Oversight and Investigations Related to COVID-19 Pandemic Spending and Federal Programs

Please note: This alert has been updated on May 11, 2020. For your convenience, any new information added to our report is highlighted.

The president signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), providing $2.2 trillion of emergency appropriations. The CARES Act provides a wide range of economic relief for businesses of all sizes, tax relief for individuals and businesses, enhanced unemployment insurance for individuals and other policies that are summarized here. The CARES Act also provides substantial resources and new authorities for federal oversight of COVID-19 related relief efforts.

Just over a decade ago, in the wake of the global financial crises and hundreds of billions of dollars in new spending to rescue the U.S. economy, Congress created numerous new federal enforcement authorities to conduct oversight and investigations of wrongdoing related to the new programs. The resulting oversight hearings, inspector general investigations and other actions resulted in the recovery of nearly $1.5 billion related to criminal and civil violations, including the criminal prosecution of banking executives. For many companies and individuals, the years of congressional and media scrutiny that followed took economic and reputational tolls. In the wake of new programs and spending in response to the COVID-19 pandemic, Congress is again creating new investigative authorities, and, not surprisingly, criminal and civil actions, intense congressional oversight and media scrutiny are likely to follow.

Holland & Knight attorneys and policy professionals provide an overview and analysis of the likely wave of congressional oversight and government investigations that will result from the CARES Act and other programs put into place to fight the COVID-19 pandemic and to provide relief from the resulting economic crisis. In addition to federal and state criminal investigations and civil enforcement, including state and federal False Claims Act investigations, congressional oversight committees and inspectors general are likely going to focus on activities related to this spending for the foreseeable future. This alert outlines the oversight and enforcement bodies that will be conducting the investigations and what they are likely to focus on.

Sources of COVID-19 Oversight

Oversight of programs and funding will be conducted across a wide range of agencies and committees, including existing authorities in Congress and the executive branch, as well as new entities created in recent legislation. The CARES Act provides substantial funding for these oversight efforts.

New Authorities and Funding:

Pandemic Response Accountability Committee (PRAC). Section 15010 of the CARES Act creates PRAC within the Council of the Inspectors General on Integrity and Efficiency (CIGIE). The PRAC is charged with promoting transparency and conducting oversight of any coronavirus-related funds to "prevent and detect fraud, waste, abuse, and mismanagement" and "mitigate major risks that cut across program and agency boundaries." To meet those objectives, the PRAC is authorized to conduct its own investigations or collaborate with any other inspectors general, as well as hold public hearings and issue subpoenas for records and testimony, including from private sector individuals, and seek enforcement of its subpoenas in federal courts. In the case of any party "unreasonably" refusing or failing to provide requested information or assistance, the PRAC is required to notify appropriate congressional committees.

The PRAC members include existing inspectors general from the U.S. Departments of Defense (DOD), Education (ED), Health and Human Services (HHS), Homeland Security (DHS), Justice (DOJ), Labor (DOL), Treasury, as well as the Inspector General of the U.S. Small Business Administration (SBA), the Treasury Inspector General for Tax Administration (TIGTA), and any other inspector general designated by the chairperson, who is selected by PRAC members. The PRAC will be managed by an executive director and deputy executive director, who are appointed by the chairperson in consultation with congressional leadership.

Section 15010 also describes the PRAC's functions and authorities, which include:

• auditing or reviewing coronavirus-related spending, including charges to federal contracts, to determine whether wasteful spending, poor contract or grant management, or other abuses occurred and referring matters to the inspector general of the appropriate agency
• conducting randomized audits to identify fraud
• reviewing the economy, efficiency and effectiveness in both program administration and fraud, waste and abuse in coronavirus response programs and operations
• reviewing competition requirements for contracts and grants
• reporting to the attorney general any instances when PRAC has reasonable grounds to believe there is a violation of Federal criminal law

Notably, the CARES Act provides the PRAC with the authority to compel testimony, in addition to documents, from witnesses. It appears this authority will extend to inspectors general and others carrying out the business of the PRAC. This is an expansion of powers under the Inspector General Act. Generally, inspectors general do not have testimonial subpoena authority (although some, namely DOD and HHS in limited circumstances, have been granted such authority). A similar expansion of authority was provided inspectors general for oversight related to the 2008-2009 financial crisis relief programs. However, the power to compel testimony was limited to oversight of those relief programs and has since sunsetted. Some members of the enforcement community, including the CIGIE, advocated for making that power permanent. In 2018 the U.S. House of Representatives passed the IG Subpoena Authority Act (HR 4917), but the bill did not advance in the Senate. 

