As you know, the CARES Act has authorized $349 billion for small businesses through the Paycheck Protection Program (PPP). Over the next few weeks and maybe even months, you will be asked to prepare applications for clients under this government program. BE CAREFUL of potential criminal and civil penalties to which YOU may be exposed! You will be relying on information from the client but in my expansive career as a former IRS agent, CPA and former US Assistant Attorney, I have seen clients quickly shift the responsibility and blame to their accountants for any wrongdoing!
WHY WOULD YOUR CLIENT BE INVESTIGATED FOR A LOAN APPLICATION? Simple answer: To detect fraud. Just like in the past, the Federal government will increase its monitoring and enforcement of money distributed during a disaster. Did you know that this $2 trillion of stimulus money 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 crisis 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 of all the departments responsible for monitoring the monies spent in the CARES act. PRAC will conduct and coordinate audits and investigations to provide accountability and identify fraud, waste, abuse and mismanagement in spending. It will refer identified potential wrongdoers to the Department of Justice for possible criminal or civil investigations.
WHAT DOES THIS MEAN FOR ACCOUNTANTS? This simply means that you are on the firing line. Years afterwards when the applications and documents submitted for these loans will be scrutinized, you could also be at risk. All of these loans that your clients obtained, relying on your professional expertise, will be based upon statements certified as true. However, both you and I know that certifying applications that contain false statements is no different than filing a false tax return, which could expose your client to criminal and civil penalties. BUT what would you do if your client says that YOU caused him/her to file the false application and that he/she was relying on your professional advice? Did you verify the information that he/she was providing? What due diligence did you perform? If you were not proactive in reviewing information provided, you could be vulnerable to the disastrous consequences unless your retainer agreement clearly stated that you were not auditing the information provided.
In fact, the Criminal Investigation Division of the IRS publicly announced that it is gearing up to launch investigations into fraudulent claims related to COVID 19 economic relief payments, including fraudulent claims for small business loans from the Paycheck Protection Program.. The Criminal Investigation division which currently contains 2,100 special agents and about 800 other professional employees, is preparing for an onslaught of investigations (and subsequent indictments) by marshaling their resources, understanding how the money is going to be used and interacting with the other federal agencies.
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 could 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 easy to submit paperwork based upon the client’s representation. However as indicated above, the client can say he/she relied on you which creates the real risk of being held liable for criminal and civil penalties. Therefore, if you did not at least test check your client’s representations for false information, you should at least have a retainer agreement setting forth the scope of your services.
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, and in many instances, I have protected the accountant. REMEMBER before making any applications for the loan under the Paycheck Protection Program or other programs included in the CARES Act, make sure the submissions comport to your retainer agreement mentioned above.
The advice contained herein applies to all representations supplied to all third parties, especially to financial institutions.
I will be more than happy to consult with you and assist you in your due diligence. Preliminary planning and legal review will protect you, your professional reputation and the accounting firm against future potential criminal and civil penalties.
Contact me for a complimentary meeting to assess your risks. You can also call me at (312) 659-8441 or email at email@example.com