Overview
The Massachusetts Growth Capital Corporation (MGCC) distributed grants that were in excess of allowable contract amounts. We identified 18 (out of 60 total) grants where MGCC did not limit the grant amount to the lesser of $75,000 or three months of operating expenses. MGCC issued grants on 18 instances totaling $540,000, which was $80,402.62 (17.5%) more than what was allowed, according to the terms of the COVID-19 Small Business Relief Grant Program (SBRGP) contract with the Executive Office of Economic Development (EOED). These 18 instances are outlined in the table below.
| Grant Business Industry | Amount Paid | Eligible Amount | Amount Over Contract Limit |
|---|---|---|---|
| Sector Specific | $ 20,000 | $ 5,161.00 | $ 14,839.00 |
| 50 or Fewer Employees | 60,000 | 50,419.50 | 9,580.50 |
| Sector Specific | 30,000 | 23,372.50 | 6,627.50 |
| Sector Specific | 10,000 | 3,723.00 | 6,277.00 |
| Sector Specific | 10,000 | 3,918.00 | 6,082.00 |
| 50 or Fewer Employees | 40,000 | 34,480.75 | 5,519.25 |
| Sector Specific | 10,000 | 5,867.00 | 4,133.00 |
| Sector Specific | 50,000 | 46,026.25 | 3,973.75 |
| Sector Specific | 20,000 | 16,073.50 | 3,926.50 |
| Sector Specific | 30,000 | 26,508.00 | 3,492.00 |
| Sector Specific | 20,000 | 16,822.25 | 3,177.75 |
| Sector Specific | 50,000 | 47,060.75 | 2,939.25 |
| Sector Specific | 20,000 | 17,208.75 | 2,791.25 |
| Sector Specific | 20,000 | 17,666.25 | 2,333.75 |
| Sector Specific | 70,000 | 67,794.00 | 2,206.00 |
| Sector Specific | 10,000 | 8,808.00 | 1,192.00 |
| Sector Specific | 40,000 | 38,979.25 | 1,020.75 |
| Sector Specific | 30,000 | 29,708.50 | 291.37 |
| Total | $ 540,000 | $ 459,597.38 | $ 80,402.62 |
Funding some small business grants in excess of amounts allowed by the contract with EOED could result in MGCC and the Commonwealth having less funding available for other state programs and misuse of taxpayer funds.
Authoritative Guidance
Section III of Amendment to Attachment A of the Small Business Relief Grant Program—Part II contract between MGCC and EOED states,
The new business relief program would offer grants up to $75,000, but not more than three months of operating expenses, to be used for employee wage and benefits costs, space-relatedcosts, and debt service obligations. . . .
[Applicants must be] able to document a loss of income equal to or greater than requested assistance due to COVID-19.
Reasons for Issue
MGCC officials told us in an email on June 6, 2023 that MGCC rounded requests up “based on the ongoing pandemic and the continued negative impacts on small business.” However, we did not find any documented policies and procedures that allowed for rounding up of grant amounts because of negative impacts on small businesses due to the pandemic. Further, MGCC did not provide any methodology on either when to round up requests from amounts calculated according to grant criteria or by how much. We also noted that the contract overages did not follow a consistent pattern, which would be expected from rounding, especially given the example of a $5,161 grant being rounded up to $20,000.
Recommendations
- MGCC should award grants in amounts established by contracts and program guidelines.
- MGCC should request written approval from the awarding entity for adjusting grants based on qualifying economic circumstances and should include these provisions in its grant application policies and procedures.
- MGCC should apply any program changes uniformly to all applicants and awardees.
