With increased federal dollars comes increased federal scrutiny. Through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the federal government has passed an emergency stimulus package that will result in a $2 trillion infusion into the private and public sectors. In order to receive the benefits available through the CARES Act, applicants must make several representations to the government regarding their circumstances to establish eligibility and, if they receive funds, to detail how the funds are used. This, in turn, exposes applicants and recipients to potential civil liability and severe penalties under the False Claims Act (FCA), not to mention criminal liability for fraud and abuse. Historically, FCA enforcement has been most intense in the wake of government spending related to a national crisis, such as the 2008 recession, Hurricane Katrina, the BP oil spill, and “Superstorm” Sandy.
The CARES Act creates a new inspectors general office — the Office of the Special Inspector General for Pandemic Recovery — tasked with the duty to “conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury” under the Act. This Special IG can issue subpoenas. The Act also establishes a Pandemic Response Accountability Committee, made up of inspectors general from numerous government agencies. The PRAC’s responsibilities include conducting and coordinating oversight of the covered funds and Coronavirus response. In other words, heightening scrutiny of how every dollar is spent, through hearings and compelled testimony.
In addition to how money is spent, recent government announcements have indicated that attention is being directed to such things as the sale to the government of fake, substandard, or mislabeled equipment, including personal protective equipment (PPE) such as N-95 and KN-95 face mask respirators. Pandemic-related price gouging is also receiving increased attention, and the government has said that it will investigate, and, where appropriate, prosecute such wrongs.
Past upticks in enforcement following government spending in response to a crisis, along with the creation of the new investigatory bodies as part of the CARES Act, point to an inevitable increase in FCA investigations and enforcement. Those applying for or receiving funds under the Act should discuss next steps and best practices with counsel. Businesses should perform due diligence to ensure all eligibility criteria are met before applying for funds or, at least, before using the funds. Moreover, businesses should develop safeguards and oversight mechanisms NOW to ensure they are complying with all post-loan requirements, such as segregating CARES Act funding and tracking how funds are spent. Along those lines, businesses should document how the funds are spent, and in these situations, over-documenting is preferable. Being able to explain, and point to documentation supporting those explanations, expenditures made with federal money make potential investigations or inquiries go much smoother for the business. Our current situation and uncertainty are difficult enough; a plan now can limit difficulty in the future.
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