State Audit Claims Golden Leaf Failed to Properly Monitor Pandemic Recovery Small Business Loans | Local News

A state audit released Wednesday determined that Golden Leaf Foundation failed to properly monitor managing $83 million in federal COVID-19 pandemic funds distributed through the state’s Rapid Recovery Loan program.

As a result, it was unable to ensure that loan recipients were “using the funds in accordance with the COVID-19 Recovery Act 2020”. The timeline for the audit was March 27, 2020 to June 1, 2021.

These funds were designed specifically to help small businesses pay for employee compensation, mortgage or rent, utilities, and other operating costs and expenses.

Golden Leaf said it issued 1,257 small business loans, the majority of which went to businesses with nine or fewer employees.

The auditors determined that:

* There was an increased risk that loan recipients may have misused the funds without the misuse being detected and corrected in a timely manner.

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* Golden Leaf would not be able to recover misused loan funds and provide these funds as loans to other small businesses experiencing economic hardship caused by the COVID-19 pandemic.

* Golden Leaf would be limited in its ability to know whether the loans were achieving the results intended by law.

The audit said Golden Leaf had at least 99 small businesses on its loan waiting list in September. Of these companies, 10 received a loan in November, while 63 companies were removed due to available funding and 26 were removed for other reasons.

Auditors said Golden Leaf management had not developed a method to determine compliance by loan recipients. His contract with NC Pandemic Recovery Office did not require monitoring.

Specifically, Golden Leaf did not require loan recipients to submit expense reports with supporting documentation, independently verify recipient expenses, or ensure that loan recipients were not receiving other federal assistance. , representing a duplication of benefits.

According to the audit, Golden Leaf management “stated that it did not have adequate staff to monitor the number of loans”, as well as management “considered the risk of loan misuse to be low”.

The main recommendation is that Golden Leaf management “should monitor spending by loan recipients to ensure coronavirus relief funds are in compliance with the Recovery Act.”

“Specifically, management should develop a method to determine loan recipient compliance.”

The auditors also recommended that state lawmakers consider including oversight requirements in future legislation regarding the spending of coronavirus relief funds or other emergency relief funds.

context

The Rapid Recovery Loan Program began in May 2020, shortly after the Legislature passed a $1.5 billion COVID-19 relief package that contained a larger commitment to small business lending.

At that time, lawmakers chose to accept the Senate’s $125 million funding commitment for a program providing low-interest loans to small businesses in North Carolina. It was later reduced to $83 million in the 2021 session.

Golden Leaf has been tasked with distributing the state-funded emergency loans to small businesses, which would be up to $50,000 and require no payments for up to six months with a loan term of up to 66 months.

Companies could not have more than 100 employees and had to be based in North Carolina.

The package requires the Golden Leaf Foundation to provide $15 in matching funds for every $125 contributed by the state. Golden Leaf has already channeled $15 million in small business loans for a total fund of $90 million in the House bill.

Gov. Roy Cooper said he supports the initiative, in part because it “can move quickly to secure funding for small business owners.”

Gold leaf response

Scott Hamilton, chief executive of Golden Leaf, said in a formal response to the audit that the state’s Quick Payback Loan Program allows for borrower certification to confirm borrower compliance with eligible uses of the loan proceeds.

“The Recovery Act also set the level of administrative funding to implement the program with the level of oversight provided for in the statute,” Hamilton wrote.

“Golden Leaf believes it would be contrary to the General Assembly’s intent to monitor borrower spending under this program.”

Hamilton said that “requiring businesses to prepare and submit applications on the use of loan proceeds and to provide supporting documentation to a lender or other administrative entity is highly unusual in the lending business. to small businesses and would have been inconsistent with the expectations of borrowers”.

“Requiring companies to submit reports on how they spent loan proceeds and provide invoices, receipts and payroll records to document these expenditures would have imposed additional burdens on these companies during a time of extraordinary financial stress. .”

Hamilton said that “if the legislation or contract included a requirement to monitor the commercial use of loan proceeds, each entity’s headcount would have increased to meet this requirement, and additional administrative funds would have been required and requested from the ‘General Assembly’.

Auditor’s response

State Auditor Beth Wood cited four instances where Hamilton’s response to the audit “could potentially mislead the reader.”

For example, Wood said the Recovery Act does not consider borrower certification as a method to determine compliance.

“In effect, by using the borrower’s certification and doing nothing more, Golden Leaf’s method of determining that a company had complied with program requirements was simply to get the word of the company that ‘she complied with it.”

Wood viewed as potentially misleading Hamilton’s assertion that requiring borrowers to submit reports on the use of their loan proceeds is unusual and inconsistent with borrowers’ expectations.

She pointed to Hamilton’s response in which he said borrowers must make documentation supporting the use of loan proceeds available to entities overseeing the funds.

When Hamilton said monitoring requirements would have imposed additional reporting burdens on borrowers, Wood said federal regulations required Golden Leaf to establish a method to determine compliance by loan recipients and take corrective action if not. -compliance.

Wood said Golden Leaf did not provide evidence that the surveillance would result in additional charges.

Wood challenged Hamilton’s interpretation of the General Assembly’s oversight intent, saying the law requires Golden Leaf to administer the program, including a method for determining compliance with program requirements.

“The Governor, Legislature and citizens of North Carolina should consider this clarification when evaluating Golden Leaf’s response to the audit findings and recommendations,” Wood said.

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