New US OSHA Voluntary Protection Program online portal
The United States Occupational Safety and Health Administration (OSHA) has announced a new online portal for submitting applications to its Voluntary Protection Programs.
Updated June 3, 2020.To address the economic impact of the COVID-19 pandemic the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) made funding available to small businesses through the new Paycheck Protection Program (“PPP”) making forgivable loans available to aid small businesses designed to cover employee salaries, other payroll costs, mortgage interest, rent, utilities and interest on other debt obligations. Under the PPP local lenders provided the funds guaranteed by the Small Business Administration (“SBA”). As long as the funds were used for authorized purposes over an eight-week period starting on the date of the loan origination, the borrower could apply to have the full amount of the PPP loan forgiven.
The SBA guidance suggests that the eligibility review/audits will be triggered by a borrower’s submission of its forgiveness application.7 If the SBA has a concern that the existing documentation does not support eligibility, it will require the lender to contact the borrower in writing to request additional information.8 SBA may also contact the borrower directly to request information. Failure to respond may result in a determination that the borrower was ineligible for the loan or for forgiveness of the loan.9
If the SBA determines that a borrower does not meet the necessity requirement, the SBA will demand repayment and may refer the matter to law enforcement if the borrower fails to repay. But even if the borrower does repay, the regulations do not prevent the SBA from referring the matter for further enforcement action if the audits reveal evidence of potential fraud or evidence that the borrower was otherwise not eligible for the loan.
The potential civil and criminal penalties are considerable. The PPP application itself warns of potential penalties such as (1) five years’ imprisonment and/or a $250,000 fine for making a false statement in a federal agency proceeding;10 (2) two years’ imprisonment and/or a $5,000 fine for making false statements to the SBA11 and (3) 30 years’ imprisonment and/or a $1 million fine for false applications submitted to a federally insured institution.12 Violators may also be subject to 30 years’ imprisonment and a $250,000 fine for bank fraud.13 Public companies accepting PPP funds may also be subject to other penalties in connection with their related securities filings.
Fraud prosecutions relating to such government aid and disaster relief programs are nothing new. The SBA Office of Inspector General (“SBA-OIG”) has been investigating fraud cases arising out of its loan programs for years. In fiscal year 2019, for example, SBA-OIG investigations resulted in 49 indictments, and the agency collected over $72 million in investigation recoveries along with over $33 million in agreed-upon disallowed costs.14. In one case, for example, the majority owner of a Virginia company paid $20 million to settle claims that the owner and others caused the company to falsely represent that the company qualified as a “small business concern” eligible for certain contracts, when the business did not qualify due to affiliation with other companies.15 A Massachusetts company similarly paid $1.3 million to settle allegations that it had falsely represented that it was eligible for certain contracts set aside for eligible businesses.16
The SBA-OIG is not the only entity that may investigate or audit PPP loan recipients. The new Special Inspector General for Pandemic Recovery (“SIGPR”) and Department of Justice (“DOJ”) will separately conduct criminal investigations into alleged fraudulent applications. The DOJ is using data analytics and other strategies to look for red flags in loan applications, and has already brought a number of cases alleging blatantly fraudulent applications independent of the SBA audit process.17 The number of those cases will only increase once the forgiveness application reviews begin.
Congressional oversight is also on the horizon, as at least one Senate committee has already announced its intention to issue subpoenas related to the PPP loans.18 This type of congressional oversight is not unprecedented. In 2011-2012, for example, the House Oversight and Government Reform Committee conducted an extensive inquiry into recipients of $14.5 billion in loan guarantees as part of a Department of Energy program to incentivize renewable energy products expanded by Congress following the 2008 recession. The committee staff served detailed document requests on recipient companies, and the chief executives of a number of these companies were required to appear and testify at public hearings. This level of scrutiny was certainly politically charged, as a Republican-led committee was scrutinizing an Obama administration program in the run up to the 2012 election. Analogous circumstances exist now, and recipients of larger value loans in particular must be prepared for the likelihood of scrutiny by the political branches as well as the executive agencies.
It is critical to keep in mind that in any of these circumstances, the reviewing agency will not be limited to looking solely at the facts surrounding the necessity certification. Investigations into potential PPP ineligibility may uncover other unrelated conduct that investigators find suspicious, and those facts can be referred out for further review. Applicants need to be aware that investigations and audits related to PPP loans may extend into other areas of the business and raise unrelated issues.
Successfully navigating the review and oversight process requires careful advance preparation. Borrowers need to be able to clearly demonstrate the basis for the certifications in their loan applications, particularly the necessity certification. The new PPP forgiveness application instructions require borrowers to retain all the documentation supporting their eligibility certifications, and make those materials available on request by the SBA. Lenders will be expected to perform a good-faith review of the forgiveness documentation in the first instance, and may ask for supplemental documentation. If an SBA review begins, the SBA will notify the lender – who must in turn notify the borrower and request certain information.19
Waiting for SBA to initiate its review process to begin compiling these materials creates a risk of error that could lead to denial of the forgiveness application or worse. While each situation will be different, that preparation can typically be guided by the following.
In the end, the most severe risk of enforcement actions will fall on those borrowers who have engaged in actual fraud, not those who made good faith errors based on mistaken interpretation of the guidance. But the oversight environment will likely touch all borrowers with loans larger than $2 million. If the preparation process reveals mistakes in the application process or a lack of sufficient documentation, addressing those issues quickly is critical to avoid any appearance of intentional fraud.
The notion that the forgivable loans offered through the PPP are somehow “free money” has been dispelled. While highly advantageous to eligible borrowers and released under a streamlined application process, the risk of audit and enforcement actions over the coming months requires borrowers to carefully consider the evolving eligibility guidance and prepare for inevitable oversight. With careful diligence, this process can be managed and the risk of reputational and economic consequences minimized.
© Norton Rose Fulbright LLP 2021