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Did Shake Shack Commit Fraud When They Applied For PPP?

Posted in Financial Advisory, on Apr 2020, By: Mark S. Gottlieb


Many law firms and their clients have applied for the available federal and local loan and grant programs. Despite the promise for quick financial assistance, many businesses (including law firms) still face financial difficulties due to the Coronavirus Pandemic.  The Payroll Protection Program (“PPP”) was established to provide immediate financial assistance to businesses that employ five hundred employees or less. The money set aside for the PPP was entirely distributed within days after the application process began.  We are now hoping that the government replenishes the program.

As it turned out, a significant amount of this money was disbursed to businesses that technically meet the SBA’s criteria, but are actually much larger companies, which are not intended to benefit from this stimulus package. Companies, such as Shake Shack, are returning the $10 million it received in the hopes that the money will be redistributed.  Shake Shack is not the only large company to have benefited from having the infrastructure to quickly get ahead of the line for this money earmarked for small businesses.

The realization that our economy’s financial weaknesses are now being exposed.  Despite the prior peaks in the stock market, it is now clear that the adage: “What’s good for General Motors is good for America,” is just not true. Despite the current financial assistance being offered, tens of millions of workers are now unemployed, and many businesses are not expected to withstand the financial pressures caused by the current business interruption.

Individuals and business owners are taking this down-time to revisit their financial health.  For many, this discovery exercise is unveiling one’s financial sores and their possible exposure to fraud.

It is naïve to think that fraud is limited to a restaurant not declaring its cash sales or other business owners receiving non-taxable perquisites to avoid personal income. In fact, “white-collar” crime remains at the pinnacle of many fraud investigations. Forensic accounting firms, such as ours, are now fielding inquiries concerning previously unknown Ponzi schemes and other fraudulent activity.

If your clients now suspect economic irregularities in their business or personal matters, you may want to encourage them to take this opportunity to review their financial affairs.  However, before immediately hiring a credentialled forensic accounting firm, you may what to ask them to consider to focus on the most significant areas of exposure. A forensic or fraud investigation can be an expensive and time-consuming exercise. So, it is crucial to concentrate on the most material issues.

What Business Owners Should Consider:

  1. Many businesses use some type of payroll processing program. Some of these are administered internally, while others are entirely outsourced. Someone, other than the payroll manager or bookkeeper, should periodically review the employees being paid and verify gross pay, hours worked, pay rate, and benefits.
  1. Bookkeeping and accounting functions have always been somewhat of an after-the-fact historical exercise. However, with the increasing use of online banking, these tasks must be monitored more carefully and on a real-time basis. If a business uses online banking for either the receipt or disbursement of funds, proper safeguards should be installed and reviewed periodically.
  1. One of the most common business fraud schemes relates to fraudulent vendors and related payment of fake invoices. An invoice on file does not mean goods or supplies have been received and are used for valid business purposes. Vendor lists and activity should be periodically reviewed.

How To Monitor Personal Financial Affairs?

  1. Since the Madoff era, investors have been much more cautious when monitoring their investments. There are several simple things people can do to monitor their finances more carefully.
    • Spread your investment portfolio among more than one investment advisor or investment account.
    • Compare your investment portfolio from your investment advisor to the financial institution’s statements.
    • Regularly evaluate your investment goals and strategies against your actual results.
  1. Budget your finances. Preparing and reviewing expected income and expenses is not just for sophisticated businesses. Households need to do the same, particularly when they are in “save mode” for large expenses, such as college costs and other life events.
  1. Changing your banking and other computer passwords often can prevent fraud and identity theft.  I know this is a pain, but it is a simple step you can take to decrease your chances of being a victim.

The current pandemic has taught us several new lessons and has brought our attention to financial issues that we are either not comfortable dealing with or would just rather ignore. Large businesses, such as Shake Shack, who have applied for loans and grants designated for small businesses, may not extend to the definition of fraud.  However, the current financial struggles experienced by companies now may unveil prior fraud, and the need to perform a forensic investigation.

If you like to discuss further how we can help you and your clients, please click here to schedule an immediate phone conference.