Auditee’s Response
As context for all of the responses which follow, MGCC notes that the small business COVID relief grant program (COVID-19 SBRGP) was established several months after former Governor Baker declared a state of emergency in an attempt to minimize the public health impact of a global pandemic. The Governor followed that declaration of a state of emergency with a number of executive orders prohibiting public gatherings and closing many businesses. Those closures, while necessary and appropriate under the circumstances, imposed tremendous economic hardship on businesses across the Commonwealth. The COVID-19 SBRGP was funded by Governor Baker and administered by MGCC at his request to provide urgent economic assistance to those businesses hardest hit by the pandemic. MGCC processed over 18,000 applications over an eight-month period from December 2020 to July 2021. The funding for the COVID-19 SBRGP was delivered to MGCC pursuant to a contract with the Executive Office of Housing and Economic Development (EOHED).
Beginning in the first year of the Healey-Driscoll Administration, the Executive Office of Economic Development (EOED) (the successor to EOHED under legislation filed by Governor Healey) has been working with MGCC to improve MGCC’s administration of other COVID relief grant programs, including by refining processes related to contracting, making eligibility determinations and documenting administrative expenses. The legislature has not appropriated funding for any COVID relief programs since 2022 and MGCC does not expect to be administering additional pandemic-related grant programs in the future, but the process improvements implemented to date and recommended in this report are being incorporated, as applicable, into MGCC’s other lending and technical assistance programs.
With that background, MGCC agrees with the finding and all of the above recommendations and further notes:
MGCC was in regular communication with EOHED regarding the implementation of the COVID-19 SBRGP, including about the amounts of grants made to each impacted business. Due to the large amount of funding provided to MGCC to disburse through the COVID-19 SBRGP, and the unusual urgency with which grant funds were to be disbursed, MGCC determined that it would be more effective to keep track of awarded amounts by rounding the grant funding to ten thousand dollar increments, or five thousand dollar increments for grants below $10,000. In some cases, this rounding caused the grant amount to exceed the maximum grant amount established in the contract with EOHED.
EOHED supported this approach because it allowed MGCC to disburse funding to businesses impacted by the pandemic as expeditiously as possible, which was an important consideration given the urgency of the economic hardship businesses experienced during this time. Due to the urgency of the pandemic, and the ensuing economic hardship on businesses forced to shut down, EOHED and MGCC were focused on disbursing grants to impacted businesses and did not amend the contract to reflect that some grant awards would exceed the agreed upon cap as stated in the contract. MGCC agrees that it is best practice to document the agreed-upon grant amounts by either formally amending the contract with EOHED or requesting a written acknowledgement or waiver from EOHED.
- MGCC agrees that it would be best practice to request written approval from the awarding entity prior to adjusting grants based on qualifying economic circumstances, and to include these provisions in its grant application policies and procedures. As noted above, the circumstances of the pandemic resulted in MGCC not accounting for this best practice.
- MGCC agrees that it should apply any program changes uniformly to all applicants and awardees.
Auditor’s Reply
In its reply, MGCC provided information regarding how grants were awarded in excess of contractually allowable amounts. This information and methodology is not, and was not, documented and was not provided to us during this audit.
MGCC acknowledged that this methodology should have been formally documented but was not. Given this lack of documentation, there is no way for MGCC to ensure that grants were consistently awarded in accordance with this undocumented methodology. For example, our audit uncovered an instance where the grant amount was not in accordance with the undocumented grant award methodology described in MGCC’s response (specifically, the grant award of $20,000 that was $14,839 above the contractually allowable amount).
Undocumented methodologies for grant distribution could result in the inappropriate and inequitable distribution of taxpayer-funded grants. MGCC stated that it and EOED decided to issue grant awards “by rounding the grant funding to ten thousand dollar increments, or five thousand dollar increments for grants below $10,000.” Some grantees received grant awards within the amount allowed by the documented contract, while other grantees (18 out of the 60 sampled) were awarded grants that were rounded in excess of the allowable contract amount. Based on MGCC’s response, a grantee with an allowable grant award of $50,419.50 might have been issued a grant of $50,000 using undocumented methodologies. However, as noted, this grantee received an award of $60,000 instead. We reiterate our concerns regarding the apparent inconsistent application of undocumented methodologies regarding the distribution of state-funded grants.
Based on its response, MGCC is taking steps to address our concerns.
| Date published: | August 28, 2024 |
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