Not So Fast: The Act Comes with a Sheriff

Two-point-two trillion dollars.  I’m not really sure how much money that is but it’s a lot.  Most people, I dare say, couldn’t tell you how many zeros are in that number but when you start getting above the salaries of NBA players, and this is certainly that, you are into the stratosphere of finances.  All of that money leaves plenty of room for fraud.  We can all remember the horror stores after Katrina when our tax dollars were literally given away to any fraudster with the gumption to ask.  No doubt many were helped and many needed the aid, but far too much Katrina aid money “leaked” from the system.  Having learned its lesson, Sandy money came with far more strings attached.

The Troubled Asset Relief Program, or TARP, had a provision for an Inspector General and while not perfect, it was effective in ensuring that monies were properly accounted for.  Eleven billion dollars in fraudulently obtained TARP money was recovered and hundreds were convicted of fraud.  Now, Congress has enacted Section 4018 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the Act), which establishes “within the Department of Treasury the Office of the Special Inspector General for Pandemic Recovery.”  This Inspector General (IG) shall be chosen by the President with the advice and consent of the Senate.  In speaking of this position, Rep. Carolyn B. Maloney, the Chairwoman of the Committee on Oversight and Reform touted the “dedicated funding enhanced authorities for inspectors general and the independent government accountability office to fight waste fraud and abuse in the government spending that will happen under this bill.”

Under the statute, the IG has the power and responsibility to “conduct, supervise and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees and other investments made by the Secretary of the Treasury  [the Secretary] under any program established by the Secretary under this Act and the management by the Secretary of any program established under this Act.”   Thus, the IG will be responsible to collect information on the description and category of loans, guarantees of loans and all other investments made by the Secretary; will collect a list of all eligible businesses receiving loans, loan guarantees, or other investments  under the Act and an explanation as to why the Secretary determined the appropriateness of the loans of loan guarantees under the Act , including “a justification of the price paid for, and other financial terms associated with the applicable transfer.”

The IG shall be permitted to hire the services of experts and consultants and can enter into contracts with private individuals and public agencies to assist with “audits, studies, analysis and other services” as necessary. A sticking point that has already reared its head is the requirement that heads of departments and agencies within the government provide information to the IG and that if, in the judgment of the IG, information has been unreasonably refused, that the IG “shall report the circumstances to the appropriate committees of Congress without delay.  This possible clash is not unlike that which the Special Investigator General  for TARP (SIGTARP) faced when he began his work.  While this could lead to a struggle between the Executive and Legislative branches, it should not lessen the power of the IG to root out fraud and corruption where it exists.

The IG is required to provide quarterly reports which shall include “a detailed statement of all loans, loan guarantees, other transactions, obligations, expenditures, and revenues associated with any program established by the Secretary” pursuant to the Act.

The Office of the IG shall exist for five years and be funded in the amount of $25 million.  Thus, the IG will be able to hire the appropriate staff and outside experts to give it the teeth it needs to ensure that the enormous amounts of money disbursed pursuant to this ACT will not fall victim to fraudulent schemes.  The IG should make good use of the organizations and infrastructure that already exists in the private sector to assist in combatting this fraud.  That will permit a running start to ensure that the monies will be properly accounted for out of the box.

All that said, man’s ingenuity to conjure up schemes to improperly obtain money from large pots of government funds seems to know no bounds.  Thus, the IG will have his or her work cut out for them.  The choice of IG will be important and the zeal with which he or she works will be necessary because those bent on ripping off the system will be enterprising.  However, those desirous of benefitting from this tragic set of events should be ready to pay the price once the IG bears down on them, which will occur in many more cases than not.  Thus, do not do the crime, if you are not prepared to do the time.

A former adviser to Governor Chris Christie, Charles McKenna is a partner at Riker Danzig and was a federal prosecutor for 18 years.  

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