Empire State Development COVID-19 Pandemic Small Business Recovery Grant Program, Report 2023-S-10
Summary
An audit report of the Office of the New York State Comptroller, Report 2023-S-10, dated May 2025, on Empire State Development's COVID-19 Pandemic Small Business Recovery Grant Program, covering April 2021 through January 2023. It states that the 2021-22 State budget funded the Program with $800 million and that ESD awarded the $760 million allocated for small businesses to 40,842 applicants, an average grant of $18,608. Key findings state that ESD awarded almost $4.1 million to 101 ineligible businesses, that a first-come, first-served methodology left tens of thousands unfunded while rideshare drivers received $184,493,238, about 24% of the total, and that ESD did not establish a process to measure the Program's impact. The auditors recommend enhanced review practices, performance measurement and recovery of ineligible awards.
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Empire State Development
COVID-19 Pandemic Small Business
Recovery Grant Program
Report 2023-S-10 May 2025
OFFICE OF THE NEW YORK STATE COMPTROLLER
Thomas P. DiNapoli, State Comptroller
Division of State Government Accountability
Audit Highlights
Objectives
To determine whether Empire State Development (ESD) awarded funds according to COVID-19
Pandemic Small Business Recovery Grant Program (Program) eligibility requirements, and whether
ESD established performance measures to assess the impact of the awards. The audit covered the
period from April 2021 through January 2023.
About the Program
On March 20, 2020, New York’s former Executive signed the “New York State on PAUSE” executive
order in response to the COVID-19 pandemic. The order included a directive that all non-essential
businesses across the State would need to close, effective March 22, 2020. While the order affected
businesses of all sizes, most of the businesses in New York are small businesses employing fewer than
100 people. Specifically, 98% of businesses have fewer than 100 employees, and 93% have fewer than
25 employees. Based on U.S. Census Bureau data, 77% of small businesses in the State reported
a decrease in revenues and sales at the end of April 2020. The impact remained a year after the
pandemic’s onset, with 78% reporting an overall negative impact on their business as of the first week
of March 2021. To assist the over 400,000 small businesses in the State impacted by the pandemic,
the 2021-22 State budget established the Program, with $800 million in funding. ESD was charged with
administering the Program through enactment of Section 16-FF of the Urban Development Corporation
Act.
The mission of the Program was to support small businesses or for-profit independent arts and
cultural organizations impacted by the COVID-19 pandemic that either did not qualify for federal
assistance programs or received inadequate federal COVID-19 support. Priority was to be given to
socially and economically disadvantaged business owners, including, but not limited to, minority- and
women-owned business enterprises, service-disabled veteran-owned businesses, veteran-owned
businesses, and businesses located in communities that were economically distressed prior to
March 1, 2020 based on U.S. Census data. Program awards allowed New York State small businesses
to cover costs such as payroll, rent or mortgage payments, personal protective equipment expenses,
utility bills, costs associated with compliance with COVID-19 health and safety protocols, and other
documented COVID-19 costs as approved by ESD.
ESD reported receiving over 168,000 applications, with just over 75,200 being fully completed and
submitted. ESD awarded the entirety of the $760 million allocated for small businesses ($40 million was
allocated for administrative expenses) to 40,842 applicants, with an average grant amount of $18,608.
Key Findings
ESD needs to improve controls for monitoring eligibility of grant recipients and enhance practices for
award distribution. Specifically:
ESD awarded almost $4.1 million to 101 businesses that were ineligible because they had already
received assistance from federal business assistance programs.
ESD did not consider business type, need, or factors established in the original goals of the
Program when awarding grants, instead favoring a first-come, first-served methodology to
awarding grants, which resulted in tens of thousands of businesses that went unfunded and
resulted in certain types of businesses—most notably Sole Proprietor Transportation businesses
Report 2023-S-10 1
without employees (i.e., rideshare drivers)—receiving a significant percentage of the total dollars
spent. Rideshare drivers received $184,493,238 or about 24% of the total dollars spent. Within
the first 12 months from when the Program’s application portal was launched (June 2021 to May
2022), these businesses accounted for over half of the funded businesses (54%). Additionally, due
to this methodology, several women-owned businesses and low-to-middle-income businesses did
not receive funding, as Program funding was completely disbursed before their applications could
be reviewed. These businesses were more represented in businesses that did not receive funding
compared to those that did.
ESD did not establish a process to measure, in a meaningful way, whether the Program achieved
its intended goals or its impact on businesses. Therefore, there is limited assurance that the
Program met its goals outside of distributing funds to businesses. Furthermore, without any form
of performance review, any potential improvement areas that could be implemented for any future
emergency relief programs were not identified.
Key Recommendations
Develop and implement enhanced application review and award practices for grants administered
by ESD. This may include, but not be limited to:
▪ Utilizing relevant publicly available data sources.
▪ Working with federal or other applicable government partners to obtain relevant information on
eligibility criteria.
▪ Incorporating relevant elements into award selection methodology, including, but not limited to,
areas outlined in the Program’s goals.
Establish a process or practice to measure performance of grants administered by ESD.
Recover Program funds that were awarded to ineligible businesses as appropriate.
Report 2023-S-10 2
Office of the New York State Comptroller
Division of State Government Accountability
May 7, 2025
Hope Knight
Commissioner, President, and CEO
Empire State Development
633 3rd Avenue
37th Floor
New York, NY 10017
Dear Commissioner Knight:
The Office of the State Comptroller is committed to helping State agencies, public authorities, and
local government agencies manage their resources efficiently and effectively. By so doing, it provides
accountability for the tax dollars spent to support government operations. The Comptroller oversees
the fiscal affairs of State agencies, public authorities, and local government agencies, as well as their
compliance with relevant statutes and their observance of good business practices. This fiscal oversight
is accomplished, in part, through our audits, which identify opportunities for improving operations.
Audits can also identify strategies for reducing costs and strengthening controls that are intended to
safeguard assets.
Following is a report of our audit entitled COVID-19 Pandemic Small Business Recovery Grant
Program. This audit was performed pursuant to the State Comptroller’s authority under Article V,
Section 1 and Article X, Section 5 of the State Constitution; Article II, Section 8 of the State Finance
Law; and Section 2803 of the Public Authorities Law.
