Liability Risk Management Under The American Recovery And Reinvestment Act Of 2009
The new Stimulus Bill, styled the American Recovery and Reinvestment Act of 2009 (ARRA), appropriates over $780 Billion to stimulate the economy through federal, state and private activity. It uses at least 10 federal agencies, all state and local governments willing to participate, and as many private businesses as qualify for the contracts, grants, loans and loan guarantees funded by the Act.
Four factors intensify the compliance risks and challenges that attend receipt of any ARRA funds:
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- The appropriated money will provide the greater stimulus the faster it gets out and into American commerce.
- Many of the programs receiving ARRA funding are not designed for the appropriated amount of those funds, or there are no programs for the funding purposes.
- As a consequence of factors 1 and 2, the standards, rules and requirements for many of the funding programs will be evolving as the funds are distributed and used.
- The Administration’s policy and the text of the statute impose an unprecedented level of accountability and transparency, not merely for detecting failures, but for “preventing” fraud, waste and abuse.
There are, however, actions ARRA recipients can take to manage this liability risk.
- Recognize the reality of the ARRA’s conflicting goals;
- Segregate all ARRA functions, funds and accounting;
- Create secure, supportive records;
- Assign, empower and equip a specific compliance officer;
- Maintain constant contact with the funding agency and Congress.
Sources of Liability Risk for ARRA Funding Recipients
The Accountability and Transparency provisions of the ARRA notably include:
The Recovery and Transparency (R.A.T.) Board, mandated as an Inspector General:
- To audit and review all ARRA funding activities;
- To use Agency IGs and the Board’s own investigations;
- To oversee the competence and training of Agency ARRA staff;
- To transmit flash, monthly, quarterly and annual reports to Congress;
- To recommend actions the funded Agencies must take in 30 days;
- To post audits, investigations and other information on Recovery.gov.
The Recovery Independent Advisory (R.I.A.) Board, as Vice President Biden’s disapprobation pulpit:
- To advise the R.A.T. Board;
- To hold hearings;
- To obtain results of IG investigations relating to ARRA funds;
- To publicize the Administration’s commitment to accountability, transparency and effectiveness of the Stimulus Bill.
Recovery.gov, with 15 features that include:
- A portal for public “feedback” about the use of ARRA funds – it’s already receiving 3,000 hits per second;
- Posting of audits, reports and announcements of all ARRA Agency IGs;
- Agencies’ funding plans and programs;
- Detailed data on all funded grants, contracts, loans and loan guarantees;
- Agencies’ reports on use and application of ARRA funding;
- Reports on the effectiveness of specific projects to create and retain jobs.
ARRA Whistleblower Provision:
- An ARRA whistleblower is anyone who discloses any critical information to any government or private person or entity that has any involvement in the ARRA program.
- Critical information is anything relating to gross mismanagement or waste, public health danger, abuse of authority, or violations of a funding instrument.
- The Agency IG investigates the disclosure.
- If the IG denies or fails to pursue the disclosure, the whistleblower can sue in federal court law or equity.
State Certifications:
- That the ARRA infrastructure investment funding has been given the “full review and vetting required by law;” and
- That the state or local officials accept responsibility that the investment is “an appropriate use of taxpayer dollars.”
“Covered Funds” include:
- ARRA funds received directly or indirectly.
Programmatic Uncertainty and Change:
- For programs in place, the initial rules will be set, but the volume of money and the need to distribute it immediately will strain, if not overwhelm, current staff.
- For funding without an existing program, ordinary timing for drafting, approving and establishing a program and program staff will not be available.
- Required generic guidance for considering, awarding and tracking ARRA funds will be issued by OMB, but only over time.
- Hence, program rules and requirements will evolve as and after the money is distributed.
Existing Federal Enforcement
- False Claims Act
- Established Agency IGs
- Department of Justice and U.S. Attorneys
- Criminal investigations and prosecutions
- Civil enforcement
- SEC
- Existing Whistleblower protections
State Inspector Generals
- ARRA expects at least one per state.
- States have incentives to assign a single I6 to ARRA projects.
- ARRA appropriates funds for the expense of state records and reporting.
- State I6s will coordinate with federal authorities.
Watchful Eyes
- Prospecting qui tam relators
- Other creative plaintiffs
- Investigative journalists and bloggers
- Competitors
How to Reduce the Risk from These Sources
Above all, stay informed and nimble in seeking,
receiving, managing and accounting for the ARRA funds.
Recognize the Reality of the ARRA’s Conflicting Goals
- Getting the money out;
- Creating program rules and requirements;
- Preventing fraud, waste and abuse;
- Under scrutiny for problems, the Agency will blame the fund recipient.
Segregate all ARRA Functions, Funds and Accounting
- The statute requires segregation of ARRA funds.
- Personnel responsible for ARRA funds and investment should have no other duties – and their employment expense should be included in authorized costs.
- Segregate ARRA accounting and conform it with the Agency or other specialized ARRA accounting.
Create Secure, Supportive Records
- When the audits and investigations occur, accurate and secure records that support the recipient’s organization, controls and activity will be the least risky method for avoiding unwarranted criticism.
Assign, Empower and Equip a Specific Compliance Officer
- Since all Agency scrutiny will start with your compliance system:
- Assign a competent, confident and funded ARRA compliance officer.
- The compliance officer should have no other duties – and his/her employment expense should be included as an authorized cost.
- Give the compliance officer direct reporting to the CEO/CFO and authority to communicate directly with the Agency ARRA staff.
Maintain Constant Contact with the Funding Agency and Congress
- Refer questions and concerns to:
- The contracting, grant or loan officer, and
- The overall head of the ARRA program.
- Check Recovery.gov and the funding Agency’s website daily.
- Attend all official conferences.
- Keep your congressional delegation informed about the ARRA project and the Agencies’ actions.