Honolulu exposed $387 million in federal COVID-19 relief money it received in 2020 to fraud, waste and abuse as it dispensed business and household relief funding during the pandemic, the Office of the City Auditor says.

In a scathing 78-page report released Wednesday, the city audit — covering March 1, 2020, through Oct. 31, 2023, and which crosses two city mayoral administrations — concluded that Honolulu failed to follow federal guidance related to self-certification of businesses in connection to Coronavirus Aid, Relief and Economic Security, or CARES, Act funds.

The city did so as it attempted to quickly disburse $175 million toward a city program called the Small Business Relief and Recovery Fund, or SBRRF, the audit says.

“As a result, the city increased the risk of applicants possibly having already been funded by other small business federal aid programs, exposing the program to double-dipping,” the report states.

Conversely, a similar city program, the Household Hardship Relief Fund, or HHRF, meant to provide supplemental income to households that demonstrated economic hardship due to COVID- 19, ran short of money soon after its start.

The audit further states the city’s use of CARES Act funds was linked to the “wasteful and excessive” purchases of city-owned vehicles.

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Namely, the audit points to city Department of Transportation Services’ use of $4 million to buy 27 new paratransit vans in early 2020 for TheHandi-Van program, even as that program’s ridership plummeted nearly 70% as pandemic lockdowns were implemented on Oahu.

Moreover, the city’s new purchase of paratransit vehicles occurred despite having an existing contract for 63 vehicles soon to be delivered, the audit adds.

The report notes other “questionable” purchases toward the city’s vehicle fleet.

That includes the Honolulu Police Department spending $454,000 in August 2020 on 40 all-terrain vehicles, many of them sitting barely used. And the report notes some of the same money was “inappropriately” used to replace dated or inoperable HPD equipment.

Due to these and similar issues, City Auditor Arushi Kumar initiated the “Audit of Select CARES Act Programs and Expenditures.”

“The high dollar amount (CARES) Act funds the city received for pandemic response — $387 million — and the relatively small window in which to spend it, increased the risk of fraud, waste and abuse,” the report states.

In 2020, the CARES Act established the federal Coronavirus Relief Fund, or CRF. The action appropriated $150 billion for distribution to state, local and tribal governments across the country. Hawaii received $1.25 billion, of which $387 million went to Honolulu.

Initially the CARES Act policy stated that any funds not spent by a government entity by Dec. 30, 2020, were to be returned to the U.S. Department of Treasury. But the deadline was extended to Dec. 31, 2021.

Meantime, as the city deployed its funds and resources to the SBRRF and HHRF programs, disparities occurred.

“Both programs were initiated with an equal initial allocation of $25 million from CARES Act funds, but their trajectories and outcomes diverged significantly,” the audit states.

It notes $175 million was eventually dedicated to the SBRRF program, and accounted for nearly 45% of the city’s total CRF allocation.

“And only $25 million was dedicated to the HHRF, accounting for only 6% of the city’s total CRF allocation,” the report states. “The city’s choice to prioritize small businesses over households ultimately led to the premature closure of the HHRF program, leaving over 2,000 applicants in need of an estimated $9 million in emergency rental assistance.

In addition, the report notes that of those seeking small business assistance, 98% of grant recipients “failed to provide the required documentation to verify essential eligibility criteria, such as owner residency, operation from a physical commercial space, and registration with the Department of Commerce and Consumer Affairs.”

Due to these failures, the audit revealed 98% of SBRRF grant recipients received a total of $3.7 million of “potentially ineligible funding.” And the audit says that the city’s “lax enforcement” led other businesses — particularly home-based ones — to lose out on grant money.

The audit adds the city’s expenditure of $175 million toward the SBRRF program was “$147.3 million more than the total amount awarded by four similar jurisdictions combined.”

It notes the U.S. cities of Denver; Boston; San Francisco; and Boise, Idaho, spent far less on similar programs than did Honolulu.

For example, from March 2020 to December 2020, Honolulu awarded $175 million in relief to 10,632 businesses.

In contrast, from March 2020 to December 2021, Denver awarded $17 million to 3,352 businesses, while Boston awarded $6.7 million to 1,850 businesses, from April 2020 to September 2021, the audit reports.

Similarly, from March 2020 to June 2020, San Francisco awarded $2.5 million to 357 businesses, while Boise directed $1.5 million to an undetermined number of businesses, from September 2020 to December 2020, the audit states.

It adds Honolulu “did not provide clear justifications for continued funding of this magnitude for this specific program throughout the year given competing priorities of other programs.”

“Additionally, in our review of other jurisdictions, we found that the City of San Francisco electronically published the total funds spent for their program and listed all recipients number of disbursements and amounts funded,” the audit states. “The City of San Francisco’s reporting practice ensured program accountability between local and federal government, and lowered the risk of fraud, waste and abuse.

“Honolulu did not maintain or report similar data,” the report states.

In the end, the audit offered recommendations.

Among them, the city should conform to federal guidelines issued with emergency relief funds, enforce minimal program and contract requirements and controls, and establish program performance standards so that administrators can monitor and assess program effectiveness.

And the audit calls for the Office of the Managing Director to establish a formal internal audit function to oversee contract and funds distribution; and ensure that future emergency funding relief efforts are allocated and distributed in an equitable manner that includes input from the City Council, city department heads and the public.

In an Oct. 20 response to a draft version of the audit, Managing Director Michael Formby noted the current city administration — led by Mayor Rick Blangiardi — came into office in January 2021, after the bulk of the CARES Act funded programs “started and expenditures commenced.”

Still, Formby said the city administration agreed with the audit’s many recommendations.

“These recommendations serve as lessons learned to make sure future programs can operate more efficiently and effectively,” Formby wrote. “Second, we are cognizant of the fact that the prior administration was operating in the context of an unprecedented global crisis and it was an extraordinarily challenging time and environment.”

This week, the city told the Honolulu Star-Advertiser no further investigations would occur with regard to vehicle purchases HPD or DTS made during the pandemic.

“The Blangiardi administration was not in office at the time the 2020 CARES Act fund programs were established and no finding of ‘mishandling or misuse’ of funds by the prior administration has been established,” Scott Humber, the mayor’s communications director, said via email.

He also noted the city will not look to recoup money from ineligible grant recipients — namely businesses — either.

“Absent evidence of fraud and misuse, the city has no current plans to conduct a review of the 2020 programs,” he said.

Meanwhile, Humber confirmed the city has no CARES Act funds remaining.

“They expired in 2021,” he added.