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Oversight failures by state officials resulted in the misallocation of over $29 million in federal pandemic relief funds that may now have to be repaid by taxpayers, according to Oklahoma Auditor & Inspector Cindy Byrd.
Byrd’s office on Tuesday released an audit report (pdf) that looked into around $14 billion in Oklahoma state spending in fiscal year 2021, with the bulk of it related to COVID-19 relief funds.
“The State of Oklahoma dropped the ball on compliance and oversight,” Byrd said in a statement.
The scathing audit report found a total of 82 instances in Oklahoma of questioned federal costs amounting to $29.3 million, which refers to spending that failed to line up with grant objectives.
The biggest single misallocation related to federal grant funds was through the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES), which was meant to mitigate the impact of the pandemic.
Oklahoma received around $1.1 billion in CARES grants, with the audit finding $12.2 million in questioned costs because state authorities failed to obtain proper documentation to ensure that the payments were made for pandemic-related expenditures.
“Oklahoma has systemic issues that make me very concerned for taxpayers,” Byrd said in a statement, noting that the federal government has the authority to demand repayment of misspent funds.
“If the federal government decides the State must pay back these questioned costs, you and I will end up paying the bill. If that happens, gross mismanagement and lack of compliance and oversight will be to blame,” she added.
The audit also focused on over $8 million of expenditures that were questioned in relation to the Governor’s Emergency Education Relief fund (GEER). This fund was established to assist governors in addressing the educational requirements of students during the pandemic.
Under the program, 5,000 families were provided with $1,500 each to be utilized at specific retailers. However, the audit revealed that the state had not imposed any limitations on the types of purchases families could make.
The audit found that nearly 20 percent of the total purchases under the program were made on items not related to educational learning, as was required by the grant guidelines.
“We found that $1.7 million was spent on various non-educational items such as kitchen appliances, power tools, furniture and entertainment,” Byrd said in a statement.
The audit report also identified $1.6 million in expenses that were questioned regarding the Emergency Rental Assistance Program, which aimed to support households in paying rent or utilities during the pandemic.
Also, the audit raised concerns about $6.5 million in costs related to the Stay In School Program, which granted scholarships for private school tuition to families. The audit found that the distribution of funds did not align with the grant objectives, resulting in 657 eligible students from low-income families not receiving financial assistance because the funds were depleted.
Oklahoma Attorney General Gentner Drummond called the audit’s findings “deeply troubling” and called for an “investigative audit” of GEER funds.
“A number of concerning items from the audit will require further investigation,” Drummond said in a statement. “I refuse to tolerate what amounts to a pervasive culture of waste, mismanagement and apparent fraud.”
Oklahoma Gov. Kevin Stitt released a statement to media outlets responding to the report.
“During the COVID pandemic, Governor Stitt had a duty to get federal relief funds to students and families in Oklahoma as quickly as possible, and he responsibly accomplished just that,” the statement said.
“The State maintains its position that a negligent out-of-state vendor should be held accountable to recover the federal taxpayer dollars in question, and the auditor’s report further supports that is what ought to happen,” it added.
Oversight issues with regard to COVID-19 relief funding are not exclusive to Oklahoma, however, with a federal watchdog finding that tens of billions of dollars may have been misspent across the country.
Massive COVID Fraud
The federal U.S. Small Business Administration inspector general on Tuesday released a report (pdf) showing the extent of estimated pandemic relief-related fraud.
The most significant amounts of cash were stolen via the Paycheck Protection Program (PPP) and COVID-19 Economic Injury Disaster Loan (COVID-EIDL) programs, the report showed.
“At least 17 percent of all COVID-EIDL and PPP funds were disbursed to potentially fraudulent actors,” the report states.
The fraud estimate for the COVID-EIDL program is over $136 billion, which represents 33 percent of the total money spent on that program, per the report. The estimate for the amount of PPP fraud is $64 billion.
In total, the report estimates that SBA disbursed more than $200 billion in potentially fraudulent COVID-19 EIDLs and PPP loans.
The distribution of those loans took place amidst widespread lockdowns, stay-at-home orders, and other measures that had a major impact on the economy. A portion of those funds was intended to help small businesses and individuals in paying their employees.
According to the inspector general’s report, several safeguards were relaxed during the implementation of these programs to provide financial assistance quickly during the initial stages of the pandemic. However, the report highlights that these weakened controls would have prevented more criminals and fraudsters from gaining access to the funds.
“Since SBA did not have an established strong internal control environment for approving and disbursing program funds, there was an insufficient barrier against fraudsters accessing funds that should have been available for eligible business owners adversely affected by the pandemic,” the inspector general’s report stated.
The SBA released its own report on Tuesday detailing anti-fraud protocols put in place for the biggest pandemic programs.
“SBA’s COVID relief programs were large-scale and significant undertakings; and the agency has analyzed, evaluated and taken action to incorporate the latest methods and technologies along the way,” SBA Administrator Isabella Casillas Guzman said in a statement.
“With this report, SBA is detailing the effective measures added to fight fraud and hold bad actors responsible, as well as recommendations of best practices to ensure future emergency small business programs are optimized from the start,” she added.
The anti-fraud measures SBA has adopted include the reinstatement of checking applications against Do Not Pay databases, the checking of tax transcripts to validate application information in the COVID-EIDL programs, and the establishment of a new Fraud Risk Management Board.
Jack Phillips and The Associated Press contributed to this report.