Limited Scope Review of the State’s Oversight of Moneys Received Through the Coronavirus Relief Fund (Hawaii, Report No. 20-14)
Summary
Hawai‘i's Office of the Auditor reviewed, at the Senate Special Committee on COVID-19's request, how the State oversaw the $862.8 million it received from the Coronavirus Relief Fund (Report No. 20-14, October 2020). Hawai‘i received $1.25 billion through the CRF, with $387.2 million awarded directly to the City and County of Honolulu. The review's main concern is that the State is relying almost exclusively on each state department and county to ensure their use complies with federal requirements, and it found significant discrepancies in the State's accounting of moneys allocated, encumbered and expended ahead of the December 30, 2020 deadline. The Governor line-item vetoed appropriations totaling $321 million. As of September 30, the Housing Relief and Resiliency Program had been allocated $100 million, with $40.2 million expended.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
PHOTO: ISTOCK.COM
COVID-19 SPECIAL PROJECTS
Limited Scope Review of the
State’s Oversight of Moneys
Received Through the
Coronavirus Relief Fund
Introduction
A
t the Senate Special Committee on COVID-19’s request,
we initiated this limited scope review of the oversight of Our review includes
$862.8 million the State of Hawai‘i received through the those funds the
Coronavirus Relief Fund (CRF). The fund was established
State distributed
by the Coronavirus Aid, Relief, and Economic Security (CARES) Act
to the counties of
to provide direct assistance to state, local, and tribal governments to
address costs associated with the current public health emergency. Our Hawai‘i, Maui, and
review includes those funds the State distributed to the counties of Kaua‘i as well as
Hawai‘i, Maui, and Kaua‘i as well as to subrecipient organizations that to subrecipient
are implementing state and county programs using CRF moneys. organizations that
are implementing
We are providing this review to inform the Committee of possible state and county
areas of concern related to the State’s tracking of CRF moneys and programs using CRF
compliance with certain federal requirements, the most significant moneys.
of which is that the State is relying almost exclusively on each state
department and county to ensure that their use complies with federal
requirements. However, with the December 30, 2020 deadline to
expend the CRF moneys quickly approaching, we did not ask each
COVID-19 Report No. 20-14 / October 2020 1
Limited Scope Review of the State’s Oversight of Moneys Received Through the Coronavirus Relief Fund
subrecipient – i.e., each state department and county – for the respective
policies, procedures, and controls regarding their use and oversight of
the CRF moneys. We determined that we would not be able to identify
concerns, and possibly offer recommendations, about each entity’s
policies, procedures, and controls in sufficient time for those entities to
address those issues.
The Governor We are available to provide additional assistance to the Committee in
this area, at the Committee’s request.
line-item vetoed
appropriations
totaling $321 million, Background
$230 million of which
Hawai‘i received $1.25 billion through the CRF, with $862.8 million
was earmarked distributed to the State and $387.2 million awarded directly to the City
for additional and County of Honolulu.1 In April, the Legislature appropriated
unemployment $226.8 million of the State’s portion, sending $80 million to the County
benefits. He has of Hawai‘i, $66.6 million to the County of Maui, and $28.7 million to
since redirected the the County of Kaua‘i for their respective COVID-19 responses.2 It also
$321 million to pay appropriated $40 million to the Department of Defense, $9.5 million
for other COVID-19- to the Department of Labor and Industrial Relations, and $2 million to
related costs, the Department of Human Services for their respective COVID-related
including support efforts. The remaining $636 million was deposited into the State’s
for new initiatives Emergency and Budget Reserve Fund.
such as the Hawai‘i
Restaurant Card When it reconvened in June, the Legislature passed S.B. No. 126,
Program. S.D. 1, H.D. 1, C.D. 1, which amended the state executive budget to,
among other things, appropriate the CARES Act moneys that had been
deposited into the State’s Emergency and Budget Reserve Fund to
address additional needs created by the COVID-19 pandemic.3 For
each appropriation of CRF moneys, the bill, which became Act 9
(Session Laws of Hawai‘i 2020), reads: “On December 28, 2020,
any unexpended funds shall be transferred to the unemployment
compensation trust fund established under section 383-121, Hawai‘i
Revised Statutes.”
