After the Money’s Gone, CARES Act Oversight Will Be There

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act,[i] a record-breaking,[ii] $2 trillion relief package aimed at stabilizing the economy through direct financial relief to individuals, small businesses, and industries hard-hit by the COVID-19 crisis.

In passing the CARES Act, Congress was acutely aware of the need for transparency and oversight of how federal dollars are distributed, administered, and used.  To that end, the Act established two new inspector general organizations and created a special congressional commission.

Nearly two months after the CARES Act became law, however, none of the new watchdog entities is fully operational.  Indeed, as of late May 2020, none of them has a duly appointed, permanent head.  In the meantime (and likely beyond), Congress has taken steps to fill the gaps.

Once the dust has settled (and after most, if not all, the money is gone), those that disbursed the money and those that received it—including federal political appointees and bureaucrats, states, localities, loan and grant recipients, and certain industries—are likely to face scrutiny by auditors and investigators.  Understanding the mission of these oversight bodies and the scope of their authority will help organizations and individuals prepare now for the questions to come.

I. Inspector General Oversight.

             A. The Pandemic Response Accountability Committee.

Section 15010 of the CARES Act created the Pandemic Response Accountability Committee (PRAC).  The PRAC exists within the Council of the Inspectors General on Integrity and Efficiency (CIGIE) and is comprised of 21 Inspectors General (IGs) from various federal agencies.  Nine of the members are designated by statute;[iii] the remaining IGs were appointed by CIGIE’s Chair to represent other agencies administering significant pandemic response funding.

The PRAC’s purview is broad.  Its mission is to prevent and detect fraud, waste, abuse, and mismanagement involving any pandemic relief and recovery funds, including the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, the Coronavirus Preparedness and Response Supplemental Appropriations Act, and the Families First Coronavirus Response Act.  Together, members of the PRAC can identify issues and mitigate risks that “cut across program and agency boundaries.”  The committee is expected to create a coordinated strategic plan, prepare management alerts for federal agencies, and communicate with the Office of Management and Budget, the Treasury Department, and the Department of Justice.  That said, day-to-day audit and investigation activity around pandemic relief is likely to be carried out by individual offices of inspector general.

The PRAC is modeled on the Recovery Accountability and Transparency Board (RAT Board), which oversaw spending under the American Recovery and Reinvestment Act of 2009.  The RAT Board website (recovery.gov) provided a centralized source of information about recovery act spending and a public portal for reporting fraud.  The RAT Board wrapped up its mission in 2015, after conducting thousands of audits and reviews, and pursuing investigations leading to criminal convictions and more than $100 million in financial recoveries.

Following the RAT Board’s example, the PRAC has established a website, https://pandemic.oversight.gov, a comprehensive repository of information about federal pandemic response legislation, the programs and plans for implementing the legislation, and the IG oversight that will follow.  The PRAC also has appointed an Executive Director, Robert Westbrooks, and a Deputy Executive Director, Linda Miller, to staff and direct the committee’s work.  The PRAC has been granted an initial budget of $80 million, and is slated to disband in September, 2025.

Despite this progress, the PRAC does not yet have a permanent chair.  The Department of Justice Inspector General, Michael Horowitz, is serving as acting chair until the Senate confirms permanent Inspectors General to represent the PRAC member offices.[iv]

               B. Special Inspector General for Pandemic Recovery.

The position of Special Inspector General for Pandemic Recovery (SIGPR) is likewise vacant at the moment.  President Trump’s nominee, Brian Miller, is awaiting Senate confirmation.[v]

SIGPR is a new Inspector General office, also created by the CARES Act specifically to oversee economic relief efforts related to the coronavirus crisis.  SIGPR’s scope is decidedly more narrow than the PRAC’s wide-ranging, cross-agency mandate.  In particular, SIGPR will monitor $500 billion in financial relief programs aimed at “severely distressed” sectors of the economy and guaranteed by the Treasury Department.  SIGPR’s initial mission is to gather and publish data about loan programs, including information about borrowers and lenders participating in the programs.

Within that scope, SIGPR is granted the same authority as other Inspectors General to conduct audits and investigations, including the power to request data from federal agencies (not just Treasury), issue subpoenas to businesses and individuals, and refer cases for criminal or civil prosecution.

As with the PRAC, the role of SIGPR is patterned on oversight efforts implemented in the wake of the 2008 financial crisis.  Then, Congress established the office of Special Inspector General for the Troubled Asset Relief Program (SIGTARP) to target crimes and abuses by financial institutions that received bailout funding.  Although it was conceived of as a temporary office, SIGTARP remains active twelve years after its creation and is not expected to cease operations until 2024.  SIGTARP boasts that its efforts have resulted in hundreds of criminal convictions and financial recoveries in excess of $11 billion.

SIGPR’s similarly circumscribed focus has an initial budget of $25 million.  And, while this Special Inspector General’s office is set to expire in 2025 per the CARES Act, history suggests that this timeline could be extended.

II. Congressional Oversight.

Not to be outdone, Congress is conducting its own oversight.  That congressional oversight is proceeding in two primary ways:  First, the House and the Senate have created a joint entity to work bicamerally, the Congressional Oversight Commission.  And, second, the House and the Senate each have designated a committee or Member to lead that body’s own oversight efforts.

