CARES Act Oversight Ramps Up with Opening of New Watchdog Office
Insight provided by Gregory A. Brower, Shareholder and Alissa H. Gardenswartz, Shareholder, Brownstein Hyatt Farber Schreck

Since the June 2 confirmation of Brian Miller as the new Special Inspector General for Pandemic Recovery (“SIGPR”), oversight of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) has jumped up a notch. Miller, a former Department of Justice prosecutor and inspector general at the General Services Administration, has assembled a team of experienced investigators and auditors, and SIGPR is now poised to operate as watchdog over those funds. The oversight effort promises to be robust, and the recipients of this government spending need to be prepared for ongoing and intense scrutiny.

Reports to Congress Reveal Rigorous Oversight Efforts So Far
SIGPR has already issued two reports to Congress, detailing the investigative, audit and other work done by the office to date. In the initial pages of SIGPR’s first report, issued on Aug. 3, the office confirmed that it has jurisdiction over Division A of the CARES Act, which includes the Paycheck Protection Program (“PPP”) and certain other programs concerning temporary relief for banks and from troubled debt restructurings, emergency relief for taxpayers, support for our country’s health care system, unemployment assistance, and myriad other relief provisions for individuals and businesses. SIGPR also confirmed, in its initial report, that it does not have jurisdiction over the CARES Act’s Division B, which includes appropriations for emergency and discretionary programs, including certain food assistance programs, certain Department of Defense needs, FEMA’s Disaster Relief Fund, the Indian Health Service, and the Centers for Disease Control and Prevention (“CDC”).

As of the date of its first report, SIGPR had initiated 12 investigations, and made three recommendations to Congress. One of these recommendations is that the Department of the Treasury expressly include SIGPR to the list of entities entitled to “timely and unrestricted access” to information from the borrower contained in future loan agreements. It also reported entering into formal agreements with several U.S. attorney offices around the country, suggesting that SIGPR expects to refer enforcement cases to those offices. These agreements also indicate a coordinated and aggressive approach to prosecuting fraud associated with CARES Act funds. In fact, DOJ has already announced a number of CARES Act-related fraud cases, including several involving misuse of funds awarded under the PPP. In addition, SIGPR has been coordinating with other agencies, including the Financial Crimes Enforcement Network (“FINCEN”) and the Securities and Exchange Commission (“SEC”) in an effort to bring a “whole of government” approach to ferret out fraud and abuse. These relationships have led to a new total of 21 investigations into allegations of program-related fraud.

In its second report, SIGPR more clearly articulated its determination of which Division A programs clearly fall within its “core jurisdiction.” These include:

1. Loans, loan guarantees and other investments by Treasury under Division A, Title IV, Subtitle A, section 4003;
2. The Payroll Support Program under Division A, Title IV, Subtitle B;
3. The Coronavirus Relief Program under Division A, Title V; and
4. Loans by the Secretary to the United States Postal Service under Division A, Title VI.

Interestingly, this second report also acknowledges that it “remains unclear whether SIGPR has jurisdiction over the Paycheck Protection Program,” and invites Congress to clarify this issue.

What to Watch For Going Forward
The bottom line is that SIGPR has staffed up, is very busy, and is poised to lead a robust effort to oversee CARES Act spending for the foreseeable future. Given this scrutiny, companies that are beneficiaries of government programs created or expanded by the CARES Act may well find themselves on the wrong end of an audit or investigation, and they and their counsel need to be ready. In order to accomplish dual goals of adequately cooperating with the government and not waiving important rights, companies should be developing sound policies and procedures around investigative inquiry response, and ensuring that key employees are aware of their, and the company’s, rights and responsibilities when faced with an informal request, a subpoena or a search warrant from an OIG. Any company’s response should, first and foremost, include retaining counsel experienced in handling OIG investigations.