The PRAC also is required to submit public reports to Congress and the president, as well as maintain a public website on its findings and recommendations, and is set to terminate on Sept. 30, 2025.

On March 30, 2020, the inspectors general who are charged with selecting the PRAC's chairperson selected Glenn Fine, the DOD's principal deputy inspector general. On April 7, 2020, President Donald Trump removed Inspector General Fine from his PRAC position.

Special Inspector General for Pandemic Recovery. Section 4018 of the CARES Act establishes a special inspector general for pandemic recovery, which is directed to conduct audits and investigations of the making, purchase, management and sale of loans, loan guarantees and other investments made pursuant to the CARES Act. This includes collecting and summarizing detailed information on these investments, including the entity receiving assistance, why such assistance was appropriate, those managing or serving each investment, and the status of outstanding loans, loan guarantees or other investments. The special inspector general is also given the authority to issue subpoenas for documents, responses and any medium necessary to carry out the office's functions. The CARES Act provides the special inspector general with $25 million in funding to carry out these duties, and provides that the office will terminate in 2025.

Funding for Inspectors General. The CARES Act provides significant additional funding for several offices of inspector general to carry out oversight related to COVID-19 relief programs. The CARES Act appropriated $25 million for the SBA Office of Inspector General to carry out oversight functions under Title I, including the Paycheck Protection Program (PPP) and other SBA loans (Section 1107). Title I recipients should be mindful that small business program fraud (including loans and procurement contracts) have been a high priority enforcement area for the SBA Inspector General and the DOJ in recent years and misrepresentations of size status may implicate the False Claims Act. Among other things, those found in violation may be liable for statutory fines and trebled damages (i.e., triple the amount of the payment from the Government).

The CARES Act also provided $25 million to the DOL Office of Inspector General to carry out oversight of unemployment provisions under Title II (Section 2115). Finally, the act appropriated $25 million to the special inspector general to carry out its functions, which appear to be focused principally on Title IV programs.

COVID-19 Congressional Oversight Commission. The CARES Act created the COVID-19 Congressional Oversight Commission (COC), which is a bicameral congressional consisting of five members, with the Speaker of the House, House Minority Leader, Senate Majority Leader and Senate Minority Leader all having the authority to select one member. The fifth member, the chairperson, is selected jointly by the Speaker of the House and Senate Majority Leader, in consultation with the minority leaders. The Senate Majority Leader announced on April 17, 2020, that Sen. Pat Toomey (R-Penn.) will be his appointment to the COC, and Senate Minority Leader Chuck Schumer (D-N.Y.) has named Bharat Ramamurti, a former advisor to Sen. Elizabeth Warren (D-Mass.). Speaker Nancy Pelosi (D-Calif.) has named Rep. Donna Shalala (D-Fla.), while Republican Leader Kevin McCarthy (R-Calif.) has selected Rep. French Hill (R-Ark.). To date, Speaker Pelosi and Leader McConnell have not selected a chairperson. The Commission is empowered to hold hearings and secure information from federal departments related to programs and spending in response to the COVID-19 pandemic. The commission terminates in 2025.

House Select Subcommittee on the Coronavirus Crisis. The U.S. House of Representatives has established the oversight panel as a select subcommittee of the House Committee on Oversight and Reform. The subcommittee will be chaired by House Majority Whip Jim Clyburn (D-S.C.). The subcommittee is expected to be very active in investigating a wide range of coronavirus-related matters, and the chairman has been given the authority to unilaterally issue subpoenas for records and testimony as well as obtain information from other House committees. Subcommittee counsel will have the authority to conduct depositions without a subcommittee member present. The subcommittee will issue interim reports on its investigations and provide a final report to the House at the conclusion of its investigations. 

