Lesley Brovner and Mark Peters Co-Author Article for the New York Law Journal on the Importance of Oversight of the CARES Act

May 6, 2020

Lesley Brovner and Mark Peters co-authored an article for The New York Law Journal titled, “The Importance of Oversight of the CARES Act.”

The article delves into why a massive spending program such as the CARES Act needs close oversight to protect it against fraud.

Lesley and Mark served as First Deputy Commissioner and Commissioner at the New York City Department of Investigation during the rebuilding after Hurricane Sandy and spent over a decade prosecuting fraud in other government spending programs including 9/11 recovery, the WIC program and Social Security. Through their experience on these programs, they note that massive spending programs are invariably victimized by fraud.

 

New York Law Journal Article: The Importance of Oversight of the CARES Act

May 6, 2020

The coronavirus crisis has caused depression era damage to the economy. In response, Congress has already authorized the expenditure of $2 trillion via the CARES Act and is poised to spend considerably more. And rightly so.

This expenditure, though, must come with significant oversight. We served as New York City’s Inspector General during another massive government spending program in the wake of a disaster—rebuilding after Hurricane Sandy. Additionally, we have spent over a decade prosecuting fraud in other government spending programs including 9/11 recovery, the WIC program and Social Security.

Our experience shows us that these types of massive spending programs are invariably victimized by fraud. Indeed, the federal Department of Justice already expects that significant dollars will be diverted from the CARES Act spending by fraudsters.

Three entities are now assigned the responsibility for monitoring CARES Act spending: First, the Special Inspector General for Pandemic Recovery (SIG). The SIG is appointed for five years with a $25 million budget and will do audits and investigation of all aspects of loans by the Treasury Department. Second, there is the Pandemic Response Accountability Committee (PRAC) which will look at CARES Act spending more generally with an $80 million budget. Finally, there is a congressionally appointed oversight committee.

These oversight groups have their work cut out for them. Fraud against CARES Act programs can take many forms including the following:

• Fraudulent applications for small business loans under the Paycheck Protection Program (PPP)—the part of the CARES Act giving $350 billion to small businesses: These frauds can take the form of falsifying past payroll (loan amounts are determined in great part by the applicant’s actual payroll) and applying under multiple shell companies or identities.
• Failure to spend money awarded under PPP for permissible purposes: In order for loans to be forgiven, 75% of the loan must be spent on payroll, but false payroll records are something we’ve prosecuted in many contexts.
• Finally, there is the risk of fake lending institutions that claim to process federal loans but really steal customers’ identities and money.

If the oversight groups are aggressive in rooting out that fraud, they will save the country—and the programs—billions of dollars.

This was certainly our experience when we served as the IG for the City’s spending of Hurricane Sandy relief funds. In one set of cases, we arrested four individuals for defrauding the program. For example, three of the individuals allegedly filed fraudulent applications attempting to have their second homes re-built by the City, while a fourth allegedly filed a false application in connection with a larger scheme to take money from the estate of an elderly woman who died in 2011. Between these arrests, and other related monitoring of contractor invoices and field audits, we saved the program $40 million.

Larger federal programs have yielded even more significant savings. For example, the Inspector General for the TARP program in response to the 2008 banking collapse recovered $11 billion in forfeiture from a $700 billion program and also obtained 300 convictions.

The Inspector General for the Social Security Administration (SSA) presents an even more comprehensive example. In one six-month period last year, the SSA IG recovered or otherwise saved the system $146 million dollars and recommended ways to put another $1.5 billion to better use within the SSA. In this same period, the SSA IG received 406,744 allegations of fraud—clearly there was a lot of work to do.

The SSA IG also works with other agencies including the Disability Determination Services and state and local law enforcement agencies. Together, that group runs the Cooperative Disability Investigations (CDI) program, which consists of 43 units, covering 37 states, the District of Columbia, and the Commonwealth of Puerto Rico. Established in 1997, the CDI program helps to ensure only people who qualify, receive disability benefits from SSA. From inception through September 2018, the CDI program efforts, nationally, resulted in $3.9 billion in projected savings to SSA’s disability programs and $2.9 billion in non-SSA programs such as Medicaid, foot stamps and various state assistance programs.

There is no argument that the CARES Act money needs to be handed out quickly. But that only increases the need for aggressive oversight that moves just as quickly. Unfortunately, we fear the opposite will happen. The President has appointed an in-house loyalist, rather than an experienced Inspector General, to head up the SIG office. At the same time, he recently demoted the person selected to head PRAC—thus delaying its ability to get up and running.

In order for an Inspector General’s office to be fully effective, it needs to be completely independent. For these offices to move at the speed required now, they must also be able to focus solely on the oversight mission without worrying about presidential politics.

At a time when speed is essential, delay and roadblocks cannot be tolerated.

Lesley Brovner and Mark Peters are founding partners of Peters Brovner LLP, a boutique law firm focusing on internal investigations, white-collar/regulatory defense, and other rapidly emerging situations that pose substantial reputational and financial risk. 

* Reprinted with permission from the May 6, 2020 issue of the New York Law Journal © 2020 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

Read the article on New York Law Journal’s website .