The state agency responsible for leading the oversight of pandemic relief programs for small businesses failed to properly investigate recipients, according to an audit presented to state lawmakers last week.
The Governor’s Office of Economic Development (GOED) was tasked with overseeing awards for two pandemic relief programs to help small businesses with rent and operating costs. However, more than 10 percent of the program awardees had questionable eligibility due to outstanding debts and taxes, late tax returns or an inactive state business license.
Businesses with questionable eligibility received $10.7 million of coronavirus relief funds through these two programs, while other businesses were denied funding because of exhausted funds. Many other applications were not processed.
The State Treasurer’s Office helped oversee those programs, though state auditors deemed GOED as the agency with “primary responsibility.”
Additionally, auditors found that the state did not sufficiently monitor financial assistance programs for small businesses, including those whose scopes do not relate to the pandemic.
The findings provide additional scrutiny over the doling out of millions of dollars to small businesses, either related to the pandemic or not. The audit, which was conducted last year, included 14 recommendations for GOED to improve its accountability practices, all of which were approved.
At a hearing last week of the Legislative Commission’s Audit Subcommittee, GOED Executive Director Tom Burns said the agency has “made very significant changes in the past 90 days … as it relates to internal controls.” Burns was not leading GOED during the period included in the audit.
“I hope not to administer a pandemic program under my watch, but if we will, we’ll do a better job than last time,” Burns said. “It’s important that the people of the state of Nevada have confidence in how their tax dollars are administered on their behalf.”
State Sen. Skip Daly (D-Sparks) said the findings left him “dumbfounded.”
“All of these things were missed,” Daly said at last week’s hearing. “I understand the pandemic, we’re not trying to hurt people, but you have to follow the rules, and it seems like there’s a double standard.”
Pandemic programs
The two audited pandemic relief programs were the Commercial Rental Assistance Program (CRAG) — which gave up to $10,000 to businesses for rent expenses accrued during the pandemic shutdown — and the Pandemic Emergency Technical Support Program (PETS), which provided payments of $10,000 or $20,000 for operating expenses, protective equipment and new installations related to the pandemic.
More than 15 percent of awardees of the CRAG program had some type of error, mostly unpaid taxes or late tax returns, according to the audit. Together, 69 of the CRAG recipients owed about $669,000 as of March 2020, though most of these businesses owed less than $500.
The audit also found that more than 11 percent of PETS awardees had some type of issue, including unpaid taxes, late tax returns and inactive business licenses. Plus, as of March 2020, nearly 500 of the more than 9,000 PETS awardees together owed the state about $5.6 million.
PETS applications were supposed to be processed within 60 days, but the average application processing time was 144 days, with only 8 percent of applications being processed on time, the audit found. There were 626 PETS applications that went unprocessed.
Small business oversight
The audit also reviewed the State Small Business Credit Initiative (SSBCI), which launched in 2011 and has received millions of dollars in federal funding, with more than $100 million more expected in the coming years.
Auditors found that GOED did not adequately safeguard the program’s bank account, which included instances where an unauthorized employee signed a check and a program checkbook being mailed to an out-of-state employee who was ending their employment with the state.
GOED also did not sufficiently ensure that the program’s investment manager completed annual financial reports for four years. Auditors determined the agency also did not conduct reports as to whether the investment manager is furthering the public good, and that its performance was not regularly reported to the Legislature.
However, the audit concluded that none of these actions were indicative of fraud or abuse, but that they reinforced the need for better oversight and safeguarding of program funds.