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Audit slams DCEO’s handling of federal pandemic relief money

Thursday, May 25, 2023 - Posted by Rich Miller

* Center Square

An audit of the $585 million Business Interruption Grant, the Illinois program using federal tax dollars to give to businesses for relief during COVID-19, reports checks on the spending “failed to work as advertised” with insufficient oversight.

The BIG program was operated by Gov. J.B. Pritzker’s administration and the Illinois Department of Commerce and Economic Opportunity and other state agencies. A new, similar program is currently underway called Back 2 Business for a total of $175 million split between restaurants, hotels and creative arts venues.

Illinois Auditor General Frank Mautino’s office released the BIG audit Wednesday with more than a dozen findings and 15 recommendations for DCEO.

* From the Auditor General’s Business Interruption Grant Program audit

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.

Whew.

* More from Center Square

Additionally, the audit found “DCEO became aware of notices of BIG Program violations from news stories, forwarded complaints, and internal agency reviews. Businesses most often having documented violations were restaurants failing to follow local mitigations and executive orders. We found that DCEO was not prepared to handle such notices of violation, did not have complete information on all violators, and did not always enforce a return of funds when such violations were confirmed.”

Keep in mind they were building a plane that was already in the air and experiencing unprecedented turbulence. Even so.

…Adding… DCEO…

“In mid-2020 during the height of the pandemic, DCEO delivered grants to thousands of businesses in dire need of support – to offset the impact of closures, and to help them survive the global economic upheaval occurring at the time. With many small businesses on the brink of financial collapse, DCEO’s highest priority was to support Illinois’ businesses as efficiently as possible. A traditional grant program can take more than a year from conception to grants going out the door. BIG was launched 3 weeks after legislation became law and thousands of small businesses and jobs were saved as a result. After developing a first-of-its kind program during an unprecedented global economic crisis, the agency learned valuable insights and has since vastly improved processes through additional large-scale funding programs for Illinois businesses through its B2B program.”

More info here.

       

35 Comments
  1. - Must win - Thursday, May 25, 23 @ 11:09 am:

    As they say here,governors own


  2. - Just a Citizen - Thursday, May 25, 23 @ 11:10 am:

    Now that the plane has landed, is there going to be any type of “clawing” back of inappropriate or even unlawful provision of funds?


  3. - Southern Belle - Thursday, May 25, 23 @ 11:17 am:

    And yet DCEO Grant Managers are still working remotely rather than returning to offices where they can be better monitored. It seems there is no plan to have them return to offices.


  4. - Gee - Thursday, May 25, 23 @ 11:23 am:

    Next unprecedented pandemic the administration can do a comprehensive and tight grant process and the business that we’re suffering could get help one year later. Also, this audit was for the first round of money that went out. Pretty sure they cleaned it up for the other rounds after it.


  5. - Donnie Elgin - Thursday, May 25, 23 @ 11:23 am:

    Someone brought up Milton Friedman a few days ago - DCEO shows the hazards of how easily/irresponsibly you can spend somebody else’s money on somebody else.


  6. - Demoralized - Thursday, May 25, 23 @ 11:28 am:

    Everyone was under immense pressure to get funds out the door during COVID and none of the staffing or mechanisms were in place to do so in such a quick fashion. Had these funds gone through a “normal” grant cycle it would have been months before the funding hit the street. I’m not saying what was done was right but you have to view all of this from the perspective of what was going on during COVID.


  7. - cover - Thursday, May 25, 23 @ 11:31 am:

    = Businesses most often having documented violations were restaurants failing to follow local mitigations and executive orders. =

    Yet I’m sure many of those restaurant owners would claim to be “law abiding citizens”.


  8. - Just Me 2 - Thursday, May 25, 23 @ 11:32 am:

    In public administration there is theory about whether to get a program running quickly knowing full well there will be problems, or with a lot of procedure (red tape). For some programs it makes sense to get it done ASAP and then follow up with high fines for abuse, and for others it makes sense to be slow and careful.

    It probably made sense for a lot of these programs to go quickly. That doesn’t mean you can’t still learn from the mistakes that you knew you were going to make in a rush.


  9. - Franklin - Thursday, May 25, 23 @ 11:34 am:

    While PPP and EIDL weren’t perfect they were miles ahead of how state government handled COVID relief.


  10. - Demoralized - Thursday, May 25, 23 @ 11:38 am:

    ==shows the hazards of how easily/irresponsibly you can spend somebody else’s money on somebody else==

    So you were against COVID relief?


  11. - northsider (the original) - Thursday, May 25, 23 @ 11:40 am:

    An audit saying we overhelped is better than one saying we underhelped.


