Alaska’s $290M COVID aid program for small businesses had slow action, ‘high rate’ problems, audit finds

A legislative audit of Alaska’s $290 million small business coronavirus assistance program found a “high” percentage of grants paid to ineligible recipients and a “higher than expected” percentage of grants issued. It was found that there was “substantially inadequate” oversight. I will process it once it is distributed.

Several legislators have expressed concern about the auditor’s findings, saying it should be a “learning experience.” State program managers claimed they worked as quickly and effectively as possible in the difficult circumstances of the pandemic. The Alaska Department of Commerce is investigating whether it can recover her $1.2 million, which has been identified as wasted grant money.

Small business relief came from a $1.25 billion federal coronavirus package allocated to Alaska in March 2020. Originally intended to pay small business owners who missed federal relief from her $5,000 to her $100,000 grant, the eligibility guidelines have changed repeatedly. .

Anchorage Democrat Rep. Chris Tuck, then chairman of the Legislative Budget and Audit Committee, called for an audit in early 2021. He said last week that “the writing was hanging on the wall” that there was a problem with the grant program.

Legislative auditor Chris Curtis released a 184-page report last Tuesday. She notes that her $282 million of the $290 million was paid through her 5,754 grants, or her 97% of total funding allocated to small businesses in Alaska. I found

The distribution rate of the grant was slower than expected. Instead of paying $150 million each month, he was only paid $18 million by the end of February. In total, it took him over six months to issue the grant. Auditors also found that “unauthorized subsidies” were being paid at a high rate. This meant that the recipient was not considered eligible for assistance.

To administer this program, the state’s Department of Commerce worked with the Alaska Industrial Development and Export Agency, a state-owned investment corporation. Two independent contractors were hired to assist in processing the grant.

AIDEA Executive Director Alan Weitzner says distribution rates have improved significantly since the launch of the online application portal. He said the “unprecedented” challenges of the COVID-19 pandemic have made the grant difficult to manage.

“Overall, we are confident that the grant application was processed as expeditiously as possible given the impact of the health emergency and the complexity of the program’s guidelines,” he said in response to Curtis’ report. wrote.

About $7 million of the $290 million was spent on administrative costs. Ultimately, he had $823,000 unpaid in grants, but 699 applications were still pending. Instead, the rest of the money was deposited in the state unemployment compensation fund.

Curtis said Commerce Department management could not explain why because key staff had retired.

“Not Allowed” grant

Of the 155 grants randomly sampled, 39% had at least one error and 13% were considered ‘disallowed’. Some violated eligibility guidelines, others had out-of-state addresses, and it turned out that he, one of the commercial fishermen, had received her two subsidies.

In the report, Curtis wrote that the incidence of the problem was high, with misused funds she identified totaling over $1.2 million. She recommended that Trade Commissioner Julie Sande work to get the money back. Sande wrote in her reply letter sent in August that she was asking the Ministry of Justice for its opinion on how the agency should proceed.

“The Legal Affairs Bureau will follow the advice and suggestions provided by the Legal Affairs Bureau on this matter,” Sande said.

28% of the subsidies were offered to commercial fishermen after qualification, followed by the food and travel industry at 12.3%. Curtis said 6% of his $19 million worth of grants went to commercial fishers with out-of-state mailing or physical addresses.

Her research found that 83 of the 155 grantees she sampled also received federal bailouts. After the eligibility guidelines were expanded, it was allowed, but Tuck argued that those who missed federal aid should have been prioritized for state grants.

After the grant was disbursed, the auditor found that the grant was used for eligible expenses even though AIDEA hired an accounting firm to review 5% of the grant. I discovered that there is no way.

The grantee was told to upload the information to the online portal within one week. Some said they felt the turnaround was too quick. Others felt the request might be fraudulent, or could not understand why the state was asked to submit the data again.

Curtis found that as of March 2021, only one grant recipient is under investigation for possible fraud. She added that a “substantially inadequate” surveillance process meant there was a “high risk of large amounts of unauthorized subsidies going undetected.”

Contradiction

Two independent contractors, Credit Union 1 and the Juneau Economic Development Council, joined the heavy lifting to recover the funds quickly.

Weitzner said the state-owned investment corporation “clearly” needs additional staff in a difficult environment to help with the expected large number of filings. Despite his desire for speed, it took him three and a half months to hire two contractors to do the work.

Curtis believes one reason for this is that the program changed frequently. This includes changes from Congress and changes resulting from changes in state Department of Justice guidelines. Some changed from loans to grant programs, others revised eligibility guidelines and “evaluation criteria.” Further delays were caused by lawsuits challenging these eligibility guidelines.

Legislative auditors found many problems with the procurement process used by AIDEA for its contractors. Compliance rules were not followed, several amendments to the contract were not properly published, and other potential bidders were “discouraged” from applying through the process used.

In a letter to Curtis, Weitzner said he was pleased that auditors had found that AIDEA “generally follows procurement rules.” He acknowledged that there was room for improvement in the contracting process.

“We recognize and agree with the report’s indication that the procurement process was suboptimal,” he said.

One of the changes that has since been implemented is for AIDEA to have its own procurement team and not share it with the Alaska Energy Agency. “Procedures are defined to maintain proper documentation of the procurement,” he added Weitzner.

Once the grant program was established, auditors found inconsistencies in how it was administered. She found instances in which small business owners received money they didn’t claim, and in which they received conflicting information when they challenged rejection letters.

Curtis also found that Credit Union 1 requires hundreds of applicants to open accounts to receive the grant. This created a significant “bottleneck” that required additional staffing before the requirement was later canceled.

“No shortcuts”

The Alaska Legislature adjourned amid debate over how to pay for small business relief. That way lawmakers didn’t have to reconvene in the state capitol during the pandemic.

The Juneau man filed a lawsuit, claiming he violated the state’s constitutional appropriation procedures. Congress was briefly reconvened to approve the rubber stamp approach it was using. The State Capitol now has a regular allocation process with multiple commission hearings and opportunities for public testimony, in that it leads to a better designed grants program from the start, requiring less change. Widely agreed.

Tuck said the first lesson for him was “stop taking shortcuts.” He didn’t ask the audit to “point the finger”, but said that even with the many challenges of the pandemic, the issues identified could and should have been resolved.

“This was not a comedy of mistakes,” added Tuck. “This was a tragedy of error.

The current chairman of the Legislative Budget and Audit Committee, Republican Senator Natasha von Imhoff, said the audit identified the program’s “strengths and weaknesses” and suggested that the state should “ensure better distribution.” It should be used as a ‘learning experience’. This includes implementing standard processes to ensure that companies are on good terms with state and federal governments and receive relief.

John Bittner, executive director of the Alaska Center for Small Business Development, said he understands the frustration of legislators and those who missed out on grants, but hopes the audit will be seen as a learning experience. His agency helped connect small businesses to federal relief during the pandemic, and aid programs at all levels of government struggled to get help quickly and effectively, he said. .

Bittner said it’s difficult to estimate how many small Alaskan businesses have closed during the pandemic, but in the early stages, many more appeared to go bankrupt.

“At the end of the day, I think the message is that they made a lot of money off the street,” he said. “And it did a lot of good.”

Weitzner also sees the positive side. He said the auditors did not identify any conflict of interest issues regarding how the grant was distributed, and that state agencies were able to respond to rapid changes, many of which were beyond their control. I was happy to confirm.

“Looking back at the events of 2020, we are fortunate to see that the majority of Alaskan small businesses survived the unprecedented economic impact of the COVID-19 pandemic,” he said.

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