPP borrowers must know for the use of the main areas of concern for investigators: eligibility for the PPP loan, accurate calculation of loan amount, allowable expenses, business performance, and certification of necessity.

 

Check-off these eligibility requirements

✓ 500 or fewer employees (for first-round PPP recipients)
✓ 300 or fewer employees (for second round PPP recipients)
✓ Open for business since February 15, 2020, and have not permanently closed
✓ Not filed for bankruptcy protection
✓ No pending PPP loan applications
✓ No duplicative PPP disbursements received
✓ Small business status and affiliation meet requirements for eligibility

 

The Loan calculation test

It’s a math check. The SBA will double-check your math to ensure your PPP loan forgiveness calculations are accurate. Remember, the SBA holds the borrower responsible for all information provided, not the lending institution.

 

The Allowable expenses test

The SBA will review all applications for forgiveness and the supporting documentation (i.e., bank account statements, payroll reports, tax forms, copies of invoices, and receipts) to ensure compliance with guidelines for use of PPP funds.

To be compliant, a PPP borrower must show that the loan was put toward allowable expenses in the proper ratio of 60% for payroll costs and 40% for specified operating expenses during the covered period or alternative covered period, whichever one applies.

 

Business performance test

Auditors will need to see more information if a review of your business activity or liquidity assessment brings up red flags in the following areas:

  • Permanent closure of your business
  • Cash flow
  • Improper revenue recognition
  • New capital projects
  • Undisclosed owner compensation of $250,000 or more and equity draws

 

Certification of necessity

Every PPP applicant has certified, in good faith, that the…

“[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Subsequently, the SBA updated guidance with a safe harbor for loans to borrowers, together with affiliates, under $2 million. Those borrowers are assumed to be telling the truth regarding certification of necessity. All applicants for PPP loan forgiveness of amounts over $2 million fill out a Loan Necessity Questionnaire. For more information on the questionnaire, see inDinero’s PPP guide.

The safe harbor does not guarantee that SBA won’t act on borrowers below $2 million suspected of fraud.

 

Outsourced CFOs know their way around an audit

Outsourced CFOs, also referred to as fractional CFOs or on-demand CFOs, know their way around an audit. You will make sure of it by engaging one with the level of expertise and experience your business needs. That said, an outsourced CFO doesn’t have to specialize in financial auditing or be a Certified Public Accountant to lead your company through a successful finance audit.

 

What does an outsourced CFO have that an internal CFO doesn’t?

For many SMEs, an outsourced CFO is an affordable alternative to a permanent hire. CEOs need a fractional CFO at critical stages like the first round of funding, M&A expansion, or a full compliance audit.

A CFO needs technical expertise, experience, and communication skills to effectively guide the top management and the finance team through the audit process. Undoubtedly, during an audit, you will discover areas of improvement and make changes to improve efficiency in accounting and ensure compliance.

When you are an inDinero customer, your fractional CFO brings with them bookkeeping, accounting, and tax services. Imagine that your outsourced CFOs possess a holistic approach that helps your company glide through a stress-filled audit. Our outsourced CFOs possess a holistic solution to your business accounting and tax needs.

 

CFO role during a financial audit

Anything that has a process can be audited to examine its effectiveness against business goals. A financial audit compares financial statements with the underlying data to uncover the inaccuracies, weaknesses, and strengths of an enterprise’s financial position. During an audit, the CFO will be the compliance spokesperson and change leader inside your organization.

During a financial audit, a CFO needs to be all of the following:

  1. Be skilled at building relationships with auditors, the CEO, stakeholders, and the finance team. Building relationships with a diverse group toward successful completion is a skill that fractional CFOs have honed.
  2. Be an expert in accounting, business financial reporting, tax compliance, financial controls, and financial audits. Outsourced CFOs will be adept in many, if not all, of these areas. If they are not experts, they will avail themselves of the expertise your business needs.
  3. Be a skeptic of the numbers that guide the accounting team to improve their practices. An outsourced CFO can provide a crucial internal audit of your organization overall.
  4. Be an agent of change, promoting and enabling a clean accounting system and business practices that uphold sustainable efficiency without sacrificing standards, ethics, and compliance. Change can happen whether your outsourced CFO has an ongoing or one-time engagement. Adopting new processes or technology will be most successful when your outsourced CFO sees themselves as a CEO’s partner in business.

“An outsourced CFO can be the bad cop to a CEO’s good cop and say ‘because Nicole said so’ to employees.” – Nicole Wallace, CPA, Managing Director, mAccounting.

 

Don’t go through an audit alone

Currently, the SBA-OIG audits are focused on out-and-out fraudulent cases such as applying under a fake company and errant loans made by the SBA to suspended or debarred companies. However, as the review process improves, even errors in your accounting controls could land your forgiveness loan on the review pile. For the foreseeable future, the regulatory powers are increasing, and it is better to be safe than sweaty.

inDinero’s outsourced CFOs are audit specialists and expert guides to CEOs and their accounting teams. Schedule a call with one of our outsourced CFOs to discuss your audit.

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Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. inDinero assumes no liability for actions taken in reliance upon the information contained herein.

 

by Celene Robert

Content producer by day, movie guru by night, Celene Robert is a PNW native and proud owner of eight pairs of Birkenstocks. She's passionate about giving inDinero customers a voice and enabling the dreams of innovative entrepreneurs.

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