OIG Final Report 22-21 Paycheck Protection Program Eligibility for Nonprofit Organizations

Summary

SBA Office of Inspector General Inspection Report 22-21, Paycheck Protection Program Eligibility for Nonprofit Organizations, dated September 26, 2022, from Inspector General Hannibal "Mike" Ware to Administrator Isabella Casillas Guzman. The report states that data analysis identified 179 PPP loans, totaling approximately $684 million, made to potentially ineligible nonprofits that may have exceeded SBA size standards. It reviews loans to Planned Parenthood of Illinois, Goodwill of Southwestern Pennsylvania and YMCA of the Rockies, and states that the Planned Parenthood organization met eligibility requirements while the YMCA organization did not. SBA management partially agreed with recommendation 1 and agreed with recommendation 2, and plans to re-review 27 of the 179 loans.

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PAYCHECK PROTECTION PROGRAM ELIGIBILITY FOR
NONPROFIT ORGANIZATIONS
Report Number 22-21 | September 26, 2022
S B A  I N S P E C T O R  G E N E R A L    I N S P E C T I O N  R E P O R T

EXECUTIVE SUMMARY

PAYCHECK PROTECTION PROGRAM ELIGIBILITY
FOR NONPROFIT ORGANIZATIONS
Report 22-21
September
26, 2022

What OIG Reviewed
The U.S. Small Business Administration (SBA)
Office of Inspector General (OIG) conducted this
review to assess Paycheck Protection Program
(PPP) eligibility for nonprofit organizations.
The Coronavirus Aid, Relief, and Economic Security
(CARES) Act was enacted on March 27, 2020 to
provide $349 billion in economic relief from the
effects of the Coronavirus Disease 2019 pandemic.
Subsequent acts increased the total amount of
funding to $813.7 billion. The PPP provided fully
guaranteed loans under section 7(a) of the Small
Business Act for eligible small businesses,
individuals, and nonprofits. These loans can be
forgiven if proceeds were used as required by the
CARES Act.
SBA uses size standards to determine if a business
is small and therefore eligible to participate in the
applicable program. To qualify for the PPP, a
nonprofit must have (1) employed no more than
500 employees, or (2) met SBA’s employee-based
size standard for its primary industry. As of August
8, 2020, SBA approved 136,355 loans to nonprofits,
totaling over $35 billion, of which 133,382, or 98
percent, totaling over $33 billion, have been
forgiven.
Our objective was to determine whether PPP loans
to
nonprofit
organizations
were
made
in
accordance with eligibility requirements. To
accomplish our objective, we reviewed laws,
regulations, policies, procedures and guidance, and
evaluated PPP loan data.
What OIG Found
Based on data analysis, we identified 179 PPP
loans, totaling approximately $684 million, made
to potentially ineligible nonprofits that may have
exceeded SBA’s requirements for business size,
known as size standards, at the time of application.
We also reviewed PPP loans for three large
nonprofits, including Planned Parenthood of
Illinois that received over $3.8 million, Goodwill of
Southwestern Pennsylvania that received over $6
million, and YMCA of the Rockies that received over
$3.5 million. We determined that the Planned
Parenthood organization met PPP loan eligibility
requirements. The Goodwill organization was not
eligible for a PPP loan at the time of application but

subsequently became eligible for forgiveness due
to updated PPP guidance. On March 11, 2021, the
American Rescue Plan Act increased the size
standard for nonprofit organizations from a total of
500 or fewer employees to no more than 500
employees per physical location. On July 8, 2022,
the SBA Administrator determined nonprofits that
received a loan before March 11, 2021 and
submitted a forgiveness application on or after
March 11, 2021 would be eligible for forgiveness if
they met the increased size standard of no more
than 500 employees per physical location.
Goodwill received its PPP loan in April 2020 and
applied for forgiveness in June 2021.
The YMCA organization we reviewed did not meet
eligibility requirements because they exceeded the
applicable size standard of no more than 500
employees at the time of application and
forgiveness. YMCA received its PPP loan in April
2020 and applied for forgiveness in September
2020.
We also reviewed the three national organizations
associated
with
the
PPP
loans
to
the
aforementioned Planned Parenthood, Goodwill,
and YMCA for potential affiliation with the PPP loan
recipients. We found no affiliation between the
national organizations and the loan recipients.
OIG Recommendations
We recommend SBA review the 179 PPP loans,
totaling approximately $684 million, to ensure
eligibility requirements were met and seek remedy
or repayment for all loans deemed ineligible, and
seek remedy or repayment of the PPP loan we
reviewed for YMCA totaling $3.5 million.
Agency Response
SBA
management
partially
agreed
with
recommendation
1
and
agreed
with
recommendation 2. Management plans to re-
review 27 of the 179 PPP loans and review the $3.5
million PPP loan. Management’s proposed actions
for recommendation 1 did not fully address the
recommendation. In accordance with our audit
follow-up policy, we will attempt to reach
agreement with management on this unresolved
recommendation.

