Congressional Investigations Forecast: Coronavirus Relief and Infrastructure Spending Likely to Be Future Areas of Interest, With Focus on Fraud

The 116th and 117th Congresses passed a series of landmark spending bills focused on the COVID-19 pandemic and infrastructure. More than $5 trillion has been devoted to pandemic relief, and an additional $1.2 trillion was approved for investments in the nation’s infrastructure. If history is a guide, this unprecedented government spending will likely result in an uptick in congressional investigations — particularly as reports of waste, fraud and abuse in these programs continue to surface. This article examines where the new funding is going and what provisions are in place to oversee this historic spending, and predicts where Congress is likely to direct its future investigatory efforts based on the congressional response to previous large spending bills.

Coronavirus Relief

Since the start of the pandemic, Congress has appropriated more than $5 trillion across six coronavirus-related spending bills.¹ The largest of these bills — the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the American Rescue Plan Act of 2021 — accounted for $2 trillion and $1.9 trillion, respectively.² Through these spending bills, Congress appropriated COVID-relief funds for individuals, corporations, small businesses, state and local governments, and public health investments.

Within the CARES Act, the largest pots of money were awarded to distressed businesses, small businesses and individuals.³ Approximately $500 billion sought to provide relief to distressed businesses, including $50 billion in loans to passenger airlines, $8 billion in loans to cargo airlines and $17 billion to businesses deemed critical to maintaining national security.⁴ Roughly $350 billion was allocated to small businesses, and most of those funds went to the Paycheck Protection Program (PPP).⁵ The majority of the $300 billion allocated to individuals was for $1,200 stimulus checks.⁶ The law also provided $250 billion for unemployment insurance, another major area of spending.⁷ With respect to individual business sectors, the CARES Act provided funding opportunities across a vast array, including agriculture, airlines, energy, financial services, health care, pharma/life sciences and technology.⁸ The agriculture and food industry, for example, received $49 billion from the CARES Act, which was intended to be dispersed to the Families First program to increase SNAP funding, small businesses through backed loans, stimulus checks to certain low-income taxpayers, and other programs and grants run by the U.S. Department of Agriculture.⁹ Passenger airline carriers were allotted $25 billion in the CARES Act to provide payroll support.¹⁰ The Act also included provisions to incentivize medical device manufacturers to produce and distribute devices by providing enhanced liability protection.¹¹

The American Rescue Plan’s spending was less focused on businesses than the CARES Act.¹² It provided funds to issue larger stimulus checks to individuals than the CARES Act — $1,400 instead of $1,200 — and also prioritized unemployment assistance.¹³ Compared to the CARES Act, the American Rescue Plan included greater education spending, increased the Child Tax Credit and Earned Income Tax Credit, provided funds to bailout multi-employer pension plans, allocated funding for grant programs to support public transit and provided funds for housing support.¹⁴

Various oversight protections were implemented to oversee the federal government’s response to the pandemic. The U.S. House of Representatives established the Select Subcommittee on the Coronavirus Crisis — a special investigatory subcommittee under the Oversight Committee — to investigate how the trillions of dollars of coronavirus relief funds are used.¹⁵ The CARES Act also contained oversight provisions. It established the Pandemic Response Accountability Committee (PRAC) within the Council of Inspectors General on Integrity and Efficiency “to promote transparency and conduct and support oversight of pandemic-related funds.”¹⁶ It further allocated $20 million for the Government Accountability Office (GAO) to assist Congress in oversight of coronavirus spending; specifically, GAO was empowered to oversee and inspect private entities receiving funding under the CARES Act.¹⁷ Additionally, the CARES Act created the Congressional Oversight Commission within the legislative branch to oversee the economic relief activities of the Department of Treasury and the Federal Reserve Bank.¹⁸

Congressional oversight and investigatory activity of coronavirus relief funds is already underway, and the PPP has been an initial focus. The Select Subcommittee on the Coronavirus Crisis launched an investigation in June 2020 into the Trump administration’s implementation of the PPP program after receiving reports that the program favored large companies over small businesses.¹⁹ The Select Subcommittee reported in September 2020 that the PPP program may have made more than $4 billion in loans that were diverted to fraud, waste and abuse.²⁰ The Select Subcommittee continues to investigate the PPP, and one recent area of focus has been the facilitation of fraud in the program by financial technology (FinTech) companies.²¹ In addition to the Select Subcommittee, the House Committee on Small Business has held hearings on the PPP.²²

Infrastructure

The Infrastructure Investment and Jobs Act — the so-called “Bipartisan Infrastructure Deal” — was enacted into law on November 15, 2021.²³ The bill totaled about $1.2 trillion and includes approximately $550 billion in new spending across various sectors of infrastructure, including transportation, water, energy, broadband and natural resource resilience.²⁴ The White House has described the law as “a once-in-a-generation investment in our nation’s infrastructure and competitiveness.”²⁵ The following investments are included in the bill: $55 billion to expand household access to clean drinking water; $65 billion in broadband infrastructure deployment to ensure all Americans have access to reliable high-speed internet; $110 billion to repair and rebuild bridges and roads; $39 billion to modernize transit and, in total, $89.9 billion in funding for public transit over the next 5 years; $25 billion to repair and maintain airports; $66 billion in passenger rail; $7.5 billion to build a national network of electric vehicle chargers; $65 billion in clean energy transmission; $50 billion to make infrastructure resilient against climate change impacts, cyberattacks and extreme weather events; and $21 billion in environmental remediation and cleanup.²⁶

The Biden administration appointed a senior White House advisor to coordinate and implement the $1.2 billion spending bill; however, the bill has been criticized for failing to provide for independent oversight.²⁷ The law tasked federal agencies to establish oversight measures for specific programs and authorized funding for individual inspectors general; but, overall, the potential for fraud in infrastructure spending was not a focus of the bill.²⁸

The funding authorized in the infrastructure bill will not be sent out the door as quickly as the funds from the CARES Act and the American Rescue Plan. It could take years for some of the funds to be spent, while other formula funds could go out in the next few months.²⁹ As a result, Congress has not yet engaged in investigatory efforts related to this infrastructure spending.

