The federal government is taking various steps to provide much needed assistance to individuals, businesses, and state and local governments in response to the distress caused by COVID-19. These steps include the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the activation of Federal Emergency Management Authority (FEMA) disaster relief programs, and similar programs overseen by the Department of Housing and Urban Development (HUD). In addition, the CARES Act establishes three oversight bodies to monitor the use of and investigate potential misuses of federal coronavirus relief funds – the Special Inspector General for Pandemic Recovery, the Pandemic Response Accountability Committee and a Congressional Oversight Commission.

History has shown that the immediate and direct access to massive amounts of federal funds and aid brings with it the potential risk of fraud, waste, abuse, mismanagement, and inaccurate tracking and reporting of these funds, thus eroding the purpose of federal funding relief and hampering reimbursements. Officials have already referenced concerns about these risks, estimating that at least 10% of the total aid could be lost to fraud, which could be tens of millions of precious dollars. News reports have highlighted schemes, including price gouging and the passing off for sale of substandard equipment, which is not only fraud but also a safety issue.

To combat these risks and prepare for the federal oversight mechanisms associated with these programs, it is vitally important that relief fund recipients enable a robust system of controls regarding application for, receipt, disbursement, monitoring, and reporting of funds received as part of the federal relief packages.  

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These controls are built on a framework of prevention — the first line of defense to protecting your organization; detection — assessing whether your preventive controls are effective; and remediation — addressing weaknesses identified during the detection phase or otherwise. Organizations in both the public and private sector should ensure that these controls include:

A. Management of Internal Risk

Conducting an assessment and, where necessary, enhancing the controls an organization has in place to manage relief funds is an important first step to effective relief funds management. 

B. Procurement Controls

A well-designed and effectively operating control environment relating to procurement of goods and services is the first line of defense against fraud, waste, and abuse.

Effective procurement controls should include a due diligence process for suppliers, vendors, and contractors; processes to protect the integrity of the supply chain from bribery, corruption, conflicts of interest, and the theft of supplies and resources.

C. Financial Controls

Well-designed and executed financial controls guard against fraud, waste, and abuse. They protect the integrity of the accounting and reporting of relief funds and promote management accountability of how the funds are spent. 

An effective financial controls environment should include appropriate segregation of duties in regard to procurement, payment processing, recordkeeping, and reporting; inventory, costs, and pricing controls should also be in place to protect against price gouging.

D. Forensic Review

Companies should incorporate regular testing, comprehensive reviews, and employ risk-based analytics to detect, identify, and protect against the mismanagement of relief funds and intentional efforts to circumvent established controls, which can lead to improper and fraudulent payments. These reviews should focus on vendors, suppliers, and contractors, beneficiaries of funds, and employees, as applicable.

E. Internal Audit and Investigations

A robust internal audit process will help identify and remediate any potential anomalies or control weaknesses. In addition, a robust investigation process can help organizations effectively address indicators or allegations of illegal or unethical conduct. 

F. Training

It is vitally important that all relevant personnel (vendors, suppliers, contractors, and employees, as applicable) receive training about conduct and expectations relating to these funds.

G. Public Accountability and Transparency

The public has an expectation to remain informed and that organizations that receive funds operate with transparency in how they use and manage the funds.