On March 5, 2021, the American University Law and Policy Brief (“AULPB”) hosted its annual Spring Symposium. The keynote speaker was Brian Miller, the Special Inspector General for Pandemic Recovery (“SIGPR”), who discussed his role overseeing the proper allocation of funds under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Mr. Miller’s comments were followed by a panel featuring experts in federal oversight who discussed specific problems with CARES Act spending.  The panel was timely given that, just a day later, the Senate passed an additional $1.9 trillion pandemic relief bill, called the American Rescue Plan. Looking to the near future, the challenges highlighted by the panelists and lessons learned can now be applied prospectively to the new relief package. This will ensure money is distributed equitably and efficiently, and protect against the historic levels of fraud and abuse that accompanied the previous round of spending.

AULPB alumna Liz Hempowicz, the Policy Director for the Project on Government Oversight (“POGO”), provided perhaps the most effective single technical recommendation to ensure greater accountability in the future — revising and curtailing OMB guidance memo M-20-21. Issued under the Trump administration, this guidance instructed federal agencies to disregard clear statutory provisions within the CARES Act that mandated detailed reporting of who received CARES Act funding and for what purpose they received it. The effect of the guidance undermined the efficacy of the CARES Act’s two key reporting mandates. Those mandates required: 1) agencies to report to the Pandemic Response and Accountability Committee (“PRAC”) any obligation or expenditure of $150,000 or more; and 2) recipients of $150,000 or more in CARES Act funding to report quarterly the total received from each agency, total obligations to projects, project descriptions, and the number of jobs retained and created using the funds. Under M-20-21, OMB authorized agencies to disregard those clear mandates and instead collect reporting under the existing process under the Federal Funding Accountability and Transparency Act (FFATA).

Linda Miller, the Deputy Executive Director of the PRAC, pointed out that as a result of this guidance, many distributions are not reported by agencies with sufficient detail, and often are simply earmarked as being for “COVID recovery.” It is impossible to determine whether funds are being used appropriately without greater detail regarding how tax payer dollars are being spent. The Government Accountability Office has built a database detailing transparency challenges facing agencies across the federal government in this respect.

Importantly, this raises an additional key concern about equity, which was first pointed out by panelist Nikitra Bailey, an Executive Vice President at the Center for Responsible Lending. Ms. Bailey pointed out that a lack of detailed reporting means that we do not have demographic data regarding the entities who received funding, meaning there is no way to ensure historically underserved communities had fair access to these funds. In fact, based solely on the data that is available, it appears that these communities often were ditched in line by wealthy and well-connected entities that already had deeply established relationships in the traditional banking sector. The Center for Responsible Lending has been a leading voice on this issue, and as recently as March 6, 2021 issued a call for greater measures to ensure the new $1.9 trillion package approved by Congress is administered in an equitable and transparent fashion. POGO has similarly called for increased measures to track where relief funding ends up. While this may not necessarily involve direct reporting mandates, it could be accomplished through detailed analysis of the zip codes of recipients of aid and could be modeled after the approach taken under Troubled Asset’s Relief Program’s “Hardest Hit Fund,” an IRS relief mechanism that provided targeted aid to families in states hit hard by the economic and housing market downturn caused by the Great Recession. Under that program, states were selected for funding because they were struggling with unemployment rates at or above the national average or with steep home price declines. A similarly targeted asset distribution approach under the American Rescue Plan, closely monitored for compliance by oversight watchdogs, would ensure neighborhoods that are hardest hit by COVID-19’s economic effects receive a fair share of financial assistance.

OMB’s decision is reflective of a similar decision made by the Small Business Administration (SBA), which was to lessen its scrutiny of applications for PPP loans. This pursuit, done purportedly to accelerate the speed at which relief went out the door, resulted in the “lowering of the guardrails,” as stated by SBA Assistant Inspector General Brian Grossman. As a result, even people who might not normally have criminal proclivities were lured into fraudulent activity because it was so easy to defraud the federal government at the time CARES Act distributions were being made.

This decision was particularly imprudent in the case of the OMB’s guidance, because the reporting requirements imposed for most programs required disclosure after relief was awarded. Specifically, the CARES Act requires information be provided quarterly, meaning it does not stand in the way of money being distributed quickly. Therefore, any argument that there is a tension between adequate transparency and efficiency is irrelevant. Furthermore, the reporting requirements OMB prescribed in the alternative, under the FFATA, have known deficiencies. This includes the fact that information reported under the FFATA does not include information about jobs created or preserved as a result of funding, which was specifically provided for under the CARES Act to address skyrocketing unemployment during the pandemic.  

To prevent this in the future, OMB must raise the guardrails again and ensure that adequate time is taken to review this information. Doing so will protect against vast fraud on the scale that was seen with the first round of relief. It will also ensure that communities hit hardest by the pandemic, including communities that have been historically locked out of government funding programs, receive the relief they need and that they are entitled to.

Revision would also not be unprecedented. The CARES Act’s oversight provisions were amended statutorily once before to address concerns that certain technical language limited PRAC’s jurisdiction to only programs contained in Division A of the Act. Prior to the amendment,  Trump administration officials had argued the language appeared to require PRAC exercise limited jurisdiction, despite the fact that such an interpretation was inconsistent with both the clear intent of Congress manifest in the oversight provisions and past interpretations of similar language in the 2009 American Reinvestment and Recovery Act. OMB M-20-21 is another instance of an executive agency interpreting the Act in a way that is inconsistent with its clear text, and therefore OMB needs to revise its interpretation through a new guidance document.