Get COVID-19 aid out now — worry about fraud later

In a rare and impressive show of bipartisan cooperation, Congress has repeatedly passed legislation to help the people and businesses devastated by the coronavirus pandemic. The latest bipartisan bill passed the House yesterday.

The responses of the executive branch, in contrast, have varied widely. Most parts of the executive clearly were unprepared for the pandemic and the economic consequences of the public health measures needed to fight it. With the notable exceptions of the National Institutes of Health and (in most respects) the Federal Reserve, all the agencies responded, however belatedly, by scrambling, stumbling and getting caught up in their own red tape.

In each case, the agencies faced a myriad of decisions about how much they should set aside business as usual to provide help quickly. Those decisions have consequences, both intended and unintended, and some will be mistakes. Here are a few: 

• In the Paycheck Protection (loan) Program (PPP), the Small Business Administration and Treasury wanted banks to act as a fast pipeline for money rather than traditional lenders, but they kept the requirement that banks follow “know your customer” procedures. The result was that banks, in trying to distribute PPP loans quickly, favored their existing customers; non-borrowing small businesses are sent to the back of the line. Treasury did, however, allow banks to accept an applicant’s own certification that they are eligible for the program; the result will be, in all likelihood, thousands of cases of fraud.
• The Department of Health & Human Services, in soliciting for N95 masks, initially followed its established procurement procedures instead of negotiating purchases directly under the Defense Production Act, delaying the process by months.
• HHS’s Center for Medicare & Medicaid Services decided, without soliciting public comment, to distribute $30 billion in COVID hospital aid based on last year’s Medicare billings rather than on COVID caseloads. As a result, New York and New Jersey, which have the largest number of COVID cases, got the smallest assistance per case.
• The Food & Drug Administration (FDA) in February declined to approve COVID diagnostic tests developed by the World Health Organization, Stanford University and others, preferring to wait for a test developed by the Centers for Disease Control and Prevention (CDC). After CDC’s tests failed, FDA belatedly approved others. Chastened by the experience, FDA has now given virtual blanket approval for tests for COVID antibodies. The result is that untested, potentially dangerous antibody tests are being widely marketed.

To do their jobs quickly, agencies can and should make exceptions to business as usual. But in doing so, they will make mistakes — and, we hope, correct them, too.

No one likes these mistakes. Congress, like everyone else outside the executive branch, feels like a fan watching their team when it’s behind: They want to call a different play, or replace the quarterback or the coach. But they can’t.

What Congress can do is enact more legislation, but should that legislation impose more rules or fewer ones?

The Paycheck Protection Program, to be sure, needs more money (probably more than the $660 billion already agreed on), but it also needs small businesses to have confidence that they’ll get that money — enough confidence that they keep employees on the payroll at a time when there are no customers. If Congress puts more restrictions on which businesses can get funds, or more requirements on banks to lend, the result will be less small business confidence that they will be supported, and even more layoffs. If by comparison Congress exempts banks from the “know your customer” requirement, loans will move more quickly, but also in more cases to some of the wrong people.

The challenge becomes even greater because of suspicions that politics, rather than need, are affecting the federal response. In addition to multiple partisan statements from the president, there have also been claims that federal stockpiles of medical supplies are disproportionately available to states with governors of the president’s party.

Nonetheless, given the magnitude of the devastation, with over a million businesses shuttered and tens of millions already laid off, getting aid out quickly and reliably seems the greater priority. Congress has already authorized additional funds. It also needs to provide confidence to small businesses that the funding won’t run out before they get to the front of the line. 

There will come a time, however, when the Monday morning quarterbacks take the field. By then, there will be thousands, perhaps millions, of mistakes, questionable judgments or outright frauds. What can Congress do now to minimize them and, to the extent possible, hold people to account?

Congress has already taken some important steps. A borrower from the PPP is legally liable for misrepresentation. (That said, the states with few COVID cases who are being sent billions by the Centers for Medicare & Medicaid Services are unlikely to give the money back.) 

The obvious protections are to have empowered and well-resourced inspectors general. In the CARES Act, Congress created a Special Inspector General for Pandemic Recovery (SIGPR), modeled on the special IG created to monitor the Troubled Asset Relief Program in 2009. It also created a committee of inspectors general from the various agencies, the Pandemic Response Accountability Committee (PRAC).

Sadly, the president undermined these efforts even before they began. Although inspectors general are not partisan and generally removed only for manifest incompetence, he removed the Defense Department’s acting IG, a well-respected veteran who had been chosen by his peers to head the PRAC. The president also nominated a member of his own White House staff to the newly-created SIGPR position. The nominee, former GSA IG Brian D. Miller, has more than sufficient formal qualifications, but coming to the position directly from the White House staff will put the new IG’s office under a cloud of suspicion. Furthermore, President Trump announced, contrary both to law and all historical practice, that the special IG could report to Congress only with the president’s prior approval. (Under the Inspector General Act, IG reports are sent to the agency head, who by law is required to send it to Congress within 30 days.) Hardly an encouraging start.

Congress does, however, have several possible responses. Congress could, as part of the next COVID legislation, legislate that inspectors general may be removed only for cause or after five years in office. This president would probably oppose this but would be unlikely to veto an essential COVID assistance bill that included it. And the new legislation should clarify that there is no presidential or agency head approval process before IG reports are submitted to Congress.

Another response would be to strengthen direct congressional oversight. Modeled on the congressional oversight panel for the Troubled Asset Relief Program in 2008, Congress created in the CARES Act a bipartisan Congressional Oversight Commission, with funding and authority to investigate the activities of the Treasury and the Federal Reserve. (The House has voted to create its own oversight committee, but that committee will be likely not be considered bipartisan.)

But in creating the commission, Congress itself made an oversight: The Commission has no authority to review any of the many other COVID pandemic activities outside of Treasury and the Federal Reserve. For example, it has no authority to see whether there is mismanagement or cronyism in the awarding by the Federal Emergency Management Agency or the Department of Health & Human Services of emergency contracts for masks, ventilators and other medical equipment. Neither does it currently have authority to review the $100 billion being given out by the Centers for Medicare and Medicaid Services. If Congress wants real accountability for all of the roughly $3 trillion it has authorized, as well as the hundreds of billions still to come, it needs to correct this oversight, too. 

Joshua Gotbaum, a guest scholar at the Brookings Institution, coordinated federal inspectors general as OMB controller during the 1990’s. He has worked in five administrations under presidents of both parties.