This audit’s results and recommendations are resources for you to use in effectively managing your
operations and in meeting the expectations of taxpayers. If you have any questions about this report,
please feel free to contact us.
Respectfully submitted,
Division of State Government Accountability
Report 2023-S-10 3
Contents
Glossary of Terms 5
Background 6
Audit Findings and Recommendations 9
Program Eligibility and Award Methodology 9
Performance Measures 13
Recommendations 14
Audit Scope, Objectives, and Methodology 15
Statutory Requirements 16
Authority 16
Reporting Requirements 16
Agency Comments and State Comptroller’s Comments 17
Contributors to Report 25
Report 2023-S-10 4
Glossary of Terms
Term Description Identifier
ESD Empire State Development Auditee
Act Urban Development Corporation Act Law
Administrator Third-party administrator f or the Program Key Term
EIDL COVID-19 Economic Injury Disaster Loan Key Term
PPP COVID-19 f ederal relief Paycheck Protection Program Key Term
Program COVID-19 Pandemic Small Business Recovery Grant Program Program
RRF COVID-19 f ederal relief Restaurant Revitalization Fund Key Term
SBA U.S. Small Business Administration Federal Agency
Small Businesses Micro-businesses, small businesses, and for-profit independent Key Term
arts and cultural organizations
SPT Sole Proprietor Transportation Key Term
UDC Urban Development Corporation Agency
Report 2023-S-10 5
Background
On March 20, 2020, New York’s former Executive signed the “New York State on
PAUSE” executive order in response to the COVID-19 pandemic. The order included
a directive that all non-essential businesses across the State would need to close
effective March 22, 2020. While the orders affected businesses of all sizes, most
of the businesses in New York are small businesses employing fewer than 100
people. Specifically, 98% of businesses have fewer than 100 employees, and 93%
have fewer than 25 employees. Based on U.S. Census Bureau data, 77% of small
businesses in the State reported a decrease in revenues and sales at the end of April
2020. The impact remained a year after the pandemic’s onset, with 78% of small
businesses reporting an overall negative impact of the first week of March 2021.
The Urban Development Corporation (UDC)—a public authority—was created in
1968 by the UDC Act (Act) to support the State’s economy and prevent economic
stagnation. In 1995, the operational efforts of the Department of Economic
Development, UDC, and other economic development agencies were
consolidated and have since operated as Empire State Development (ESD). To
assist the over 400,0001 small businesses in the State impacted by the pandemic,
the 2021-22 State budget established the COVID-19 Pandemic Small Business
Recovery Grant Program (Program), with $800 million in funding. As the chief agency
responsible for the coordination of the State’s economic development programs,
ESD was charged with administering the Program through enactment of Section
16-FF of the Act.
The Program aimed to support micro-businesses (≤ 10 employees), small
businesses (≤ 100 employees), and for-profit independent arts and cultural
organizations (collectively referred to as small businesses)—entities that typically
have the least access to resources—with priority given to socially and economically
disadvantaged business owners, including, but not limited to, minority- and
women-owned business enterprises, service-disabled veteran-owned businesses,
veteran-owned businesses, and businesses located in communities that were
economically distressed prior to March 1, 2020 based on U.S. Census data.
The Program awarded grants on a sliding scale up to $50,000 based on annual
gross receipts. Awards were to be used for COVID-19-related losses or expenses
incurred between March 1, 2020 and April 1, 2021, such as payroll, rent or mortgage
payments, and costs associated with compliance with COVID-19 health and safety
protocols.
To be eligible for a grant under the Program, small businesses must have:
Been incorporated in New York State or licensed or registered to do business in
the State;
Been viable and operating at the time of application and begun operation on or
prior to March 1, 2019;
1 According to ESD’s 2022 Annual Report on the State of Small Businesses.
Report 2023-S-10 6
Demonstrated lost revenue or other economic hardship due to the COVID-19
pandemic or compliance with COVID-19 health and safety protocols that
resulted in business modifications, interruptions, or closures;
Been in substantial compliance with applicable federal, State, and local laws,
regulations, codes, and requirements; and
Not owed any federal, State, or local taxes prior to July 15, 2020, or have had
an approved repayment, deferral plan, or agreement with federal, State, and
local taxing authorities.
In addition, small businesses must not have not qualified for, or must have been
unable to obtain sufficient assistance from, grant assistance programs under the
federal American Rescue Plan Act of 2021 (such as the U.S. Small Business
Administration [SBA] Restaurant Revitalization Grant Program, hereafter referred
to as the Restaurant Revitalization Fund [RRF]) or any other available federal
COVID-19 economic recovery or business assistance grant programs, including
loans under the federal Paycheck Protection Program (PPP). Eligible applicants may
have received or been awarded the following federal assistance:
PPP loans not exceeding $250,000
COVID-19 Economic Injury Disaster Loan (EIDL) Advance Grant up to $10,000
COVID-19 EIDL Supplemental Targeted Advance Grant up to $5,000
SBA Shuttered Venue Operators Grant
Applicants also had to attest twice—once as part of the application process and
again when they received Program funds—that they have not received disqualifying
assistance through business grant programs available under the American Rescue
Plan Act of 2021 or any other available federal COVID-19 economic recovery or
business assistance grant program.
ESD deployed a variety of services to inform small businesses about the Program
and assist and guide applicants through the application process. These services
included establishing technical assistance partners to provide one-on-one assistance
to applicants, delivering informational webinars to small businesses, developing
Program materials and applications in 15 different languages, and establishing a call
center to provide applicants with the ability to discuss questions live with an expert.
To create a streamlined application, and process a high volume of Program awards
quickly, ESD competitively procured a third-party grant administrator (Administrator)
that had provided similar COVID-recovery grant services for other states. Under the
contract with ESD, the Administrator was responsible for developing and providing
technical assistance for the Program’s application portal and for Program outreach.