Major Spending in the Past Has Resulted in Enhanced Congressional Oversight

Spending in response to the 2008 financial crisis is the most recent example of unprecedented governmental spending prior to the coronavirus relief legislation. Congress authorized $700 billion for the Troubled Asset Relief Program (TARP) to “help stabilize the U.S. financial system, restart economic growth and prevent avoidable foreclosures.”³⁰ In establishing TARP, Congress created a Congressional Oversight Panel (COP) tasked with overseeing the Department of Treasury’s implementation of the program.³¹ The COP engaged in robust oversight efforts, holding numerous hearings and issuing 30 reports.³²

Another major spending bill passed in response to the financial crisis was the American Recovery and Reinvestment Act (ARRA) — the more than $800 billion stimulus bill enacted early in President Obama’s first term.³³ Within ARRA, Congress created the Recovery Accountability and Transparency Board to oversee the distribution of stimulus funds. In addition to this independent oversight body, Congress investigated ARRA spending. The $7 billion directed at broadband spending was one focus of Congress’s investigatory efforts — numerous committees had oversight roles, including the House Committee on Energy and Commerce; the House Committee on Agriculture; the Senate Committee on Commerce, Science, and Transportation; the Senate Committee on Agriculture, Nutrition, and Forestry; and the House and Senate Appropriations Committees.³⁴

Looking Ahead

If the past is a guide to the future, the recent historic investments made in infrastructure and coronavirus relief will be areas of focus for future congressional investigations. We expect that the PPP will continue to be an area of congressional interest, especially in light of reports of fraud and abuse related to PPP funds.³⁵ The Department of Justice recently announced the appointment of a director for COVID-19 Fraud Enforcement, and the department’s efforts to combat COVID-19 related fraud will ensure that this issue remains front-of-mind for legislators.³⁶ Recent estimates indicate that as much as 10% of the $800 billion spent under PPP was stolen by fraudsters.³⁷ The widescale fraud has been attributed to the government’s interest in getting PPP money out the door quickly, which resulted in little due-diligence to verify applications.³⁸ Fraud related to coronavirus funding was not limited to the PPP program.³⁹ The Economic Injury Disaster Loan — another relief program for businesses — is estimated by the Secret Service to have paid out $100 billion in fraudulent loans.⁴⁰

Infrastructure spending will also be a particularly attractive target for fraud; and once funds from the infrastructure bill start flowing, Congress will likely take an interest in any reports of waste, fraud and abuse, and direct its oversight powers on infrastructure spending. We expect that investigations into infrastructure spending will involve allegations of bribery and procurement fraud in the bidding process, misappropriation of project funds, collusion and coercion among contractors, and violations of conflict-of-interest rules. The lack of an independent oversight mechanism in the infrastructure bill could also enhance the perceived need for congressional investigations into how these funds are spent.

Steps Companies Can Take to Reduce Risk

Companies operating in a variety of different industries will likely face scrutiny from Congress related to the COVID-19 pandemic, programs under the CARES Act and infrastructure spending. In particular, we expect to see increased investigative activity into financial services and financial technology companies, banks, loan originators and loan servicers, hospitals, medical device and health care supply chain companies, air carriers, government contractors, and companies in the agriculture sector. For companies facing the potential of increased congressional oversight, there are a number of steps that can be taken to reduce risk.

Representations made to the federal government in loan applications or in connection with the receipt of federal funds are always an area of interest to both federal regulators and Congress. For this reason, companies should keep records detailing why they have satisfied the relevant eligibility criteria to receive funds and participate in federal programs, and carefully document their interactions with government representatives. Companies can also protect themselves by putting in place a records management and compliance system that ensures funds are spent in a manner consistent with program requirements.

Another area of risk for companies will be increased scrutiny of their compliance with relevant government ethics rules. With such a large amount of federal funds at issue, companies who run afoul of even technical conflict-of-interest rules may find themselves in the uncomfortable position of having to explain those failures, and suffer reputational damage as a result. Companies can mitigate that risk by carefully examining the relevant ethics and conflict of interest rules, and creating or enhancing compliance programs that document adherence to the relevant standards, and ensure that employees are trained appropriately. Just as importantly, when companies successfully detect a potential ethics or internal controls failure, remediation and compliance enhancements and, if necessary, an efficient and timely internal investigation can be the most successful defense to later allegations of improper conduct.

For companies that find themselves facing the prospect of a congressional inquiry, both legal and crisis management expertise is often required. Congressional investigations carry the unique risk that other investigations will follow either as a result of publicity or from a referral to federal regulators, which can significantly heighten the risk. For this reason, companies can protect themselves by putting in a place a response strategy that takes into account the potential that other federal enforcement agencies are involved behind the scenes.

Finally, companies operating in industries likely to face increased congressional scrutiny may engage in ongoing risk assessments of potential legal, business and reputational vulnerabilities. Outside counsel working with a company’s compliance or internal audit function may be useful in spotting areas of risk that can be addressed through compliance and internal control enhancements. In particular, companies receiving pandemic and infrastructure funding may have increased risk in their third-party contracts with distributors, resellers and subcontractors. An efficient and timely risk assessment can test whether a company’s third-party business relationships are adhering to contractual and compliance obligations, including gift, travel and entertainment practices, and other areas involving government touchpoints.