Office of Inspector General
U.S. Small Business Administration

DATE:
September 26, 2022
TO:
Isabella Casillas Guzman
Administrator
FROM:
Hannibal “Mike” Ware
Inspector General
SUBJECT:
Inspection of Paycheck Protection Program Eligibility for Nonprofit
Organizations
This report presents the results of our inspection of the Paycheck Protection Program
Eligibility for Nonprofit Organizations. We considered management’s comments on the draft
of this report when preparing the final report. Management partially agreed with
recommendation 1 and agreed with recommendation 2.
We appreciate the cooperation and courtesies provided by your staff. If you have any
questions, contact me or Andrea Deadwyler, Assistant Inspector General for Audits, at
(202) 205-6586.
cc:
Patrick Kelley, Associate Administrator, Office of Capital Access
Arthur Plews, Chief of Staff
Peggy Delinois Hamilton, Special Counsel for Enterprise Risk
Therese Meers, Acting General Counsel, Office of General Counsel
John Miller, Deputy Associate Administrator, Office of Capital Access
Michael Simmons, Attorney Advisor, Office of General Counsel
Katherine Aaby, Associate Administrator, Office of Performance, Planning, and the
Chief Financial Officer
Erica Gaddy, Deputy Chief Financial Officer, Office of Performance, Planning, and the
Chief Financial Officer
Tonia Butler, Director, Office of Internal Controls

Table of Contents
Introduction ............................................................................................................................................................ 1
Eligibility Requirements for Nonprofit Organizations ....................................................................... 1
Objective............................................................................................................................................................... 2
Results ................................................................................................................................................................... 2
Finding: Nonprofit Organizations Did Not Meet Size Standards ........................................................ 3
Potentially Ineligible PPP Loans ................................................................................................................. 3
Size Standards Not Met .................................................................................................................................. 3
SBA Loan Reviews ............................................................................................................................................ 5
National Affiliation ........................................................................................................................................... 5
Conclusion ........................................................................................................................................................... 6
Recommendations ............................................................................................................................................ 6
Analysis of Agency Response ........................................................................................................................... 7
Summary of Actions Necessary to Close the Recommendations ................................................... 7
Recommendation 1 ...................................................................................................................................... 7
Recommendation 2 ...................................................................................................................................... 8
Appendix I: Objective, Scope, and Methodology ....................................................................................... 9
Use of Computer-Processed Data ............................................................................................................... 9
Appendix II: Prior Work .................................................................................................................................. 10
Appendix III: Four Tests for Affiliation Based on Control .................................................................. 11
Appendix IV: Monetary Impact ..................................................................................................................... 13
Appendix V: Management Comments ........................................................................................................ 14

