National emergency relief funds are typically accompanied by increased government scrutiny – and funds distributed under the CARES Act, in response to the coronavirus pandemic, will be no exception. The government will be keeping a watchful eye over the disbursement and use of relief funds.
The CARES Act created three oversight bodies:
These three bodies will be responsible for ensuring CARES Act relief funds are distributed and utilized properly. Companies should anticipate strict government oversight over the application for and use of relief funds. Oversight measures could be in the form of targeted audits, investigations, and enforcement measures. They could also be in the form of whistleblower reports regarding misuse, waste, or fraud.
Under the CARES Act, the Special Inspector General’s duty is to “conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loan guarantees and other investments” made by the Treasury Department pursuant to the Act. President Trump recently nominated Brian Miller to be the Special Inspector General.
PRAC’s investigative focus will be on detecting and preventing “fraud, waste, abuse, and mismanagement” of funds provided under the Act. PRAC is authorized to use Inspectors General from other government agencies to conduct such investigations. It also has its own power to conduct investigations related to relief funds.
Finally, the Congressional Oversight Commission’s investigative focus will be on whether private individuals and companies receiving relief funds have conformed to the Act’s requirements.
The accountability provisions established by the CARES Act are not novel – but rather, were modeled on similar provisions in the Emergency Economic Stabilization Act of 2008. More specifically, the Troubled Asset Relief Program (TARP) within the 2008 Act created a Special Inspector General for TARP -- whose role was to ensure the proper use of TARP funds through investigations, audits, and enforcement actions.
The Special Inspector General for TARP was, and still is, an incredibly active investigative body. Its investigations span from wire, bank, and mail fraud to money laundering, embezzlement, and bribery. One of the broadest tools utilized by the Special Inspector General has been the False Claims Act (“FCA”). The FCA is the primary statute used to prevent fraud against the government. As of the first quarter of 2020, investigations initiated by the Special Inspector General for TARP have resulted in the collection of $11 billion and 381 criminal convictions.
With the rush to obtain liquidity through CARES Act funds, one can expect increased government scrutiny over applications for such funds. As with TARP, the newly created Special Inspector General will utilize its investigative powers and a number of statutory provisions – like the FCA, wire, bank, and mail fraud – to ensure relief funds were properly obtained and utilized.
When applying for relief funds through the CARES Act, it is important that businesses have safeguards in place to ensure applications are completed correctly and accurately. Internal oversight should also be implemented to guarantee that the relief funds are being used for the proper purpose and are not being diverted, co-mingled, or misused.
Flannery | Georgalis attorneys have experience assisting clients in navigating complex regulatory requirements, as well as experience in advising clients in relation to government investigations and enforcement actions.