(This story previously appeared in the North Carolina Tribune)
Whether for hurricanes or COVID-19, government disaster relief programs often get criticized for creating red tape that makes it take longer to dole out money to those in need.
Speed was key in the spring of 2020 when state leaders set up a “Rapid Recovery” loan program to help struggling businesses. They tasked the Golden LEAF Foundation and the N.C. Rural Center will running the initiative, and from a speed standpoint, it was successful: the $75 million allocated was distributed by the end of 2020.
But that speed came at a cost, according to a report from State Auditor Beth Wood’s office on Wednesday. The audit slammed Golden LEAF for failing to track how businesses spent the loan money.
Auditors said that created “an increased risk that loan recipients could have misused the funds without the misuse being detected and corrected in a timely manner.” Instead, the loan program used an honor system of sorts: Recipients had to sign paperwork saying they would only use the money for things like rent, utilities, payroll and other operating costs.
There was no requirement that recipients submit receipts and other records showing how they spent the money. Golden LEAF CEO Scott Hamilton defended that approach, saying his organization discussed oversight requirements with the legislature as the loan program was developed.
“Requiring businesses to submit reports regarding how they spent loan proceeds and to provide invoices, receipts and payroll records to document those expenditures would have placed additional burdens on those businesses during a period of extraordinary financial stress,” Hamilton wrote in a letter responding to the audit.
He added that such rules would have “discouraged” some businesses from participating. Golden LEAF already had to adjust the program in September 2020 with more generous terms to get enough applicants to use the full $75 million allocation.
In a somewhat unusual move, Wood’s report includes a rebuttal to Hamilton’s rebuttal, in which auditors call his statements “misleading” and “misguided.” The main point of contention is whether Golden LEAF complied with a provision in the 2020 legislation creating the program that says loan agreements must include a “method for determining compliance with the program.”
Hamilton said that requirement was fulfilled because loan terms required businesses to maintain records of their spending, even though they didn’t have to submit them.
It’s unlikely that much action will come out of the audit. Hamilton’s letter said Golden LEAF will forward the report to legislators to consider as they develop future assistance programs.
