Auditors: Oregon could improve processes, avoid risks in spending federal COVID funds

Claire Withycombe
Salem Statesman Journal

State auditors have told the state agency responsible for handing out millions in coronavirus relief money that it can do more to ensure the money is properly spent on behalf of Oregonians.

In March, Congress sent $1.64 billion to Oregon, part of a national relief fund to help states pay for pandemic-related expenses. Some of that money is flowing directly to Oregon’s largest cities and counties. The state is spending a chunk of it, too.

But for the rest — $200 million — the state is effectively acting as a middleman, portioning it out to local governments to reimburse them for pandemic-related spending. 

The federal law that sent the money to Oregon, known as the CARES Act, said the money could only be used to pay for spending that was “necessary” due to the COVID-19 public health emergency, according to the U.S. Treasury Department.

The expenses also have to be unexpected, or not accounted for in the budget approved as of March, 27, 2020, the day the act was enacted. And for an expense to be eligible, it must occur between March 1 and December 30, 2020. Local governments have a Dec. 30 deadline to spend the money.

Kip Memmott, the head of audits at the Oregon Secretary of State's office, sent a letter to the head of the Department of Administrative services Wednesday, outlining what auditors found and how the state could improve the process.

Auditors looked at a sample of requests from Oregon’s cities, counties and special districts – local government entities formed to pay for a specific service such as parks or fire protection.

Most entities they sampled were able to back up their requests for money with documents. But auditors found some potentially risky requests, determined some entities miscategorized spending, and flagged $118,000 in math errors.

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Auditors recommended the state remind local governments to check for errors in their requests, ensure they have enough documentation to support individual transactions and consider whether to substitute lower-risk expenses if "they have taken an aggressive approach."

Auditors also said the state could encourage local governments to document "the precise federal guidance they relied on" as justification for spending money on that particular item or service.

Katy Coba, head of the Oregon Department of Administrative Services, which is fielding local requests for money, said in a response released by the Secretary of State that her agency emailed local governments Oct. 8 to remind them to take those steps, and will send intermittent follow-ups. 

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To avoid getting flagged by federal or municipal auditors, state auditors also suggested the state require more detailed information from the local governments that are requesting money for COVID-related expenses.

But Coba said requiring more detail from local governments about how they are spending public money was not a good use of limited state workers and time.

"Any potential benefit of this recommendation does not outweigh the cost of slowing down the local government reimbursement process," Coba wrote. "As directed by the legislature, the two overarching objectives of the ... administration of the (relief funds) is to provide needed dollars to local governments as efficiently and effectively as possible in order to aid their response to the ongoing pandemic."

Auditors also recommended that the state review local governments' underlying budget documents that support their requests. But Coba said that would be burdensome given the small number of employees assigned to distribute funds and the Dec. 30 deadline for localities to spend money.

While the state is evaluating how risky each recipient of funds is, it's going to use that information to "educate" recipients about their responsibilities when it comes to spending federal money, Coba said.

Auditors studied a share of reimbursements to determine whether the spending seemed like it met federal guidelines, and whether it could be backed up by proper documentation locally.

Requests lacked documentation, identified as at risk of being audited

Among the 34 reimbursements auditors looked at – totaling $21.7 million — three were at “high risk” of being questioned by federal or local auditors, according to the letter to Coba, released Wednesday.

Those three “high risk” requests and nine other requests “lacked clear documentation,” Memmott wrote.

While most governments gave auditors summaries of transactions and documents like invoices, timesheets and contracts, 12requests auditors looked at didn’t include enough information from the local government entity, auditors said. For instance, four government entities didn’t give enough supporting documentation of the COVID-19 related duties performed by employees who didn’t work in public health or public safety.

The state doesn’t collect detailed breakdowns of how funds were actually spent, auditors said.

Auditors pointed to Washington, where local governments have to submit a short description of how the money was used and how it “addressed the COVID-19 emergency.”

And requesters have to turn in a “detailed summary of expenditures — individual transactions that add up to the requested reimbursement total — when they apply for reimbursements,” auditors said.

“In Oregon, this step would likely have increased accuracy and reduced misclassifications” in the first round of funding that the state put out, auditors said.

According to Liz Merah, a spokeswoman for the Department of Administrative Services, local governments must identify categories and subcategories of spending when turning in their requests for money.

But she said requiring more information from local governments like specific transactions – which could illuminate how they are actually spending money rather than the broad categories where they say they are spending money – would create more work for those entities and for the state, who has to review those requests.

“Putting more requirements on local governments would increase the time it takes for them to submit their reimbursement requests to DAS, and the additional review on our end would further delay the process and strain existing staff resources,” Merah said in an email to the Statesman Journal.

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Covering payroll during the pandemic

A good share of the money that local governments asked for between March and September was to cover payroll costs, according to the audit – about 65 percent of total requests.

The state has distributed money in rounds. In the first round, which was for spending from March 1 to May 15, state lawmakers didn’t limit how much money entities could request. According to auditors, some government entities didn’t ask for any money, while others asked for large sums.

In the following rounds, a workgroup of lawmakers and associations representing local government came up with a system to cap funding based on population.

But those cities that asked for more money in that first round are likely to get “substantially more money overall,” auditors wrote.

One small city that auditors did not identify asked for and was awarded as much for payroll as cities five or six times larger, auditors said, leading to the highest per capita reimbursement in the state for payroll. That's despite the fact the county the city was in had a “relatively low” incidence rate of COVID-19, auditors wrote. That city asked for 11 times as much as a second city nearby with a similar number of people.

If a city, county or special district is found to have misspent money, the state Department of Administrative Services can recover the money from that city, county or special district.

“The state, as the primary recipient of the funds, is ultimately responsible if local government sub-recipients do not meet federal criteria for spending the money," auditors wrote.

“It is crucial this funding be used to help Oregon communities overcome the public health crisis,” Secretary of State Bev Clarno said in a written statement on Wednesday when her office released the findings. “Local governments are working hard on this, but the state can do more to ensure accuracy, transparency, and adequate support for these funds.”