IGs on pandemic oversight board warn job well done still means billions in fraud

IGs on the committee continue to send up red flags on COVID-19 spending. SBA's IG office, for example, recently issued management alerts warning of billions of ...

Inspectors general serving on the Pandemic Response Accountability Committee sprinted weeks after the CARES Act passed to build the infrastructure needed to oversee about $3 trillion in coronavirus spending.

Nearly half a year later, and following a rocky start for its leadership, the watchdogs on the PRAC are refining its tools for oversight and transparency. A recent update to its website now allows users to search for COVID-19 spending in their area by ZIP code, and the committee has also released a roadmap for its work over the next five years.

IGs on the committee, meanwhile, continue to send up red flags on COVID-19 spending. The Small Business Administration’s IG office, for example, recently issued management alerts warning of billions of dollars potentially exposed to fraud.

This work underscores the fact that, even under a best-case scenario, the oversight work of the PRAC will still mean billions of dollars spent improperly.

Michael Horowitz, the Justice Department’s IG and the acting chairman of the PRAC, said if the committee limited fraud to 1% of what Congress authorized, that sum would be about $26 billion dollars — an amount that rivals DOJ’s annual budget.

PRAC’s predecessor, the Recovery Accountability and Transparency Board, earned bipartisan praise for limiting the level of fraud in the 2008 stimulus to about 1%.

Horowitz said fraud indicators would suggest that the actual level of misspent funds is higher than that, but IGs on the committee continue to work with DOJ to make fraud-related arrests and recover that money.

“We’re very concerned about misuse of funds, we’re concerned whether we can identify all fraudulent activity … One of the things we want to do, and be effective in, is identifying misuse of funds, weaknesses in systems so that they can be improved and future potential fraud can be prevented,” Horowitz said Wednesday in a virtual fraud conference hosted by the Association of Government Accountants.

The Association of Certified Fraud Examiners estimates that about 5% of any given organization’s annual spending is lost to fraud. But in overseeing a bailout about three times as large as what Congress spent on the 2008 recession, Linda Miller, the PRAC’s deputy executive director, said there’s “never been a bigger challenge” when it comes to fraud in government spending.

“The investigations are ongoing, so we won’t know the scope of the fraud for years,” Miller said. “My guess is when we’re all said and done, it’s going to be significantly higher than 5% in the case of the CARES Act.”

But the PRAC is greater than the sum of its parts. Horowitz said the IGs on the committee have coordinated with each other in their work to avoid duplication, and has stood up a working group, led by the Education Department’s acting IG, that works closely with the Government Accountability Office and state and local governments.

Meanwhile, Horowitz said his office is launching a dashboard that tracks DOJ-specific pandemic spending that will be linked to the PRAC spending tracker.

“We’re talking with one another, as IGs, to understand what we’re each doing to be transparent within our own websites, about what the agencies’ spend plans are, and then bringing them together at this website,” he said.

In addition to SBA IG’s management alerts, other oversight reports have also set off alarms. One GAO report, for example, found that the IRS and Treasury Department sent more than a million economic incentive payments to deceased recipients.

While those agencies have recovered a majority of those funds, Richard Delmar, the deputy IG at the Treasury Department, said there’s always been “tension” between getting coronavirus spending out the door quickly versus mitigating fraud.

Delmar said his office has stood up two audit directorates specifically focused on CARES Act oversight, and has moved around employees from other program areas to focus on this work. The IG office has been aggressively bringing in new hires, and has helped set up office space and resources for Brian Miller, the Special Inspector General for Pandemic Recovery.

“We’re engaged in ongoing talks now about joint work, and deconfliction and all the things that you need to do to make sure you’re doing your work efficiently,” Delmar said.

Treasury’s IG office is also working with the Bureau of the Fiscal Service, which not only issues payments and bonds on behalf of agencies, but also has the authority to recoup improper payments.

“I expect that to be a busy area,” Delmar said. “Hopefully we won’t find all that many instances of improper use, but there will be some and that’s the process we’re going to use to accomplish that recoupment.”

Treasury’s IG has also set up a portal for state, local and tribal governments that received coronavirus relief funds. Those government partners upload spending and award data to the portal, which the Treasury IG sends to the PRAC.

SBA’s IG has criminal investigators based in field offices across the country, but has also partnered with law enforcement agencies, including U.S. attorneys and state and local prosecutors, and has held training sessions to build awareness of SBA programs.

Over the past two years, the oversight office has offered 350 training sessions to more than 35,000 attendees. Hannibal Ware, the agency’s IG, said that training has “paid dividends” during the coronavirus pandemic and has served as a force multiplier for oversight.

“Those relationships created between our investigators and our external partners have been highlighted during this time when they needed the most,” Ware said.

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The SBA IG’s hotline has received tens of thousands of allegations of wrongdoing, and the office has initiated hundreds of investigations involving complaints of fraud, which have resulted in arrests, indictments and convictions.

Another investment that has paid off is SBA IG’s data analytics unit, stood up only a few years ago, that works closely with audit teams and investigators to uncover schemes and uncover what Ware called the “most egregious fraud.” The team, he added, has played a direct role in some COVID fraud arrests.

DOJ officials have made more than 50 COVID fraud-related arrests so far, but Ware said those numbers keep climbing and are “just the tip of the iceberg.”

“That type of fraud is not typically discovered for 12-to-18 months after it’s been committed, and we are discovering fraud virtually in real time,” he said.

While some large IG shops, such as those at SBA or the Department of Health and Human Services, have invested resources in advanced data analytics capabilities, Miller said the PRAC is focused on improving those capabilities at IG offices that might not have those capabilities.

“It’s absolutely vital for us as an oversight community to be utilizing the most advanced analytics tools, even just to stay with — not ahead of but with — where the fraudsters are right now,” Miller said.

In the early stages of the pandemic, SBA’s IG stood up a supplemental oversight plan that would serve as a playbook for carrying out this additional audit work. Given the speed and volume of CARES Act spending, Ware said his office began publishing “agile work products” for Congress within two weeks.

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