Legislative audit of Alaska’s $290 million small business coronavirus relief program found ‘high rate’ of grants paid to ineligible recipients, rate at which grants were awarded ‘was well below expectations” and there was “materially deficient” supervision. process once they have been distributed.
Several lawmakers expressed concern over the auditor’s findings and said it should be a “learning experience.” State program administrators argued they were working as quickly and efficiently as possible under the difficult circumstances of the pandemic. The Alaska Department of Commerce is investigating whether it can recover $1.2 million identified as mis-spent grants.
The small business aid came from a $1.25 billion federal coronavirus package earmarked for the state of Alaska in March 2020. It was originally planned to pay out grants between $5,000 and $100,000 to small business owners who had missed federal aid, but eligibility guidelines have changed several times. .
Anchorage Democratic Rep. Chris Tuck, then chairman of the Legislative Budget and Audit Committee, called for the audit in early 2021. He said last week that “the writing was on the wall” that the grant program had problems.
Legislative auditor Kris Curtis released her 184-page report last Tuesday. She found that $282 million of the $290 million was disbursed through 5,754 grants, or 97% of the total funds allocated to small businesses in Alaska.
The grant distribution rate has been slower than expected. Instead of disbursing $150 million per month, only $18 million had been disbursed by the end of the second month. In total, it took more than six months to issue the grants. The auditor also found that a high rate of ‘ineligible grants’ had been paid, meaning that the beneficiary was not considered eligible to receive the aid.
To administer the program, the state Department of Commerce worked with the Alaska Industrial Development and Export Authority, a state-owned investment company. Two independent contractors have been recruited to assist in the processing of grant applications.
Alan Weitzner, Executive Director of AIDEA, noted that the distribution rate improved significantly once he launched an online application portal. He said the “unprecedented” challenges of the COVID-19 pandemic were making it difficult to administer the grants.
“Overall, we believe grant applications were processed as quickly as possible given the impacts of the health emergency and the complexity of the program guidelines,” he wrote in response to the report. Curtis.
About $7 million of the $290 million went to administration costs. A final amount of $823,000 was not disbursed in the form of grants despite the fact that 699 applications were still pending. Instead, that remaining money was deposited into the state Unemployment Compensation Fund.
Curtis said Commerce Department management was unable to explain why, as key staff members had left.
A random sampling of 155 grants revealed that 39% had at least one error and 13% were considered “ineligible”. Some eligibility guidelines failed, others had out-of-state addresses, and one commercial fisherman was found to have received two grants.
In the report, Curtis wrote that it was a high rate of trouble and that the misappropriated funds she identified amounted to more than $1.2 million. She recommended that Trade Commissioner Julie Sande work to recover that money. In a letter sent in response in August, Sande wrote that the agency had sought advice from the Law Department on how to proceed.
“The department will follow all advice and suggestions provided by the Law Department on this matter,” Sande said.
Twenty-eight percent of subsidies went to commercial fishermen once they became eligible, followed by the food and travel industry at 12.3%. Six percent of the grants, worth $19 million, went to commercial fishers with out-of-state mailing or physical addresses, Curtis said.
In her survey, she found that 83 of the 155 recipients she sampled had also received federal aid. This was allowed after the eligibility criteria were expanded, but Tuck argued that those who missed federal aid should have been prioritized for state grants.
Once the grants were disbursed, the auditor found there was “no effective way” to ensure they were used for eligible expenditure, although AIDEA engaged an accounting firm to review 5% grants awarded.
Beneficiaries were asked to upload their information within a week to an online portal. Some would have felt it was too quick a turnaround. Others felt that this request could be a scam or that they did not understand why they were being asked to resubmit their data to the state. The company’s review was never completed.
Curtis found that as of March 2021, only one grant recipient had been investigated for potential fraud. She added that the “materially deficient” monitoring process meant that “there is a high risk that a significant number of unauthorized grant awards will go undetected.”
To get the money out quickly, two independent contractors were brought in to do the heavy lifting: Credit Union 1 and the Juneau Economic Development Board.
Weitzner said the public investment firm had “a distinct need” for additional staff in a difficult environment to help with the high number of applications it expected to receive. Despite a desire for speed, it took three and a half months for these two contractors to be hired and working.
Curtis found that this was in part because of frequent changes to the curriculum, including some from the legislature and others from changing guidelines from the state’s Department of Law. One changed from a loan program to a grant program, others changed eligibility guidelines and “evaluation criteria”. A legal action challenging these eligibility criteria has caused further delays.
The legislative auditor found many problems in the procurement process used by AIDEA for contractors. Compliance rules were not followed, several contract amendments were not properly published and other potential bidders were “discouraged” from applying through the process used.
Weitzner noted in his letter to Curtis that he was pleased the auditor found that AIDEA had “generally followed procurement regulations.” He acknowledged that there was room for improvement in the procurement process.
“We recognize and agree with the observations in the report that the procurement process was not optimal,” he said.
One change that has since been implemented is that AIDEA now has its own procurement team and will not share one with the Alaska Energy Authority. “Procedures have been established to maintain proper documentation of purchases,” Weitzner added.
Once the grant program was established, the auditor found inconsistencies in the way it was administered. She uncovered cases where small business owners received money they hadn’t requested, and others received conflicting information if they appealed a rejection letter.
Curtis also found that Credit Union 1 required hundreds of applicants to open accounts to receive their grants. This created a significant “bottleneck”, which required additional staff before this requirement was subsequently reversed.
“No More Shortcuts”
The Alaska legislature has been suspended during debates over how to disburse aid to small businesses. He used a new method to authorize the grant program through a legislative committee that didn’t require lawmakers to reconvene at the state Capitol during the pandemic.
A Juneau man sued, arguing it violated the state constitution’s appropriations process. The Legislative Assembly met briefly to ratify the automatic approval approach it had used. There is now a broad consensus in the State Capitol that a regular appropriation process, with multiple committee hearings and opportunities for public testimony, would have led to a better-designed grant program from the outset, requiring fewer changes.
Tuck said the first lesson for him was “no more shortcuts.” He said he had not asked that the audit go into “finger pointing” but that the issues identified could and should have been addressed, even with the many challenges of the pandemic.
“It wasn’t a comedy of errors,” Tuck added. “It was a tragedy of mistakes. We could have done a much better job for our businesses, local businesses here in the state of Alaska. And we failed on almost every front.
Republican Senator Natasha von Imhof, current chair of the Legislative Budget and Audit Committee, said the audit had identified “strengths and weaknesses” of the program and that it should be used as a “learning experiment”. ‘learning’ on how the state can best distribute funds in a short period of time, including implementing a standard process to ensure businesses are in good standing with state and federal governments to receive relief.
Jon Bittner, executive director of the Alaska Small Business Development Center, said. He understands the frustration of lawmakers and those who missed out on grants, but he echoed hopes that this audit will be viewed as a learning experience. His agency helped connect small businesses to federal relief during the pandemic, and he said aid programs at all levels of government were struggling to get help quickly and efficiently.
It’s hard to estimate how many small businesses in Alaska closed permanently during the pandemic, Bittner said, but in its early days it looked like many more businesses would go bankrupt.
“At the end of the day, I think the message is that they’ve taken a lot of money off the streets,” he said. “And it did a lot of good.”
Weitzner also looks at the positives. He was pleased to see that there were no conflict of interest issues identified by the auditor with the way grants were distributed, and that state agencies were able to respond to rapid changes, many of which were beyond his control.
“We are fortunate to be able to look back on the events of 2020 to see that the majority of small businesses in Alaska survived the unprecedented economic impact of the COVID-19 pandemic,” he said.
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