Director – Government and Public Sector Advisory
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Monitoring programs: A first defense against infrastructure grant fraud
Infrastructure programs are often large and complex, making them more susceptible to fraud. To lessen the risk of losing infrastructure grant funding from the American Rescue Plan Act (ARPA), Infrastructure Investment and Jobs Act (IIJA), or Inflation Reduction Act (IRA) to fraudsters, state agencies must bolster their existing internal controls with a tailored monitoring plan to help ensure that their programs operate in compliance with statutory provisions, the terms and conditions of the funding agreement, program requirements, and standards set by the funding agency.
Read on for an overview of top types of fraud to watch for, what key components to include in your agency’s monitoring program plan, and how an independent perspective might help.
Various types of fraud can occur in infrastructure programs. For example, one common type is bid-rigging, where contractors collude to fix prices and reduce competition. Another is false billing, where contractors overcharge for services or bill for work that was never done. And then there are kickbacks, where contractors bribe officials to secure contracts or gain favoritism.
Similarly, fraud can be committed by agency employees or vendors that administer infrastructure programs. Typical forms of internal fraud include conflicts of interest, where individuals with financial interests in the project hide their involvement, and mismanagement of funds, where program funds are misused or misallocated. These types of fraud can result in financial losses, delays in project completion, and the delivery of substandard infrastructure.
To mitigate fraud in your infrastructure programs, it is important that you develop a tailored compliance and monitoring plan. Doing so will help your agency identify projects with the highest risk and provide a mechanism to identify areas in need of correction or modification throughout the program lifecycle.
Your monitoring plan should include the following elements:
- A risk assessment to identify areas of potential fraud
- A set of policies and procedures to prevent and detect fraud and help ensure compliance with laws and regulations governing the project and the funds being used
- A system for monitoring compliance with these policies and procedures
- A process for investigating and addressing allegations of fraud
Implementing a compliance monitoring plan is crucial because it provides an additional layer of oversight beyond your agency’s existing internal controls. It will help ensure that internal controls are working as intended, and that program administrators are following established policies and procedures. By identifying areas of weakness and addressing them promptly, a compliance monitoring plan can help prevent potential fraud, waste, and abuse before they occur.
Due to the sheer scale of ARPA, IIJA, and IRA funding that your agency may be responsible for, you may need additional support to oversee and monitor your infrastructure program. Hiring an independent compliance monitor can significantly bolster your compliance monitoring plan. Independent monitors provide a fresh, unbiased perspective and expertise to identify potential weaknesses or areas of non-compliance that may have been overlooked.
They can also provide a level of accountability and transparency to the compliance process, which can help build trust with stakeholders and demonstrate the organization’s commitment to preventing fraud, waste, and abuse. Additionally, an independent compliance monitor can provide recommendations and guidance for improving the compliance program, helping to ensure that it remains up to date and effective in mitigating risks.
Recipients of ARPA, IIJA, and IRA funding are obligated to make sure that funding is expended on its intended purposes and that restrictions on the use of those funds are incorporated into the design and implementation of their programs.
Responsibility for operating your infrastructure program within these boundaries falls on your program administrators. A failure to safeguard your infrastructure funds in accordance with these responsibilities can result in the disallowance of funds, major project delays, or a project that never gets completed. Designing and implementing a carefully crafted compliance and monitoring plan during the execution of your program is a necessity.
Contact our team for more information or for assistance with your monitoring program.
Roman Castillo, Director, Government and Public Sector
512.499.1425
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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.