As we scramble through our news feeds, news channels and newspapers for new details about the coronavirus that has been running rampant in our communities, we are sure of one thing: COVID-19 will impact our way of life for a long time. The $2 trillion stimulus package signed into law on March 27, 2020 aims at providing some financial relief to Americans at a time when we need it the most.
The CARES Act has authorized $349 billion for small businesses through the Paycheck Protection Program (PPP). The PPP provides small businesses with funds to pay up to 8 weeks of payroll costs, including benefits, interest on mortgages, rent and utilities. Payroll costs are capped at $100,000 on an annualized basis for each employee. The funds may be fully forgiven when used for the reasons listed above and at least 75% of the amount used for payroll. No collateral or personal guarantees are required. Neither the government nor lenders may charge any fees. Forgiveness on the loan is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Therefore, if full time headcount declines, or if salary and wages decrease, forgiveness will be reduced.
Small businesses with 500 or fewer employees, including non-profits, veteran organizations, self-employed individuals, sole proprietorships, private practices, as well as independent contractors are eligible. Applications for small businesses and sole proprietorships began April 3, 2020; and starting April 10, 2020, independent contractors and self-employed individuals will be able to apply.
BUT DID YOU KNOW…that this $349 billion and the other billions of dollars that make up 2 trillion, is being monitored by a newly formed office of the Special Inspector General for Pandemic Recovery (SIGPR) within the U.S. Department of Treasury? SIGPR is designed to target financial crime potentially conducted by any individual or entity related to monies distributed by CARES. Like other Special Inspector Generals, SIGPR will work closely with the criminal and civil divisions of the U.S. Department of Justice and local U.S. attorneys’ offices.
To put this in perspective, remember the 2008 financial crisis? That crises led to the government’s establishment of the Troubled Asset Relief Program (TARP) and its investigative and enforcement counterpart agency, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). More than a decade later, SIGTARP remains active, having collected over $11 billion ($900 million in 2019 alone) and 381 criminal convictions, including multibillion-dollar penalties across the financial industry! SIGPR will be actively investigating to recoup funds obtained by fraudulent means or for illegal purposes.
In addition to SIGPR, this $2 trillion package will also be monitored by an interagency task force, Pandemic Response Accountability Committee (PRAC), made up of independent Inspector Generals all responsible for monitoring their respective departments. PRAC includes the Departments of Defense, Education, Health and Human Services, Homeland Security, Justice, Labor, as well as the Treasury, the Small Business Administration and the Treasury Inspector General for Tax Administration. PRAC will conduct and coordinate audits and investigations to provide accountability and identify fraud, waste, abuse and mismanagement in spending under the CARES Act. It will refer identified potential wrongdoers to the Department of Justice for possible criminal or civil indictments.
WHAT DOES THIS MEAN FOR YOU? All of this simply means that the applications submitted for these loans will be scrutinized….not at the time of disbursement, but for years afterwards, when we will no longer be isolating ourselves. All these loans that you obtained are based upon statements certified by you. If you apply for a loan, you will be required to submit documents that contain covenants, representations, and warranties that you may have certified as true. Certifying applications that may contain false statements is no different that filing a false tax return, it exposes you to criminal and civil penalties. An in-depth reading of the application form will apprise you of the criminal penalties that can be asserted against you. For example, knowingly making a false statement to obtain a guaranteed loan from the SBA is punishable under 18 U.S.C. §1001, False Statements, by imprisonment of not more than five years and/or a fine of up to $250,000. In addition to the list of criminal statutes listed on the PPA application form, there are many other criminal and civil statutes that may be asserted against you when making false statements to the government. Civil monetary penalties under the civil False Claims Act 31 U.S.C. §3729, can result in substantial fines, especially if used concurrently with the criminal statutes!
Indeed, the civil False Claims Act serves as the government’s primary tool to redress false claims. Just in the past year, the Department of Justice obtained more than $3 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2019. The significant number of settlements and judgments obtained over the past year demonstrate the high priority the government places on deterring fraud against the government.
BOTTOM LINE: In these times of personal, emotional, and financial stress, it is so easy to rashly make decisions and execute paperwork that might have lasting consequences. You could be held liable for criminal and civil penalties if you have personally submitted or have directed a third party to submit on your behalf, a document containing false information. We also know from experience that the federal government will use data analytics to scrutinize applications and will use interagency cooperation to recoup money fraudulently obtained. Remember the devastation and consequent recovery aid given after Hurricane Katrina? The government had established a Hurricane Katrina Fraud Task Force for that too, and within just two years of its establishment, the task force had brought federal criminal and civil charges against over 700 individuals for various hurricane fraud-related crimes, such as making false statements, filing false claims, emergency benefit fraud, identity theft, procurement fraud and public corruption.
As a former IRS Agent, CPA and a former Assistant U.S. Attorney with over 30 years of experience I have prosecuted and defended individuals and companies involved in similar investigations and indictments. REMEMBER before making any applications for the loan under the Paycheck Protection Program or other programs included in the CARES Act, make sure your application and other submissions are accurate. I will be more than happy to review your loan documents with you and assist you in your due diligence. Preliminary planning and legal review will protect you and your business against future potential criminal and civil penalties.
Contact me for a complimentary meeting at my office to assess your risks. You can also call me at (312) 659-8441 or email at email@example.com