The Administrator also received application materials from applicants, reviewed
and vetted Program application information to determine eligibility, allocated awards
among qualified recipients in accordance with Program requirements, provided
and received grant agreements, disbursed Program funds, and assisted ESD in
developing a Program Guide and establishing a call center to field questions and
troubleshoot any issues applicants encountered. The Program Guide for applicants
Report 2023-S-10 7
listed all required application information, including eligibility requirements and
funding information. For ESD’s staff to be able to view application data in real
time, the Administrator also created an online dashboard showing the number
of applications received, including leading industry sectors represented and the
geographic regions receiving funding.
The Act required ESD to submit reports to the Executive and Legislature each
quarter beginning on September 30, 2021 until all Program funds were disbursed.2
These reports included the number of applicants and their county locations, number
of applicants approved, total amount of grants awarded, and any other information
ESD determined to be necessary and appropriate. According to the reports, of the
$800 million available for the Program, $5.3 million was used to operate the technical
assistance partners, $34.7 million was paid to the Administrator, and the remaining
$760 million was awarded to businesses.
The Program’s application portal was launched on June 10, 2021; by January 5,
2023, ESD had awarded the entire $760 million allocated for small businesses. ESD
reported receiving over 168,000 applications; of these, 75,253 (45%) were complete
and submitted. According to the reports:
40,842 of the 75,253 applications (54%) received funding; the average grant
amount was $18,608.
Of the target business sectors, micro-businesses received the majority of
funding (96% or about $730 million).
Every region of the State was represented in the award distribution. As shown
in Table 1, businesses in New York City and Long Island received a majority of
the funding.
Out-of-state businesses received grants totaling $141,435.
Table 1 – Breakdown of Funded vs. Unfunded Applications by Region
ESD Region Applications Applications Applications Percent Total Funding
Received Funded Not Funded Funded Awarded
New York City 50,436 31,190 19,246 62% $520,390,691
Long Island 8,748 4,535 4,213 52% 110,596,439
Mid-Hudson 4,827 2,063 2,764 43% 54,768,662
Western New York 2,556 864 1,692 34% 16,882,706
Capital District 1,960 688 1,272 35% 18,633,777
Finger Lakes 1,750 481 1,269 27% 12,551,561
Central NY 1,244 329 915 26% 8,861,607
Southern Tier 1,158 313 845 27% 7,346,981
Mohawk Valley 881 202 679 23% 5,444,737
North Country 611 162 449 27% 4,381,404
Out of state 1,082 15 1,067 1% 141,435
Totals 75,253 40,842 34,411 54% $760,000,000
2 These reports can be accessed on ESD’s website (https://esd.ny.gov/esd-media-center/reports).
Report 2023-S-10 8
Audit Findings and Recommendations
We found ESD needs to improve controls for monitoring eligibility of grant recipients
and enhance its practices for award distribution. Specifically, awards were given to
recipients that were ineligible because they had received other business assistance
from grants awarded under federal programs. As specified in the Act, the Program
was intended to support small businesses as well as for-profit independent arts and
cultural organizations that experienced economic hardship due to the pandemic
and that typically have the least access to resources. However, we determined
ESD lacked controls to ensure that only eligible small businesses benefited from
the Program. In administering the awarding of grants, ESD also did not consider
business type, need, or factors established in the original goals of the Program,
instead favoring a first-come, first-served methodology, which resulted in certain
types of businesses—most notably Sole Proprietor Transportation (SPT) businesses
without employees (i.e., rideshare drivers)—receiving a significant percentage of the
total dollars spent ($184,493,238 [24%]). ESD also did not establish a process to
measure, in a meaningful way, whether the Program achieved its intended goals or
its impact on businesses. Therefore, there is limited assurance that the Program met
its goals outside of distributing funds to businesses.
Program Eligibility and Award Methodology
Program Eligibility
To determine if Program funds were awarded to eligible applicants, we compared
Program grant recipients with SBA’s data set of all recipients of federal COVID-19
assistance programs3 and identified 101 businesses that received a total of almost
$4.1 million that were ineligible for the Program because they received federal
assistance from PPP in excess of $250,000 or RRF prior to applying for, and
receiving, Program funds (see Table 2).
Table 2 – Breakdown of Ineligible Businesses by Federal Assistance Program
Federal Number of Program Funds Federal Assistance
Program Ineligible Businesses Received Received
PPP 34 $1,699,700 $14,410,706
RRF 67 2,356,201 759,970
Totals 101 $4,055,901 $15,170,676
The improper awards occurred because ESD and the Administrator relied largely
on attestations made by grant applicants that they had not received federal
assistance—and did not develop procedures to verify whether this information was
accurate.
In response to our findings, ESD officials stated that they and the Administrator
were committed to expeditiously providing relief to small businesses impacted by
the pandemic, and that attestations are commonly used in both State and federal
programs to allow for the efficient processing of applications. They asserted
3 PPP: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-
program/ppp-data; RRF: https://data.sba.gov/dataset/rrf-foia.
Report 2023-S-10 9
that, given the lack of readily available and reliable data sources and methods
for verifying applicants’ receipt of federal assistance, the use of attestations in
this case was timely, appropriate, and necessary to administer the Program.
While we acknowledge the pressing need to distribute funds efficiently during an
unprecedented time of economic hardship, we recommend that ESD establish a
practice of using publicly available data and working with federal partners to obtain
information that will enable ESD to make more reliable eligibility determinations with
future grant programs, especially when federal grant receipts are a factor.
We also reviewed a sample of 115 individual applicants, consisting of 174 individually
funded businesses, totaling $4,299,059. While we determined all the businesses
were eligible to receive funding, 15 businesses that received a total of $141,435
were incorporated and/or resided outside of New York State. Although the Program’s
selection criteria didn’t specifically exclude out-of-state businesses, we question
whether such businesses should have been selected to receive Program funds
when ESD was simultaneously receiving thousands of applications from in-state
businesses. Going forward, ESD should consider whether its inclusion of out-of-state
applicants in New York State assistance programs aligns with the intention of the
program and is in the best interest of New Yorkers.