The Governor line-item vetoed appropriations totaling $321 million,
$230 million of which was earmarked for additional unemployment
benefits. He has since redirected the $321 million to pay for other
COVID-19-related costs, including support for new initiatives such as
1 Local governments with populations of 500,000 or more were permitted to apply di-
rectly to the Treasury for a specified share of their state’s funding. The City and County
of Honolulu made such a request and was allocated moneys separate from the State’s;
therefore, we did not review Honolulu’s oversight of its CRF award. The other counties
do not have the populations to qualify for a separate allotment.
2
Act 8, Session Laws of Hawai‘i 2020.
3
The Emergency and Budget Reserve Fund is a special fund for emergency and “rainy
day” purposes.
2 COVID-19 Report No. 20-14 / October 2020
State CRF Allocations Under Act 8 and Act 9
Act 8 Counties Purpose Appropriation
County of Hawai‘i County of Hawai‘i $80,009,671
County of Maui County of Maui 66,598,757
County of Kaua‘i County of Kaua‘i 28,715,551
$175,323,979
In his objections to
Act 8 Department Purpose Appropriation S.B. 126 (Act 9) the
Governor noted the
Department of Defense COVID-19 Response $40,000,000 reduction to the Hawai‘i
Housing Finance
Pandemic Unemployment
Department of Labor and Industrial 1,360,000 and Development
Assistance Program
Relations Corporation for the
IT Systems and Staffing 8,154,000 housing relief and
Department of Human Services IT and Other Systems 2,000,000 resiliency program of
$100 million to $50
$51,514,000 million; however, the
item was not adjusted in
the bill, unlike the other
Act 9 Department Purpose Appropriation adjustments stricken or
reduced.
Department of Business, Economic Housing Relief & Resiliency
Development and Tourism (Hawai‘i Program
$100,000,000
Housing Finance and Development
Corporation)
Retraining and Workforce
10,000,000 Reduced by $26M
Development Programs
Department of Business, Economic Innovation Grants to Create
Development and Tourism a Supply Chain of Cleaning 10,000,000 Reduced by $5M
Supplies and PPE
Fishing Industry Support 3,000,000
Department of Human Services Childcare Facility Subsidy 15,000,000
Department of Defense Purchase & Distribution of PPE 61,000,000 Reduced by $39M
Airport Screening & Health
Department of Transportation 70,000,000 Reduced by $20M
Assurance Security Initiatives
Food Distribution 5,000,000
Support for 2020 Graduates of
Department of Labor and Industrial 1,000,000 Reduced by $1M
Public High Schools
Relations
Unemployment Insurance
- Reduced by $230M
Assistance
Office of the Governor Governor’s Discretionary Fund 39,986,000
$314,986,000
$321,000,000
Counties 175,323,979
Amount of vetoed
Act 8 51,514,000
appropriations
Act 9 314,986,000
$541,823,979
Source: Office of the Auditor
COVID-19 Report No. 20-14 / October 2020 3
Limited Scope Review of the State’s Oversight of Moneys Received Through the Coronavirus Relief Fund
Amount Allocated from the $321 Million in Appropriations Vetoed
by the Governor
Department Purpose Allocation
COVID-19 testing supplies and
Department of Health 35,000,000
equipment
Contact tracing expansion 34,993,325
Quarantine chambers and
Department of Public Safety 3,750,000
isolations containers
Inmate testing; cleaning &
5,100,000
disinfection; medical staff
Scalable information and
Department of Human Services 4,650,000
communications technology
University of Hawai‘i COVID-19 related expenditures 20,130,000
Additional medical staff
Department of Health 14,000,000
services
Hawai‘i Health Systems Corporation PPE supplies and equipment 891,908
Department of Business, Economic Hawai‘i Restaurant Card
66,600,000
Development and Tourism Program
PPE supplies and equipment;
Judiciary 789,859
technology equipment
185,905,092
Amount of vetoed
321,000,000 appropriations
(185,905,092)
Remaining
Source: Office of the Auditor 135,094,908 unallocated amount
the Hawai‘i Restaurant Card Program. The Governor also announced
that he intends to use any unspent funds to repay a U.S. Department of
Labor loan the State used to pay unemployment benefits.4
The table on page 3 summarizes the Legislature’s appropriation of
the $862.8 million in CRF moneys received by the State and the
appropriations vetoed and reduced by the Governor. To the extent that
we have been able to track the $321 million that the Governor line-item
vetoed, we have included that information in the table above.
