The focus of fraud used to be primarily on defense contractors, health care providers and health care suppliers. However, other companies are now being exposed to the Federal Claims Act (FCA) including software companies, private equity financiers, insurance companies, and educational institutions. Additionally, fraud is not just related to companies receiving the funds.
What is the FCA and why do I care?
The Federal Claims Act (FCA) was enacted during the Civil War to combat fraud by defense contractors. It made it illegal for an individual/company to knowingly submit false claims to the federal government for payment. The COVID-19 relief funds included Paycheck Protection Program (PPP) to help small businesses keep their workers on the payroll and Emergency Injury Disaster Loans (EIDL) to provide working capital to help small businesses impacted by COVID-19 until normal operations could resume. There were also relief funds under the CARES Act and unemployment insurance benefits.
The Department of Justice (DOJ) established a COVID-19 Fraud Task Force specifically to fight and prevent COVID-19 related fraud. President Biden supports the task force and its importance to investigate and prosecute criminals for using relief programs for financial gain and to recover the funds. The DOJ has also engaged other government departments, such as the Small Business Administration (SBA), the Veterans Administration (VA), Treasury, Homeland Security, Food and Drug Administration’s Office of Criminal Investigations, U.S. Postal Inspection Service, Labor, and the Special Inspector General for Pandemic Relief (SIGPR) and the Pandemic Response Accountability Committee (PRAC). The priority goals for the task force are to increase efforts on fraud related to PPP and EIDL loans as well as unemployment insurance benefits.
How does it impact my company when we did not receive the funds?
Companies that have no direct relationship with the government (e.g., did not receive relief funds) could face liability depending on the involvement in the company that submitted false claims. For instance, private equity companies, bonding companies for construction, etc. can face liability if they are aware of, approved, agreed to, or assisted in implementing intentional practices to misuse the relief funds.
What are the penalties?
The penalties for fraud under the FCA are stiff and can be 3 times the damages to the government plus civil penalties and possible prison time. The common charges related to the PPP/EIDL loan fraud are false statements to a bank/lending institution/SBA, bank fraud, wire fraud and conspiracy to commit fraud.
What type of Fraud is the Task Force finding?
Individuals or company that receive a PPP/EIDL loan must abide by the strict requirements on how the funds can be spent. Under the FCA it is illegal to apply for an SBA/PPP loan using false information or use the money for other than approved purposes. The DOJ has prosecuted/settled numerous fraud cases related to:
- False certifications on loan applications
- Inflating Payroll expenses or employee count to get higher loan amounts
- Creating shell companies with no payroll/employees
- Duplicating loan applications with slightly different company names
- Submitting loan applications for the same company through multiple lenders
- Using money inappropriately once received (e.g., buying homes, cars, jewelry, etc.)
- False certification on PPP loan forgiveness application
- Concealing information during a PPP audit or investigation
Fraud is being identified during audits, through anonymous whistleblower complaints, or through Qui Tam suits where an employee with knowledge of fraud, reports it and if amounts are recovered by the government, the employee shares in the recovery.
What steps can I take?
Individuals or companies should be truthful during an audit or investigation. There may be issues as a result of a misunderstanding in completing the application (i.e., unintentional). If you suspect there may be an error or questionable information provided to obtain a loan or forgiveness on a loan, you should engage appropriate legal counsel as soon as possible.