Government Investigation of PPP, other COVID Relief Fraud Expected to Ramp Up

PHOENIX, Arizona (July 13, 2021)—A number of legal and government entities will be hunting for fraud around COVID-19 relief programs, and the health care sector—the largest recipient of first-draw Paycheck Protection Program (PPP) loans—is dead in their sights. 

While enforcement of the PPP, Provider Relief Fund, and other pandemic aid has already ramped up, most small- or mid-sized homecare providers can expect possible audits or other tracking next year and beyond, according to two legal experts whose firm is already handling at least one related case. 

“I think most of these are going to start hitting at the back end of 2022 and will roll into 2023 or 2024,” said Stephen Bittinger, a partner with the law firm K&L Gates LLP and a member of the practice’s health care practice group. Bittinger and fellow K&L Gates partner Mark Rush, who practices criminal defense, spoke on a panelon COVID-19 government enforcement trends at Medtrade West in Phoeniz, Arizona. 

They said that the focus now is high-profile enforcement cases, such as public companies, very large providers and obvious fraud, such as the Florida man who bought a Lamborghini with a portion of his $3.9 million PPP loan. 

“What are they dealing with right now? The low-hanging fruit,” Bittinger said.  

But more sophisticated, long-term investigations will follow, they said, especially in health care, which accounted for about 13% of all PPP loans, with 535,000 loans worth a total of $68 billion. 

Providers should prepare for audits by documenting all of their decision making and the processes around relief they received, the lawyers said. Meticulously track what expenses were payed out of what bucket and why, they added. 

“This is all pay and chase,” Rush said. “Everybody’s getting the money and none of the audits, which are coming, have been rolling out yet. But they will roll out, and it may come four years from now and you’re sitting in a room thinking ‘some of those decisionmakers aren’t even in the company.’” 

They said that in preparation, companies should: 

• Document and preserve all information related to PPP or other CARES act programs, including emails and texts
• Document third-party communications with lawyers, consultants, banks, etc.
• Document financials and bank records
• Preserve minutes of meetings where the PPP application was discussed, as well as materials discussing it and a list of people involved and their role in the process
• Designate a point person for the process or loan
• Document the rationale for certification in an internal memo
• Get board approval if you have approval and document ongoing board oversight 
• Have a separate bank account for those funds
• Keep accurate loan forgiveness documentation 

They said there’s also a likelihood that audits and prosecutions could be many months in the making because officials will want to compare two years of non-COVID financial results—most likely 2019 and 2021—and then look at discrepancies in payments in the 2020 period in between. They’ll be especially looking at whether there were unusual numbers that can’t be accounted for by the pandemic, and may also look to be sure that a providers highest-performing employees didn’t benefit. 

“If the biggest earners in your company, if their compensation stayed the same or took just a hair of a cut, then they’re going to be on the list,” Bittinger said. “If the biggest earners took a hit with everyone else, then I think you have less risk. It comes down to the jury in the box saying: so, your CEO made $5 million in 2020 and you took a $20 million loan—why?” 

In addition, independent consulting companies may be mining data to look for potential fraud cases, including checking public employment records and comparing them with the amount of PPP loans a company took. That could also expose providers to false claims.