State relies on subrecipients of federal funds to
monitor themselves
The Department of Budget and Finance (B&F) is tasked with ensuring
that effective cash management is employed for the CRF moneys as
4
In his September 30 News Release, the Governor announced “[a]ny funds unspent at
year’s end will be placed in the state’s unemployment insurance trust fund and used to help
repay a $1 billion loan that was secured to pay unemployment benefits to local residents.”
4 COVID-19 Report No. 20-14 / October 2020
well as assisting the Office of Federal Awards Management in meeting
CRF reporting requirements. In addition, the Governor designated
B&F’s Deputy Director as the “Authorized State Official” for the federal
award, charging him with coordinating department-level actions and
providing support to the departments using CRF funds.
When we initiated this review, we assumed B&F had developed
policies, procedures, and controls specific to the State’s use of the CRF
moneys, and we expected to analyze those documents for purposes of
our review. However, B&F’s Deputy Director informed us that B&F is B&F’s Deputy
not involved in overseeing the expenditure of CRF moneys.5 Instead, Director informed
he relies on state and county departments and agencies, as well as other us that B&F is
private subrecipient organizations, to ensure the federal funds are used not involved in
appropriately and expended on time. He assumes each department and overseeing the
county has procedures and controls in place, as required, but B&F has expenditure of
not reviewed any of the subrecipients’ relevant documents.6 CRF moneys.
Instead, he relies
B&F’s Deputy Director provided us with a copy of Executive on state and county
Memorandum No. 20-06 (EM No. 20-06), which describes the State’s departments and
management of its CRF moneys and the process for departments to agencies, as well
request use of those moneys. That process requires directors to attest
as other private
that “[the] request qualifies as an allowable use of the CRF” and
subrecipient
that “[the department] will comply with the CARES Act reporting
requirements.”
organizations, to
ensure the federal
He also provided us with the Coronavirus Relief Fund Hawai‘i State- funds are used
County Handbook (Hawai‘i State-County Handbook), which provides appropriately and
the terms and conditions applicable to the payments to the counties expended on time.
of Hawai‘i, Maui, and Kaua‘i from the moneys the State received
through the CRF. Among other things, the county mayors are required
to “certify” that they will only use the CRF moneys for costs allowed
under the CARES Act and that their county “shall be liable for any
costs disallowed pursuant to financial or compliance audits of funds
received.”
5 As the Authorized State Official, the B&F Deputy Director reviews and recommends to
the Governor approval of department proposals for use of CRF moneys and coordinates
the establishment of accounts and the transfer of the moneys to the departments.
6
B&F issued Finance Memorandum No. 20-03 (FM No. 20-03) dated January 31, 2020,
revising pre-pandemic procedures for departments to request appropriations of federal
funds. That guidance requires department heads to ensure that their departments have
written plans that describe how the federal funds will be used. It also directs department
heads to have policies, practices, and procedures that will, among other things,
“[a]void waste, fraud, and abuse” and “[e]nsure that costs charged to federal programs are
allowable costs, in accordance with applicable laws, regulations, agreements and contracts.”
However, annual audits of the State and individual department’s compliance with federal
award requirements routinely include findings identifying non-compliance issues.
COVID-19 Report No. 20-14 / October 2020 5
Limited Scope Review of the State’s Oversight of Moneys Received Through the Coronavirus Relief Fund
The distribution of those documents – EM No. 20-06 and the Hawai‘i
State-County Handbook – seem to be the extent of the State’s efforts to
minimize the risk that it will have to repay or return any of the federal
funds. We have strong reservations about delegating such oversight
to the departments and counties themselves. They have received
substantial sums of money, much of which is paying for new programs
that have to be up and running in a short amount of time, and putting
controls in place to ensure that the funds are spent appropriately by
December 30 may not be a priority.
