The CARES Act—and the Paycheck Protection Program and Healthcare Enhancement Act (PPHEA) that supplied additional funding to programs under the CARES Act—disbursed approximately $2.7 trillion in relief funding across the economy. This relief included hundreds of billions of dollars in payments and loans for all types of businesses. The programs established under the Act require varied certifications and come with conditions and requirements that dictate whether and how program funds may be distributed to, used, and in some cases, kept without repayment, by recipients. This brief summary outlines the potential liability for CARES Act stimulus funds recipients who fail to maintain adequate compliance programs. A more comprehensive review of related issues can be found here.

As a result of the CARES Act and related stimulus packages, significant government oversight and enforcement of the programs established pursuant to the CARES Act are anticipated to stem the fraud and misconduct likely to result from the stimulus funding. Potential liability for stimulus fund recipients may arise as a result of inaccurate certifications made in connection with applying for stimulus funds or a failure to comply with the requirements set forth in funding loan documentation once funds have been received. Noncompliance with CARES Act requirements, misconduct related to program participation, and untrue statements and certifications made by applicants for relief can result in both civil and criminal penalties, including fines and prison time.

Organizations receiving CARES Act relief will be subject to oversight and enforcement from existing and new oversight mechanisms created by the CARES Act. The CARES Act creates the following three new oversight and enforcement mechanisms: the Pandemic Response Accountability Committee, the Special Inspector General for Pandemic Recovery, and the Congressional Oversight Commission. In large part, these enforcement mechanisms are replicas of the mechanisms put in place in connection with the government oversight and enforcement activity related to the Troubled Asset Relief Program (TARP). TARP enforcement activity continues to be pursued with vigor by various government entities. In 2019, the enforcement bodies tasked with TARP oversight have recovered nearly $900 million through its activities. TARP enforcement has resulted in 380 total criminal convictions and civil fines, including “300 defendants, including 76 bankers and 92 bank borrowers” having been sentenced to prison time. The enforcement body has recovered more than $11 billion since it began activities.

In order to mitigate the risks associated with what is expected to be rigorous government oversight and enforcement of the use of CARES Act funding, organizations receiving relief under the CARES Act should consider implementing the following best practices:

  • Develop/Revise/Strengthen Current Compliance Program. Organizations that do not currently have a compliance program in place should develop and implement one tailored to their unique organization. Organizations that have an existing compliance program should take this opportunity to review and revise it in light of changes in their organizations due to COVID-19. Such programs should be specifically tailored to ensure compliance with applicable loan provisions related to CARES Act stimulus funds. In addition, these organizations also should ensure that they have adequate reporting mechanisms in place for the reporting of suspected misconduct throughout the organization.
  • Assign a “CARES Act” Compliance Specialist. Organizations should consider designating a specific individual or committee to lead compliance efforts with respect to the CARES Act, to keep current with changes in the guidance and regulations published pursuant to the Act, and to monitor and document the organization’s compliance with CARES Act requirements in real time.
  • Keep Organized Records. Organizations should take care to ensure their books and records are accurate and in good condition, both before applying for relief under the Act and after receiving any relief funding. Such records should memorialize the steps taken to secure funds including certifications made by authorized loan signatories. This is especially important for organizations that have not previously had a compliance program in place.
  • Keep Abreast of Government Guidance. Guidance and new regulations implementing the CARES Act relief programs is coming out quickly, and changing frequently. It is crucial that organizations track changing requirements for the programs they participate in, including whether there are any changes to criteria or to the organization’s circumstances that may affect eligibility for certain types of relief.
  • Familiarize the Organization with CARES Act Requirements. Organizations should consider training their compliance staff and other employees on CARES Act requirements that are relevant to the organization and its operations.
  • Engage With Outside Counsel. Organizations that do not have a current compliance program in place should consider working with outside counsel to develop a program; organizations with compliance programs should consider engaging outside counsel to undertake a review of these programs to identify any gaps. Outside counsel also can be of assistance in reviewing application forms and certifications required by CARES Act programs. Finally, in the event an organization comes under investigation related to suspected misconduct in relation to a CARES Act relief program, it should engage outside counsel for representation through the investigation and any proceeding.

The CARES Act provides much-needed relief for a range of business organizations suffering from the coronavirus pandemic. While making accurate representations and maintaining compliance with requirements are crucial responsibilities for participating in federal relief programs, such requirements should not discourage organizations from seeking available relief. Adequate investment in and attention to developing and maintaining an effective compliance program will help to mitigate the compliance and enforcement risks that come with receiving CARES Act funding. Ballard Spahr attorneys counsel clients on the implementation and effective use of compliance programs across a variety of industries.


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