1
Introduction
This report presents the results of our inspection of Paycheck Protection Program (PPP)
eligibility for nonprofits. The Office of Inspector General (OIG) conducted this review to
determine whether PPP loans to nonprofit organizations were made in accordance with
eligibility requirements. OIG included a Planned Parenthood organization to address
concerns from some members of the U.S. Senate Committee on Small Business and
Entrepreneurship.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27,
2020 to provide economic relief from the effects of the Coronavirus Disease 2019
pandemic. Section 1102 of the CARES Act established the PPP with $349 billion to provide
fully guaranteed loans under section 7(a) of the Small Business Act. On April 24, 2020, the
President signed the Paycheck Protection Program and Health Care Enhancement Act,
which added $310 billion to the PPP, increasing total PPP funding to $659 billion.
On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and
Venues Act provided an additional $147.5 billion in program funding. Then on March 11,
2021, the American Rescue Plan Act of 2021 provided an additional $7.2 billion to the PPP,
increasing total PPP funding to $813.7 billion.
The PPP provided fully guaranteed U.S. Small Business Administration (SBA) loans for
certain eligible small businesses, individuals, and nonprofits that can be forgiven if loan
proceeds were used as required by the CARES Act. As of August 8, 2020, lenders approved
and disbursed 136,355 PPP loans, totaling approximately $35 billion, to nonprofits. As of
June 15, 2022, SBA made forgiveness payments on 133,382 loans, or approximately 98
percent, totaling $33.3 billion. For the remaining 2,973 loans, 2,640 loans did not have a
forgiveness application, 202 loans were under review, and 131 loans were denied.
Eligibility Requirements for Nonprofit Organizations
Nonprofits are described in section 501(c)(3) of the Internal Revenue Code as exempt from
taxation. To qualify for the PPP, nonprofits with loans approved between April 2, 2020 and
August 8, 2020 must have met specific size standard requirements and
• have no more than 500 employees, or
• met the SBA’s employee-based size standard corresponding to its primary
industry.
The size standard is used by SBA to determine if a certain type of business qualifies as
small and therefore eligible to participate in the applicable program. To determine the
number of employees, the applicant is considered together with its affiliates. According to
the CARES Act, an employee is defined as a person employed on a full-time, part-time, or
other basis such as a temporary worker. Entities are affiliates of each other when one
controls or has the power to control the other, or a third-party controls or has the power to
control both.
According to SBA, entities are not necessarily affiliates if they share the same name as their
national organization. Simply using the word “affiliate” when referring to related entities,
such as member organizations, does not define control. Control, not membership, is the

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standard by which affiliation is assessed. Affiliation rules for the PPP require an assessment
of four tests which consider control to determine the number of employees. See Appendix
III for the four tests on affiliation.
Objective
Our objective was to determine whether PPP loans to nonprofit organizations were made
in accordance with eligibility requirements.
Results
Based on data analysis, we identified 179 PPP loans, totaling approximately $684 million,
made to potentially ineligible nonprofits that may have exceeded SBA’s requirement for
business size, known as size standard.
We also reviewed PPP loans for three large nonprofits, including Planned Parenthood of
Illinois that received over $3.8 million, Goodwill of Southwestern Pennsylvania that
received over $6 million, and YMCA of the Rockies that received over $3.5 million. We
determined that the Planned Parenthood organization met PPP loan eligibility
requirements. The Goodwill organization was not eligible for a PPP loan at the time of
application but subsequently became eligible for forgiveness due to updated PPP guidance.
On March 11, 2021, the American Rescue Plan Act increased the size standard for nonprofit
organizations from a total of 500 or fewer employees to no more than 500 employees per
physical location. On July 8, 2022, the SBA Administrator determined nonprofits that
received a loan before March 11, 2021 and submitted a forgiveness application on or after
March 11, 2021, would be eligible for forgiveness if they met the increased size standard of
no more than 500 employees per physical location. Goodwill received its PPP loan in April
2020 and applied for forgiveness in June 2021.
The YMCA organization we reviewed did not meet eligibility requirements because it
exceeded the applicable size standard of no more than 500 employees at the time of
application and forgiveness. YMCA received its PPP loan in April 2020 and applied for
forgiveness in September 2020.
In addition, we reviewed the three national organizations associated with the PPP loans for
potential affiliation with the aforementioned Planned Parenthood, Goodwill, and YMCA. We
found no affiliation between the national organizations and the loan recipients.
We also found it is not likely that the national organizations are affiliates of any member
organizations. This is based on a review of documents, such as the national organization’s
bylaws, membership agreements, and membership requirements to identify affiliation. We
also found that the national organizations did not have unique management agreements
with its member organizations, which could indicate control.

