RGCI - DOJ is Diving Deeper into the Paycheck Protection Program (PPP) Pool

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.

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Written by Lynne Nalley, CPA

Lynne Nalley, CPA Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Compliant Accounting Infrastructure, Incurred Cost Proposal Submission (ICP/ICE), Defense Contractors, DOD IG, Government Compliance Training, Cost-Type Contracts, Paycheck Protection Program (PPP) Loans