Issues With Administration of Awards/Funding
The Program was intended to support entities that typically have the least access
to resources, prioritizing socially and economically disadvantaged business owners,
including, but not limited to, minority- and women-owned business enterprises,
service-disabled veteran-owned businesses, veteran-owned businesses, and
businesses located in communities that were economically distressed prior to
March 1, 2020 based on U.S. Census data. However, ESD did not use a thoughtful
approach to awarding funding—one that considered factors relevant to the Program’s
stated intent such as the applicant’s business need, access to resources, viability,
and location in communities that were economically distressed. Rather, it favored
a first-come, first-served method, which resulted in tens of thousands of potentially
more distressed businesses that went unfunded.
While 75,253 small businesses applied for funding under the Program, ultimately
there was only enough funding to provide grants to 40,842 (54%); funding ran out
before the remaining 34,411 applications could be reviewed. Neither ESD nor the
Administrator, as a practice, reviewed the unfunded applications and we could
not conclude whether any of the remaining 34,411 businesses would have been
eligible. However, we compared the demographics for the unfunded and the funded
businesses to determine if there were patterns or trends that could be useful in
understanding how the Program funds were or were not distributed. Notably, we
found that applications from women-owned businesses accounted for only 19% of
the funded businesses but 39% of the unfunded businesses. Also, low-to-middle-
income applicants accounted for 30% of the funded businesses but 70% of the
unfunded businesses.
Report 2023-S-10 10
At the time it was launched on June 10, 2021, the Program had established a
revenue cap of $500,000 for eligible businesses. However, as shown in Figure 1,
ESD made multiple changes to eligibility requirements over a relatively short period
of time. First, in August 2021—just 2 months after the online application portal went
live—ESD raised the revenue cap to $2.5 million—a jump that not only increased
the pool of businesses competing for funding but altered the original intent of
the Program. Then, about a year into the Program, ESD removed two eligibility
requirements: eligible businesses no longer had to show a 25% decrease in gross
revenue between 2019 and 2020 (September 2022) and were no longer required to
have a positive taxable income in 2019 (July 2022). These actions further eroded the
original intent of the Program and may have even funded businesses that were not
viable prior to the pandemic.
Figure 1 – Timeline of Changes to Eligibility Requirements
August 25, 2021 July 22, 2022 September 14, 2022 January 5, 2023
Requirement Expanded Requirement Removed Requirement Removed Last Grant Funded
Increased the revenue cap Businesses were no longer Businesses were no longer
for eligible businesses from required to have a positive required to demonstrate
$500,000 to $2.5 million taxable income in 2019 they incurred a 25%
revenue loss
Data as of 8/25/2021 Data as of 7/22/2022 Data as of 9/14/2022 Data as of 9/14/2022
6.21% 2,537 84.94% 34,690 87.72% 35,826 Total 40,842
funded funded funded funded
of funded of funded of funded funded
applicants 40,842 applicants
40,842 applicants
40,842 applicants 40,842
total total total total
According to ESD, the elimination of certain requirements was aimed at increasing
participation in the Program. The elimination of these eligibility requirements allowed
businesses that had less than 25% in revenue losses, or even increased revenues,
to be eligible to receive Program funds. However, it’s unclear whether this was
necessary, as the Program closed with over 34,400 applicants having applied and
not receiving funding. Of the 40,842 businesses that received Program funding,
2,206 businesses that had less than a 25% decrease in revenue received grants
totaling $59.3 million, and 874 businesses that were not profitable in 2019 were
awarded a total of $23.8 million.
Furthermore, we found that the methodology heavily favored certain types of
businesses—most notably SPT businesses without employees (i.e., rideshare
drivers). ESD categorized the businesses that applied into 26 categories including
entertainment, transportation, retail, health services, etc., with various types of
businesses falling within those categories. For example, rideshare drivers was a
type of transportation business. Of the 40,842 funded businesses, 19,752 (48%)
were rideshare drivers. These 19,752 businesses received a total of $184,493,238 in
Program funds, as shown in Table 3.
Report 2023-S-10 11
Table 3 – Program Award Breakdown of Awards to SPT
Businesses With No Employees
Grant Amounts Number of Total
Funded SPTs Funding
$5,000 or less 2,974 $11,728,965
$5,001–$10,000 12,112 116,834,922
$10,001–$15,000 4,366 50,487,286
$15,001–$25,000 281 4,710,404
More than $25,000 19 731,661
Totals 19,752 $184,493,238
Almost all the rideshare drivers (19,151 [97%]) were located in New York City or
Long Island—those businesses received $179,085,447 (97%). Rideshare drivers not
only accounted for almost half of the total businesses funded by the Program, but
they represented a majority of the businesses that were served from the start of the
Program. Within the first 12 months from when the application portal was launched
(June 2021 to May 2022), SPT businesses without employees accounted for over
half of the total funded businesses (54%), as shown in Figure 2.
Figure 2 – Number of Funded SPT Without Employees (Rideshare Drivers)
1,716 (52%)
6/1–8/31/2021
3,328
12,019 (58%)
9/1–12/31/2021
20,744
1,842 (46%)
1/1–2/28/2022
3,998 Within the first 12 months
2,497 (47%)
18,074
SPT Without Employees Funded 54%
3/1–5/31/2022 of all funded
5,291 33,361 businesses
Total Businesses Funded
708 (33%)
6/1–8/31/2022
2,130
970 (18%)
9/1/2022–End of Program
5,351
Number of Funded SPT Without Employees
Total Number of Funded Businesses
Report 2023-S-10 12
We also note that 12 of the 15 out-of-state businesses we reviewed in our sample
were rideshare drivers. While rideshare drivers met Program eligibility requirements,
we question whether the Program intention was best served by allocating 48% of the
awards made (totaling about 24% of the total dollars spent) to one type of business.
ESD officials reiterated that rideshare drivers were eligible for the Program, and
the Act did not require any review to determine business type when providing
funding. Officials also again stressed that their primary concern was to get funding
to businesses and the first-come, first-served model best facilitated this goal. We
acknowledge that the first-come, first-served model may have been the fastest way
to serve businesses; however, the method takes no other programmatic factors,
including the overall intention of the Program, into account.
We recommend that, in the future, ESD take a more thoughtful approach that would
best serve the intention of the Program and facilitate distribution of awards that better
consider stated Program priorities, balanced with the need to distribute funding
quickly.