3
Finding: Nonprofit Organizations Did Not Meet Size
Standards
We identified 179 PPP loans, totaling approximately $684 million, made to potentially
ineligible nonprofits. We determined they were potentially ineligible based on our analysis
of the PPP data which indicated these organizations exceeded the maximum allowed size
standard of 500 employees at the time of application. We also reviewed PPP loans for three
large nonprofit organizations based on our review methodology. The three nonprofits
reviewed included one Planned Parenthood organization, one Goodwill organization, and
one YMCA. Each of these nonprofits received PPP loans in 2020 that were subsequently
forgiven. We determined that the Planned Parenthood organization met PPP loan eligibility
requirements because it, along with its affiliates, had 341 employees, which was within the
maximum allowed size standard of 500 employees. The Goodwill and YMCA organizations
we reviewed were not eligible because they exceeded the maximum allowed size standard
at the time of their application. However, Goodwill subsequently became eligible for
forgiveness due to updated PPP guidance for size standards.
Potentially Ineligible PPP Loans
Based on our data analysis, we identified 179 PPP loans, totaling approximately $684
million, made to potentially ineligible nonprofits. The data shows these loans were
approved between April 2 and August 8, 2020. All of the nonprofits had more than 500
employees at the time of application. The applicable primary industry and SBA’s employee-
based size standard did not allow for an employee count greater than 500.
On March 11, 2021, the American Rescue Plan Act increased the size standard for nonprofit
organizations from a total of 500 or fewer employees to no more than 500 employees per
physical location. On July 8, 2022, the SBA Administrator determined that nonprofit
organizations that received a loan before March 11, 2021 and submitted a forgiveness
application on or after March 11, 2021 would be eligible for forgiveness if the nonprofit
organization met the American Rescue Plan Act increased size eligibility standard and has
otherwise complied with all applicable PPP rules.1
Of the 179 PPP loans, 62 loans had a forgiveness application submitted before March 11,
2021. The remaining 117 were submitted on or after March 11, 2021. SBA should review
all of these loans and related supporting documents to ensure the nonprofits met eligibility
requirements.
Size Standards Not Met
Goodwill and YMCA did not meet PPP loan eligibility requirements at the time of
application because these organizations exceeded the maximum allowed size standard of
500 employees. To conduct our analysis, we reviewed payroll documents and found that
Goodwill and its affiliates had 1,334 employees and received more than $6 million in PPP
funds. The YMCA had 745 employees and received over $3.5 million in PPP funds.

1 SBA PPP Frequently Asked Questions, (July 8, 2022).

4
To determine the number of employees, we reviewed the nonprofits’ affiliation with their
national organizations and other associated entities. We found that none of the nonprofits
reviewed were affiliated with their national organization according to SBA standards. To
determine the total number of employees, the borrower is considered together with other
associated entities. Goodwill had an associated entity with employees that should have
been included in its total employee count because they shared the same board members,
which indicated they were being controlled by the borrower. The YMCA did not have any
associated entities.
Our review of all the nonprofits included an assessment of the four affiliation tests (see
Appendix III) and key operating documents for borrowers, borrower affiliates, and
associated national organizations, including bylaws, articles of incorporation, member
agreements, tax documents, and membership requirements. We looked for any instances of
control through voting, management of other entities, and identity of interest. We also
conducted an analysis to identify board members between the borrowers and related
entities because identical board members indicate control of the organization.
The CARES Act states certain nonprofits are eligible if they employ not more than the
greater of 500 employees or, if applicable, the number of employees for its primary
industry according to SBA requirements. The primary industry for all the nonprofits
reviewed did not allow for an employee count greater than 500 at the time of their
application.
However, although the lender erroneously approved the Goodwill organization’s PPP loan,
it subsequently became eligible for forgiveness due to updated PPP guidance. In
accordance with the American Rescue Plan Act, on July 8, 2022, the SBA Administrator
determined nonprofits that received a loan before March 11, 2021 and submitted a
forgiveness application on or after March 11, 2021 would be eligible for forgiveness if they
met the increased size standard of no more than 500 employees per physical location.
Goodwill received its PPP loan in April 2020 and submitted its forgiveness application on
June 24, 2021. Based on the updated guidance, YMCA still remains ineligible for forgiveness
because it received its PPP loan in April 2020 and submitted its forgiveness application on
September 23, 2020, prior to the changes that were effective March 11, 2021.
The Goodwill and YMCA nonprofit organizations erroneously received PPP loans because
lenders were only required to meet limited underwriting requirements, which did not
include an assessment of affiliation or size standards at application. Lenders relied on
borrowers identifying affiliates on the PPP application and certifying its accuracy. In
addition, the lender was only required to confirm the following:

