Delmar, Testimony of Richard K. Delmar, Acting Inspector General, Department of the Treasury (House Oversight, Feb/Mar 2023) (House Oversight hearing testimony, 2023-03-09)

Summary

Written testimony of Richard K. Delmar, Acting Inspector General of the U.S. Department of the Treasury, dated March 9, 2023, before the House Oversight and Accountability Committee Subcommittee on Government Operations and the Federal Workforce. It concerns fraud and improper payments in COVID relief programs and focuses on four programs: the Air Carrier Payroll Support Program, the Coronavirus Relief Fund, the Emergency Rental Assistance Program, and the State and Local Fiscal Recovery Fund. He states that his office has identified questioned costs of $2.6 billion for the Coronavirus Relief Fund and estimates that improper overpayments for the Air Carrier Payroll Support Program could approach $100 million. He also states that his office oversees 12 pandemic recovery funding programs.

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            Testimony of
         Richard K. Delmar
      Acting Inspector General
  U.S. Department of the Treasury


             Before the
 House Oversight and Accountability
            Committee
   Subcommittee on Government
Operations and the Federal Workforce
    U.S. House of Representatives


  Concerning Fraud and Improper
Payments in COVID Relief Programs




           March 9, 2023
                                                               Treasury Office of Inspector General   1




Chairman Sessions, Ranking Member Mfume, and members of the subcommittee,
thank you for the opportunity, along with Larry Turner, the Inspector General for the
Department of Labor, and, Sheldon Shoemaker, the Deputy Inspector General for the
Small Business Administration, to discuss our oversight work to address fraud and
improper payments in pandemic programs.

The Department of the Treasury (Treasury or the Department) has been instrumental to
the implementation of economic relief provisions of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), the Consolidated Appropriations Act of 2021
(CAA, 2021), and the American Rescue Plan Act (ARPA). As a result, Treasury’s
responsibilities and workloads have expanded enormously since 2020. Treasury is
tasked with disbursing over $655 billion 1 in aid to more than 35,000 recipients, including
state, local, territorial, and tribal government entities in a relatively short period of time.

My office is responsible for oversight of 12 pandemic recovery funding programs,
created by the pandemic legislation. My testimony today will focus on four programs
where our oversight has found improper payments, fraud, questioned costs, and internal
control concerns. These programs include the Air Carrier Payroll Support Program, the
Coronavirus Relief Fund, the Emergency Rental Assistance Program, and the State and
Local Fiscal Recovery Fund. Through my office’s work we have identified questioned
costs of $2.6 billion thus far for unsupported and unallowable charges to the
Coronavirus Relief Fund, and based on data available at this time, we estimate that
improper overpayments for the Air Carrier Payroll Support Program could approach
$100 million.

Treasury Office of Inspector General Overview

My office provides independent audit and investigative oversight of Treasury’s programs
and operations and that of its bureaus, excluding the Internal Revenue Service (IRS),
the Troubled Asset Relief Program, and certain pandemic programs under the
jurisdiction of the Special Inspector General for Pandemic Recovery. Our current on-
board staffing level is 242 including 180 personnel in the Office of Audit and 43
personnel in the Office of Investigations. As a result of the pandemic, my office has
hired staff and re-oriented our work plans to meet these expanded responsibilities. In
addition to traditional oversight, my office was given non-traditional statutory
responsibilities for the Coronavirus Relief Fund and the Emergency Rental Assistance
Program including programmatic monitoring and recoupment authorities.
In July 2021 we established a data analytics capacity within our Office of Audit which
enables us to better manage the enormous quantities of pandemic information we
collect, and to use the data to better understand how the programs are operating, and
identify problem areas in the programs. Our annual budget for fiscal year 2023 is $48.8

1
  Amount excludes Economic Impact Payments distributed by the Internal Revenue Service and support
to small businesses under the Paycheck Protection Program administered by the Small Business
Administration.
                                                            Treasury Office of Inspector General   2


million, and during 2020 and 2021, my office received $47.1 million in dedicated no-year
and multi-year funding for oversight of 4 of the 12 pandemic programs. Notably, we did not
receive any dedicated funding for oversight of the $350 billion State and Local Fiscal Recovery
Fund.