Performance Measures
ESD did not establish a process to measure, in a meaningful way, whether the
Program achieved its intended goals or its impact on businesses. Therefore, there
is limited assurance that the Program met its goals outside of distributing funds to
businesses. Furthermore, without any form of performance review, any potential
improvements that could be implemented for future emergency relief programs were
not identified.
As noted above, ESD’s primary concern was distributing the entirety of the $760
million as quickly as possible. Neither ESD nor the Administrator, as a practice,
followed up with businesses to determine how funds were spent or if there was
a significant impact on the business from the awards. When completing the
required quarterly reports for the Executive and Legislature, ESD did request the
Administrator obtain testimonials from businesses awarded funds in each of the
10 economic development regions of the State, with a preference for minority- and
women-owned business enterprises. The Administrator reached out to businesses
that fit those criteria and, once consent was received from the selected businesses,
the testimonials were provided to ESD.
ESD issued six reports between September 2021 and January 2023 (when the last
Program award was disbursed). Of the 40,842 awarded businesses, ESD collected
responses from only 20 businesses, and only 12 of the 20 testimonials mentioned
—in broad terms—how recipients used their Program funds. Their references
included payroll costs including the hiring of new employees, rent payments, utility
payments, and the purchase of new equipment.
ESD officials stated an effort to assess the impact of the Program on the funded
businesses was not the intent of the Act and that the State achieved the goal of the
Program by distributing funds to small businesses. We maintain that there were
Report 2023-S-10 13
intentions outlined in the statute for these funds, and that they were not merely
aimed at distributing funding without any other expected outcome.
Recommendations
1. Develop and implement enhanced application review and award practices for
grants administered by ESD. This may include, but not be limited to:
Utilizing relevant publicly available data sources.
Working with federal or other applicable government partners to obtain
relevant information on eligibility criteria.
Incorporating relevant elements into award selection methodology,
including, but not limited to, areas outlined in the Program’s goals.
2. Establish a process or practice to measure performance of grants
administered by ESD.
3. Recover Program funds that were awarded to ineligible businesses as
appropriate.
Report 2023-S-10 14
Audit Scope, Objectives, and Methodology
The objectives of our audit were to determine whether ESD awarded funds according
to Program eligibility requirements, and whether ESD established performance
measures to assess the impact of the awards. The audit covered the period from
April 2021 through January 2023.
To accomplish our objectives and assess related internal controls, we reviewed the
applicable Act and ESD procedures, interviewed ESD and Administrator officials
and employees, and examined ESD records. We also reviewed and analyzed SBA
published data.
We used a non-statistical sampling approach to provide conclusions on our audit
objectives and to test internal controls and compliance. We selected random
samples. However, because we used a non-statistical sampling approach for our
tests, we cannot project the results to the respective populations, even for the
random samples. Our samples, which are discussed in detail in the body of our
report, include:
A random sample of 50 funded businesses to test whether applicants met
Program guidelines and were awarded accurate grant amounts.
A random sample of 50 business owners with multiple businesses (totaling 109
funded businesses) out of a population of 972.
We also reviewed all 15 out-of-state funded businesses to determine if they met
Program eligibility.
We obtained Program recipient data from ESD’s application portal system and
assessed the reliability of that data by reviewing existing information, tracing to and
from source data, and interviewing officials knowledgeable about the system. For our
review of rideshare drivers, we focused our analysis on Business Type and Business
Category. Of the 19,752 rideshare drivers identified in this report, there were 51
businesses that we were unable to verify due to conflicting information within the
program recipient data. However, we determined that the data was sufficiently
reliable for the purposes of this report.
We relied on federal PPP and RRF data obtained from the SBA website, which
is recognized as an appropriate source, and used this data for widely accepted
purposes. Therefore, this data is sufficiently reliable for the purposes of this report
without requiring additional testing.
Report 2023-S-10 15
Statutory Requirements
Authority
The audit was performed pursuant to the State Comptroller’s authority as set forth
in Article V, Section 1 and Article X, Section 5 of the State Constitution; Article II,
Section 8 of the State Finance Law; and Section 2803 of the Public Authorities Law.
We conducted our performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
In addition to being the State Auditor, the Comptroller performs certain other
constitutionally and statutorily mandated duties as the chief fiscal officer of New York
State, including some duties on behalf of public authorities. For ESD, these include
operating the State’s accounting system, reporting ESD as a discrete component unit
in the State’s financial statements, and approving selected contracts. These duties
could be considered management functions for purposes of evaluating organizational
independence under generally accepted government auditing standards. In
our professional judgment, these duties do not affect our ability to conduct this
independent audit of ESD’s oversight and administration of the COVID-19 Pandemic
Small Business Recovery Grant Program.
Reporting Requirements
We provided a draft copy of this report to ESD officials for their review and formal
written comments. We considered their response in preparing this final report and
have included it in its entirety at the end of the report. Generally, agency officials
took exception to certain statements in the report. Our responses to certain remarks
are embedded within ESD’s response as State Comptroller’s Comments. Certain
information was shared with ESD officials but not included in this report due to the
confidential nature of that information.
Within 180 days after final release of this report, as required by Section 170 of the
Executive Law, the Commissioner of Empire State Development shall report to
the Governor, the State Comptroller, and the leaders of the Legislature and fiscal
committees, advising what steps were taken to implement the recommendations
contained herein, and where recommendations were not implemented, the reasons
why.
Report 2023-S-10 16
Agency Comments and State Comptroller’s Comments
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
March 10, 2025
Melissa Davie
Audit Supervisor
Office of the State Comptroller
110 State Street
Albany, New York 12236
RE: Response to OSC’s Audit Report: COVID‐19 Pandemic Small Business Recovery
Grant Program (2023‐S‐010)
Dear Ms. Davie:
Thank you for the opportunity to comment on the Office of the State Comptroller’s
(“OSC”) Draft Audit Report 2023-S-010 (“Draft Audit Report”) regarding Empire State
Development’s (“ESD”): COVID-19 Pandemic Small Business Recovery Grant Program (the
“Program”).
In order to evaluate the Program, it is important to revisit, recall and recognize the
state of the world, and specifically New York State (the “State”), at the beginning of the
global COVID-19 pandemic.