5

• receipt of borrower certifications contained in the PPP application;
• receipt of information demonstrating that a borrower had employees for whom
the borrower paid salaries and payroll taxes on or around February 15, 2020;
• dollar amount of average monthly payroll costs for the preceding calendar year
based on a review of the payroll documents submitted with the borrower’s
application; and
• compliance with the Bank Secrecy Act requirements.2
SBA Loan Reviews
SBA reviewed the three PPP loans as part of its loan review process. During this review
process, SBA tested PPP loans for compliance with program requirements and reviewed
loans to resolve hold codes that were placed on the loans during the data analytics and
automated screening processes. The hold codes were used to identify loans that warranted
further review to ensure compliance with PPP eligibility requirements.
For the ineligible PPP loan made to YMCA, SBA reviewed the loan which had a hold code for
potential affiliation issues. However, SBA cleared the loan and took no further action. The
steps SBA took to clear the issues included:
• reviewing the loan application and supporting documents;
• conducting online research using available databases; and
• requesting and reviewing additional information from the borrower’s lender.
SBA approved this loan for forgiveness payments even though the borrower exceeded the
500 employee total count requirement. YMCA specified it had 321.5 employees on its PPP
application, which was based on a full-time equivalent calculation. However, according to
its payroll documents, it had 745 employees which consisted of full-time and part-time
employees.
The CARES Act states certain nonprofits are eligible if they employ not more than the
greater of 500 employees or, if applicable, the number of employees for its primary
industry according to SBA requirements. In addition, employees include individuals
employed on a full-time, part-time, or other basis, such as a temporary worker.
We requested SBA provide its complete analysis for YMCA. As of the issuance of this report,
SBA has not provided the requested information so we could not determine SBA’s rationale
for forgiving this loan.
National Affiliation
We reviewed the three national organizations associated with the nonprofits included in
our review to identify affiliation with their member organizations. We found it is not likely
that affiliation existed with its member organizations. All three national organizations we
reviewed have delegated autonomy to its members and recognized its members in its
bylaws as independent organizations.

2 85 Federal Register 20815 (III)(3)(b).

6
To assess affiliation, we reviewed documents such as bylaws, member agreements, articles
of incorporation, tax documents, and membership requirements to determine if control or
the potential for control existed. We looked for any instances of control through voting,
management of other member organizations, or business interests of close relatives. We
found that the national organizations did not have unique management agreements with
member organizations, which could indicate control.
Conclusion
We identified 179 PPP loans, totaling about $684 million, made to potentially ineligible
nonprofits that exceeded the maximum employee count of 500 at the time of application.
These loans increase the risk of financial loss to the taxpayer and warrant additional
review by SBA to ensure eligibility requirements were met. In addition, a lender approved
and SBA granted forgiveness of a PPP loan to an ineligible nonprofit organization, resulting
in approximately $3.5 million in pandemic relief funding that could have gone to eligible
entities in need of this assistance.
Recommendations
We recommend the Administrator direct the Associate Administrator of the Office of
Capital Access to:
1. Review the 179 PPP loans, totaling approximately $684 million, for compliance with
affiliation and size standards to ensure eligibility requirements were met and seek
remedy or repayment for all loans deemed ineligible.
2. Seek remedy or repayment of a PPP loan in the amount of $3.5 million.