  12. - Chicago Republican - Thursday, May 25, 23 @ 11:43 am:

    Please add the Rickey Hendon Music video to this post. Please.

    https://www.youtube.com/watch?v=Gg-4YOZRzTA


  13. - Quibbler - Thursday, May 25, 23 @ 11:49 am:

    The DCEO response is spot on. The point of the relief money was to shovel money out the door to keep the economy going during a once in a century pandemic. Means-testing it to death or putting up more red tape would have ameliorated some of the issues highlighted in the report at the expense of getting funds to the people and businesses that truly needed it.


  14. - Sangamo Girl - Thursday, May 25, 23 @ 11:55 am:

    ==And yet DCEO Grant Managers are still working remotely rather than returning to offices where they can be better monitored.==

    Please provide specific examples of monitoring that is only possible in person. Sitting next to employees and watching them assess data and read emails? Butts in seats in not a useful metric for assessing the quantity and quality of work.


  15. - Panther Pride - Thursday, May 25, 23 @ 11:55 am:

    In June 2020, the Auditor released a performance audit of DCEO’s handling of the EDGE tax credits. Among numerous other problems, the report found that:

    –DCEO did not maintain documentation to share the number of active EDGE credit agreements, nor could they provide documentation to meet the requirements of the law.

    –DCEO’s annual reports on the success of EDGE credits were frequently filled with incorrect information.

    –DCEO didn’t have the staff or internal policies to ensure proper compliance with the program.

    I’m not at all saying emergency business grants weren’t needed, and I fully sympathize with an agency trying to stand up a program in the middle of a global pandemic. But this audit, combined with others, seems to underscore a pattern of the inability to properly manage taxpayer funds. It’s maddening to look social service organizations in the eye and say we can’t find money in the budget for them and then learn on the other hand that our agencies are mismanaging millions of dollars.

    Unreal.


  16. - Lincoln Lad - Thursday, May 25, 23 @ 11:56 am:

    Hindsight is always 20:20. Bureaucracy is often rightly sacrificed for expediency in an emergency situation.
    However, looking past known violations… which did occur… should not happen. Known violators at minimum should have been listed for later follow-up and hopefully accountability.


  17. - Ducky LaMoore - Thursday, May 25, 23 @ 11:56 am:

    “Keep in mind they were building a plane that was already in the air and experiencing unprecedented turbulence.”

    With about half the staff they needed and they were probably working from home. Now is clean up time. But I really don’t see how this could have been avoided when you are trying to create a program and distribute monies as quickly as possible in a once in a century pandemic.


  18. - Pot calling kettle - Thursday, May 25, 23 @ 11:58 am:

    = Businesses most often having documented violations were restaurants failing to follow local mitigations and executive orders. =

    ==Yet I’m sure many of those restaurant owners would claim to be “law abiding citizens”. ==

    And, they probably hate “government intrusions” into their businesses.


  19. - Panther Pride - Thursday, May 25, 23 @ 11:58 am:

    Citing my sources –

    Summary of the 2020 EDGE Audit: https://www.auditor.illinois.gov/Audit-Reports/Performance-Special-Multi/Performance-Audits/2020_Releases/20-EDGE-Tax-Credit-Pgm-Perf-Audit-Digest.pdf

    Full Report: https://www.auditor.illinois.gov/Audit-Reports/Performance-Special-Multi/Performance-Audits/2020_Releases/20-EDGE-Tax-Credit-Pgm-Perf-Audit-Full.pdf


  20. - thisjustinagain - Thursday, May 25, 23 @ 12:25 pm:

    It’s one thing to ‘build a plane as one flies it’, but DCEO’s and other IL agencies incompetence is well known and documented time and time again by the Auditor General. If you can’t put rules in place, how can you enforce what isn’t there? And now is a little late to think about clawbacks where the alleged offenders can say “when did those rules go into effect, and who told us the rules after the fact?” This isn’t new for IL, nor confined to DCEO.


  21. - Suburbs are the key - Thursday, May 25, 23 @ 12:43 pm:

    Hiring amateurs has a price tag.


  22. - Sir Reel - Thursday, May 25, 23 @ 12:45 pm:

    I agree with Ducky. The downsizing of State government has impacts. Further, the middle managers who have to figure this stuff out are especially overburdened. Union staff under them who often wait for direction. Political appointees above them who mostly don’t have a clue.


  23. - Dotnonymous - Thursday, May 25, 23 @ 12:45 pm:

    Where there’s a will to steal…there’s always a way.


  24. - Norseman - Thursday, May 25, 23 @ 12:47 pm:

    The pandemic was caused by a “novel” virus. A new virus the required fast action to prevent as many deaths as possible. Those actions and the nature of pandemics resulted in a host of other issues that required responses. During times like this decision makers and administrators are forced into the position of acting and then asking permission or doing the detail work.

