Category — Investigations

On May 29, 2009, the White House announced that it is revising restrictions placed on lobbyists from communicating with executive branch officials regarding funds under the American Recovery and Reinvestment Act (Recovery Act).  More detailed guidance is forthcoming from the Office of Management and Budget (OMB), but the statement released on Friday makes clear that the absolute ban on lobbyists communicating orally or participating in meetings with executive branch officials has been revised.

President Obama issued a memorandum on March 20, 2009 prohibiting registered lobbyists from having oral communications with government officials about specific Recovery Act projects or applications and requiring that government officials only consider the views of registered lobbyists on such issues if the views were submitted in writing. The memorandum also required that oral discussions of general policy matters regarding the Recovery Act made by registered lobbyists be publicly disclosed. (Please click here to read our alert on the March 20 memorandum.)

Read the full alert here.

In his Quarterly Report to Congress submitted on April 21, 2009, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) made a series of new recommendations to address what the SIGTARP identified as certain “inherent vulnerabilities” in the Department of the Treasury’s Public-Private Investment Program (PPIP).

The report indicates that certain aspects of PPIP make it inherently vulnerable to fraud, waste and abuse. Of specific concern to the SIGTARP are issues related to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering. Accordingly, the SIGTARP made a series of recommendations to address its concerns.

With respect to conflicts of interest, the SIGTARP recommends that the Department of the Treasury impose strict conflict of interest rules on fund managers of Private-Public Investment Funds (PPIFs) formed pursuant to PPIP. The SIGTARP further recommends that these rules apply to fund managers across all PPIP programs, and that the rules specifically address whether and to what extent the managers can (i) invest PPIF funds in legacy assets that they hold or manage on behalf of themselves or their clients, or (ii) conduct PPIF transactions with entities in which they have invested on behalf of themselves or others.

Click here to read the full text of this alert.

On April 14, 2009, the Department of Justice signaled that it is devoting “significant resources” to the detection and prosecution of collusion or other criminal violations of the antitrust laws that may be committed in connection with Recovery Act funds. The Antitrust Division notes on its new Recovery Initiative Web site that, “[t]he potential risk of fraud and collusion increases dramatically when large blocks of funds, such as those associated with the Recovery Act, are quickly disbursed.” In fact, Earl Devaney, the head of the government’s Recovery Accountability and Transparency Board, recently estimated that as much as 7 percent—approximately $55 billion—of Recovery Act funds may be lost to fraud.

Because of this perceived increased risk of criminal conduct, the Division is providing training to help inspectors general and other investigative arms of agencies receiving funds detect and prevent collusion and other types of procurement fraud. To that end, the Division has created the “Red Flags of Collusion” checklist to use as a guidepost for the IGs to detect anticompetitive conduct. The Red Flags of Collusion are set forth in a four-part “MAPS” (market, applications, patterns and suspicious behavior) analysis on the Web site. Under each step of the analysis, the Division sets forth attributes of a procurement or grant award action that would suggest a greater likelihood of collusion, such as (M) few vendors, (A) common sources for two or more proposals, (P) use of losing or withdrawn bidders as subcontractors to winning bidders and (S) submission of multiple proposals.

While designed to help government inspectors general prevent or detect fraud, companies seeking to supply services or procure grant awards in connection with Recovery Act funds can apply MAPS to their individual circumstances as part of a general antitrust compliance effort to help identify whether they are participating in a procurement or grant award action that may involve or suggest the possibility of collusion. While prevention of fraud is one goal of the Division’s effort, the Division made clear that if prevention efforts fail, the Division will “investigate and prosecute any criminal conduct directed at thwarting competition” for Recovery Act funds.

The Antitrust Division’s Recovery Initiative Web site can be found here.

On March 11, 2009, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), in coordination with the IG for the Board of Governors of the Federal Reserve System (FRB-OIG), announced the formation of a broad multi-agency task force designed to deter, detect and investigate instances of fraud in the Terms Asset Backed Securities Loan Facility (TALF) program.  The task force will consist of officials from the FBI, the Financial Crimes Enforcement Network, the U.S. Immigration and Customs Enforcement, the Internal Revenue Service, Criminal Investigation, the Securities and Exchange Commission and the U.S. Postal Inspection Service.