7
Analysis of Agency Response
SBA management provided formal comments to the draft report, which are included in
their entirety in Appendix V. Management partially agreed with recommendation 1 and
agreed with recommendation 2. We considered management’s comments when preparing
this final report.
Summary of Actions Necessary to Close the Recommendations
The following section details the status of our recommendations and the actions necessary
to close them.
Recommendation 1
Review the 179 PPP loans, totaling approximately $684 million, for compliance with
affiliation and size standards to ensure eligibility requirements were met and seek remedy
or repayment for all loans deemed ineligible.
Status: Unresolved
SBA management partially agreed with this recommendation, stating the agency will re-
review 27 of the 179 PPP loans which required a manual review. Management indicated it
developed a loan review process to optimize its resources, which considered the challenges
posed by a portfolio of 11 million PPP loans. This risk-based loan review process consisted
of automated screenings and manual reviews of selected loans to test for compliance with
program requirements. Management stated it will not manually review the remaining
loans, as they were considered low risk under the loan review process, therefore were not
selected for manual review.
Although SBA stated it used a risk-based loan review process to optimize resources, we
believe all 179 PPP loans require review to ensure eligibility requirements were met. SBA’s
risk-based loan review process is designed to optimize use of resources to review the
portfolio of 11 million PPP loans and is not relevant when individual potentially ineligible
loans are identified. When potentially ineligible loans are identified, these loans should be
considered higher risk and reviewed for compliance with program requirements. As stated
in the report, our data analysis found that the nonprofits may have exceeded SBA’s size
standards at the time of application. The 179 PPP loans total approximately $684 million,
which is a significant amount that is potentially recoverable. We believe an additional
review by SBA is warranted. Management’s proposed actions for recommendation 1 did
not fully address the recommendation. In accordance with our audit follow-up policy, we
will attempt to reach agreement with management on the unresolved recommendation. If
not, we will notify the audit follow-up official of the disputed issues.
The list of 179 loans identified by OIG was based on our selection methodology and
analysis. We selected the large nonprofits based on the following:
• size of nonprofits based on the Forbes list of top 25 nonprofits from 2021;
• nonprofits with 25 or more PPP loans; and
• average PPP loan size.

8
In subsequent correspondence, management indicated plans to complete final action on
this recommendation by January 31, 2023. This recommendation is considered unresolved
and can be closed when SBA provides evidence that it reviewed the 179 PPP loans and took
necessary actions to seek remedy or repayment, as appropriate.
Recommendation 2
Seek remedy or repayment of a PPP loan in the amount of $3.5 million.
Status: Resolved
SBA management agreed with this recommendation, stating the agency will review the PPP
loan. Management plans to complete final action on this recommendation by January 31,
2023. This recommendation is considered resolved and can be closed when SBA provides
evidence that it reviewed the PPP loan and took necessary actions to seek remedy or
repayment, as appropriate.

9
Appendix I: Objective, Scope, and Methodology
Our objective was to determine whether Paycheck Protection Program loans to nonprofit
organizations were made in accordance with eligibility requirements. Our scope of work
covered PPP loans made to nonprofits approved between April 2, 2020 and August 8, 2020
that then received forgiveness payments.
To answer our objective, we reviewed laws, regulations, policies, procedures, and guidance
pertaining to PPP eligibility for nonprofits. This included the CARES Act, Paycheck
Protection Program and Health Care Enhancement Act, Paycheck Protection Program
Flexibility Act of 2020, Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues
Act, American Rescue Plan Act of 2021, Interim Final Rules, Frequently Asked Questions,
Procedural Notices, and program forms related to PPP. We interviewed officials from the
SBA Office of Capital Access on PPP eligibility requirements for nonprofits.
We reviewed three PPP loans made to large nonprofits to determine if the loans met
eligibility requirements. We selected the large nonprofits based on the following:
• size of nonprofits based on the Forbes list of top 25 nonprofits from 2021;
• nonprofits with 25 or more PPP loans; and
• average PPP loan size.
In addition, we reviewed documents obtained from national organizations related to the
PPP loans reviewed to assess borrower affiliation and affiliation with all member
organizations. To determine control or the potential for control by national organizations,
we reviewed bylaws, member agreements, and membership requirements.
We conducted this inspection in accordance with the Council of the Inspectors General on
Integrity and Efficiency’s Quality Standards for Inspection and Evaluation. These standards
require that we adequately plan and perform the evaluation to obtain sufficient and
appropriate evidence to provide a reasonable basis for our findings and conclusions based
on our objective. We believe that the evidence provides a reasonable basis for our
conclusions based on our objective.
Use of Computer-Processed Data
We relied on data from SBA’s electronic loan servicing system (E-Tran) and the Internal
Revenue Service for nonprofits to conduct our inspection. We reviewed data reliability
assessments from recent prior audits that used E-Tran data. In addition, we compared our
sample data to source documents to assess the reliability of that data and found the data
was accurate. As a result, we believe the data elements used in this report are sufficiently
reliable to support our report conclusion.