Improper Payments and Fraud

Improper payments are any payments that should not have been made or were made in
an incorrect amount, such as overpayments and underpayments. All fraud is an
improper payment (since it should not have been paid out), but not all improper
payments are fraud - it may be a mistake by an agency or a result of confusion about
payment guidance. In pandemic programs, every dollar reaching an ineligible recipient
or disbursed contrary to the program’s purpose lessens the effectiveness of the
program and reduces its success. Reducing improper payments across government
programs ensures taxpayer dollars are used more effectively and efficiently. Programs
must have proper controls in place to reduce improper payments, and detect and
prevent fraud. Each year my office audits Treasury’s improper payment program. With
the exception of the IRS, Treasury has complied with improper payment statutes.

The Department has long held that the four refundable tax credits (RTCs)—the Earned
Income Tax Credit, American Opportunity Tax Credit, Additional Child Tax Credit, and
net Premium Tax Credit —which have error rates similar in concept to “significant
improper payments,” are not “payments” as intended under the improper payments
legislation but are more appropriately addressed in the tax gap estimate. Treasury
officials assert that erroneous claims for RTCs are more appropriately referred to as
“overclaims.” Treasury officials believe that legislative change is needed related to these
issues.

In addition, the Government Accountability Office (GAO) recommended that for new
programs, certain changes should be made in improper payment reporting. Specifically,
GAO recommended that all new Federal programs distributing more than $100 million in
any one fiscal year be designated as “susceptible to improper payments,” and, thus,
subject to more timely improper payment reporting requirements; and agencies should
be required to report improper payment information in their annual financial reports. We
agree with these recommendations. Treasury received approval from the Office of
Management and Budget (OMB) in April 2022 waiving compliance with certain improper
payment requirements for pandemic programs. We have found significant improper
payments in the Air Carrier Payroll Support Program and do not agree that the
requirements should have been waived.

Treasury’s Do Not Pay Program

In April 2011, Treasury’s Bureau of the Fiscal Service (Fiscal Service) established the
Do Not Pay Business Center to support Federal agencies in their efforts to reduce the
number of improper payments made through programs funded by the Federal
Government. The Do Not Pay Business Center includes the Do Not Pay portal and Data
                                                               Treasury Office of Inspector General   3


Analytics Services to help agencies identify ineligible recipients and prevent fraud or
errors before making payments or awards.

Since 2014, my office has conducted three audits 2 related to the Do Not Pay Program
and currently has a corrective action verification underway. In our past work, we noted
that Fiscal Service was facing challenges in obtaining better death information,
specifically full access to the Social Security Administration's Death Master File, for the
Do Not Pay Business Center. Additionally, Fiscal Service has not obtained complete
access to the Department of Housing and Urban Development (HUD) database, Credit
Alert Interactive Voice Response System (CAIVRS); specifically, the information
reported by the Department of Education. HUD’s CAIVRS is a shared database
comprised of information reported from six Federal agencies and it is required by the
Improper Payments Elimination and Recovery Improvement Act of 2012 to be reviewed
by the program prior to the release of any Federal funds to eligible recipients. We
encouraged Fiscal Service to continue working with the Department of Education to
obtain full access to the required CAIVRS dataset.

To overcome the challenges of obtaining better death data, Fiscal Service submitted
legislative proposals to Congress seeking access to the full Death Master File. On
December 27, 2020, Congress enacted the CAA, 2021, which amended the Social
Security Act to allow the Social Security Administration to share its full death data with
the Do Not Pay program for a 3-year period starting no later than December 27, 2023.
As this access is only temporary, Fiscal Service plans to seek a permanent legislative
change for access to the full death data. We concur with the Department’s decision to
pursue a permanent legislative change for this necessary information to prevent
improper payments.