According to the announcement, the TALF is a Federal Reserve program in which the Federal Reserve Bank of New York (FRBNY) will make loans that are fully secured by collateral-asset-backed securities.  The loans are meant to make credit available to consumers and small businesses on more favorable terms.  FRBNY will loan up to $200 billion secured by asset-backed securities that are backed by credit-card loans, auto financing, student loans and Small Business Administration loans.

The task force participants will attend regular briefings on the program, identify areas of fraud, train agents and analysts on key fraud issues and serve as points of contact regarding TALF cases that arise.  This task force creation is yet another example of a phenomenon that is manifesting itself throughout the federal government in Recovery Act oversight:  interagency task forces.  The IGs and their sister law enforcement and regulatory agencies are dedicating tremendous resources to fraud prevention and detection through increasingly coordinated efforts via multi-agency task forces and working groups.

See the announcement here.

On March 12, 2009, the House Financial Services Committee approved a bill to broaden the authority of the SIGTARP.  The Senate had already passed the legislation by voice vote in February.  Among other things, the bill gives the SIGTARP authority to hire more auditors and investigators quickly, including permission to hire up to 25 retired federal investigators and auditors at a time without having to offset their pensions.  Additionally, the bill expands the SIGTARP’s authority to carry out audits and investigations.

See this legislation here.

Many of the OIGs are in various stages of implementing Recovery Act oversight initiatives.  Some have comprehensive plans in place and others are, in all likelihood, currently working on them.  Looking at these disparate initiatives as a whole, one can discern a few meaningful trends.

First, we are going to see increased interagency coordinated oversight and enforcement activity.  This is a trend that has been developing within the IG and federal law enforcement community for several years now, but, with the heightened focus on Recovery Act accountability, this trend is going to accelerate.  This means that government-fund recipients could potentially face investigations by as many as a half dozen OIGs at once.

Second, the OIGs are diligently attempting to educate their parent agencies and the fund recipient community on “fraud indicators,” in order to try and prevent fraud in the first place.  Recovery Act fund recipients should stay abreast of these educational initiatives and incorporate this information into their own internal compliance program activities.

Third, all the OIGs connected with agencies that received stimulus funds to spend also received additional financial resources to increase their oversight capabilities.  A review of the OIGs that have produced Recovery Act oversight plans makes clear that almost all of them are gearing up by hiring new auditors and investigators to carry out the oversight mission.

Finally, OIGs are together taking increased steps to share information and “best practices” in order to develop a sophisticated bench of OIG auditors and investigators across the government.  OIGs that might have been sleepy backwaters in years past may increasingly become as smart and active as the most historically robust OIGs.  As a result, companies should be vigilant about compliance efforts on federal programs that in the past may not have received significant scrutiny.

On March 31, 2009, the Department of Transportation (DOT) OIG issued an audit report providing its analysis of the oversight challenges facing the DOT regarding Recovery Act spending.  The three major oversight challenges noted were ensuring that DOT grantees properly spent Recovery Act funds, implementing new accountability requirements and programs required under the Act and combating fraud, waste and abuse.  Regarding the latter, the OIG cited as two focus areas the need to enhance fraud awareness within the agency and among its contractors and the need to take timely and effective action to suspend and/or debar stimulus fund recipients that defraud DOT programs.  In addressing fraud awareness, the report noted the following key fraud schemes that have plagued past DOT projects:  false claims for materials and labor, bribes related to contracts for materials or labor, product substitution and disadvantaged business enterprise fraud.  The report also provided a list of “red flag” fraud indicators typically associated with fraud schemes.  Regarding suspension and debarment, the report noted that DOT needed to dramatically improve its processes in order to take more timely actions.

See the audit report here.