Previously Existing Authorities:

U.S. Government Accountability Office (GAO). The GAO was established as an independent auditor of federal government agencies and activities in 1921 and is charged with auditing and evaluating federal programs, conducting special investigations of federal criminal law regarding conflict of interest or contract fraud, and other duties. It is charged with investigating "all matters related to the receipt, disbursement, and use of public money." At the direction of Comptroller General Gene Dodaro, who was appointed and confirmed to a 15-year term in 2010, the GAO operates within the legislative branch and its work frequently aids congressional oversight or results in congressional investigations. The GAO also can subpoena, if necessary, records from federal agencies and contractors. Under 31 USC § 716, the GAO can obtain federal agency records and subpoena certain records from private parties, and bring civil actions in U.S. district court to enforce its subpoenas if necessary. The CARES Act directed GAO to conduct a study on the loans, loan guarantees and other investments under Section 4003, which are outlined here, and provided the office with an additional $20 million in funding for these efforts. The CARES Act also granted the GAO with broad powers to inspect the facilities of recipients of CARES Act funding. The GAO has already initiated inquiries related to the COVID-19 pandemic, including engagements related to nursing home infections and the payment of CARES Act tax rebates.

Congressional Oversight. The COC will not be the only congressional body conducting oversight of programs and spending related to the COVID-19 pandemic, as other committees of jurisdiction, as well as individual members of Congress, are likely to take interest in these matters as well. In the House of Representatives, this will include the following:

• Committee on Oversight and Government Reform: Under the leadership of Chairwoman Carolyn Maloney (D-N.Y.), the committee has already initiated inquiries to respirator manufacturers, the pharmaceutical industry, travel insurance companies and coverage issues caused by travel cancelations, and numerous federal agencies.
• Committee on Energy and Commerce: With broad jurisdiction across healthcare and business generally, Chairman Frank Pallone (D-N.J.) is expected to conduct wide-ranging investigations related to the medical supply chain, drug pricing, nursing home deaths and other matters related to the COVID-19 pandemic.
• Committee on Financial Services: Chairwoman Maxine Waters (D-Calif.) will likely conduct numerous oversight and investigations related to SBA loans, Treasury Department and Federal Reserve lending facilities, consumer finance practices and housing matters arising out of the pandemic.

The Senate also is likely to initiate wide-ranging oversight of CARES Act programs and spending, as well as other related matters. On April 17, 2020, Senate Majority Leader Mitch McConnell (R-Ky.) announced that Senate Banking Committee Chairman Mike Crapo (R-Idaho) will "lead and coordinate the Senate's oversight" of CARES Act programs and spending, working with the chairs of other committees who will focus on programs within each committee's jurisdiction. This will include Senate Finance Committee Chairman Chuck Grassley (R-Iowa), who has decades of congressional oversight experience and a large team of investigators who will focus on healthcare, tax and other matters. The following panels and offices are expected to take a leading role in the Senate's oversight of COVID-19 relief programs and spending:

• Committee on Banking, Housing, and Urban Affairs: With Chairman Crapo tasked as the coordinator of Senate oversight, his committee can be expected to take a leading role in oversight of lending programs in particular.
• Committee on Finance: Chairman Grassley is no stranger to congressional investigations, and given his history of conducting oversight across a wide range of matters regardless of jurisdictional constraints, his inquiries are likely to include inspector general activity, CARES Act lending programs, nursing home deaths and the healthcare supply chain.
• Permanent Subcommittee on Investigations: As the Senate's principal investigations body with nearly unlimited jurisdiction, Chairman Rob Portman (R-Ohio) has historically forgone short-term, high-publicity oversight in favor of long-term, in-depth inquiries on focused issues.
• Warren: As one of the only senators to have personal office oversight staff, Sen. Warren launches new information requests on a nearly daily basis. This will no doubt continue, with an expected focus on consumer finance issues and the medical supply chain.

