REPORT HIGHLIGHTS PROGRAM AUDIT OF THE BUSINESS INTERRUPTION GRANT PROGRAM PROGRAM AUDIT Release Date: May 24, 2023 State of Illinois, Office of the Auditor General FRANK J. MAUTINO, AUDITOR GENERAL To obtain a copy of the Report contact: Office of the Auditor General, Iles Park Plaza, 740 E. Ash Street, Springfield, IL 62703 (217) 782-6046 or TTY (888) 261-2887 This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov REPORT HIGHLIGHTS Background: Legislative Audit Commission Resolution 159, adopted September 1, 2021, directed the Auditor General to conduct a performance audit of the Business Interruption Grant (BIG) program. The BIG program was developed to provide $585 million in economic relief for small businesses hit hardest by COVID-19. The Department of Commerce and Economic Opportunity (DCEO) had responsibility for the development and implementation of the BIG program. DCEO entered into agreements with the Departments of Human Services (DHS) and Agriculture (DOA) to assist with other components of BIG. Key Findings: • DCEO could not provide documentation to show how or why it selected organizations to administer Round 1 of the BIG program. One of the grant administrators, as well as a DCEO official, appears to have not complied with conflict of interest policies at DCEO. The BIG grant administrators were to distribute $580 million in funds. An additional $5 million was to be administered by DOA. • DCEO initiated the small business component of the BIG program without having emergency administrative rules in place for the administration of the program. Rules had not been implemented before the completion of Round 1 of the small business component of BIG. Additionally, even after the lack of timeliness for Round 1, DCEO was unable to amend the rules for Round 2 of the small business component of BIG timely. DCEO filed amended rules 12 days after the Round 2 application process had started, a process that utilized a preference for certain types of businesses to receive preferential treatment in the selection process. • DCEO allowed, without verification, BIG small business grant applicants to self-certify that they complied with all laws as well as reporting other pandemic funding. We found that not all applicants’ certifications were accurate. Nonetheless, DCEO and its grant administrators awarded funding to these applicants. • The BIG program was designated by the General Assembly to provide assistance for businesses that had losses due to COVID-19. DCEO utilized an eligibility category for the small business component of BIG that was not specified in the Public Act passed by the General Assembly. DCEO paid over $11 million to 630 applicants that applied under this eligibility designation. • DCEO awarded small business applicants in Round 1 of the BIG program funding when the businesses were not eligible based on information submitted in the application. Our analysis found 196 ineligible applicants received $3.42 million. Additionally, the application system developed by a DCEO grant administrator that was supposed to not allow ineligible applicants to submit finalized applications failed to work as advertised. • DCEO oversight of the award selection process for the small business component of BIG was insufficient. Our testing of the selection process found significant deficiencies in both rounds. – In Round 1, we were only able to concur with 8 percent of the BIG awards from our sample. We determined that 16 percent of the BIG awards, totaling $430,000, in our sample were ineligible for reasons such as revenues outside the criteria or restaurants providing outdoor dining. We also questioned 76 percent of the BIG awards, totaling $1,980,000, in our sample due to lack of required documentation being submitted by the applicant. – In Round 2, we were only able to concur with 41 percent of the BIG awards from our sample. We determined that 29 percent of the BIG awards in our sample had one or more questioned elements. Additionally, we determined that 30 percent of the awards made by DCEO in our Round 2 sampling were ineligible. Finally, questionable expenses from our selection-testing sample totaled $1,335,708 – 28 percent of all funds awarded from the Round 2 sample. • DCEO utilized an award determination process which failed to follow the directive of State statute relative to funding for COVID-19 losses. By rounding loss amounts up to the next $5,000, DCEO reduced the funding levels while some applicants went without funding. In our selection testing work, we found 47 percent of the awards overpaid the documented losses by a total of $171,000. Our sample of 150 award winner cases was just over 2 percent of the total awards in Round 2 of the small business component of BIG. • DCEO and its grant administrators for the small business component of BIG awarded funding in excess of program policy. Eleven business owners received funding for businesses in excess of the three for which each owner was eligible. Total overpayment of funds totaled $220,000. DCEO is responsible for overseeing grant programs, including ones in which program administrators are utilized. • DCEO failed to execute grant agreements with grant administrators for the small business component of the BIG program prior to the grant administrators working on the BIG program. Further, DCEO required funding applicants to submit multiple pieces of confidential information to these grant administrators that were operating without