On March 19, 2009, the Inspector General for the Department of Energy (DOE), Gregory H. Friedman, testified before Congress regarding the Recovery Act oversight initiatives already underway at the DOE OIG.  The DOE is slated to receive and distribute approximately $40 billion of Recovery Act funds for various science, energy and environmental programs and initiatives.  Additionally, the DOE has been authorized to make or guarantee loans totaling up to $127 billion for innovative technologies as well as auto industry advancements.  IG Friedman described the DOE-OIG’s oversight strategy and numerous specific steps it would entail, including, (1) evaluating the internal control structure for the most significant programs; (2) evaluating the controls established by the primary recipients over the use of funds; (3) examining the use of funds through transaction testing at the recipient or end-user level; (4) providing fraud awareness briefings to DOE officials, contractor officials and fund recipients; (5) enhancing existing relationships with other law enforcement agencies; and (6) expanding its fraud hotline capabilities.  Additionally, Mr. Friedman is among the nine IGs serving on the Recovery Accountability and Transparency Board (RATB), and, thus, DOE-OIG oversight efforts, like those of the other RATB-represented IGs, will be closely coordinated with it.

See testimony here.

In February 2009, the National Procurement Fraud Task Force (NPFTF) Grant Fraud Committee (GFC) published a white paper, “A Guide to Grant Oversight and Best Practices for Combating Grant Fraud” (”Guide”).  This Guide highlighted the work of the NPFTF and the GFC and described the steps the federal government has recently taken to combat grant fraud.  The NPFTF, which was created in 2006, created the GFC in the belief that the unique nature of grant fraud warranted task force committee focus.  The GFC pursues the NPFTF’s general objectives with respect to grant fraud and, more specifically, (1) examines ways to enhance information sharing related to grant fraud; (2) coordinates agency efforts to provide training to auditors, investigators, and prosecutors on grant fraud; and (3) conducts outreach to agency program managers and grantees to coordinate prevention, detection and investigation.  The GFC is chaired by Department of Justice (DOJ) Inspector General Glenn Fine.

The Guide provides recommendations for enhanced certifications, increased training, improved communications with grant recipients, increased information sharing concerning potential fraud and rigorous oversight of grant dollars.  Of particular note is the GFC’s discussion of training government agencies to spot grant fraud.  For example, according to the GFC, the Department of Transportation OIG regularly provides information to state transportation departments about types of grant fraud and also sponsors a biennial National Transportation Fraud Prevention Conference.  In another highlighted example, the GFC and the Training Committee of the NPFTF have developed a course at the Federal Law Enforcement Training Center (FLETC) that focuses specifically on grant fraud and its investigation.  FLETC also offered a special grant fraud course specifically for the Homeland Security OIG.

The GFC also highlights the extent to which grant oversight agencies’ OIGs, in particular, have improved information sharing among relevant agencies.  For example, the Department of Education OIG meets weekly with an intra-agency group, known as the “Risk Management Team,” that monitors potentially high-risk grantees for compliance.  Likewise, the DOJ OIG Audit and Investigations divisions have substantially increased coordination on DOJ grants by, among other things, developing a list of grant fraud indicators based on past cases.

See the Guide here.

The Recovery Act creates a new federal oversight board with broad subpoena powers, the Recovery Accountability and Transparency Board (”Recovery Board”), to coordinate and conduct oversight of covered funds to prevent waste, fraud and abuse. The Recovery Board is composed of nearly a dozen major federal agency inspectors general, and President Obama recently appointed Earl Devaney, the highly respected and seasoned former inspector general for the Department of the Interior, to chair the Recovery Board. Combined with legislation passed last fall to enhance the authority of Offices of Inspector General (OIGs), these provisions mean that companies receiving stimulus funds will be under more scrutiny by the federal government and especially OIGs.  

Gary Thompson and Sabrina Yohai, Akin Gump attorneys, recently published “Stimulus Bill And Strings: Massive Federal Spending Will Be Accompanied By Increased Inspectors General Oversight And Investigations,” addressing these issues, in the April 2009 issue of the Metropolitan Corporate Counsel.  

Click here to read the full article.