Questioned Costs

In addition to my office’s work related to Treasury’s management of improper payments
and the Do Not Pay program, we also review the pandemic programs for questioned
costs. According to the Code of Federal Regulations, 3 a questioned cost is a cost that is
questioned by the auditor because of an audit finding:

      (a) which resulted from a violation or possible violation of a statute, regulation, or the
          terms and conditions of a Federal award, including for funds used to match
          Federal funds;

      (b) where the costs, at the time of the audit, are not supported by adequate
          documentation; or

      (c) where the costs incurred appear unreasonable and do not reflect the actions a
          prudent person would take in the circumstances.


2 OIG-15-006, (November 6, 2014), OIG-16-042, (May 18, 2016), and OIG-20-025, (January 28, 2020)
3
    2 CFR § 200.84 – Questioned Cost
                                                         Treasury Office of Inspector General   4


In our work on pandemic programs, the questioned costs primarily relate to the
grantees’ use of Federal funds. As mentioned previously, the majority of grantees for
Treasury pandemic programs are state, local, tribal, and territorial governments.

Overview of Specific Programs

My office has been engaged in pandemic oversight since the passage of the CARES
Act in March 2020. Significant statutorily mandated work has been performed on the Air
Carrier Payroll Support Program, the Coronavirus Relief Fund, and the Emergency
Rental Assistance Program. Although my office does not have specific statutory
mandates related to the State and Local Fiscal Recovery Program, we are performing
self-directed work on this $350 billion pandemic program. My office’s work has found
improper payments including fraud, questioned costs, and root causes of these issues.
In coordination with the Department, we will aggressively seek recoupment from the
appropriate parties for monetary improper payments and grantee costs that we question
and that are ultimately disallowed.

Air Carrier Payroll Support Programs

The CARES Act Air Carrier Payroll Support Program (PSP) required Treasury to
provide financial assistance to passenger and cargo air carriers and respective
contractors for the continuation of payments of employees’ wages, salaries, and
benefits. CAA, 2021 and ARPA provided additional funding for PSP for a total of $63
billion under all three acts. The legislation required Treasury to provide financial
assistance to passenger air carriers that report salaries and benefits to the Department
of Transportation (DOT) (referred to as 241 carriers). For air carriers that do not report
such data to DOT (referred to as non-241 carriers) and contractors, financial assistance
is provided based on information provided by the air carrier or contractor using sworn
financial statements or other appropriate data as to the amount of wages, salaries,
benefits, and other compensation paid to employees.

My office is statutorily mandated to conduct certification audits of non-241 carriers and
contractors to assess the accuracy, completeness, and sufficiency of sworn financial
statements or other data used to certify the wages, salaries, benefits, and other
compensation amounts submitted to and approved by Treasury. In our oversight of the
first air carrier payroll support program under the CARES Act, we identified a systemic
problem in how the non-241 air carriers and contractors were reporting their eligible
expenses for executive compensation and employer side payroll taxes, which would
serve as the basis for their receipt of funds. Treasury relied upon awardee self-
certification of these amounts.

We noted that pervasive improper payments were being made as a result of unclear
guidance on the definition of executive compensation and the treatment of employer
side payroll taxes in the application for funds. In addition, the use of self-certified
financial data related to executive compensation and other costs contributed to the
improper payments. We brought this to the attention of the program’s administrators at
                                                             Treasury Office of Inspector General   5


Treasury in December 2020, which led to attempts to clarify guidance and have non-
241 recipients and contractors re-certify their information. Again, this certification was a
self-certification with no independent Treasury review of the financial information.

As our work has continued, we have determined that the corrective action employed by
Treasury was only partially effective and we are currently working with the Department
to get a statistically reliable estimate of improper payments. Amounts awarded for non-
241 carriers and contractors approximates $9.6 billion. Based on data available at this
time, we estimate that improper overpayments could approach $100 million. We have
and will continue to recommend that Department officials seek recoupment from the
appropriate parties for these improper payments.