We – and B&F – have not confirmed that departments and counties have
documented procedures and controls in place that are specific to new
Encumbering vs.
programs funded with CRF moneys. In our opinion, the State, through
Spending
B&F, should be actively monitoring and overseeing the departments’
IN ACCORDANCE and counties’ use of the CRF moneys. Documented procedures and
WITH guidance issued
controls are essential to that monitoring and oversight. There simply is
by Treasury, a cost is
considered “incurred” when too much potential liability to the State – i.e., the State cannot afford to
the State has “expended repay or return any of the moneys it was awarded under the CRF – to
funds to cover the costs,” rely on blind faith. As the recipient of the award, the State is responsible
which means when the for repaying or returning moneys to the U.S. Department of the Treasury
goods or other property
(Treasury) if subrecipients do not comply with the law’s requirements,
are received or when
services are performed by one of which is that the funds be incurred by December 30.
employees, contractors,
subrecipients, and other Inconsistent monitoring and tracking of the CRF
payees – not when the
invoice is actually paid. It
moneys raise concerns about the State’s ability to
is not enough to encumber distribute the funds in a proper and timely manner
the funds to pay for goods
or services received after At a September 30, 2020 news conference, the Governor announced
December 30. Moneys not
used to cover expenditures
that the State had “set aside” 98 percent of the $862.8 million of CRF
incurred by December 30 moneys it had received from Treasury in April. He explained that
must be returned to the CRF moneys must be spent by December 30, 2020; however, any
federal government. funds unspent at year’s end will be placed in the State’s unemployment
compensation trust fund and used to help repay a $1 billion loan that
was secured to pay unemployment benefits to local residents.7
“The State will not leave any of the federal funding unused as these
funds provide a crucial lifeline to our residents and businesses,” said the
Governor. “We are going to use every penny.”
In our review of CRF funds reports, we found significant discrepancies
in the State’s accounting of moneys allocated, encumbered, and, most
importantly, expended. This inconsistent monitoring and tracking of
CRF moneys raise concerns about the State’s ability to distribute the
funds in a proper and timely manner. The moneys the State received
through the CRF must be expended by the end of the year, not just set
7
The State took out a line of credit with the U.S. Department of Labor when its
unemployment fund ran out of money early in the summer.
6 COVID-19 Report No. 20-14 / October 2020
Many of the CRF-funded
programs will be audited.
THE CRF MONEYS are subject to the White requirements and the terms and conditions
House Office of Management and Budget’s of the award. From discussion with the B&F
Uniform Administrative Requirements, Cost Deputy Director, we question whether the State is
Principles, and Audit Requirements for Federal complying with certain of the Uniform Guidance
Awards (Uniform Guidance), which means requirements in its use and distribution of the
the State, as the award recipient, as well federal funds.
as the departments, counties, and nonprofit
organizations that receive distributions of the Treasury has advised that payments the State
State’s CRF moneys (collectively, “subrecipients”) received from the CRF are subject to the Single
must comply with the Uniform Guidance. Among Audit Act, 31 U.S.C. sections 7501-7507, which
other things, the Uniform Guidance requires generally requires government agencies (and
the State and subrecipients to “[e]stablish and nonprofit organizations) spending in excess of
maintain effective internal control over the federal $750,000 of federal moneys in a fiscal year to
award that provides reasonable assurance that have a Single Audit performed. A Single Audit
the non-federal entity is managing the federal reviews how an entity has managed a grant
award in compliance with federal statutes, and assesses the entity’s compliance with rules
regulations, and the terms and conditions of associated with the federal award.1
the federal award.” The Uniform Guidance
also requires recipients of federal funds to
evaluate the subrecipient’s risk of noncompliance
1
Single Audits are performed by independent
auditors who follow guidance issued by the Office of
and to ensure that the funds are used for Management and Budget called the Uniform Guidance
authorized purposes, in compliance with federal and the Compliance Supplement.
aside, with leftovers being used for other purposes. Any money not
used to cover expenditures incurred by December 30 must be returned
to the federal government.
Inconsistent data leads to questions about
spending
The Governor also spoke about the need to get the CRF moneys into
the community quickly and to ensure transparency. He explained
that the Hawaii Data Collaborative, a local nonprofit, is monitoring
and tracking federal funds awarded to the State with assistance from
B&F. His presentation that day featured information provided by the
collaborative, and the Governor’s office directed interested parties to
both organizations’ websites. We visited both and found significant
differences between the information provided by the Governor and the
data reported by B&F.
