Internal Control is Essential During Federal Emergency Responses

In the early COVID-19 pandemic response of the federal government, the Small Business Administration (SBA) was charged with distributing nearly a trillion dollars of emergency relief funds through the Payment Protection Plan (PPP) and Economic Injury Disaster Loans (EIDL) programs as quickly as possible. In doing so, they had to choose two of three options: speed, cost, and quality. Because speed was by far the highest priority, SBA loosened its standard internal controls to expedite the initial distribution of funds. The measured risk was mitigated by increasing oversight of the following program steps (i.e., quality), which minimized the chance of fraud and improper payments (i.e., cost). SBA was thereby able to accomplish their objectives with minimal exposure by:

  • Verifying Eligibility – Limiting fraudulent claims with upfront verification of loan application details minimizes exploitation of funds.
  • Increasing Oversight – Scrutinizing loan forgiveness requests and future loan considerations ensures program integrity.
  • Assessing Risk – Performing risk assessments, acting on mitigation strategies, and conducting ongoing monitoring helps minimize fraud.
  • Documenting Details – Ensuring that every transaction detail is recorded streamlines audits and potentially exposes fraud and other financial crimes.
  • Controlling Quality – Performing quality control checks protects process consistency and program integrity.
  • Acting on Tips – Investigating financial institution reports of suspected financial crimes exposes fraudulent claims and improper payments.

Many other agencies share the challenge faced by SBA’s work under the CARES Act. In fact, the Pandemic Response Accountability Committee published Top Challenges Facing Federal Agencies Related to COVID-19 Emergency Relief and Response Efforts which includes details of pandemic-related challenges faced by 37 Inspectors General in their agencies which has issued currently over 275 oversight reports of $5 trillion worth in relief funds provided by Congress in the CARES Act and the American Rescue Plan.

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