Coronavirus Relief Fund

The CARES Act established the Coronavirus Relief Fund (CRF) and appropriated
$150 billion for making payments to states, territories, tribal governments, and qualifying
units of local government. CRF awardees were to use funds provided to cover only
those costs that (1) are necessary expenditures incurred due to the public health
emergency with respect to Coronavirus Disease 2019 (COVID-19); (2) were not
accounted for in the budget most recently approved as of March 27, 2020; and (3) were
incurred between March 1, 2020 and December 31, 2021, or December 31, 2022 for
tribal entities. All non-tribal awardees are in the closeout phase and tribal governments
are expected to closeout awards by July 10, 2023.

In addition to traditional audit and investigative oversight, the legislation gave my office
expanded statutory responsibilities for CRF, including programmatic monitoring and
recoupment authorities when we have determined that funds have not been used in
accordance with program requirements. Carrying out this expanded responsibility, my
office stood up the online portal for quarterly reporting from the states, territories, tribes,
and local governments. The CARES Act was enacted on March 27, 2020, and we had
the reporting portal available for over 800 awardees by September 1, 2020.

Through our reviews of quarterly awardee reporting, audits, and desk reviews, we have
identified questioned costs of $2.6 billion thus far for unsupported and unallowable
charges to CRF. We expect additional questioned costs as we complete our work over
the next two years. We have over 40 desk reviews and audits of CRF awardees
underway. Desk reviews are a part of our monitoring authority over the CRF program.
We select a sample of CRF transactions and review the recipients’ documentation to
sufficiently support the use of funds. This sampling of a recipient’s uses of CRF funds
enables us to determine the level of risk of unauthorized or improper use, so as to focus
our full-scope audit resources most efficiently.

Our CRF work thus far has identified internal control deficiencies or other
noncompliance matters, including:
                                                          Treasury Office of Inspector General   6



   •   Expenditures outside the period of performance (services or purchases
       before/after the allowable periods to obligate funds)
   •   Lack of supporting documentation
   •   Non-compliance with procurement policies and procedures to include verifying
       vendor suspension and debarment status
   •   Inadequate sub-recipient monitoring
   •   Unallowable costs charged
   •   Payroll expenses not supported – documentation that expenses are substantially
       dedicated to COVID-19 response

While these findings relate to the CRF program, due to the similarities in the grantee
population, we believe that these types of findings will likely occur in other Treasury
programs if not corrected by grantees.

During the closeout of this program my office is working the remaining 115 of over 425
hotline complaints received, completing audits and desk reviews, focusing on Single
Audit Act findings resolution, and ensuring that all questioned costs are identified.
Please note that for questioned costs, during closeout we will allow the grantee to
correct any documentation deficiencies and replace unallowable costs with other
allowable costs that have not been charged to other Federal programs. Once a cost is
questioned, we will work with the Department on a determination of disallowance after
receiving any additional information from the grantee. Once a cost is disallowed my
office will seek recoupment on behalf of the Federal Government. Due to our process to
work with grantees on questioned costs for support or other allowable charges, we do
not anticipate that the full $2.6 billion of questioned costs will be recouped.

Emergency Rental Assistance Programs

Treasury established the Emergency Rental Assistance Program (ERA) authorized
under CAA, 2021 and ARPA. Total appropriations of $47 billion were approved for
grants to states, territories, tribal governments, and units of local government with
populations of 200,000 or greater to pay for rent, utilities, and other housing-related
expenses and arrears for eligible households. My office is conducting an audit of
Treasury’s implementation of the program where we have noted concerns with an
overall delayed stand-up of the grantee reporting portal and Treasury’s compliance
monitoring functions, thus impeding monitoring and audit activities.

The ERA program has generated a large amount of media coverage and critical
comment, in addition to the receipt by our Office of Investigations hotline of
approximately 2,000 complaints alleging ineligible recipients, improper uses of funds, or
problems with program administration. We have developed a cross-functional review
team, consisting of auditors, investigators, and legal personnel, to review, process, and
resolve these complaints. Complaints are recommended for an audit, investigation, or
referral to the grantee, Treasury program office, or local law enforcement.
                                                         Treasury Office of Inspector General   7


This cross-functional review team was fully staffed as of February 2023. To date, of the
over 2000 complaints received, 514 are in process, and over 300 have been reviewed
by staff and are ready for management to recommend final disposition. The cross-
functional review team receives approximately 100-150 ERA complaints per month. We
expect that our work in this area over the next year will uncover fraud and questioned
costs.

