Auditor Finds Problems with Agency of Commerce’s Management of COVID Business Grants

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Posted on June 30, 2022 in News

We all remember March 2020. The threat COVID-19 posed to Vermont was grave, and the state was largely shut down for months to save lives.
 
Throughout the state many businesses were told they had to close, while others were asked to dramatically curtail their activities. With so much fear and uncertainty in the air, plus the real economic impacts, many business owners wondered whether their businesses would survive the pandemic.
 
Like many states, Vermont used a significant amount of federal money to help businesses weather the worst early months of the pandemic. One of the primary ways it did so was through the Economic Recovery Grant (ERG) program. In total, the Agency of Commerce and Community Development (ACCD) disbursed $117 million to 2,278 businesses through the ERG program.

This week my office released an audit of ACCD’s administration of the ERG program. The audit is not about whether Vermont was right to do so – that’s a decision made by the Legislature and the Governor. Instead, our audit was focused on determining whether ACCD awarded funds only to eligible businesses, awarded grant amounts that were appropriately sized and well-targeted, and took steps to protect Vermont taxpayers.

What did we find? The most troubling finding to me is a program design flaw that ACCD should have addressed, but did not, once alerted to it by the State’s COVID-19 Financial Office (CFO) in September 2020. The CFO, which was established to make sure federal COVID relief funds were being spent properly, required ACCD to ensure awards did not exceed businesses’ losses incurred due to COVID-19 business interruptions, because award amounts above a business’s revenue loss may have to be repaid by Vermont taxpayers. We reviewed detailed records for a sample of businesses and found that less than half demonstrated revenue losses that justified the award amount. More than a year after being informed of this flaw, ACCD has not provided any evidence that they have taken steps to address the issue.

Also, in order to evaluate whether ERG funds were targeted effectively, the audit compared the method ACCD developed to calculate a business’s “need” – using revenue loss – to an option that ACCD considered but rejected, based on changes in the businesses’ adjusted net operating income, which is a measure of profitability.
 
The audit found that ACCD’s use of revenue loss to assess financial harm was not cost-effective for most of the 57 businesses we reviewed and resulted in a total estimated need that was much higher than what we calculated using net operating income. Under ACCD’s method, the total estimated need for the 57 businesses was $130.3 million. Under the alternative method, it was only $14.7 million. That’s 90 percent less.
 
The audit also found that fully two-thirds of the businesses in our sample were more profitable in 2020 than in 2019 thanks in part to ERG grants. To the extent funds went to businesses that remained profitable or were able to reduce their exposure to COVID-related profitability losses, that money was not available to businesses at risk of failure.

My staff auditors have made a series of recommendations to protect taxpayers and improve program design in the future.

I’m disappointed that ACCD’s official response to the audit findings was limited to defending the establishment of the ERG grant, which was not in question, rather than remedying the awards to ineligible businesses, investigating award amounts in excess of what is allowed by federal law, and complying with the COVID-19 Financial Office’s directive to safeguard Vermont taxpayers.

Sincerely,

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© 2022 Doug Hoffer For Vermont State Auditor :
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