FAQs: The Potential Risk of Audits and Enforcement of Misconduct Related to the Loans and Other Financial Benefits Programs Available Under the CARES Act

Alerts / April 1, 2020

The CARES Act includes significant measures for individuals, employers, and businesses to handle and overcome the COVID-19 pandemic. The set of FAQs below is intended to address questions related to the potential risk of audits and enforcement of misconduct related to the loans and other financial benefits programs available under the CARES Act.

Q: What infrastructure exists under the CARES Act for audit and enforcement of misconduct related to the loans and other financial benefits programs available under the law?

The CARES Act creates three new oversight committees:

  1. The Pandemic Response Accountability Committee: The Pandemic Response Accountability Committee, as created under Section 15010 of the CARES Act, has the broadest oversight and enforcement powers of the three oversight bodies established by the CARES Act.
    • The committee members will be selected from among existing inspectors general, and the committee is tasked with conducting, coordinating and supporting inspectors general in the oversight of covered funds in order to “detect and prevent fraud, waste, abuse, and mismanagement; and mitigate major risks that cut across programs and agency boundaries.”
    • The committee has auditing, reviewing and reporting responsibilities and the ability to refer matters to the Department of Justice for criminal or civil investigation.
    • The committee has the authority to conduct independent investigations with the power to hold public hearings and issue subpoenas for both documents and testimony to private entities and individuals.
  2. Special Inspector General for Pandemic Recovery: The Special Inspector General for Pandemic Recovery is established within the Treasury Department under Section 4118 of the CARES Act.
    • The Special Inspector General is appointed by the President and is responsible for conducting, supervising and coordinating “audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments” made by the Treasury Secretary under any program established under the CARES Act.
    • The Special Inspector General will have authority to conduct investigations and issue reports, and will also be able to refer matters to the DOJ for criminal or civil investigation.
    • The Special Inspector General is obligated to “keep Congress informed through quarterly reports that provide the details of all such loans, loan guarantees, or other investments.”
  3. The Congressional Oversight Commission: The Congressional Oversight Commission is set up under Section 4020 of the CARES Act.
  • This is a five-member panel selected by majority and minority leadership from both the House of Representatives and Senate and have authority to conduct oversight of the implementation of the stimulus package by the Treasury and the Federal Reserve.
  • The oversight commission will have the authority until September 30, 2025 to “hold hearings, take testimony, and secure from any federal department or agency information it deems necessary to carry out its responsibility.”
  • The Commission is required to submit reports to Congress every 30 days specifying:
  1. The impact of purchases made under this Title on the financial well-being of the people of the United States, financial markets, and financial institutions;
  2. The extent to which the information made available on transactions under this Title has contributed to market transparency; and
  3. The effectiveness of loans, loan guarantees, and investments made under this title of minimizing long-term costs to the taxpayer and maximizing the benefits for taxpayers.
Q: What should pharmaceutical companies consider in terms of their manufacturing planning and strategy?
  • New congressional investigations on corporate behavior before and during the pandemic are always possible, especially for companies accepting federal relief aid and furloughing their workforce.
  • With regard to COVID-19 and healthcare stakeholders, any Democratic-led congressional oversight before the November election is more likely to focus on the current administration’s failures related to the containment and mitigation of COVID-19. However, future legislative responses could include directives to the Government Accountability Office to investigate agencies and cabinet departments with oversight of the healthcare industry.
  • One policy issue for pharmaceutical companies to consider now are supply chain issues. To the extent practical, companies should consider increasing its domestic investments in terms of sourcing active pharmaceutical ingredients and manufacturing within the United States. Reliance on foreign-sourced supply chain elements may be frowned upon, regardless of who wins the presidential race in November.
  • All public companies, especially healthcare companies, should be aware of new legislation that would mandate new disclosures:
    • H.R, 6371, from Rep. Brad Sherman (D-CA), to mandate the disclosure of the risks and exposures to public health events that the World Health Organization classifies as “pandemics,” and the steps they are taking to mitigate these risks and exposures.
    • H.R. 6375, from Rep. Nydia Velazquez (D-NY), to mandate the disclosure of the risks in their global supply chains; the impacts a supply chain disruption would have on their workforce, suppliers, and customers; and to develop and disclose contingency plans they will take to mitigate these risks and impacts.

Authorship Credit: Kevin Edgar and Anat Maytal

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