[co:author: Craig Stetson, partner with Capital Edge Consulting*]

This is the first in a series of blog posts concerning the audits and investigations related to the contracts and grants awarded, and relief funds provided, in response to the COVID-19 pandemic. As of February 2021, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which created the Paycheck Protection Program (“PPP”) and supplemental funding such as the Families First Coronavirus Response Act, the United States government has made available an estimated four trillion dollars in relief funds to businesses and individuals, and the Biden administration is proposing roughly two trillion dollars more.

In addition to the relief funds, the Government has easily awarded more than billions in pandemic-related contracts for everything from vaccines to PPE to hand sanitizers. These levels of funding and spending are unprecedented and have been made at breakneck speed (for the government). Based on these factors and lessons from the past, audits of relief recipients and contractors to confirm appropriate use of government funds are inevitable. And the government has said as much. Of course, if an audit reveals potential wrongdoing or malfeasance, relief recipients and contractors should expect follow-on investigations and enforcement activity.

This first post identifies the myriad of entities that are or will be reviewing—and potentially investigating—relief recipient and contractor representations made to obtain, and subsequent use of, government funds.

Department of Justice

The Department of Justice (“DOJ”) and 93 U.S. Attorneys’ Offices will be very active with pandemic-related investigations and prosecutions. DOJ has already settled one matter which alleged fraud involving PPP loans. Other prosecutions involving alleged misrepresentations in order to obtain PPP loans are ongoing. DOJ also has established the DOJ Hoarding and Price Gouging Task Force. The FBI has created a COVID-19 Working Group and a PPP Fraud Working Group. The DOJ Civil Division’s Consumer Protection Branch is pursuing companies and individuals for, among other issues, fraudulent and otherwise illegal tests, treatments and purported cures, and scammers preying on the elderly.

Offices of Inspector General

Agency Offices of Inspector General (“OIG”) will be on the front lines of pandemic-funding audits. First, Section 4018 of the CARES Act created the Special Inspector General of Pandemic Recovery (the “SIGPR”) and provided the Office with initial funding of $25 million. The SIGPR’s primary duty is to audit and investigate the distribution of funds under the CARES Act.

Second, Section 15010 of the CARES Act created the Council of the Inspector Generals on Integrity and Efficiency (“CIGIE”). CIGIE has created the Pandemic Response Accountability Committee (“PRAC”), which consists of more than 20 Offices of Inspector General. PRAC intends to focus its reviews on financial management; grant and guaranteed loan management; information technology security and management; and protecting health and safety.

Third, either as a member of PRAC or on their own, certain Offices of Inspector General will take the lead in audit activity. These include: the Department of Health and Human Services OIG because of the billions of dollars in health care grant and contract awards, including awards made by the Centers for Disease Control and Prevention (“CDC”) and contract awards for the replenishment of the Strategic National Stockpile (“SNS”); the Department of Labor, Small Business Administration OIG, which is taking the lead in reviewing PPP payments and loans; the Department of Defense OIG; the Department of the Treasury OIG, including the Treasury Inspector General for Tax Administration (“TIGTA”), also involved in review of PPP payments and loans; and the Department of Homeland Security OIG, due in large part to Federal Emergency Management Agency’s (“FEMA”) large role in awarding contracts to respond to the pandemic.

Department of Defense Contract Administration and Audit

The Defense Contract Management Agency (“DCMA”) and Defense Contract Audit Agency (“DCAA”) both are actively involved in administering and auditing CARES Act monies requested or received by defense contractors. Currently, these efforts are rooted in CARES Act Sections 1102 and 3610. Section 1102, also known as the PPP, has morphed into a government contract compliance matter for small business contractors who have had PPP loans forgiven and also perform under flexibly priced federal contracts. Section 3610 creates request for equitable adjustment (“REA”) opportunities for eligible contractors to seek reimbursement for idle time-related costs caused by the pandemic. Both DCMA and DCAA have responsibilities to oversee these funding sources and assess whether monies received were accounted for properly and in compliance with the myriad of published Department of Defense (“DoD”) guidance and instruction.

Other Agency Auditors

Several non-DoD agencies maintain contract administration and auditing objectives that align with DCMA and DCAA. These objectives are carried out by internal agency-specific personnel or outsourced to third parties; for example, independent accounting firms. The non-DoD agencies have not been as visible with creation of specific guidance or instruction related to the administration and oversight of contractors in receipt of CARES Act funding, but the potential for downstream audits or investigations is real.

Congress

Both Houses of Congress have already been active in review of pandemic spending. The CARES Act created the House COVID-19 Congressional Oversight Commission. In addition, the House Coronavirus Crises Select Subcommittee has initiated investigations of meatpacking companies and nursing homes. Other standing House Committees, including the Committee on Financial Services; Committee on Oversight and Reform; Committee on Energy and Commerce; and Subcommittee on National Security, have initiated pandemic-related inquiries.

Several Senate Committees also have shown interest in the oversight of pandemic spending. These include the Judiciary Committee; Committee on Banking, Housing, and Urban Affairs; Committee on Finance; and Permanent Subcommittee on Investigations. In addition, Senator Elizabeth Warren’s office includes full time oversight staff expected to focus on consumer finance and medical supply chain issues.

Government Accountability Office

The CARES Act directed the Government Accountability Office (“GAO”) to report bimonthly on its ongoing monitoring and oversight efforts related to the pandemic. In addition to other areas, GAO’s review has included loans, loan guarantees, and other investments under Section 4003 of the CARES Act.

State Attorneys General

State Attorneys General Offices (“AGOs”) also have initiated reviews and investigations related to the pandemic. For example, several State AGOshave begun reviews of nursing homes’ practices and procedures during the pandemic. In addition, states have awarded pandemic-related contracts for such services as COVID testing for state employees which also could be subject to review.

Whistleblowers

Obviously, whistleblowers are not auditors, but they are often the impetus behind audits and investigations. Even prior to the pandemic, government auditors and inspector generals were unable to audit or review all government spending. Pandemic relief funding and contracting has made matters even worse. Just as with audits unrelated to the pandemic, the source of many pandemic-related audits will be whistleblower—who can be current or former, and often disgruntled, employees.

^*Craig Stetson is a partner with Capital Edge Consulting where he focuses on assisting contractors interpret and apply the accounting and regulatory compliance requirements associated with federal government contracts. Craig routinely deals with a wide range of compliance matters related to accounting, pricing, contract administration, business systems, financial reporting and interpreting the requirements of the Federal Acquisition Regulation (“FAR”) and Cost Accounting Standards (“CAS”). Craig frequently speaks and writes on a wide variety of government contracting compliance matters, regulatory updates and current events.