Background
As noted in the Background Section of the Draft Audit Report, as early as March 20,
2020, an Executive Order was issued mandating, among other numerous health-related
restrictions, telecommuting where possible. It also mandated a complete reduction of in-
person workforce of all non-essential businesses.1
Not surprisingly, these restrictions had significant negative impacts on the over
400,000 small business across the State. As OSC reported on March 18, 2021, “[f]or many
small businesses, the pandemic quickly resulted in revenue decline. According to the
Census Bureau, 77 percent of New York’s small businesses reported a decrease in revenues,
sales or receipts, not including financial assistance or loans, at the end of April 2020.”2
In response to this emergent situation, the 2021-2022 New York State Budget
funded a new one-time $800 million COVID-19 pandemic small business recovery grant
program to be administered by ESD “to provide assistance to small businesses and for-
profit independent arts and cultural organizations who have experienced economic
hardship during the COVID-19 pandemic.” While ESD routinely administers grants for the
purposes of economic development, these grants were unique as they represented
1 Executive Order 202.8.
2 https://www.osc.ny.gov/reports/impact-covid-19-march-18-
2021#:~:text=For%20many%20small%20businesses%2C%20the,the%20end%20of%20April%202020
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Report 2023-S-10 17
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
emergency relief grants to tens of thousands of applicants in a short timeframe. ESD
contracted with a third-party administrator (the “Administrator”) to oversee the Program.
The Program legislation was enacted in April 2021, and ESD opened the application
portal on June 10, 2021. During this short period, ESD engaged in an expedited Request for
Proposals; scored the received proposals and chose the Administrator; drafted guidelines;
hired Technical Assistance Providers; and worked with the Administrator to create the
application.
The Program successfully disbursed the entirety of the $760 million in available
funding to 40,842 small businesses impacted by the COVID-19 pandemic. The Program
provided flexible grants of $5,000 to $50,000, with an average award of $18,608. As per the
Program’s mission, 98% of awards went to micro-businesses, 48% of awards went to
socially and economically disadvantaged small businesses, and 90% went to minority
and/or women owned small businesses.
OSC’s Recommendations
Following this audit process, OSC made three recommendations.
A. Develop and implement enhanced application review and award practices
for grants administered by ESD. This may include but not be limited to: (i)
Utilizing relevant publicly available data sources; (ii) Working with federal
or other applicable government partners to obtain relevant information on
eligibility criteria.
OSC determined that 101 businesses that had been awarded grant funds under the
Program had also received either Restaurant Revitalization Fund (“RRF”) grants or
Paycheck Protection Program (“PPP”) loans, in contravention of Program guidelines.
OSC faults ESD for using attestations regarding whether the applicant had received
funds from these federal assistance programs. However, in May and June of 2021, when
ESD and the Administrator were developing the application for the Program, the complete
and accurate federal data for the RRF and PPP programs were not available. Specifically,
according to the Small Business Association (“SBA”) website, the RRF dataset was initially
created on July 21, 2021, and then updated thereafter. The PPP dataset was initially created
on March 2, 2021, and then updated thereafter. Importantly, the SBA data was updated
through and including October 2024, which calls into question the accuracy, value and
reliability of the initial published data. The Program closed on January 6, 2023; therefore,
ESD properly utilized attestations instead of consulting incomplete datasets and potentially
delaying the distribution of much needed grant funds.
State Comptroller’s Comment 1 – On page 10 of our report, we acknowledge the pressing
need to distribute funds efficiently during an unprecedented time of economic hardship. We
reiterate our recommendation for ESD to establish a practice of using publicly available data and
2
Report 2023-S-10 18
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
working with federal partners to obtain information, along with attestations, that will enable ESD
to make more reliable eligibility determinations with future grant programs, especially when
federal grant receipts are a factor.
OSC acknowledges the “pressing need to distribute funds efficiently during an
unprecedented time of economic hardship” but then recommends “that ESD establish a
practice of using publicly available data and working with federal partners to obtain
information that will enable ESD to make more reliable eligibility determinations with
future grant programs, especially when federal grant recipients are a factor.” As noted, the
data for the PPP and RRF programs were neither available nor reliable. Furthermore, the
Administrator reached out to the SBA during the development phase of the application to
inquire about obtaining the relevant federal data via FOIA or other means and was told that
the requested data would not be available in time for the Program’s launch.
State Comptroller’s Comment 2 – In response to our preliminary findings and during further
discussions, ESD did not inform the auditors that the Administrator purportedly reached out to
the Small Business Association to obtain relevant federal data or of the response. However,
ESD noted in its response that data was available in March 2021 (3 months prior to the first
Program award) for the Paycheck Protection Program and July 2021 (within 1 month of the first
Program award) for the Restaurant Revitalization Fund. Also, without further testing, ESD
cannot determine whether the federal data is reliable.
As noted earlier, over the course of the Program, SBA released updated and new data, so
the program would have run the risk of utilizing incorrect data to make decisions. In
conversations with ESD during the course of the audit, the OCS auditors suggested that ESD
could have used other forms of verification; specifically, that ESD could have requested
bank statements to check for the absence of federal awards. However, this method would
have burdened both the applicants and the Administrator and would not have provided
assurances because businesses could have used separate bank accounts to receive any
federal funds, and it is not guaranteed that requested statements would overlap with any
federal funds. Accordingly, ESD’s use of attestations was, in fact, programmatically
appropriate as it was the best method available at the time to assess whether an applicant
had received PPP or RRF funds.
(iii) Incorporating relevant elements into award selection methodology,
including, but not limited to, areas outlined in the Program goals.
OSC also faults ESD for providing grant funds to 15 businesses that were incorporated
and/or reside outside of New York State. OSC acknowledges that the businesses were
eligible to receive funding but states, “we question whether such businesses should have
been selected to receive Program funds when ESD was simultaneously receiving thousands
of applications from in-state businesses.” The enabling legislation for the Program, UDC Act
§16-ff(4)(i), specifically includes as eligible businesses that are “incorporated in New York
state or licensed or registered to do business in New York state” (Emphasis supplied). OSC’s
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Report 2023-S-10 19
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
recommendation would have ESD ignore the law as enacted by the legislature and the
Executive – an action that would violate the law and the rights of those businesses deemed
eligible. Indeed, providing funds for these businesses, by definition, “aligns with the
intention of the Program” because it is part of the enacted legislation.
