Businesses that receive government funding under the nearly $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) should be mindful of the heightened risks of government investigations of fraud, waste, and abuse for several reasons:
- With the increased spending comes oversight. The CARES Act creates a new special inspector general for pandemic recovery within the U.S. Department of the Treasury to investigate misconduct and provides resources towards identifying fraudulent activity related to the CARES Act programs.
- Businesses are under pressure to move quickly to apply for funds under the CARES Act, including government-backed loans under the $350 billion Paycheck Protection Program (PPP).
- Borrowers applying for PPP loans are required to certify their eligibility for loans and make other representations that, if not properly substantiated, can expose them to allegations of fraud and potentially lead to damages and penalties.
- Some businesses applying for PPP loans may not have previously dealt with the Small Business Administration (SBA) and may be unfamiliar with SBA’s affiliation rules, which are complicated and may make some entities backed by venture capital or private equity funds ineligible.
In addition to providing relief spending, the CARES Act—the largest economic stimulus bill in U.S. history—provides new funding and resources for government oversight and investigations.
The new special inspector general will, among other things, conduct, supervise, and coordinate audits and investigations related to CARES Act loans. On April 3, 2020, President Trump announced his intention to nominate Brian Miller, a former inspector general of the General Services Administration (GSA), to fill the position.
The CARES Act also creates a Pandemic Response Accountability Committee (PRAC), with $80 million in funding, to promote transparency and support oversight of funds expended under the CARES Act and prior emergency spending bills in response to COVID-19. Consisting of inspectors general from numerous agencies, the PRAC’s role is to “prevent and detect fraud, waste, abuse, and mismanagement” in connection with COVID-19 relief efforts and “mitigate major risks that cut across program and agency boundaries.”
Government investigators (and the U.S. Congress) will scrutinize use of government funding and administration of loan programs under the CARES Act. In addition, last month, the U.S. Department of Justice (DOJ) announced that it will prioritize investigations and prosecutions into wrongdoing related to COVID-19, including fraudulent schemes.
Things You Should Consider:
- Take the time to slow down and double check the accuracy of your data. A common charge resulting from oversight of programs such as the CARES Act and the PPP is making a false statement to the government, which is a felony. When you sign the application, you are confirming its accuracy. Make sure things like the amount of payroll and number of employees can be substantiated.
- Know how you are going to provide oversight for the funds you receive. Have internal controls established about how the money is spent and be clear on what is permissible and what is not. Best practice is to have one person or a small group responsible and accountable for this compliance.
- Document carefully. Keep good records to be able to demonstrate due diligence and create an audit trail of how the money is being spent. If you discover you have made an error, you should consider disclosing it along with any other needed remedial measures.
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