In response to the COVID pandemic, the federal government enacted six major relief bills totaling over $5 trillion. The federal government allocated about $34 billion to the state of Kansas. Out of that, the state had discretion on how to spend about $2.6 billion. In May 2020, the governor established the Office of Recovery and created a taskforce to distribute and administer certain COVID relief funds. The state distributed CARES Act discretionary funding through a 3 round proess that involved the SPARK taskforce and the State Finance Council. About $1.6 billion in ARPA funds are currently being distributed thorugh legislative appropriation and the SPARK taskforce.
The state's distribution of CARES Act funding appeared appropriate and reasonable. Most of the CARES Act expenditures we reviewed were likey allowable under federal spending rules. However, some expenditures appeared wasteful or raised other concerns even though the expenditure may be allowable under federal rules. Federal rules likely contibuted to the problems we encountered.
In response to the COVID pandemic, the federal government enacted six major relief bills totaling over $5 trillion. The federal government allocated about $34 billion to the state of Kansas. Out of that, the state had discretion on how to spend about $2.6 billion. In May 2020, the governor established the Office of Recovery and created a taskforce to distribute and administer certain COVID relief funds. The state distributed CARES Act discretionary funding through a 3 round proess that involved the SPARK taskforce and the State Finance Council. About $1.6 billion in ARPA funds are currently being distributed thorugh legislative appropriation and the SPARK taskforce.
The state's distribution of CARES Act funding appeared appropriate and reasonable. Most of the CARES Act expenditures we reviewed were likey allowable under federal spending rules. However, some expenditures appeared wasteful or raised other concerns even though the expenditure may be allowable under federal rules. Federal rules likely contibuted to the problems we encountered.
Welcome to the rundown, your source for the latest news and updates from the Kansas legislative division of post audit, featuring LPA staff talking about recently released audit reports and discussing their main findings key takeaways and why it matters. I'm Andy Brizo in September, 2022, legislative post audit released a performance audit that evaluated COVID relief, funding and distribution I'm with Heidi Zimmerman, principal auditor at legislative post audit, who supervised the audit. Heidi, welcome to the rundown.
Speaker 2:Thanks for having Mandy.
Speaker 1:So to get started, can you just give me a little bit of background on what brought this audit about?
Speaker 2:Sure. So in 2020 and 2021, the federal government appropriated about$5 trillion to address the COVID pandemic. Um, much of that money ended up going to the states in some form or another. Uh, but for certain funds, the, the federal government gave the states a lot of discretion in distribution. Um, basically told the states we're gonna send you money. Uh, you guys decide how to distribute that money out and kind of what, what ways make the most sense for your state? And so there was a, a legislative concern about how Kansas, uh, distributed those funds kind of what that process was was, and whether that process was appropriate.
Speaker 1:So how much money did Kansas receive?
Speaker 2:So Kansas received about 34 billion. Uh, most of that money though came with a very specific purpose that was set by the federal government. So for example, the federal government sent, uh, some funds to the department of education, uh, for K-12 education. Uh, those funds are more commonly known as Sr funds. And so the state, uh, cannot take those Sr funds and decide to spend them in some other way. They must be spent on K-12 education. So most of the 34 billion that the state received works in that way, but there was a small portion about 2.6 billion, uh, that was discretionary. Uh, that money came by way of the cares act and the American rescue plan, which is also known as ARPA. Uh, and within some broad parameters, the state could decide how to distribute that money and where that money would be spent.
Speaker 1:Okay. So let's talk about the cares act first. How did Kansas distribute those funds?
Speaker 2:So there was a lot of discretion in this process. Uh, the federal government did provide some guidance to states and how the money could be used. And so that money has to be used, uh, for, for, uh, necessary expenditures that were incurred due to COVID. Uh, the expenditure has to have been incurred between March 1st, 2020 and December 31st, 2021. And the item must not have been budgeted for prior to March 27th, 2020. And so the federal government set some very kind of broad rules on how the money could be spent, um, but did not set a lot of rules for how, uh, that distribution process would take place. Uh, so to distribute about$1 billion in cares act discretionary money, the state used a process that involved a task force, and then also the state finance council. So in may of 2020, the governor established the strengthening people in revitalizing Kansas task force, also known as spark, uh, spark at that time, uh, had a five member executive committee and then a 15 member steering committee and spark recommended that cares act money, be distributed in three rounds. So the first round happened in June of 2020 and spark allocated about 400 million, uh, in that first round to county governments. And that money was distributed on a per head basis. So each county received about$194, uh, per head. Um, there was an exception there, and that was Johnson county in Sedwick county. Those two counties received their money directly from the federal government. So instead of it coming to the state and then being spent out or sent out, uh, they just received their money directly. So the counties could spend or distribute that money, um, to other local governments like city, uh, city governments. They could distribute that money to schools, nonprofits, businesses, or the county could spend it themselves for, uh, you know, county operations. So, um, but in August of 2020 spark then distributed the second round. And that was about 314 million. And that went to state agencies, um, that money went for specific projects under, uh, some specific categories. And so those categories were public health, education, connectivity, and economic development. So those agencies created proposals for spending those funds and then spark voted on the, on the proposals and the state finance council gave the final approval for which proposals, um, would receive funding. The third round happened in September of 2020, and then spark allocated the last, uh, 290 million. And that money went to again, to state agencies. And then also some other organizations like the ho housing resource corporation and that money was for, uh, essential needs and business resiliency, workforce support, uh, public health, and then also for continuity of operations for state agencies. And for most of that money though, spark made a recommendation and then the state finance council again made the final approval
Speaker 1:And the other funding distributions have come through APA funds. So how did Kansas distribute those funds?
