A review revealed no instances of select individuals being provided advance notice of requirements for a pandemic-related business grant program before the public learned of the requirements, a legislative auditor said Friday.
Arkansas Legislative Audit was asked to look into the program of the Arkansas Economic Development Commission. Information about the program was publicly available on the commission's website online at 1:30 p.m. April 29.
"The only exception were that the guidelines were provided to the [Coronavirus Aid, Relief, and Economic Security] Act Steering Committee the night before they were made available online," Kevin White, an audit manager for Legislative Audit, told the Legislative Joint Auditing Committee.
Audit staff also did not identify instances in which individuals outside state government were informed that funds would be awarded on a "first-come, first-served basis," he said.
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"Rather, both the grant program website and the summary indicated that applications would be processed in the order that the applications were received," White said.
Gov. Asa Hutchinson announced the program April 29 at an afternoon news conference and it went online later that day. The program received more than 2,300 applications seeking more than $36 million within a short period of time. Some businesses had received word that the money would be available, but many did not.
Hutchinson subsequently acknowledged that the grant program was prematurely rolled out without legislative approval for its spending authority.
The Legislative Council ultimately authorized spending up to $147.7 million in federal coronavirus relief funds on the grant program. The commission said it received more than 12,000 applications seeking that total amount.
The commission accepted Arkansas Ready for Business grant applications during two periods, on April 29 and on May 5-6, according to Legislative Audit's preliminary review. The review was requested by the Legislative Council on May 15.
The review indicated that the program, financed with federal coronavirus relief funds, had provided $127.9 million as of June 30 to 11,217 recipients that are businesses and nonprofit organizations with employees in Arkansas. The funds help with expenses tied to tackling covid-19 and resuming operations.
The maximum grant amount was $100,000. The amount was calculated at $1,000 per full-time employee and $500 per part-time employee for Arkansas-based employees only, White said. Eligible expenses must occur between March 1 and Dec. 31 and the program closeout process is expected to occur by Jan. 31, he said.
In a written response, the commission said some Legislative Council members on May 15 expressed doubt that businesses could have completed the grant application as quickly as it appeared. That assertion led to speculation that the commission provided applicants with the ability to complete the application prior to 5 p.m. April 29, and then applicants immediately submitted the applications once the system went live.
Commission officials strongly objected to that assertion.
The commission provided Legislative Audit with electronic dates and time stamps showing when applicants clicked on the link to the online application and when completed applications were submitted.
"Based on these records, we know conclusively that applicants were indeed able to complete the application in as little as four minutes," the commission response said.
White said auditors learned that the application was available online starting April 23 through the end of the application window, but prior to April 29, individuals seeking access to the application would have to know its web address.
Based on auditors' review of information provided by the AEDC, one commission employee used a personal email account to provide the unique web address to two individuals three minutes before the 5 p.m. public notification, he said.
Sen. Gary Stubblefield, R-Branch, asked Commerce Secretary Mike Preston, who is the commission's executive director, about what transpired with this employee.
Preston said the employee, whose name was not disclosed, "was forthcoming with the information" and it was brought to the attention of the audit team.
"This individual was someone who actually helped build the formstack applications. He spent a lot of time on it and had the link to it," he said. "At about 4:57 p.m. when his timestamp on his email went out, someone had emailed him ... notifying him that the website was not working and could not get on and there was a technical issue, and the employee indicated to us he just thought there was something wrong, wanted to make sure that they had the link and sent it to 'em and that person turned around and forwarded it."
"We did sit down and have a talk with him. We did not fire the individual, but certainly put him on notice that was an incorrect action that he should not have taken," Preston said.
The commission's general counsel, Jim Hudson, said the employee "was just not mindful as to what the time was.
"There was no intention on his part to create an advantage over anybody. I think ultimately these three businesses at most accessed the link 80 seconds prior to what general public did and then two accessed it as short as 44 seconds before the general public did," Hudson said. "There was a friendship there, but there was no family relationship or business relationship there."
The Legislative Audit report said auditors reviewed the 2,268 applications submitted prior to 7 p.m. April 29 and 2,206 applicants were identified as visiting the website after 5 p.m. April 29.
The report said 51 applications could not be associated with any web log traffic provided by the commission.
Web traffic associated with eight applicants resulted in an inconclusive analysis, and three applications were submitted using IP addresses that entered the website before 5 p.m., according to the report.
In its response, the commission said Legislative Audit noted that on the morning of April 29, the commission invited 200 people to attend a conference call later in the day to learn about a program that was to be announced, which was the Arkansas Ready for Business grant program.
"The invitees to the call, whose identities were previously provided to [the Legislative Council by AEDC], are the same invitees who attend Secretary Preston's monthly economic development conference call," the commission said in its written statement. They are primarily local government officials, and representatives of local chambers of commerce, local planning districts and utilities.
"They have been mischaracterized by some as lobbyists and insiders, which is unfortunate and untrue," according to the commission. "These individuals are key partners in economic development who [the commission] relied upon to communicate with local businesses and nonprofits to raise awareness around the state for the Ready for Business Grant Program."
The response said the Economic Development Commission "would have been rightly criticized had it not communicated with this important group of local leaders before launching the Ready for Business Grant Program. The program never received 'insider' information about the program."
Legislative Audit found that commission' controls failed to prevent $676,500 in grant funds from being disbursed to businesses under common ownership, White said.
Two entities voluntarily reimbursed $200,000 and the commission had recouped $427,500 as of June 30, White said.
White said the commission informed the Legislative Council on May 27 that its accounting staff had identified duplicate payments to grant recipients and the commission was attempting to collect the overpayments.
Forty-two duplicate payments totaling $513,000 were made based on Legislative Audit's calculations, and the commission had successfully collected $499,500 of the overpayments, he said.