Guidehouse and Nan McKay to Pay $11.3M for Cybersecurity Failures in COVID-19 Rental Assistance

Guidehouse Inc., based in McLean, Virginia, and Nan McKay and Associates, headquartered in El Cajon, California, have agreed to pay settlements totaling $11.3 million to resolve allegations under the False Claims Act.

The settlements came from their failure to meet cybersecurity requirements in contracts aimed at providing secure online access for low-income New Yorkers applying for federal rental assistance during the COVID-19 pandemic.

What Exactly Happened?

In response to the economic hardships brought on by the pandemic, Congress enacted the Emergency Rental Assistance Program (ERAP) in early 2021.

This initiative was designed to offer financial support to eligible low-income households in covering rent, rental arrears, utilities, and other housing-related expenses. Participating state agencies, such as New York’s Office of Temporary and Disability Assistance (OTDA), were tasked with distributing federal funding to qualified tenants and landlords.

Guidehouse assumed a pivotal role as the prime contractor for New York’s ERAP, responsible for overseeing the ERAP technology and services. Nan McKay acted as Guidehouse’s subcontractor, entrusted with delivering and maintaining the ERAP technology used by New Yorkers to submit online applications for rental assistance.

Admission of Violations and Settlement

Critical to the allegations were breaches in cybersecurity protocols. Both Guidehouse and Nan McKay admitted to failing their obligation to conduct required pre-production cybersecurity testing on the ERAP Application.

Consequently, the ERAP system went live on June 1, 2021, only to be shut down twelve hours later by OTDA due to a cybersecurity breach. This data breach exposed the personally identifiable information (PII) of applicants, which was found accessible on the Internet. Guidehouse and Nan McKay acknowledged that proper cybersecurity testing could have detected and potentially prevented such breaches.

Additionally, Guidehouse admitted to using a third-party data cloud software program to store PII without obtaining OTDA’s permission, violating their contractual obligations.

Government Response and Accountability

Principal Deputy Assistant Attorney General Brian M. Boynton of the Justice Department’s Civil Division emphasized the importance of adhering to cybersecurity commitments associated with federal funding.

“Federal funding frequently comes with cybersecurity obligations, and contractors and grantees must honor these commitments,” said Boynton. “The Justice Department will continue to pursue knowing violations of material cybersecurity requirements aimed at protecting sensitive personal information.”

U.S. Attorney Carla B. Freedman for the Northern District of New York echoed these sentiments, highlighting the necessity for federal contractors to prioritize cybersecurity obligations. “Contractors who receive federal funding must take their cybersecurity obligations seriously,” said Freedman. “We will continue to hold entities and individuals accountable when they knowingly fail to implement and follow cybersecurity requirements essential to protect sensitive information.”

Acting Inspector General Richard K. Delmar of the Department of the Treasury emphasized the severe impact of these breaches on a program crucial to the government’s pandemic recovery efforts. He expressed gratitude for the partnership with the DOJ in addressing this breach and ensuring accountability.

“These vendors failed to meet their data integrity obligations in a program on which so many eligible citizens depend for rental security, which jeopardized the effectiveness of a vital part of the government’s pandemic recovery effort,” said Delmar. “Treasury OIG is grateful for DOJ’s support of its oversight work to accomplish this recovery.”

New York State Comptroller Thomas P. DiNapoli emphasized the critical role of protecting the integrity of programs like ERAP, vital to economic recovery. He thanked federal partners for their collaborative efforts in holding these contractors accountable.

“This settlement sends a strong message to New York State contractors that there will be consequences if they fail to safeguard the personal information entrusted to them or meet the terms of their contracts,” said DiNapoli.

“Rental assistance has been vital to our economic recovery, and the integrity of the program needs to be protected. I thank the United States Department of Justice, United States Attorney for the Northern District of New York Freedman and the United States Department of Treasury Office of the Inspector General for their partnership in exposing this breach and holding these vendors accountable.”

Initiative to Address Cybersecurity Risks

In response to such breaches, the Deputy Attorney General announced the Civil Cyber-Fraud Initiative on October 6, 2021. This initiative aims to hold accountable entities or individuals who knowingly endanger sensitive information through inadequate cybersecurity practices or misrepresentations.

The investigation into these breaches was initiated following a whistleblower lawsuit under the False Claims Act. As part of the settlement, whistleblower Elevation 33 LLC, owned by a former Guidehouse employee, will receive approximately $1.95 million.

Trial Attorney J. Jennifer Koh from the Civil Division’s Commercial Litigation Branch, Fraud Section, and Assistant U.S. Attorney Adam J. Katz from the Northern District of New York led the case, with support from the Department of the Treasury OIG and the Office of the New York State Comptroller.

These settlements highlight the imperative for rigorous cybersecurity measures in federal contracts, particularly in safeguarding sensitive personal information critical to public assistance programs. As the government continues to navigate evolving cybersecurity threats, it remains steadfast in enforcing accountability among contractors entrusted with protecting essential public resources.

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