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Appendix II: Prior Work
Report Title
Objective
Report
Number
Final Report
Date
Monetary
Impact
SBA’s Paycheck
Protection
Program Loan
Review
Processes
Assess SBA’s processes for
reviewing Paycheck
Protection Program loans
for eligibility and
forgiveness
Report 22-09
February 28, 2022
N/A
Inspection of
SBA’s
Implementation
of the Paycheck
Protection
Program
Assess SBA’s
implementation of the
Paycheck Protection
Program, including the
timing of implementation,
lender participation,
guidance provided to
lenders and staff, timeliness
of loan approval and
disbursement, and systems
used to process lender loan
approvals
Report 21-07
January 14, 2021
N/A

11
Appendix III: Four Tests for Affiliation Based on Control
The following four tests for affiliation based on control are used to determine the number
of employees of a PPP applicant and its affiliates.3
1.
Affiliation based on ownership
For determining affiliation based on equity ownership, a concern is an affiliate of an
individual, concern, or entity that owns or has the power to control more than 50 percent
of the concern's voting equity. If no individual, concern, or entity is found to control, SBA
will deem the Board of Directors or President or Chief Executive Officer (CEO) (or other
officers, managing members, or partners who control the management of the concern) to
be in control of the concern. SBA will deem a minority shareholder to be in control, if that
individual or entity has the ability, under the concern's charter, by-laws, or shareholder's
agreement, to prevent a quorum or otherwise block action by the board of directors or
shareholders.
2.
Affiliation arising under stock options, convertible securities, and agreements
to merge
(a) In determining size, SBA considers stock options, convertible securities, and
agreements to merge (including agreements in principle) to have a present effect on the
power to control a concern. SBA treats such options, convertible securities, and agreements
as though the rights granted have been exercised.
(b) Agreements to open or continue negotiations towards the possibility of a merger or a
sale of stock at some later date are not considered “agreements in principle” and are thus
not given present effect.
(c) Options, convertible securities, and agreements that are subject to conditions precedent
which are incapable of fulfillment, speculative, conjectural, or unenforceable under state or
Federal law, or where the probability of the transaction (or exercise of the rights) occurring
is shown to be extremely remote, are not given present effect.
(d) An individual, concern or other entity that controls one or more other concerns cannot
use options, convertible securities, or agreements to appear to terminate such control
before actually doing so. SBA will not give present effect to individuals’, concerns’, or other
entities’ ability to divest all or part of their ownership interest in order to avoid a finding of
affiliation.
3.
Affiliation based on management
Affiliation arises where the CEO or President of the applicant concern (or other officers,
managing members, or partners who control the management of the concern) also controls
the management of one or more other concerns. Affiliation also arises where a single
individual, concern, or entity that controls the Board of Directors or management of one
concern also controls the Board of Directors or management of one of more other concerns.
Affiliation also arises where a single individual, concern or entity controls the management
of the applicant concern through a management agreement.

3 13 CFR 121.301(f).

12
4.
Affiliation based on identity of interest
Affiliation arises when there is an identity of interest between close relatives, as defined in
13 CFR 120.10, with identical or substantially identical business or economic interests
(such as where the close relatives operate concerns in the same or similar industry in the
same geographic area). Where SBA determines that interests should be aggregated, an
individual or firm may rebut that determination with evidence showing that the interests
deemed to be one are in fact separate.

13
Appendix IV: Monetary Impact
Recommendation Number
Impact Category
Amount (dollars)
2
Questioned Costs
$3,544,216
Total
--
$3,544,216
Source: OIG Analysis
Under the CARES Act, nonprofits are ineligible for PPP loans if they have more than 500
employees or, if applicable, exceed SBA’s employee-based size standard corresponding to
its primary industry. One of the three PPP loans reviewed exceeded the maximum allowed
size standard at the time of application and forgiveness. As a result, we identified
$3,544,216 in questioned costs. Questioned costs mean ineligible costs based on an alleged
violation of a provision of a law or regulation.