                A. The Congressional Oversight Commission.

Congress established the Congressional Oversight Commission as part of the CARES Act.  The Commission is led by five commissioners:  one each appointed by the majority and minority leadership of each House, and then a fifth (the Chair) appointed “by the Speaker of the House and the Senate majority leader, after consultation with the Senate minority leader and the House minority leader.”  § 4020(c)(1)(E).  To date, the initial four commissioners (Rep. Donna Shalala, Rep. French Hill, Sen. Pat Toomey, and Bharat Ramamurti) have been selected, but a chair has not.[vi]

The purpose of the Commission is to advise Congress on a limited aspect of the federal government’s pandemic response, namely the relief provided by subtitle A of Title IV of the CARES Act (primarily, certain authority granted to the Federal Reserve System and the Department of the Treasury to support financial markets and distressed industries).[vii]  More particularly, the CARES Act directs that the Commission report every thirty days on at least four matters:[viii]

(i) The use by the Secretary [of the Treasury] and the Board of Governors of the Federal Reserve System of authority under this subtitle, including with respect to the use of contracting authority and administration of the provisions of this subtitle.

(ii) The impact of loans, loan guarantees, and investments made under this subtitle on the financial well-being of the people of the United States and the United States economy, financial markets, and financial institutions.

(iii) The extent to which the information made available on transactions under this subtitle has contributed to market transparency.

(iv) The effectiveness of loans, loan guarantees, and investments made under this subtitle of minimizing long-term costs to the taxpayers and maximizing the benefits for taxpayers.

As the Commission’s first report explains, “In short, this Commission is responsible for answering two basic questions:  What are the Treasury and the Fed doing with $500 billion of taxpayer money?  Who is that money helping?”[ix]

Notwithstanding the absence of a chair, the Commission recently released its first report.  Among the observations of that report:  The Federal Reserve and the Department of the Treasury have yet to make substantial use of their added authority.  The Commission noted that “to date, the Treasury has only disbursed $37.5 billion of [$500 billion of relevant] CARES Act funds;” and “has not disbursed any of the $46 billion it can use to provide loans and loan guarantees to the airline industry and businesses critical to maintaining national security.”[x]

                 B. House and Senate Designated Oversight Coordinators.

The House and Senate each have designated a particular committee or Member to lead that body’s own oversight efforts.  In the House, that committee is the Select Subcommittee on the Coronavirus Crisis.[xi]  In the Senate, Majority Leader Mitch McConnell has tasked Sen. Mike Crapo with coordinating the Senate’s oversight; Sen. Crapo will do so via the Senate Banking Committee that he chairs and by coordinating with other Senate committees of jurisdiction.[xii]

The House Select Subcommittee is an investigative subcommittee of the House’s pre-existing Committee on Oversight and Reform.[xiii]  The Select Subcommittee has twelve Members, seven Democrats and five Republicans.[xiv]  Rep. James Clyburn serves as its chair.[xv]

The House has tasked the Select Subcommittee with conducting oversight regarding “any . . . issues related to the coronavirus crisis.”  In leading the Subcommittee in carrying out those tasks, Chairman Clyburn wields unilateral subpoena power.[xvi]

The Select Subcommittee already has been active.  On May 13, the Subcommittee conducted a briefing with various public health experts.  And on May 8, the Subcommittee sent a letter to each of five companies regarding those companies’ receipt of loans under the Paycheck Protection Program.  Those letters demanded that the recipient companies return their respective loans, on the pain of finding themselves subject to an investigative inquiry (not to mention public excoriation).[xvii]

Senator Crapo’s efforts have included a call for regulatory relief as a more sustainable means of addressing the pandemic.

*          *          *

Current conditions involve a lot of uncertainty, fear, and urgency.  Mistakes will be made, whether intentionally or not, by government actors, by the recipients of government support, and by a host of individuals and entities connected to the process.  Still other conduct will be misperceived as improper.  And the various layers of oversight, whether at the Inspector General or congressional level, are sure to churn for years to come, endeavoring to sort it all out.

 

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[i] P.L. 116-136 (2020).

[ii] The record could be shattered again if the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which proposes an additional $3 trillion in federal spending related to the pandemic, becomes law.  The House of Representatives passed the measure on May 15, 2020; the Senate is scheduled to consider it after the Memorial Day holiday.

[iii] The CARES Act specifically appoints to the PRAC the IGs for the Department of Defense, the Department of Education, the Department of Health and Human Services, the Department of Homeland Security, the Department of Justice, the Department of Labor, the Treasury Department, the Small Business Administration, and the Treasury Department, Tax Administration.  The Act’s newly-created Special Inspector General for Pandemic Recovery will also participate in the PRAC.

[iv] Horowitz is the Chair for CIGIE and has the authority to appoint the PRAC Chair.  He initially selected Glenn Fine, the then-Acting IG for the Department of Defense.  President Trump subsequently nominated Sean O’Donnell to the permanent Defense Department IG spot, replacing Fine in that position and making him ineligible to chair the PRAC.

[v] The Senate Banking Committee voted on May 12, 2020 to advance Miller’s nomination to the full Senate.

[vi] See, e.g., Questions About the CARES Act’s $500 Billion Emergency Economic Stabilization Funds:  The First Report of the Congressional Oversight Commission (“Commission’s First Report”) (May 18, 2020).

[vii] See CARES Act § 4020(b)(1).

[viii] Id. § 4020(b)(2)(A).

[ix] Commission’s First Report at 5.

[x] Id. at 5, 6.

[xi] See H. Res. 935 (Apr. 23, 2020).

[xii] See Press Release (Apr. 17, 2020).

[xiii] See H. Res. 935 at 1; id. § 3.

[xiv] See id. § 2; see also https://coronavirus.house.gov/about.

[xv] See House Select Subcommittee on the Coronavirus Crisis website: https://coronavirus.house.gov (“About” and “Meet the Chair”).

[xvi] H. Res. 935, §§ 3, 4.

[xvii] Indeed,  the letters gave the companies an explicit choice: turn over the funds, or turn over your documents:  “If you choose not to return some or all of these funds, we request that you produce by May 15, 2020, all documents and communications . . . .”).

May 22, 2020