an executed grant with the State of Illinois. Finally, DCEO was unaware of the actual individuals that would view this confidential information, even though some of these individuals were temporary staff hired by the grant administrators. • DCEO failed to maintain notifications to applicants of the BIG program. Additionally, DCEO paid an outside vendor for a mass mailing system that did not maintain a retrieval function instead of utilizing a State system at the Department of Innovation and Technology, which could have been less costly and had the ability to retrieve the notifications. • DCEO failed to monitor that the payment of small business component funding was provided within program guidelines. During our testing we found that in 49 percent (67 of 136) of the cases, the grant administrator failed to provide funding within 14 days of DCEO approval. • DCEO had monitoring weaknesses relative to the uses of funding provided as part of the small business component of the BIG program. DCEO failed to conduct routine monitoring of the funds provided under BIG and at times did not have documentation to conduct monitoring. The lack of documentation made it impossible for DCEO to know if the same claimed losses were utilized by an applicant to obtain funding under different programs. • DCEO and its grant administrators failed to follow BIG program requirements relative to deducting previous awards from future BIG funding for the small business component of the program. This inaction resulted in the overpayment of $4.29 million in BIG funds. • DCEO failed to monitor all terms of the grant agreements with grant administrators. The lack of monitoring resulted in one grant administrator not providing tax information on $4.4 million in BIG funds to 305 sub-recipients. • DCEO did not claw back funds for noncompliance. DCEO became aware of instances of violations but did not initially have a system in place to manage businesses found to be in violation of law, regulations, and executive orders. DCEO relied on the attestations of the recipient that they would comply or were already complying with the mitigation efforts. • Testing for the child care component and the livestock management component did not find any significant or pervasive issues. We concurred with all of the grant awards and grant denials in our sample. Key Recommendations: The audit report contains 15 recommendations directed to DCEO: • DCEO should develop and maintain documentation on why and how it has selected grant administrators when DCEO delegates the responsibility for that administration to outside parties. • DCEO should develop administrative rules for new grant programs prior to the initiation of the program. • When DCEO allows grant applicants to self-certify information on the grant application, DCEO should develop controls to check those certifications for accuracy. • DCEO should design grant application selection criteria that are aligned with directives in State statute. • DCEO should make sure that eligibility criteria are followed when conducting a grant program and not allow ineligible applicants to receive funding. • DCEO should, when utilizing grant administrators to make funding selections, conduct more extensive oversight by ensuring administrators understand the evaluation criteria and by reviewing a significant amount of application documentation to determine if awards were correctly made. • DCEO should comply with requirements in State statute relative to award of funding for specific purposes. • DCEO should take the steps necessary to ensure that grant awardees do not receive funds in excess of program policy. • DCEO should, when utilizing outside grant administrators, ensure that grant agreements are executed prior to allowing the entities to work on the grant program. Additionally, when the grant administrators are able to view confidential information as part of the program, DCEO should develop procedures to monitor that the confidential documents are securely maintained. • DCEO should maintain a history of notifications to applicants of grant programs it is responsible for when it decides to utilize a third party for those notifications. • DCEO should, when allowing grant administrators to pay out grant funds, develop controls to ensure that payments are timely made by those grant administrators. • DCEO should: conduct the monitoring that it develops for grant program criteria; follow contractual criteria it develops and obtain the documentation to support grant awards when a third party administrator is utilized to select grant recipients; comply with administrative rules and obtain documentation to demonstrate how grant funds are utilized; and conduct monitoring efforts to ensure that multiple sources of funding are not utilized for the same expenses. • DCEO should take steps to ensure that grant administrators appropriately apply program requirements to applications including, when applicable, the deduction of previous awards. Additionally, DCEO should not approve awards until adequate review has been conducted. • DCEO should take the steps necessary to ensure that the terms of grant agreements, including sending 1099 forms when applicable, are complied with by grant administrators. • DCEO should have a system in place to manage notices of grant program violators and should enforce the program requirements it creates. This performance audit was conducted by the staff of the Office of the Auditor General.