Speaker 2:So APA funds have been distributed in, in a pretty different way. Uh, so first of all, the state received about 1.6 billion in APA discretionary funds, and a lot of those funds are still being distributed, uh, right now, uh, so similar to the cares act, uh, the federal government did provide quite a bit of discretion in the process, but then set some broad rules for how the money could be spent. So APA funds can be spent in one of four ways. Uh, first of all, though, the money has to be, it has to be for something that was incurred between March 3rd, 2021 and December 31st, 2024. And then it has to be spent in one of those four categories. So those categories are, uh, responding to the COVID emergency or it's negative economic impacts, uh, premium pay to essential workers, government services that experience reduced revenue, or it can be used for investments in water, sewer, or broadband infrastructure. So, uh, the state received, uh, like I said, about 1.6 billion and 1 billion of that has been appropriated by the legislature. And they appropriated that money for things like, uh, the unemployment insurance fund, uh, rural hospitals, higher education and housing were just some of the things that they appropriated money for. So that leaves around 600 million for spark and spark has already distributed about 272 million. Uh, and they, they distributed that for things like frontline care workers and, uh, economic development and education, the remaining 374 million is still in process. Uh, but spark does have a process for distributing that 374 million. Uh, but it started with soliciting ideas, uh, from state agencies, county governments, uh, businesses, and also just the general public and spark received over 800 ideas for how to spend, uh, that those funds. And so far spark has narrowed it down to about a hundred ideas. And those were based on things like feasibility, whether other funding already existed and whether the expenditure might have a high impact. So spark is still evaluating those ideas, but they will make recommendations to the state finance council for final approval. They just haven't done so yet.
Speaker 1:Now the second objective of this audit was to determine whether COVID relief funding has been distributed appropriately. How did you evaluate this?
Speaker 2:So in this question, we actually only evaluated, cares act, uh, the cares act process and some cares act spending as well. A lot of the APA spending, uh, is still in process and some of that funding hasn't even been distributed. Um, additionally much of the distribution for APA, uh, was made by the legislature. And so just for the, the professional independence of this office, uh, it would be inappropriate for us to review how the legislature chose to distribute the money. So as a result of those two things, we, we only looked at cares act, uh, in this objective, but in this objective, we actually ended up evaluating two things first, the distribution process, and then second, some cares act spending. So to assess the process, uh, as I mentioned before, the states had broad discretion in what kind of process to set up. And so there weren't any real metrics, um, from say the federal government, uh, to evaluate that process against. So we use kind of a reasonableness standard. Uh, we also chose to evaluate some spending in this subjective because first of all, there were some legislative concerns, not just about how the money was distributed, but also how this money has been spent. And second, as we evaluated this process, uh, and some of the rules and the federal guidance, we realized, uh, that a lot of the spending here was at very high risk of waste. And so we went ahead and reviewed some spending as well. So to evaluate the spending, though, we chose a sample of about 18 million in cares act spending. And that spending was across 42 different Kansas counties. So we reviewed receipts and invoices and other documents just to understand exactly what the funds were were spent on. And then we also reviewed the federal allowability rules, uh, to make sure that that spending was an alignment with those rules.
Speaker 1:And what did you find about the appropriateness of how COVID relief funding was distributed in Kansas?