The ERA legislation gives my office recoupment authority for the first ERA program
authorized under CAA, 2021. The later extension authorized under ARPA leaves
recoupment in the discretion of the Department. While we hope that my office and the
Department will be in agreement on a recoupment rule, this potential dichotomy does
exist. My office will aggressively seek recoupment from the appropriate parties in
accordance with our authority under CAA, 2021. In addition, we encourage state, local,
territorial, and tribal authorities to pursue available prosecution and civil remedies to
protect their equities in these funding programs, as the Federal Government cannot and
should not substitute for state law enforcement resources.

State and Local Fiscal Recovery Program

ARPA authorized $350 billion for payments to states, territories, tribes, and local
governments to support the COVID-19 public health response and support economic
recovery including assistance to households, small businesses and nonprofits, aid to
impacted industries, and premium pay to eligible workers. Recipients must obligate all
funds by December 31, 2024 and expend funds by December 31, 2026.

In May 2021 my office advised the Department of how lessons learned in its
administration of the CRF could improve the stand-up and administration of the State
and Local Fiscal Recovery Fund (SLFRF) program. We noted the value and necessity
of clear and timely guidance to recipients on proper uses and compliance with reporting
requirements; the value of formal agreements with terms and conditions in order to
mandate conditions for receipt of funds; the need to balance transparency and recipient
burden in reporting; and the need for outreach by program administrators and
establishment of performance metrics for the program.

My office is currently conducting an audit of Treasury’s implementation of the SLFRF
program where we have noted concerns with an overall delayed stand-up of Treasury’s
portal for grantee reporting and Treasury’s compliance monitoring functions, thus
impeding monitoring and audit activities.

Conclusion

Emergencies such as COVID-19 heighten oversight challenges as agencies work to
stand-up programs and distribute large-scale funding quickly. My office has identified
lessons learned that are consistent with findings made by GAO and the Council of the
Inspectors General on Integrity and Efficiency’s (CIGIE) Pandemic Response
Accountability Committee (PRAC). Specifically, we found:
                                                          Treasury Office of Inspector General   8




   •   Agencies should not solely rely on self-certification by entities without other
       validation controls
   •   Relief guidance needs to be accurate and issued quickly
   •   Failure by agencies and grantees to implement or effectively modify critical
       internal controls created risks for pandemic programs
   •   Failure to stand up timely reporting capabilities created program monitoring
       challenges and increased program risk
   •   Watchdogs need timely access to data to find fraud
   •   Program integrity is enhanced by the availability of civil remedies, including the
       Program Fraud Civil Remedies Act (PFCRA) and suspension and debarment; as
       well as a commitment to civil and criminal enforcement by the Department of
       Justice and by state, territorial, local, and tribal authorities.

Our pandemic oversight, monitoring, and recoupment work will continue for several
more years. Thus far, we have found PSP improper overpayments that could approach
$100 million and estimated questioned costs for the CRF program of $2.6 billion. In
addition, we are at the early stages of working over 2000 complaints on the ERA
program and await reliable data for both the ERA and SLFRF programs to enable our
oversight activities. As mentioned, my office has noted concerns with an overall delayed
stand-up of Treasury’s portal for grantee reporting and Treasury’s compliance
monitoring functions for the ERA and SLFRF programs, thus impeding monitoring and
audit activities. The use of data analytics and risk modeling is critical in efficiently and
effectively conducting oversight activities. With the proper resources, my office looks
forward to continued efforts to ensure the essential pandemic funding is used properly
and reaches the intended recipients.

Thank you for the opportunity to present our oversight program. I’m ready to address
your questions about our work.


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