14
Appendix V: Management Comments
SBA RESPONSE TO INSPECTION REPORT

To:
Hannibal “Mike” Ware, Inspector General
From: Jihoon Kim, Director, Office of Financial Program Operations
Date:    September 14, 2022
JI KIM
Digitally signed by JI KIM
Date: 2022.09.14
17:14:18 -04'00'
To:
Hannibal “Mike” Ware, Inspector General
Subject: Response to OIG Draft Report Recommendations–Paycheck Protection Program Eligibility for
Nonprofit Organizations (Project 22001).
We appreciate the role the Office of Inspector General (OIG) plays in working with management in
ensuring that our programs are effectively managed, and for the feedback provided in this draft report.
Small Business Administration (SBA) strives to process lender forgiveness decisions consistent with The
Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended by the Economic Aid to Hard-
Hit Small Businesses, Nonprofits and Venues Act, the American Rescue Plan Act of 2021, and the PPP
Extension Act of 2021 and Interim Final Rules issued by SBA and Treasury. SBA developed a loan review
process designed to maximize program integrity and optimize use of SBA’s loan review resources,
considering the challenges posed by the volume of more than 11 million PPP loans and the statutory
timeframe for reviews. The loan review consists of automated screenings and manual reviews of
selected loans to test for compliance with program requirements and evaluate the accuracy of PPP
borrowers’ self-certifications and material representations. Under the loan review process, SBA
generally processes forgiveness for low risk loans with a manual review. This enables SBA to focus its
scarce resources on loans with higher risk of fraud or ineligibility.
In its report, the OIG identified 179 PPP loans, totaling approximately $684 million, made to individual
nonprofits that were potentially ineligible nonprofits. The OIG also reviewed PPP loans for three large
nonprofit organizations one Planned Parenthood organization, one Goodwill organization, and one
YMCA. Each of these nonprofits received PPP loans in 2020 that were subsequently forgiven. OIG
determined that the Planned Parenthood organization met PPP loan eligibility requirements because it
had 341 employees, which was within the maximum allowed size standard of 500 employees. The
Goodwill and YMCA organizations we reviewed were not eligible because they exceeded the maximum
allowed size standard at the time of their application. However, Goodwill subsequently became eligible
for forgiveness due to updated PPP guidance for size standards. In addition, the OIG reviewed the three
national organizations associated with the PPP loans for potential affiliation with the aforementioned
Planned Parenthood, Goodwill, and YMCA and found no affiliation between the national organizations
and the loan recipients. The list of 179 loans identified by OIG includes additional loans to Goodwill and
YMCA and no additional loans to Planned Parenthood.

Management’s responses to the recommendations in the draft report are noted below:
Recommendation 1- Review the 179 PPP loans, totaling approximately $684 million, for compliance
with affiliation and size standards to ensure eligibility requirements were met and seek remedy or
repayment for all loans deemed ineligible.
Response – SBA partially agrees. As mentioned above, SBA developed a risk-based loan review process
consisting of automated screenings and manual reviews of selected loans to test for compliance with
program requirements and evaluate the accuracy of PPP borrowers’ self-certifications. 27 of the 179
loans identified by the OIG were identified as requiring a manual review under the loan review process.
Therefore, SBA agrees to re-review the 27 loans to confirm compliance with affiliation and size
standards to ensure eligibility requirements were met and seek remedy or repayment for all loans
where SBA made an incorrect determination during its manual forgiveness review. SBA will not manually
review the remaining loans, as they were considered low-risk under the loan review process, and,
therefore, were not selected for manual review. The list of 179 loans identified by OIG includes
additional loans to Goodwill and YMCA and no additional loans to Planned Parenthood.
Recommendation 2- Seek remedy or repayment of a YMCA PPP loan in the amount of $3.5 million.
Response – SBA agrees to review the YMCA loan, and if appropriate, seek remedy or repayment.
SBA will provide the results of its reviews by January 31, 2023. It is necessary to allow a 3-4 month time
period because SBA needs to initiate loan reviews and allow time for lenders and borrowers to provide
documentation. Borrowers and lenders are allowed up to 30 days to respond to additional information
requests.

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