March 25, 2020
If natural disasters, the American Recovery and Reinvestment Act (Recovery Act), and responses to other recent international outbreaks have taught the government contracting community anything, it is this: with emergent, large-scale funding comes great risk of fraud and improper billings and, therefore, increased government audits and investigations to find funds that it can recoup. In the wake of disasters such as Hurricane Katrina, for example, we saw a spike in related audits and investigations. While many were closed without action, others turned into False Claims Act cases and criminal prosecutions – some resulting from mere unfamiliarity with government contracting requirements.
Attorney General Barr has urged the public to report suspected fraud schemes related to COVID-19 to the National Center for Disaster Fraud (NCDF), a partnership between the U.S. Department of Justice and various law enforcement and regulatory agencies. The NCDF has already started receiving hotline complaints, which will likely increase exponentially in tandem with the anticipated increases in funding. While political, financial, and ethical pressures may provide great incentive to act and act fast, contractors and private companies should be mindful that they will still bear the risk of False Claims Act violations and whistleblower complaints.
What can we expect in the near future? Waves of significant spending, followed by post-mortem audits and investigations and government enforcement actions/qui tam suits. The Recovery Act contained increased accountability requirements in the areas of reporting, audits, and evaluations to help ensure that tax dollars were being spent efficiently and effectively while simultaneously demanding aggressive timelines for the implementation of funds. We can expect even more resources dedicated to COVID-19 response spending. The Offices of Inspector General for agencies such as Food and Drug Administration, Health and Human Services, Federal Emergency Management Agency, General Services Administration, Veterans Affairs, U.S. Agency for International Development, and Department of Defense will also likely hone investigative and audit efforts on response-related contracts and grants. Urgency – when coupled with poor planning and preparation – can lead to poorly sourced contracts with inadequate competition and eventually, audits.
While compliance is prospective, enforcement is retrospective. Here are some tips to mitigate risks along the way and prepare for the inevitable audits (and possible investigations) down the road:
- Identify risk areas particular to your award. If labor makes up the brunt of your work, ensure your timekeeping protocols are robust. If your contract calls for significant procurements, know that competitive pricing will be scrutinized regardless of a government mandate to spend quickly.
- Vet subcontractors and monitor their work. Many may be first time contractors with the government and unfamiliar with rules and regulations. You will be held responsible for their actions.
- Don’t be blindsided by telework challenges. Ensure adequate policies are documented and demonstrate reliable support for hours billed regardless of the workplace.
- Train people on fraud indicators and responsibilities to self-report. Remember transparency. The largest qui tam cases usually stem from perceived corporate cover-ups.
- A focus on compliance now means less enforcement action later.
 Exceptions apply under the Public Readiness and Emergency Preparedness Act (PREP Act).