State Comptroller’s Comment 3 – As stated on page 10 of our report, OSC acknowledged the
Program’s selection criteria didn’t specifically exclude out-of-state businesses; however, we do
question whether the out-of-state businesses should have received awards while other in-state
businesses did not. Outside the enacted legislation, the Program’s mission was to provide
“flexible grant assistance to currently viable small businesses, micro-businesses and for-profit
independent arts and cultural organizations in New York State who have experienced economic
hardship due to the COVID-19 pandemic.”
Furthermore, OSC’s suggestion that the first-come, first-served method did not provide
grants to businesses or industries most impacted by the pandemic is incorrect. The
Program was established specifically to provide grants to the neediest businesses and was
only broadened to include more businesses after the neediest businesses were provided
access to the grant funds.
State Comptroller’s Comment 4 – As stated on page 11 of our report, certain Program eligibility
requirements were modified throughout the administration of the Program—some only after a few
months within the first Program awards. These modifications were made theoretically after the
neediest businesses received funding, which resulted in thousands of businesses—that would
have otherwise been initially ineligible—receiving funding. As such, a review of the 34,411
businesses that have approved applications, but did not have eligibility determined, identified
over 29,000 that had less than $500,000 in revenue. Therefore, we question how ESD
determined that all the neediest businesses were funded prior to changing Program eligibility.
The Program also included significant assistance – website guidance, call centers and
technical assistance providers – to help less sophisticated businesses through the
application process.
Moreover, employing the methodology that OSC suggests would have required ESD to
gather all applications, then determine which businesses were most impacted and only
then process the grant payments.
State Comptroller’s Comment 5 – As mentioned on page 13 of our report, while ESD’s method
for awarding funds may have been the quickest way to serve businesses, it lacked consideration
of other programmatic factors, including the overall intent of the Program. We recommend ESD
take a more thoughtful approach that would best serve the intention of the Program and facilitate
distribution of awards that better consider stated Program priorities, balanced with the need to
distribute funding quickly.
Firstly, the legislation imposed no such requirement on the Program and such a
discretionary policy would have represented a significant deviation from the Program
legislation. Furthermore, such a process would have caused significant delay to businesses
already suffering great hardships due to the pandemic. Time was very much of the essence
4
Report 2023-S-10 20
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
and the first-come, first-served method provided the most expedient way to disburse the
grant funds to small businesses.
OSC then uses data from the 34,411 applications that were deemed complete but went
unfunded to extrapolate, without basis, on types of applicants (such as women-owned
businesses and low-to-middle-income businesses) that could have been funded. On May 10,
2024, when OSC requested this list of completed but unfunded applications, OSC
acknowledged that the Administrator “closed out all unfunded applications so there is no
way to know if the application had been reviewed or not, but we would still like to see the
listing.” OSC concedes that it could not conclude that the 34,411 applications would have
been deemed eligible; yet it extrapolates based on the admittedly flawed data, nonetheless.
In fact, the 34,411 applications had completed the initial automated stage of submission of
the applications; but the majority had not been reviewed for eligibility, and, as a result, the
data lacked integrity for statistical analysis purposes. An initial review of the 34,411
“completed applications” that were not funded demonstrates that many, if not most, of
those applications were not fundable for many reasons beyond availability of funds. The
review shows that many fell well outside the Program’s parameters, including 461 with
greater than 100 employees reported, 550 with $2.5 million or more in 2020 sales, and
1,120 with business ZIP codes that are outside of New York State.
State Comptroller’s Comment 6 – ESD indicates that many of the 34,411 completed
applications without eligibility determinations fell outside the Program’s parameters and then
indicates that only 1,581 applications (4.6%) failed to meet requirements. However, ESD
highlights that 1,120 businesses would be ineligible because these were businesses “with
business ZIP codes that are outside of New York State.” Based on the enacted legislation and
ESD’s response (see State Comptroller’s Comment 3), these businesses would be eligible for
Program awards if meeting all other requirements.
Finally, OSC incorrectly concludes that ESD’s “first-come first-served method . . .
resulted in tens of thousands of businesses that went unfunded.”
State Comptroller’s Comment 7 – We revised our final report to clarify this statement.
In fact, as noted above, New York State has over 400,000 small businesses; therefore, no
matter how the Program was administered, tens of thousands of businesses would go
unfunded. The Program was intended to help as many businesses as possible in a short
timeframe with the available funds only – and it did just that.
It should be noted that at the closure of this Program, the pandemic state of emergency
remained, and additional relief programs for small businesses were still being enacted and
administered by ESD. Thus, the need to distribute these funds as quickly as possible was
present throughout the entire time the Program was in operation.
OSC also faults the changes that ESD made to the Program over time. The Program
was established to help the neediest businesses first – defined in the guidelines as those
with a revenue cap of $500,000 or less. In addition, the Program prioritized businesses
5
Report 2023-S-10 21
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
located in socially and economically disadvantaged areas, minority and/or women-owned
businesses, micro-businesses, and small businesses that did not receive adequate federal
COVID-19 support. It was only after these needier businesses were assisted that the State
raised the revenue cap to $2.5 million to allow more businesses to access the necessary
support.
OSC’s assertion that “[t]hese actions further eroded the original intent of the
Program and may have even funded businesses that were not viable prior to the pandemic”
is simply incorrect and contradicts OSC’s own assertion that the Program should target the
neediest businesses. As the Program proceeded, ESD evaluated who was being served by
the Program and who needed to be served. Importantly, it became clear that the profit
requirement did not accurately reflect the statuses of businesses, because profitability is
not a requirement for business viability.
State Comptroller’s Comment 8 – ESD did not provide the auditors with any analysis or
evaluation of businesses being served as compared to businesses in need or that profitability
hindered businesses that otherwise would be eligible. In fact, as stated on page 11 of our report,
only 874 businesses received funding based on removing profitability as a Program factor, while
34,411 businesses had applications submitted and not reviewed because Program funds were
fully disbursed.
