Over the last ten months, the government contracts world has experienced a host of significant changes, from the ongoing overhaul of the FAR (Federal Acquisition Regulations) to massive funding cuts and even the elimination of federal agencies and Executive Order 11246. As federal contractors adjust to these new dynamics, one question we repeatedly face from clients is how the federal government will exercise its audit and oversight functions of federal contracting on a ‘going-forward’ basis. This client alert highlights some of the recently announced federal government contracts audit initiatives and priorities, which provide at least some preliminary insights into the government’s likely areas of focus. The most recent (and arguably one of the broadest) initiatives stems from the U.S. Department of Transportation's November 6, 2025, announcement, but other Agencies have made similar proclamations.
U.S. Dept. of Treasury Audit Initiative
On November 6, 2025, the Department of the Treasury announced the launch of a comprehensive audit of all preference-based contracts and task orders across Treasury and its bureaus, totaling approximately $9 billion in contract value. The review currently focuses on potential misuse of the Small Business Administration (SBA) 8(a) Business Development Program and other initiatives that provide preferences to certain businesses. This action follows the Treasury’s suspension and debarment of a federal contractor for allegedly defrauding the government of more than $253 million in contract awards.
The stated goal of this initiative is to investigate contractual arrangements that bypass traditional procurement rules, particularly pass-through structures where large companies, posing as subcontractors, perform nearly all the work while small businesses collect a fee and contribute minimal effort. The SBA’s 8(a) Business Development program regulations contain explicit rules on the percentages of work that can be subcontracted to large businesses and which the small business prime contractor must self-perform.1 The regulations also contain very specific requirements on 8(a) program eligibility and certifications. If you perform contracts under the 8(a) program (either as a prime contractor or subcontractor), now is the time to assess your current compliance status. And given the breadth of Treasury’s audit initiative, we also expect that other similar preference programs and contractual arrangements will be scrutinized, including programs such as small disadvantaged businesses, women-owned small business initiative, veteran-owned and service-disabled veteran-owned small business, and Mentor-Protégé programs.
The Department of the Treasury is also planning to impose greater accountability standards for small businesses by collecting detailed staffing plans and monthly workforce performance reports on all contracts, which is likely to result in higher compliance burdens and costs for many already overextended small businesses. Overall, the focus and scope of this audit fit into Treasury’s priorities under the new administration of detecting and eliminating fraud and abuse of taxpayer dollars, continuing a broader pattern of heightened oversight throughout the federal government (see our previous client alert here on waste, fraud, and abuse under the Trump administration).
8(a) SBA Investigations
The Department of the Treasury investigation is not surprising, as it aligns with the recent broader scrutiny of the SBA’s 8(a) Program kick-started by the U.S. Department of Justice’s (DOJ) investigation of an alleged multi-year, multi-contract fraud and bribery scheme valued over $550 million involving two 8(a) contractors. As a result, on June 27, 2025, the SBA announced a full-scale audit of the 8(a) program.2 The audit will be led by the SBA Office of General Contracting and Business Development and begin with high-dollar and limited competition 8(a) contracts dating back fifteen years (starting from 2010). This expansive effort will be executed alongside various federal agencies that issue awards to 8(a) program participants. As part of this effort, the SBA intends to pursue previously unaddressed actions to recover fraudulently misused funds, which may also result in suspension or debarment of involved parties.3
In reality, the audit is a gargantuan effort, which, practically speaking, seems to be nearly impossible to do timely and accurately. Likewise, it appears that this effort may be tied to the Trump Administration’s push back against DEI programs and efforts, which we have discussed in prior client alerts and articles.4
New Era
The Government Does Not Need to Reinvent the Wheel – Only Reimagine It.
More broadly, the Treasury and DOJ audits of SBA program contracts also represent further evidence of a shift in the areas of recent federal audit focus, particularly as it relates to procurement fraud. Under a more traditional audit and investigation paradigm, government investigations (typically DOJ ones) focused on issues such as violations of the Foreign Corrupt Practices Act (FCPA), defective pricing, bid rigging and collusion, and time charging violations, or delivering inferior products or services. Although traditional fraud investigations in these areas will persist, the expansion of agency audit activity into the small business arena and other areas of government contracts compliance is notable. But new areas of investigative focus have emerged (or in some cases re-emerged) in 2025, frequently using the federal False Claims Act (FCA) as a mechanism.
