The City and County of Honolulu’s Covid-relief response included millions of dollars of questionable spending going to potentially ineligible businesses and official vehicles while struggling households were turned away, the city auditor said in a report released Wednesday.

The audit compounds earlier criticism over the city’s use of $387 million in federal funds to cope with the initial onslaught of the coronavirus, which prompted shutdowns of businesses, job losses and other economic woes.

Two funds — the Small Business Relief and Recovery Fund and the Household Hardship Relief Fund — were set up with $25 million each. But that’s where their similarities ended. 

Verification procedures for the small business applicants were inadequate compared to federal standards, according to the report.

On the flip side, verification procedures for the household applicants proved overly cumbersome, and over half of their applications were left unprocessed, leaving over $9 million in unmet needs such as rent, mortage and utilities.

“While we acknowledge that small businesses are essential to our local economy, we believe it is equally important to provide robust support to households facing immediate financial challenges as being equally crucial during times of crisis,” the report said.

Insufficient Monitoring Of Funds

Governments largely restricted public gatherings and the tourism industry essentially shut down as officials sought to slow the spread of the coronavirus in the months after the pandemic began in March 2020. This meant many local businesses lost customers. Employees were laid off and had to figure out new ways to cover their normal monthly expenses like rent, mortgages, utilities and child care.

To assist with people’s lost income, the federal government allocated a mammoth $150 billion of relief money for state, local and tribal governments in what is known as the CARES Act.

Honolulu received $387 million from those funds on April 24, 2020, with the condition that the money be spent by Dec. 30 of that year. That deadline was later extended to Dec. 31, 2021.

Small business owners who applied for help ostensibly had a few requirements they had to meet, like earning less than $5 million in annual revenue, having a physical site in Honolulu, being a resident of Hawaii, being registered with the state’s Department of Commerce and Consumer Affairs or being a sole proprietor.

Applicants were also required to verify that their expenses were not already covered by other government relief funds like the Paycheck Protection Program.

But the office of city auditor Arushi Kumar took a sample of over 250 applicants to examine how the fund’s money was spent, and of those, over half of the applicants received money from both government relief funds. 

It also found that only 2% of the samples submitted all the required documents to prove eligibility. That accounted for about $3.7 million that may have gone to ineligible applicants.

“The city’s program eligibility requirements and monitoring of funds were flawed and unenforced,” says the report.

Three applicants submitted particularly questionable residency verification — out-of-state business mailing addresses and an out-of-state driver’s license, it said.

The audit report compared Honolulu’s small business relief fund to those in other cities. Funds in Boston and San Francisco were $6.7 million and $2.5 million, respectively. Denver’s was $17 million.

By the end of 2020, Honolulu’s small business relief fund had received an extra $150 million dollars added to its initial $25 million, comprising almost half of the city’s total pandemic money.

Inequitable Spending

Meanwhile, the household relief fund remained at $25 million. Over half of the applications were left “unprocessed,” and more than 2,000 people were turned away, the report said.

In comments at the end of the report responding to the auditor’s findings, city Managing Director Mike Formby said more money wasn’t allocated toward the household relief fund because of capacity issues with the city’s partner organizations.

“The disparity was perhaps less of a choice, and driven more by operational conditions. In retrospect, additional funds to build capacity for the Household Hardship Relief Fund before program launch was critical,” he wrote.

Formby was not available for further comment on Wednesday. Mayor Rick Blangiardi took office in January 2021. Former Mayor Kirk Caldwell, who was at the helm when the pandemic began, did not respond to a request for comment.

Part of the slowness for processing household relief applications was because of the stringent verification process, according to the report.

“These overly burdensome documentation requirements were the exact opposite approach that the city had towards small businesses, where they prioritized quick distribution of funds over rigorous applicant eligibility review,” it says.

ATVs And Handi-Vans

The city auditor’s office also took aim at two purchasing contracts for official vehicles that it said appeared to be unnecessary or ineligible for pandemic-related spending. Federal officials have determined that the purchases were warranted, but the audit found problems.

That included 27 new Handi-Vans for the Honolulu Department of Transportation Services, even though ridership was down and the city already was awaiting 63 new Handi-Vans as part of a contract that had been set up the year before.

Only five of these newly ordered vans had been delivered by the end of November, forcing the city to quickly find a new way to spend the remaining approximately $4 million before the end-of-year deadline. 

The audit also singled out the HPD’s new fleet of all-terrain vehicles. 

These had ostensibly been used to patrol the beaches and issue warnings to people during the height of the pandemic. But by checking the mileage racked up on each ATV, the auditor found that the ATVs actually were actually not used much for this purpose.

“As of October 2021, the new ATVs incurred low mileage. Additionally, many older ATVs from before 2020 have been rotated out of use. This suggests HPD used CARES funds to replace dated and inoperable equipment rather than to respond to a public health emergency,” said the report, referring to the Coronavirus Aid, Relief, and Economic Security funds.

Formby responded to this by writing that the pandemic was uncharted territory at the time, and that HPD bought these ATVs “as a precautionary measure.”

The report recommended that future programs like this include more robust performance metrics, conform to federal guidelines, enforce whatever requirements do exist, and ensure that future funding is distributed equitably.