Speaker 2:So we thought that the process, uh, that the state used to distribute money appeared, uh, appropriate and reasonable. Um, and we thought that for a few different reasons, first of all, uh, the number of people that were, uh, involved in the process and contributed acrossed all those people, there was a wide variety of backgrounds. So there were business people, people with legal backgrounds, legislative backgrounds, uh, there were also people across a lot of different kinds of, uh, Kansas industries like aerospace and farming, uh, some people in the banking industry as well. And so we thought that the different, the very, the various perspectives, um, was really a positive to the process. The task force also considered whether spending was allowable and, and that was just kind of baked into the process and was just kind of part of how they, how they did things. Um, you know, they used a consultant to help review certain proposals to make sure that they were allowable. Um, and then the office of recovery, which is a temporary office that sits within the governor's office. Um, and, and the office of recovery has been tasked with facilitating Spark's work and also managing a variety of aspects, uh, with just COVID relief funds generally. But the office of recovery provided a great deal of training to the counties and to the agencies to help make sure that they knew what types, uh, of things they could spend those funds on. Uh, we also thought that the county distribution method was, was logical and it was fair. It provided the same per head amount to all counties first, and then it added some additional money based on some relevant things like COVID counts at that time and, uh, unemployment rates. And so overall, uh, we really thought this process seemed, uh, very appropriate and, and reasonable for, for what it was trying to accomplish.
Speaker 1:You also said that the team evaluated, whether the funds were spent in ways the federal government said were allowable. So what did you find out about how cares act funds were spent?
Speaker 2:So, first of all, our findings here are not projectable. Uh, we did not choose these, these expenditures randomly. Uh, we chose them, uh, based on a risk assessment. And so, because they weren't random, our, our results are not projectable to, to the whole, but we looked at 18 million in expenditures out of about a billion dollars in cares, discretionary act, uh, funding. And these expenditures were made by counties and cities. There were a few school districts in there, uh, some private businesses as well, and some non-profits too. So we tried to get good coverage in terms of the different kinds of entities spending the money. Um, as I've kind of mentioned before, the federal rules for cares act spending were pretty broad. Uh, it had to be necessary, uh, a necessary expenditure incurred due to COVID occurred between March 1st, 2020 and December 31st, 2021. And then the item must not have been budgeted, uh, for before March 27th, 2020. Uh, so those are pretty, these are reasonably broad rules, uh, but we compared the spending to those federal rules to determine whether we thought that spending was allowable. And most of what we review did appear to be allowable. So about 85% or about 15 million appeared to us to be clearly allowable. And those, those expenditures were, were for things like personal protective equipment, food supplies, uh, paying for COVID related, sick leave. Um, those were the kinds of things in that category. Uh, there was a second category it's about 15% or around 3 million. So that was just unclear to us. Uh, the federal rules are very broad, they don't define necessary. And so some of the things in this category were a little bit of a judgment call. So some of the things, uh, that were in this category were things like electronic signs and security systems. Uh, one county that we reviewed spent over$200,000 on large electronic signs that could be placed at the border of each town in the county. Uh, officials told us that they could convey COVID related messages on those, those boards. Um, but whether that really represents a necessary expenditure, uh, is a little bit debatable. So while we think a lot of this spending is probably allowable, uh, we cannot really be sure how the federal government is going to view it. And then we had one last category it's very small, less than 1% of the money that we reviewed, uh, only about$48,000 that we think is probably going to be UN allowable. And that included expenditures for things like flu vaccines, donuts and coffee were in there. Uh, there were some costs that were UN allowable simply because they incurred in, or they were incurred in February of 2020, the federal rules say it can't be incurred prior to March 1st. Um, so there were kind of a variety of things in that category. Um, but it was ultimately a pretty small, uh, number of things that we saw that were pretty sure going to be UN allowable. Uh, I should note here though, that this is our assessment of allowability and ultimately it's going to be up to the federal government to decide whether an expenditure is UN allowable. Uh, but if they decide that an expenditure is UN allowable, then the recipient will have to pay the money back.