Inspectors General. Created in 1978, inspectors general exist within a wide range of federal departments and agencies to combat waste, fraud and abuse across federal programs and spending. They are granted significant independence and authorities to conduct audits, investigations and other evaluations. They have broad authorities to subpoena records, and routinely work with Congress, the attorney general and other authorities. In the wake of COVID-19-related relief efforts, inspectors general who are likely to be actively involved in related investigations include those at the SBA, HHS, DOL, Treasury and the TIGTA, which conducts inquiries related to the Internal Revenue Service (IRS). As noted above, the CARES Act creates the Office of the Special Inspector General for Pandemic Recovery and provides substantial funding for that office and the SBA and DOL Offices of Inspector General. The act also expands inspector general powers in significant ways including by authorizing them to compel testimony.

IRS. The IRS' Criminal Investigation Division, led by Don Fort, has announced increased probes related to fraudulent claims for CARES Act economic relief payments and is likely to scrutinize financial dealings related to CARES Act loan programs.

Federal Bureau of Investigation (FBI). U.S. Attorney General William Barr has instructed federal authorities to prioritize investigations of COVID-19-related fraud. This will include investigations related to fake COVID-19 treatments, consumer fraud and fraud related to CARES Act lending programs, which could include violations regarding false statements, conspiracy, wire fraud and bank fraud.

False Claims Act. Under the False Claims Act, both the federal government and private individuals can take actions against entities that defraud federal programs. For those who knowingly submit a false claim to the government, the law allows for damages that are treble the amount of the government's losses due to the false claim.

State Investigations. Individual states are likely to conduct oversight of these funds and programs through attorneys general and other enforcement bodies. In 2009, the National Conference of State Legislatures published a list of each state's oversight plans, and we can expect similar actions in 2020.

Media Scrutiny. The press is already closely scrutinizing companies that received CARES Act funds, makers of personal protection equipment, insurance firms and others, and this will continue for the foreseeable future.

How to Reduce Risk

Companies of all sizes and across sectors will face additional scrutiny related to the COVID-19 pandemic and programs under the CARES Act. There will likely be special scrutiny of the healthcare supply chain, air carriers and cargo carriers, national security businesses who secure CARES Act loans, financial services firms, government contractors, banks and other loan providers, and the agriculture sector.

There are several ways to reduce risk associated with the coming wave of oversight and investigations. These include:

• If you participate in a loan program, thoroughly review any applications or other representations to the federal government or lenders. Anything that can be construed as a misrepresentation will be scrutinized both by Congress and federal regulators. Also carefully review new requirements that might apply under these programs to ensure they are complied with.
• For those who request SBA loans or Federal Reserve lending program funds, maintain documentation detailing the company's need for those funds, why it meets the relevant eligibility requirements and maintain records of how any received funds are used.
• Carefully review all corporate activity after receiving any federal assistance related to COVID-19. Following the financial crisis of 2007-2008, several firms that received federal assistance came under scrutiny for having throwing "lavish" parties and other activities. Company spending, pay increases, outsourcing and other activities will all be closely scrutinized.
• Take steps to ensure your CARES Act or COVID-19-related interactions with federal, state or local government entities comply with applicable conflict-of-interest and ethics rules. There is likely to be a particular focus among both investigators and the media on government funding decisions or regulatory action that are "improper" or somehow tainted by alleged ethical impropriety. Even a technical violation of federal ethics law therefore might be enough to spark an investigation and cause significant reputational damage.
  • This not only includes having a compliance plan for the rules directly apply to private parties – such as federal, state or local lobbying laws or the conflict-of-interest certification that parties seeking CARES Act funding are required to make – but also being cognizant of the potential ethics requirements to which the government officials with whom you are dealing may be subject. Many government officials are subject to ethics restrictions that limit their ability to participate in matters concerning certain businesses or industry sectors because of their financial interests or prior economic relationships.
  • This also includes confirming that any support that you provide to federal, state or local governments to assist in the response to the COVID-19 pandemic – whether through donation or contract – is provided in a manner consistent with relevant ethics rules.

How Holland & Knight Can Help

Holland & Knight has one of the country's premier congressional investigations and white collar defense and investigations practices. Our attorneys routinely represent companies under congressional inquiry or criminal investigation, particularly with respect to the receipt and use of federal funds. Unlike other law firms, Holland & Knight does not approach these inquiries as isolated matters to be handled in a silo, but as the serious challenges affecting a broad range of legal, policy, regulatory and public relations concerns.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the authors of this alert for timely advice. 

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.