First, to support the claim of funds set aside, or allocated, the
Governor’s Office included “Coronavirus Relief Fund – Allocated
Funds,” a chart listing 22 state departments and programs that were
COVID-19 Report No. 20-14 / October 2020 7
Limited Scope Review of the State’s Oversight of Moneys Received Through the Coronavirus Relief Fund
allocated a total of $845.3 million (or 98 percent) of the State’s
$862.8 million of CRF moneys. (See below.) However, according
to B&F’s September 2020 report on the State’s allocations and
expenditures of CRF moneys, $726.7 million (84 percent) has been
allocated.
B&F also reported that the State and the counties of Hawai‘i, Maui, and
Kaua‘i, combined, have spent $195.8 million and encumbered another
$283 million, which adds up to $478.8 million. Of the $862.8 million
received by the State, $384 million (or 45 percent) has not been spent or
encumbered, as of September 30.
Meanwhile, according to the Hawaii Data Collaborative “Tracking
Federal Funds” webpage, as of October 23, 2020, of the $862.8 million
CRF moneys received by the State, $160.2 million has been expended
and $258.2 million encumbered, which adds up to $418.4 million,
representing just 48 percent of the State’s CRF moneys. In accordance
with the amounts reported by the Hawaii Data Collaborative, in total,
the State has not expended or encumbered $444.4 million (or
52 percent) of the CRF moneys that must be spent by December 30.
Source: September 30, 2020 Governor’s Update on Coronavirus Relief Funds
Total amount
allocated
8 COVID-19 Report No. 20-14 / October 2020
So has the State expended or encumbered $478.8 million as B&F
reports or is it $418.4 million as the Hawaii Data Collaborative claims?
And is the remaining balance of CRF funds, which have not been
Overseeing the
encumbered or expended, $384 million? Or is it $444.4 million?
Oversight
THE TREASURY OFFICE
“Real-time” expenditure reporting: a missed of Inspector General is
responsible for monitoring
opportunity for oversight and oversight of the receipt,
disbursement, and use of
Since the requirements for allowable expenditures under the CARES CRF payments. It will do
Act are quite generous, the Administrator of the Office of Federal so by evaluating the results
of the State’s Single Audit
Awards Management believes the risk that CRF moneys will be used
as part of its desk reviews
inappropriately is low. However, he does believe that there is greater and any audits it initiates.
risk the funds will not be expended on time or, as the December 30 In the event that a recipient
deadline approaches, organizations will spend those moneys without of a CRF award fails to
the requisite scrutiny to ensure compliance or without a clear purpose, comply with requirements,
the inspector general has
in other words, spend-for-the-sake-of-spending. To minimize that
the authority to recover the
risk, the Administrator believes nonprofit organizations that have been award moneys.
engaged to implement programs using CRF moneys should be required
to report “real-time” expenditure data. The Administrator believes that
daily, real-time expenditure reporting will allow departments to hold
subrecipients accountable for their program implementation or redirect
moneys to other programs to prevent funds being expended for less
impactful purposes as the spending deadline nears.
The Chief Integrity Advisor at the Department of the Attorney General
offered a different approach, which she described as a “continuous
audit.” She proposed a process using an algorithm that would “flag”
questionable expenditures of CRF moneys. According to the Advisor,
such a system would be similar to the processes credit card companies
use to identify questionable charges. She said that Rutgers University
could build the algorithm in about two weeks.
However, developing and implementing such a system would require
a fair amount of expertise and coordination. For instance, developers
would need to be provided with the specific criteria, i.e., the types of
expenditures that should be flagged. Assembling such criteria would
likely require a relatively thorough understanding of the CARES Act.
And, once questionable expenditures are flagged, someone familiar with
CARES Act requirements would be needed to review those questionable
expenditures to determine whether they are allowable or not.
While the algorithm system proposed by the Advisor may significantly
reduce the risk that CRF moneys are being used inappropriately, we
acknowledge that the development of such a system may not have been
possible given the short window of time that the federal funds need to
be expended.
COVID-19 Report No. 20-14 / October 2020 9
Limited Scope Review of the State’s Oversight of Moneys Received Through the Coronavirus Relief Fund
However, the unavailability of such an automated solution should not
have precluded B&F from requiring participating organizations to
submit real-time expenditure data and for the department to review that
information. In our opinion, the concerns expressed by the Office of
Federal Awards Management Administrator are significant. Considering
the limited time and substantial amounts of money appropriated to
implement programs, the significant number of applicants for many of
those programs, and the urgency to spend the funds before December 30,
it is imperative that the State actively monitor the use of CRF moneys.
