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April 14, 2020

Who CARES about fraud, waste, and abuse? The government cares.

The CARES Act, the government’s $2 trillion aid package, provides financial relief to those affected by the pandemic. The CARES Act provides for Small Business Administration (SBA) loans of up to $10 million to help businesses pay operational costs. Small businesses must certify to the government that the loans will be used to retain workers and maintain payroll or make mortgage, lease and utility payments. Mid-sized businesses must certify that the borrower will retain 90% of its workforce at full compensation and will not issue dividends or outsource jobs offshore. 
These certifications matter. Already, Congress anticipates the commission of fraud, abuse, and mismanagement in connection with funds disbursed under the CARES Act. The Act creates a special Inspector General with the power to conduct audits, subpoena records, take sworn testimony, and refer suspected violations of criminal law to the Department of Justice. The Act also establishes a Pandemic Response Accountability Committee to uncover fraud, waste, and abuse and report suspected violations to DOJ. The New York Times reports that DOJ itself has set up a task force to investigate price-gouging and fraud related to the pandemic: “With more than $2 trillion in federal assistance pouring into the economy, the authorities are girding for both lone-wolf operations and more complicated schemes akin to those that arose during the 2008 federal program to bail out financial institutions,” which resulted in criminal prosecutions of dozens of bankers and others. Moreover, the General Accountability Office (GAO) is urging individuals to report fraud and abuse to its FraudNet hotline. The head of GAO writes: “Experience tells us that the risk of fraud and abuse grows where large sums are spent quickly, eligibility requirements are being established, and new programs created.” 
Those who abuse or mismanage loans made under the CARES Act can also be sued civilly under the federal False Claims Act (FCA), which imposes heavy fines on those who submit to the government false claims for payment. FCA lawsuits can be initiated by the government or by private whistleblowers such as company employees. 
By carefully complying with the mandates of the CARES Act, businesses can financially benefit today and avoid government inquiries tomorrow.