Borrowers Beware: Government Accountability Office Steps Up Efforts To Eliminate Fraud Among PPP Loan Recipients
Triple damages of the Prospect of False Claims Act require meticulous record keeping
On April 10, 2020, the Government Accountability Office (GAO) announcement its efforts to stamp out fraud associated with the billions of dollars in payments promised under the CARES (Aid, Relief and Economic Security) law against coronaviruses. The congressional watchdog encourages individuals – citizens, government officials, entrepreneurs, etc. – to report anonymously and confidentially any allegation of fraud, waste, abuse and mismanagement through FraudNet (the GAO Fraud Reporting website), by email, or by calling 1-800-424-5454 (the GAO Automated Telephone Response System). The GAO, of course, looks for as much detail as possible on all allegations so that the reports can be forwarded to its own investigative unit, the offices of the appropriate Inspector General, or the ultimate authority – the Department of Justice.
When dealing with and avoiding fraud allegations, a central concern for businesses should be that receipt of the CARES Act dollars may result in the threat of a charge or trial under the Misrepresentation Act. (FCA) – the ubiquitous spectrum associated with receiving any federal dollars spent under a government contract. Seasoned federal contractors and sub-contractors are familiar with the FCA, but the CARES Act focuses on a wide range of small businesses that may not have an in-depth knowledge of this law and its significant penalties. As a result, there will be plenty of unsuspecting recipients of dollars from the Paycheck Protection Program (PPP) and the Small Business Administration’s Modified Economic Disaster Loans (EIDL) program who might not see the money coming. drastic and costly risks of FCA.
For the uninitiated, the FCA provides for triple (three times) damages plus additional penalties – which can currently exceed $ 21,000 per proceeding for the knowing presentation of all false or fraudulent request for money from the federal government. This means, for example, that one runs the risk of a single invoice for payment of any amount if it presents a false or fraudulent payment request by the United States. It also applies when a company knowingly makes or uses false records or material statements for such false or fraudulent payment claims, which means that the FCA’s liability may be based on alleged false certifications of eligibility related to the claims. government contracts and, specifically to CARES Act programs, loans.
What makes the applicability of the FCA to the CARES Act particularly problematic is the somewhat rambling way in which guidance for the CARES Act, PPP, and the modified EIDL program has crept in, combined with the lightning speed at which evaporated bottoms were sought. This is the perfect recipe for fraud under the FCA. Under the FCA, actual knowledge is not required to prove liability, but “knowledge” can be demonstrated if it is shown that a company acted recklessly in disregard, or in willful ignorance, of the law. truth or falsity of the information provided to the government. In addition, and as encouraged by GAO, FCA lawsuits are often initiated by relators qui tam (whistleblowers) who receive a percentage of the government recovery. These tam lawsuits brought the government more than $ 3 billion in recoveries in fiscal 2019 alone.
The link between FCA’s accountability and the CARES Act is in the certifications found in applications made to receive PPP and EIDL funds. Any certification (express or implied) that an applicant knows to be false or misleading, or that it recklessly fails to justify properly, risks the liability of the FCA. Whether addressing program eligibility, describing the makeup / size of the applicant business, or planning the intended use of requested funds, businesses seeking funds through law CARES (or any federal program) must ensure that their submissions are accurate and that all follow-up actions are proportionate and consistent with the directions and intentions of the respective program. Notably, it should be remembered that for many of these programs, the SBA has identified that “knowingly making a false statement to obtain an SBA secured loan is punishable under the law”, including 15 USC § 645 (false declarations and other offenses related to small business aid), 18 USC § 1001 (misrepresentation) and other applicable anti-fraud laws – and that the government will hold shareholders, members or partners accountable.
The importance of ensuring compliance when seeking federal funds cannot be overstated, even during a national emergency. Businesses must continually keep abreast of all guidelines and refuse to let speed take the place of precision in their statements and requests for government funds. For many, the promise of “free” money is a dream, but GAO guidelines have delegated private citizens, competitors and employees as whistleblowers. When the pandemic subsides and everyone returns to the sun, remember that Uncle Sam will carefully check receipts. If the recipes don’t add up, the dream might turn into a nightmare.