Doing so will enable the State to redirect moneys if it appears a program
is not able to spend funds responsibly or on time.
Will the Housing Relief and Resiliency Program
make payments on time?
The Housing Relief and Resiliency Program (also referred to as the
Rent Relief and Housing Assistance Program) provides assistance for
Hawai‘i renters who have lost income because of unemployment or
a reduction in work hours due to the COVID-19 pandemic and are at
risk of eviction. Payments are made directly to landlords (up to $1,500
for Maui, Kaua‘i and Hawai‘i Island households, and up to $2,000 for
O‘ahu households). Rent payments can be made in lump-sum amounts
for up to three months at a time.
We note that various reports on the Housing Relief and Resiliency
Program’s spending leave conflicting impressions of the progress of the
program’s efforts. For instance, according to B&F, as of September 30,
the Housing Relief and Resiliency Program was allocated $100 million,
with $40.2 million expended and $59.6 million encumbered, leaving a
balance of only $266,486 or less than 0.3 percent of the total allocation.
However, the Hawaii Data Collaborative lists the two nonprofits that
administer the program as having spent $1.6 million and $2.9 million,
respectively, for a total of $4.5 million as of October 23. Meanwhile,
on October 23, the Rent Relief and Housing Assistance program’s
website listed nearly $7 million in payments made.
However, on October 26, 2020, Hawai‘i News Now reported that
the Housing Relief and Resiliency Program had only distributed
$8.5 million, with another $6.19 million in payments pending.
According to the news report, almost 20,000 residents had applied for
assistance, with few receiving checks.
The Hawai‘i Housing Finance and Development Corporation, the state
agency that oversees the program, represented to the Senate Special
Committee on COVID-19 that only 2 percent of program funds have
been disbursed, which, based on the allocation of $100 million, is
$2 million. The corporation claimed that the delay was because more
10 COVID-19 Report No. 20-14 / October 2020
than half of the 20,000 applications it had received at the time contained
incomplete or inaccurate information. The program has stopped
accepting new applications, noting on its website that the nonprofits
distributing the payments have “reached their current processing
capacity.”
While we recognize the considerable scope and complexity of the
program, we note that the Housing Relief and Resiliency Program will
end on December 28, 2020. With less than two months left, it may be
very difficult for the State and its partners to distribute the remaining
funds in time. As with other social relief efforts, this financial assistance
should be provided when it is needed most, not just by a year’s-end
deadline.
However, we are also concerned that the pressures of a backlog of
applications and a looming deadline will result in a rush to get money
out the door without proper scrutiny and review. This last-minute,
“spend-for-the-sake-of-spending” mentality that the Administrator of
the States’ Office of Federal Awards Management warned about, as
discussed earlier, possibly poses the biggest single risk to the Housing
Relief and Resiliency Program and CRF spending in general.
The potential crisis also illustrates the necessity of real-time expenditure
reporting, which would provide a centralized and authoritative source of
information integral in not only ensuring that funds are spent properly
and on time but also in providing a singular accounting of the progress
programs are making toward their spending goals.
We also reiterate that the Housing Relief and Resiliency Program,
like many CRF programs, is subject to a Single Audit and a review by
Treasury, which has the authority to recover misspent award moneys.
As the recipient of CRF moneys, it is the State that is ultimately
responsible for ensuring that the funds are spent properly and on time.
And if subrecipients do not comply with the CRF requirements, it will
be the State that will have to repay or return moneys to Treasury.
COVID-19 Report No. 20-14 / October 2020 11
Limited Scope Review of the State’s Oversight of Moneys Received Through the Coronavirus Relief Fund
12 COVID-19 Report No. 20-14 / October 2020
File and source
- File
- hi_auditor_report20-14_crf.pdf
- Size
- 2,058,199 bytes
- SHA-256
- 0965d78e507283270776d70910dd1ddfbf936e694c73d5e245cd7ac31ae07159
- Our copy
- hi_auditor_report20-14_crf.pdf
- Original
- No public link identified.