Speaker 1:Okay. And you also evaluated, cares, act spending for reasonableness. Now, what does this mean and what did you find
Speaker 2:During our review? We noted a number of expenditures that might be allowable, but raised some other concerns. Um, given the very broad nature of federal allowability rules, most expenditures were likely to be allowable, but allowable expenditure might not be a reasonable or a prudent one. So we evaluated the funding essentially a second time with an eye towards whether the expenditure seemed reasonable. We looked at the expenditure in terms of whether or not, you know, was it wasteful or did it seem excessive? Uh, was it questionable in some other way? Um, just basically overall, you know, did it seem like a, a reasonable and prudent use of, of the fund? Um, so when we made that kind of second review, we found that about three quarters of the money that we reviewed did seem reasonable. Uh, it didn't appear wasteful or excessive, and overall it seemed like a prudent use of funds that were meant to address a COVID related necessity. The other quarter, uh, raised a few issues, kind of a variety of different issues though, about 17% or about 3 million appeared to address a need that existed prior to COVID. So COVID didn't cause the issue. And in many cases, a COVID related issue never really ended up materializing. Um, these expenditures though, they did not seem wasteful and they often, uh, addressed a, a community wide need. Uh, so for example, one county, uh, spent almost$218,000 to add showers to a community emergency shelter. The county officials we talked to told us they identified the lack of showers as a problem, uh, during previous uses of the shelter. Um, that building has not at least so far been used for any COVID related reasons. Uh, an upgraded shelter though is probably very useful to the community, uh, but it wasn't directly related to COVID another 6% or about a million dollars, uh, in spending just seemed, seemed a little ill-advised. Uh, the spending just didn't seem very cost effective, or it seemed counterproductive. So for example, one county spent$450,000 to start a new grocery store, uh, in an underserved part of town. That store only lasted a few months. Uh, the consultant that reviewed the proposal, flagged it as being high risk, uh, because its necessity wasn't clear and it didn't appear feasible. Uh, the county officials, uh, we talked to told us there were concerns about the project, but it went forward anyway. Uh, so there were multiple red flags about the Fe about the feasibility of this, of this project it went through, uh, and then of, and then wasn't ultimately very success successful. It only lasted a few months. And so ultimately the project just seemed a little bit ill-advised and then last, uh, the last category, which was only about 1% of the expenditures we reviewed, uh, just appeared wasteful or excessive. Um, these were things like electronic signs, sports equipment lanyards for staff. Uh, one recipient, uh, spent a third of their grant on chalkboards, uh, a blow up tube man and L E D signs. Uh, but that grant was meant to purchase food for a food pantry. And so some of that is spending just appeared, uh, either wasteful or excessive. Um, but overall, um, most of the money that we reviewed here, uh, did, did seem pretty reasonable.
Speaker 1:What were some of the factors that may have led to the concerns the team identified?
Speaker 2:So there really were several reasons. Um, and several things that we thought probably led, uh, to, to what we saw here, but they were all really related to the federal rules. Uh, so really the spending timeframe was very, very short. Uh, the money was distributed between June and September of 2020. Uh, but initially all that money had to be spent by December of 2020, uh, in December of 2020, the federal government did go ahead and extend, uh, the timeframe to December of 2021, but really by then it was too late. Uh, a lot of the expenditures that we reviewed had already been spent. And so, uh, many of the recipients didn't really get to take advantage of that extended timeframe. So because the tight, the timeframe was so tight, uh, there were a couple of things that happened. So first of all, there wasn't really sufficient time to require prior approval, which really is best practices. Uh, that was, uh, it was a billion dollars. It had to be spent very quickly. And so it really wasn't feasible to build a system that required a lot of prior approval before a recipient could, could spend their money. Uh, additionally, because that time timeframe was so tight, the counties did not really always have time to properly assess their needs. If you don't really know exactly the best ways to spend the money, uh, then it can be hard to spend that money in informed ways. Then there were a few other things, uh, first of all, use it or lose it, which is essentially what this, these funds were. If you didn't spend it, the money was going to revert back to the state, uh, but use it or lose it often incentivizes wasteful spending. Uh, often in that case, a recipient, uh, may decide to spend money on something that is maybe not very defensible rather than lose it. And this can result in, in wasteful or unnecessary spending. Additionally, the federal rules were, were very broad and, you know, necessary, wasn't really defined. And so when you have rules, especially spending rules that are kind of overly broad, it just increases the likelihood that money is going to be spent in ways that you didn't truly intend. And then last, uh, the spending didn't come with any, uh, performance metrics. So, you know, the recipient didn't have to accomplish anything particular, uh, but having clear goals, uh, you know, for a recipient to meet can help decision makers, they'll be a little more careful can help them direct money to projects, uh, that are likely to be successful. So kind of the combination of all of these things, um, again, kind of stemmed from the way the federal government set set up some of these rules. Uh, but these were some of the things that we think really, uh, caused some of the issues that we saw.
Speaker 1:Finally, what is the main takeaway of the audit?
Speaker 2:Well, the good news is, you know, we didn't see much that we think is likely to be UN allowable. Uh, so which means probably the counties, the agencies, the other recipients, they got the message on how to spend the money, uh, which is a very positive thing. On the other hand, about a quarter of the spending that we looked at did seem a little concerning in some way or another. Um, during field work, one of the consultants we talked to told us that an expenditure didn't have to be good public policy to be allowable. And some of the issues that we saw, we think really kind of demonstrated that sentiment. Uh, but most of those issues did stem from the federal rules and the way the federal government set up this program. Uh, ultimately though the things that we looked at that the state had control over, like the distribution process and providing training and things along those lines, those things did appear reasonable and they did appear appropriate, uh, which is, which is certainly a very positive thing.
Speaker 1:Heidi Zimmerman is a principal auditor at legislative post audit. She supervised an audit that evaluated COVID relief, funding and distribution. Heidi, thanks for visiting the rundown and discussing the audit's findings with me.
Speaker 2:Thanks for having me, Andy,
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