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It is no secret that the U.S. Department of Justice (DOJ) has vowed to prioritize the investigation of fraud schemes relating to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Provider Relief Fund (PRF), Payment Protection Program (PPP), and other disaster relief funding. Specifically, the DOJ has promised to use “every enforcement tool available to prevent wrongdoers from exploiting the COVID‑19 crisis,” while respecting the private sector’s “critical role” in ending the pandemic and restarting the economy. Ethan P. Davis, Principal Deputy Assistant Att’y Gen., U.S. Dep’t of Justice, Speech to the Institute for Legal Reform, U.S. Chamber of Commerce (June 26, 2020). Under this framework, the DOJ plans to pursue fraudulent activity under the False Claims Act (FCA).
Any business or entity that financially benefits from the CARES Act and/or any other government-backed disaster relief funding should consider the following seven strategies to reduce the prospect of future FCA litigation.
Establish a Central Documentation Repository
To the extent possible, recipients should keep all documents and correspondence related to COVID-19 relief funds in one place. This should include applications, approvals, authorizations, waivers, guidance, audits, and internal and external communications regarding the use of relief funds. Maintaining a central repository helps ensure that key documents, like correspondence with the government or compliance with the advice of counsel, can be easily located if the propriety of the company’s conduct is questioned years later.
Stay on Top of Changing Governmental Requirements
Ask for clarification in writing when the requirements are unclear, and comply with all governmental requirements concerning both eligibility to receive funds and the use of funds. Additionally, companies should carefully review program requirements, such as statutes, regulations, frequently asked questions, guidance documents and contracts, to ensure that they are eligible for funds and to understand any certifications that they are making.
Document, Document, Document
To establish liability under the FCA, the government must prove that a defendant knowingly broke the law. In the rush to secure needed aid, it is imperative that businesses nonetheless memorialize any clarification, modification, or waiver of the CARES Act requirements received from the government.
Likewise, it is critical to document all internal decision-making rationales and steps taken to comply with government requirements in case those decisions are questioned in the future. Memories will fade, and the failure to properly and comprehensively document will make it more difficult to credibly argue that a company acted in good faith when subjected to later scrutiny. Moreover, if a company informs the government, in writing, of its understanding of vague guidance and its reliance on such guidance in using relief aid in a particular way, it is more difficult for the government to prove that it was defrauded.
Apply Standard Auditing Procedures to COVID-19 Relief Funds
Again, documentation is key. Take appropriate accounting steps to establish that all federal funds were deployed for approved purposes. Companies should also consider incorporating measures relating to COVID-19 grants into any formal compliance programs already in place.
Take Internal Whistleblower Complaints Seriously
Internal whistleblowers are management’s first line of defense. Listen to whistleblowers and take appropriate steps to determine whether the concern raised has merit. To the extent possible, management should tell the whistleblower what it determined and why. History shows that internal whistleblowers who are ignored or feel slighted are prime candidates to become qui tam relators. Never retaliate against internal whistleblowers as retaliation further incentivizes whistleblowers to take legal action and can result in additional liability for the organization.
Seek the Advice of Counsel
Sound advice from an attorney with regulatory experience in the relevant sector, such as health care or government contracting and lending, is irreplaceable. Documentation of legal advice can provide another line of defense in the event that a company is second-guessed or accused of fraud.
Recipients of COVID-19 relief funds should revisit systems and safeguards already in place and determine whether measures need to be enhanced or implemented with an eye toward defeating allegations of fraud or misuse of government funds in violation of the FCA.
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