Many businesses that are deemed viable do not report a profit. Many businesses, including
very small businesses, offset income with legitimate deductions. It became apparent that
the profitability requirement was impeding the State’s ability to assist many viable
businesses negatively impacted by the pandemic, and the State remediated the issue.
OSC also takes issue with the number of taxi and limousine drivers that were
assisted by the Program, though it concedes that they were eligible under the law and
guidelines. While OSC refers to them as Sole Proprietor Transportation and “Ride Share”
businesses without employees, in fact the category included yellow cab drivers and others.
Initially, this Program involved reimbursement for expenses borne due to the pandemic;
neither the Program nor the grants were tied to employee retention (as distinguished from
the Paycheck Protection Program, which was geared towards employee retention
primarily).
State Comptroller’s Comment 9 – As stated on pages 11-12 of our report, rideshare drivers
accounted for almost half (19,752) of the total businesses funded by the Program, and more than
half (54%) of the businesses funded within the first 12 months. The next largest funded business
category was Retail Trade with 3,376 businesses, or 8.3% of all businesses funded. Ultimately,
how the Program was administered resulted in a single business category funded six times as
much as any other. We reiterate our recommendation for ESD to implement an approach to
administer programs that both facilitate awards and consider Program goals.
A report prepared by the New York City Taxi and Limousine Commission reveals the stark
impact the pandemic had on the Taxi and Limousine industry:
6
Report 2023-S-10 22
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
During the week of March 15, demand for transportation in the city began to
decline, with trips dropping by 84% of their pre-COVID levels by the
beginning of April. By then, only 26% of all drivers were still on the road and,
for those that were still working, weekly earnings had dropped by 49%.3
Time magazine provided equally grim data:
A new survey by the New York Taxi Workers Alliance (NYTWA), which
represents about 23,000 taxi and rideshare-app drivers, found more than
82% of drivers have run out of money to buy food or say they will soon reach
that point. Out of 919 drivers surveyed, more than 700 said they were unable
to pay their rent or mortgage in March and April. The Independent Drivers
Guild, which represents more than 80,000 for-hire drivers in the city, said
45% of its members in late April had asked for help securing food.
Nearly70% of the guild’s drivers said they were unable to make rent or
mortgage in April, with more saying they won’t be able to pay in May.4
OSC would have had ESD limit the assistance to this devastated group that met the
criteria for assistance under the law. OSC repeatedly focuses on the “intention of the
Program”; In fact, the mission of the Program was “to support the small businesses
that typically have the least access to resources. To that end, the Program
strategically encourage[d] participation from microbusinesses, socially and
economically disadvantaged business owners, minority and/or women owned
businesses, and small businesses that did not receive adequate federal COVID-19
support.”5 Taxi and limousine drivers are a large component of the State’s
microbusinesses, socially and economically disadvantaged business owners, and
minority and/or women owned businesses; they were particularly hard hit by the
pandemic-imposed shut down; and they were not otherwise being assisted by other
existing programs, such as PPP or EIDL, because they were such small businesses.
State Comptroller’s Comment 10 – According to ESD, the Program was established specifically
to provide grants to the neediest businesses. Whereas rideshare drivers certainly experienced
economic hardship at the onset of the COVID-19 pandemic, ESD is incorrect in its assertion that
this industry was not eligible for the Paycheck Protection Program and Economic Injury Disaster
Loans—these businesses were eligible for both as well as granted extended unemployment
benefits under the CARES Act.
Thus, on all grounds, these are firmly within the category of businesses the Program was
created to help weather the ongoing emergency situation.
3 covid-impact-report.pdf
4 Coronavirus Could Be a Breaking Point for NYC Taxi Drivers | TIME
5 https://esd.ny.gov/sites/default/files/NY-Pandemic-Recovery-Grant-Program-December-22-Final-
Legislative-Report.pdf
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Report 2023-S-10 23
KATHY HOCHUL
Governor
HOPE KNIGHT
President, CEO & Commissioner
B. Establish a process or practice to measure performance of grants
administered by ESD.
The enacted legislation focused on getting funds to ailing small businesses and the
State achieved that stated goal. The herculean effort to assess the effect of relatively small
grant amounts on 40,842 businesses – to the extent the data would have even been
available – was not envisioned by the legislation. These grants were intended to be for the
reimbursement for prior expenses; therefore, any future growth effects would be hard to
quantify and were not an expected Program outcome.
State Comptroller’s Comment 11 – Without reviewing the overall effectiveness of the Program,
ESD has no assurance that the Program met its intended goals other than distributing funds to
businesses that successfully applied first, while other and possibly more needy businesses did
not receive Program funds. Furthermore, without any form of performance review, any potential
improvement areas that could be implemented for similar programs were not identified.
C. Recover Program funds that were awarded to ineligible businesses as
appropriate.
ESD has developed a plan to seek recoupment of Program funds to business that are
deemed ineligible.
Conclusion
ESD remains proud of the work it did to assist businesses during the unprecedented
pandemic that so gravely affected small businesses in New York State.
Thank you for the opportunity to comment on the Draft Audit Report.
Sincerely,
Felisa Hochheiser
Felisa Hochheiser
Director of Compliance
8
Report 2023-S-10 24
Contributors to Report
Executive Team
Andrea C. Miller - Executive Deputy Comptroller
Tina Kim - Deputy Comptroller
Stephen C. Lynch - Assistant Comptroller
Audit Team
Heather Pratt, CFE - Audit Director
Scott Heid - Audit Manager
Melissa Davie - Audit Supervisor
Molly Farnan - Examiner-in-Charge
Jenna Pennisi, CPA - Senior Examiner
Stephen Meyers, Jr. - Senior Examiner
Frank Scaturro - Staff Examiner
Mary McCoy - Supervising Editor
Contact Information
(518) 474-3271
StateGovernmentAccountability@osc.ny.gov
Office of the New York State Comptroller
Division of State Government Accountability
110 State Street, 11th Floor
Albany, NY 12236
For more audits or information, please visit: www.osc.state.ny.us/state-agencies/audits
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