    When the crisis abates you take the time to assess how things were done and how they could have been done better. You hope folks take heed of the lessons learned and do better the next time. Unfortunately, for this crisis, we experienced a corrupt political party led by a narcissistic sociopath that wanted to benefit from the selfishness of a too large part of our society and has made future response to preventable diseases harder.


  25. - DCFS Waste & Fraud - Thursday, May 25, 23 @ 12:56 pm:

    https://abc7chicago.com/illinois-dcfs-day-care-funding-stolen-money-casinos/13294958/


  26. - sulla - Thursday, May 25, 23 @ 1:00 pm:

    I’m a frequent DCEO critic, but I take their side here. I would rather see the government act with alacrity during a crisis at the expense of some taxpayer dollars “leaking” into the hands of scammers.


  27. - Give Us Barabbas - Thursday, May 25, 23 @ 1:04 pm:

    I opined back at the time that we could expect some fraud to happen, but that the important thing was to get the money out as fast and far as possible, because of how critical the crisis was, ands that businesses like restaurants who played by the rules and followed the closure advisories should be compensated for doing so… and I said then that we would have to go back after it was over and punish the cheaters and scammers, hard, and claw back what we could. When the house is on fire you don’t care if the water hose is the wrong color, just that water is coming out of it. No bureaucratic delays could be tolerated. And the mess you see is the mess you get for having to go fast. We knew it going in, and it was a calculated risk for the Greater Good.

    Now the emergency is over, heck yes, set loose the collection agencies and forensic accountants, put them on a percentage of recovery payment basis, get it cleansed up quickly. The people that took advantage, knew they were doing it, and counted on not eventually being held accountable. This is the Finding Out phase of FA/FO.


  28. - JB13 - Thursday, May 25, 23 @ 1:04 pm:

    – Unfortunately, for this crisis, we experienced a corrupt political party led by a narcissistic sociopath that wanted to benefit from the selfishness of a too large part of our society and has made future response to preventable diseases harder –

    I’m sorry. You… are blaming *who,* exactly, for the problems identified in the audit?


  29. - Politix - Thursday, May 25, 23 @ 1:13 pm:

    Legislators exacerbate the problem by pressuring agencies to get the funds out the door. They also come out of the woodwork with these situations with their pet community orgs. We saw it in the FY22 budget. Legislators complained it was taking too long to get certain emergency funds out the door. Instead of waiting for the process to proceed in the appropriate manner, they appropriated line-items to their pet orgs, thinking it would go faster. But the process is the process and those organizations were still required to complete their paperwork, negotiate contracts, and fulfill all other obligations to receive their grant. Not to mention, some line-item recipients didn’t even respond when contacted.

    Good legislation will include a sufficient timeline that allows agencies to properly fulfill their obligations within state and federal guidelines set forth.


  30. - ChicagoBars - Thursday, May 25, 23 @ 1:18 pm:

    Welp there goes my theory the later BIG rounds were being processed slowly because DCEO’s partners were being very diligent in scrutinizing applications.


  31. - sewer thoughts - Thursday, May 25, 23 @ 2:15 pm:

    would be interested to hear what does Rep. Croke has to say about all this


  32. - curious - Thursday, May 25, 23 @ 2:36 pm:

    Now do the other covid / housing grants and overall grants under their administrative control.


  33. - ChicagoBars - Thursday, May 25, 23 @ 3:26 pm:

    I had a front row seat to B1G. The first round? That was handled pretty quickly. Second round (as small businesses who probably didn’t apply the first time but did after they realized “two week closure” was not going to be the case) was not particularly fast getting the money out (the every couple week updates on recipients were nice though). The lack of a dashboard for applicants letting then know where they were (even roughly) in the DCEO application screening process was infuriating to many of them and me. Waiting to see how this current final round of grants for places that got very little aid in 2020-2022 goes but I’m not particularly optimistic.


  34. - Lurker - Thursday, May 25, 23 @ 4:00 pm:

    Financially, DCEO is a mess and has been. I do not want to put all the blame on one person but the past CFO who became Director, is quite culpable both ethically and fiscally. Oddly, this is about the only thing I mention that Rauner did fiscally correct when he pointed out correctly when it came to showing the fiscal irresponsibility of DCEO at the time. But alas, he did nothing and it grew with Covid money and the same DCEO leadership.


  35. - Curious - Thursday, May 25, 23 @ 5:38 pm:

    “don’t see how this could have been avoided when you are trying to create a program and distribute monies as quickly as possible. ”

    That is the problem as that how grants are handled. Get the money send it out it should be send it out with due diligence and a fraud and collections area so it doesn’t happen over and over even when there is no crisis. Quality in, quality out. If it was just this grant then there were migrating concerns but the need for clear identification of a business should had been/ be a standard and in place from day one. poor manager with a lack of train staff in the needed areas.


Sorry, comments for this post are now closed.


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