False Claims Act Enforcement Related to the CARES Act

The False Claims Act (FCA) was enacted in 1863 to prevent suppliers from defrauding the Union Army during the Civil War.  Recently, President Trump called the COVID-19 crisis the country finds itself in “our big war,” and the government responded by issuing the $2 trillion Coronavirus Aid Relief and Economic Security Act (CARES Act).  As has been the case during the nearly 140 year history of the False Claims Act, unscrupulous individuals and companies will seek to exploit the crisis for their own financial gain.

The CARES Act provides for the appointment of a Special Inspector General for Pandemic Recovery (SIGPR), who will have a similar set of responsibilities as the special inspector following the financial crisis of 2008.  The SIGPR will have subpoena power to investigate the expenditure of federal funds, loans, loan guarantees, and other investments.  In addition, the SIGPR will be part of a joint committee of numerous federal agencies to coordinate the investigation of FCA violations. 

With the broad scope of the economic hardship faced today, many large and small businesses in a variety of industries will receive federal funds under the CARES Act or other programs. In order to receive funds, individuals and businesses will be required to make certifications of accuracy and compliance during the claims process.  False certifications or non-compliance with requirements would likely be subject to the False Claims Act enforcement through the SIGPR.

The FCA creates liability for any person who knowingly submits a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government.  The civil penalty ranges from $5,500 to $11,000 for each false claim, plus treble the amount of the government’s damages.

The Department of Justice (DOJ) has already filed its first civil enforcement action related to COVID-19 fraud, and has advised law enforcement agencies and United States Attorneys that it has received reports of other possible fraudulent behavior.

Clients and other small businesses should focus on ensuring the claims filed through the CARES Act comply with all certifications and requirements truthfully, and contemporaneously document the basis for all claims.  In addition, businesses should continue to focus on monitoring or establishing controls to detect and prevent fraud, and systems to proactively receive, document, and address employee complaints. 

If you need the experience of Schneider Downs Business Advisors during this challenging time, please contact shareholders Tom Pratt at [email protected] or Joel Rosenthal at [email protected].

Please visit our Coronavirus resource page at schneiderdowns.com/our-thoughts-on/category/Coronavirus for related content.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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