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CARES Act $2.2-Trillion Emergency Relief Fund Potential ‘Hotbed’ for Government Fraud, Abuse Investigations

With enactment of the CARES Act on March 27, Congress appropriated $2.2 trillion, the largest economic stimulus package in history, to combat COVID-19 and the serious economic damage it has wrought to all facets of the economy. Along with this mammoth government subsidy, however, comes the prospect of unprecedented fraud and abuse in sectors of the economy able to take advantage of the funding.

Businesses able to secure CARES Act relief should consider protecting themselves from the risk that experts believe will be a decade of government investigations. Management decisions being made today about where and how to spend needed government subsidies will be scrutinized later by government regulators and whistleblowers alike.

Observance of in-house compliance programs that companies previously designed and implemented can protect against the risk of a future investigation. As one former federal prosecutor noted, “[I]t’s just critical that those processes not be shunted to the side in the name of keeping the business going.”

The provisions of CARES Act subsidies most susceptible to regulatory oversight and inquiry of waste, fraud, and abuse include:

Small business relief: $350 billion has been made available to companies with no more than 500 employees that maintain payroll are entitled to up to eight (8) weeks of subsidies. Appropriated by Congress to prevent layoffs and closures while employees are home, these funds are available for payroll, mortgage interest, rent, or utilities and will be forgiven if administered correctly.

Large corporation relief: $500 billion is being set aside as loans, guarantees, and related investment for big business with $50 billion specifically earmarked for the airline industry. Loans may not exceed five (5) years, will not be forgiven, and are subject to oversight by the Treasury Department IG.

Hospitals and health care: $140 billion has been appropriated to support the U.S. health system, $100 billion of which will be made directly available to hospitals to fight COVID-19, subsidize costly acute treatments, and compensate hospitals for lost income from elective and routine medical services. Additional funds will be used to enhance PPE stockpiles, expand COVID-19 testing, and increase Medicare/Medicaid subsidies during the pandemic.

Unemployment/payroll tax relief: The CARES Act affords $250 billion to cover extended unemployment benefits up to four months, plus additional payments of $600 weekly beyond state program subsidies. Employers may delay payment of their portion of 2020 payroll taxes to 2021 and 2022.

Recipients of CARES Act funds outlined above need to be cognizant of the robust oversight and compliance authority with which Congress has empowered different legislative entities. Such mechanisms of executive oversight include:

  • Bipartisan Congressional Oversight Commission;

  • Pandemic Response Accountability Committee (comprised of nine (9) Inspector Generals (IGs) across various government agencies);

  • Special IG for pandemic recovery, SIGPR; and

  • House Speaker seeks administration to appoint a temporary select congressional committee to oversee the beginning stages of the bailout.

Risks attendant to the receipt of bailout funds and their honest, prudent use and administration are linked to the government’s interest of ensuring the money is spent properly. Evident from the myriad of critical government funding opportunities available to employers to address this crisis, likewise, is significant temptation for employee abuse, self-dealing, false claims, and outright theft.

Documenting today’s decision to apply for funding, including the facts and government guidance relied upon, is imperative. Looking to the future, companies should expect the government to scrutinize a company’s decision to accept bailout funds and how those funds were utilized.

Jackson Lewis P.C. © 2022National Law Review, Volume X, Number 108
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About this Author

Robert L. Peabody, Criminal Defense Attorney, Jackson Lewis Law Firm
Of Counsel

Robert L. Peabody is Of Counsel in the New York City, New York, office of Jackson Lewis P.C. He was a highly successful criminal defense attorney in Massachusetts, where he is a well-known son of a former governor.

After seven years as a state prosecutor and eight years as an Assistant U.S. Attorney, Mr. Peabody turned to criminal defense work in Massachusetts, focusing on white collar matters involving corporate clients and individuals facing regulatory action and litigation on the state and federal levels. Over nine years, he built extensive experience in...

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