Recent notable examples of new FCA investigation target areas include: cyberfraud, healthcare, E-Verify, and stated intent to use FCA to address diversity, equity, and inclusion (DEI) false certifications. Some of these enforcement efforts are not new. In 2021, the Department of Justice (DOJ) launched its civil cyber-fraud initiative, leveraging the False Claims Act to pursue government contractors for cybersecurity-related fraud. Since then, the DOJ has steadily increased enforcement against noncompliance with cyber regulations, securing substantial settlement agreements for violations—a trend that has remained consistent across changes in administration.5 More recently, the cyber-fraud initiative has impacted various non-traditional government contracting entities, including universities and research institutions. For example, on September 29, 2025, Georgia Tech agreed to pay $875,000 to settle a False Claims Act violation after failing to comply with required Department of Defense cybersecurity standards and submitting false NIST cybersecurity controls assessments.6
But other areas of FCA enforcement are treading (or expanding) somewhat into new ground, such as the use of FCA to enforce compliance with E-Verify. Two recent FCA settlements (one in Louisiana and the other in New Jersey) – both involving allegedly false certifications of E-Verify compliance by subcontractors – highlight important considerations for federal contractors. For the New Jersey case, the DOJ reached a $4 million settlement alleging that a company violated the E-Verify requirement by using 52 unauthorized subcontractor workers on Navy contracts and billing the government for their work. One aspect of these cases that contractors should pay careful attention to is the fact that these cases involve alleged E-Verify violations by subcontractors, not prime contractor employees, begging the following questions: Is it enough for a prime contractor to blindly rely on a subcontractor’s certification that the subcontractor is complying with E-Verify? If not, then what steps must a prime contractor take to ensure that a subcontractor is actually using E-Verify to vet its personnel? Do you have a system or process to ensure subcontractor compliance with E-Verify, or is your company relying on promises? And if you were to set up a system, what would it look like? Failing to have good answers to these questions can be an expensive proposition.
It is also an important reminder that federal contractors with DEI programs have been under the microscope and face the threat of audit and non-compliance enforcement under the current administration, possibly including exposure under the FCA. Various enforcement agencies, including the DOJ, have made it clear that the Government plans to use the FCA to punish federal contractors that engage in illegal DEI practices, presumably under the false certification theory. Reflecting this approach, the DOJ launched its “Civil Rights Fraud Initiative” in May 2025 to investigate and pursue claims for recipients of federal funds who knowingly violate civil rights laws. The program targets issues such as anti-Semitism and divisive DEI policies, encourages whistleblower actions, and promotes public reporting of discrimination. This DOJ initiative reinforces the Trump administration's directive in Executive Order 14151 to pursue and investigate DEI-related claims against contractors, and although these DEI prohibitions (including Executive Order 141517) have been challenged in court (with decisions from the courts still pending), we still expect to see enforcement in this area at some point.
Client Recommendation
Get your Ducks in a Row NOW
As the new Administration continues to gain its footing and establish new policies and priorities for government contracting (with Congress generally standing idly by and the Supreme Court seemingly and often supporting the Administration), there is little doubt that part of that strategy will be broad, with new uses of the audit and investigation function beyond traditional areas of focus. This means the potential for audits may arise unexpectedly, creating significant compliance risks - including civil and criminal penalties, suspension or debarment, and reputational damage that can affect pre-bid qualifications and disclosure requirements. The time is now for contractors to take proactive precautionary steps and assess internal compliance structures.
First, do the government’s job before it does—conduct an internal review or audit of your federal government contracts compliance programs, including policies and procedures in key evolving areas of government focus (such as E-Verify, small business, cybersecurity, ethics, and DEI). Although in some of these areas (particularly the enforcement of federal DEI executive order requirements) the landscape is not fully settled, it is clear, however, that the Administration is intent on combating what it deems to be illegal DEI activity under Executive Order 14151.
Next, contractors should double-check current compliance policies and procedures in other areas that are likely to be subject to enforcement, such as E-Verify, cybersecurity compliance, and billing practices. This could take the form of a compliance audit (conducted by internal or outside counsel) or a “refresher” training focused on government contracts compliance in general.
Also, remember that employees are the first line of defense and often the first point of inquiry during audits, as questioning staff is a common and frequent component of an audit or investigation. Employers should therefore provide additional training and reminders about responsibilities and appropriate responses during investigations and ensure compliance with hotline posting requirements.
Finally, contractors would also benefit from reviewing contractual requirements more broadly and identifying non-obvious compliance obligations, especially any existing certifications that could lead to FCA liability. Examples include claim certifications, SAM representations and certifications, mandatory disclosures, Service Contract Act requirements, and many others. Taking these steps now will significantly reduce risk and position your organization for success in the event of an audit.
As discussed in many of our prior alerts, this is an area of constant change and flux and includes issues that are often ones of first impression, as well as unique interpretation of the law, constitution, and regulation. As such, being proactive and protective is key. Please feel free to contact the authors with questions or if we can be of assistance.
2 Please note that the SBA program is undergoing transformative changes (we have covered some of the challenges related to SBA presumptions in classifying disadvantaged businesses in this client alert).
3 The SBA’s 8(a) program is not only under audit attack by federal agencies, but the program itself has been challenged in a recent case filed in the Eastern District of Louisiana seeking declaratory and injunctive relief to declare the SBA’s 8(a) Business Status Determination unlawful. See Revier Techs. Inc. v. SBA, 2:25-cv-02328, E.D. LA (2025).
4 See, e.g., discussion on the Civil Rights Fraud Initiative; see also discussion on EO 14173.
6 See also Pennsylvania State University cybersecurity FCA settlement here.
7 See, e.g., Chicago Women in Trades v. Trump, 1:25-cv-02005, N.D. Ill. (2025).