Two audits by NYC Comptroller find loan and grant administrators did not perform adequate due diligence to ensure eligibility and equitable distribution of assistance
Businesses in the Bronx received far fewer loans and grants, while Manhattan businesses received more than their proportionate share of eligible small businesses loans and grants
In two new audits, New York City Comptroller Brad Lander found that the Department of Small Business Services conducted inadequate oversight of two COVID-19 assistance programs – a zero-interest loan and a partial-payroll grant – leaving eligible businesses denied critical assistance and public funds unequally distributed across the city. The Bronx saw the fewest loans and grants relative to their share of potentially eligible small businesses, while Manhattan received far more than their share. The Comptroller visited small businesses in the Westchester Square Business Improvement District in the Bronx to discuss the impact of the pandemic and how the City can best support their recovery on Friday.
“Small businesses weave the vibrant fabric of our city’s local economies and cultural communities. When the pandemic halted activity in March 2020, the City mobilized swiftly to keep thousands of local businesses afloat, but poor administration of these programs meant our public resources were not distributed equitably. Better oversight and more targeted outreach and eligibility criteria for future programs will help ensure that the Bronx is not left behind again,” said Comptroller Brad Lander.
The audit acknowledges that the Department of Small Business Services rapidly stood up small business assistance programs in the first few days of the Covid-19 pandemic, providing critical assistance before the federal government opened the Paycheck Protection Program. The agency provided 404 loans and 3,411 grants to small businesses through a program that accepted applications between mid-March and early April 2020. SBS awarded the loans and grants on a first-come, first-served basis rather than considering which neighborhoods were most adversely impacted by COVID-19, were historically underserved, or had more precarious economic activity. Auditors reviewed loans and grants by borough compared to both the number of businesses that applied and the share of businesses in the city.
- Although Manhattan accounts for 41.3% of City’s small businesses with fewer than 100 employees, Manhattan businesses received 56.9% of the loans and the businesses were highly concentrated in Midtown, its surrounding neighborhoods, as well as downtown.
- On the other hand, the Bronx saw both the smallest number of loans approved and the smallest dollar amount distributed. The Bronx accounts for 7.7% of the City’s small businesses with under 100 employees but received 2.2% of the SBS loans. Just 9 out of 519 Bronx business applicants received loans.
- Although Manhattan accounts for 37.7% of the City’s small businesses with fewer than 5 employees, Manhattan businesses received 63.1% of the grant funds and constituted over half of the recipients, mainly located in Chelsea, Midtown, Tribeca, and Downtown
- Even though the Bronx has nearly double the number of businesses under five employees than Staten Island, both boroughs’ businesses had similar number of awarded grant recipients, with Staten Island receiving more total grant money than the Bronx. The Bronx accounts for 7.9% of businesses with under 5 employees but received 3% of SBS grants.
The Comptroller’s auditors focused on SBS’s application criteria and its review process for these criteria, which for both programs included (1) at least a 25% decrease in revenue or sales during the COVID-19 outbreak, (2) location in the five boroughs, and (3) no outstanding tax liens or legal judgements. The loan program additionally required (1) ability to repay the loan, (2) in operations for 2 years, and (3) fewer than 100 employees across all locations; whereas the grant program required (1) operations for at least 6 months and (2) 1-4 employees across all locations.
For the loan program, the Comptroller’s audit team reviewed 76 of the awarded applications and found that 39 applicants did not meet one or more requirements:
- 31 applicants did not provide a completed Loan Program affidavit certifying that they met eligibility;
- 8 applicants did not demonstrate a revenue decrease of at least 25%;
- 4 applicants did not prove that their businesses were in the five-boroughs.
SBS also disqualified 45 applicants. Of these, 15 met the eligibility requirements and should have been considered.
For the grant program, the audit team reviewed 74 of the awarded applications and found that SBS awarded 16 grant applicants who did not meet one or more requirements:
- 10 applicants did not demonstrate a revenue decrease of at least 25%;
- 8 applicants did not submit adequate payroll documents;
- 3 did not provide a completed affidavit certifying they met eligibility.
- These 16 unqualified grants totaled $96,453.
In addition, based on 155 sampled grants, SBS miscalculated grant amounts for 103 applicants and as a result, overpaid $762,890 to 96 applicants and underpaid $17,286 to 7 applicants. SBS had a total of $39 million for the grant program, but did not distribute $6.7 million.
The auditors recommended for both programs:
- Implement multi-level or secondary reviews to ensure staff are following procedures and determining eligibility correctly when evaluating applications;
- Require applicants to submit federal tax returns, State withholding forms, NYC business tax returns, accounting records to corroborate revenue, number of employees, and location as well as independently obtain tax records from the IRS and NYS;
- Conduct independent record searches or obtain tax records to determine whether businesses have outstanding judgements or liens;
- Communicate changes to documentation requirements to prospective applicant;
- Increase outreach to underserved areas and distribute public funds equitably.
Table I
Comparison of the Number and Percentage of Small Businesses per Borough to the Number and Percentage of Loan Program Applicants, Recipients, and Funds
| Businesses With Less Than 100 Employees Per Census Bureau | Loan Program Applicants | ||
Borough | # | % | # | % |
Bronx | 17,807 | 7.7% | 519 | 4.3% |
Brooklyn | 59,142 | 25.6% | 2,769 | 23.2% |
Manhattan | 95,439 | 41.3% | 6,021 | 50.4% |
Queens | 49,240 | 21.3% | 2,218 | 18.6% |
Staten Island | 9,220 | 4.0% | 425 | 3.6% |
Total | 230,848 |
| 11,952 |
|
| Loan Program Recipients | Loan Program Funds | ||
Borough | # | % | $ | % |
Bronx | 9 | 2.2% | 518,100.00 | 2.3% |
Brooklyn | 87 | 21.5% | 5,003,000.00 | 21.9% |
Manhattan | 230 | 56.9% | 13,622,799.34 | 59.6% |
Queens | 64 | 15.8% | 2,990,250.00 | 13.1% |
Staten Island | 14 | 3.5% | 738,000.00 | 3.2% |
Total | 404 |
| 22,872,149.34 |
|
Table 2
Comparison of the Number and Percentage of Small Businesses per Borough to the Number and Percentage of Grant Program Applicants, Recipients, and Funds*
| Businesses with Less Than 5 Employees Per Census Bureau | Grant Program Applicants | ||
Borough | # | % | # | % |
Bronx | 11,783 | 7.9% | 366 | 4.3% |
Brooklyn | 40,919 | 27.5% | 2,108 | 24.6% |
Manhattan | 56,093 | 37.7% | 4,196 | 48.9% |
Queens | 33,948 | 22.8% | 1,616 | 18.8% |
Staten Island | 5,932 | 4.0% | 291 | 3.4% |
Total | 148,675 |
| 8,577 |
|
| Grant Program Recipients | Grant Program Funds | ||
Borough | # | % | $ | % |
Bronx | 104 | 3.0% | $491,709.28 | 2.0% |
Brooklyn | 802 | 23.5% | $5,063,562.98 | 20.3% |
Manhattan | 1,831 | 53.7% | $15,720,584.20 | 63.1% |
Queens | 578 | 16.9% | $3,122,043.75 | 12.5% |
Staten Island | 96 | 2.8% | $522,019.60 | 2.1% |
Total | 3,411 |
| $24,919,919.81 |
|
