Finding Text
Criteria Under the American Rescue Plan Act of 2021, as implemented by the U.S. Department of the Treasury through 31 CFR Part 35 and the 2022 Final Rule, SLFRF recipients must establish and maintain effective internal controls to ensure that funds are used for eligible purposes and that eligibility determinations are based on substantiated, risk-mitigated criteria. The 2024 SLFRF Compliance Supplement designates the program as “higher risk,” requiring enhanced scrutiny of eligibility and fraud prevention measures. Condition The program relied extensively on self-attestation by applicants as the standard method of verifying eligibility, without requiring supporting documentation or conducting verification procedures. These practices were applied broadly and not limited to exceptional cases. Cause Program administrators adopted simplified eligibility procedures including approved use of geographic indicators such as zip codes to expedite benefit delivery. However, they did not implement compensating controls or verification mechanisms to mitigate the increased risk of fraud and ineligible payments associated with self-attestation and geographic proxies. Effect The use of self-attestation as primary eligibility tools may result in: • Ineligible recipients receiving benefits. • Disparate treatment of similarly situated individuals outside designated ZIP codes. • Increased fraud risk, particularly in a program already designated as high-risk. • Noncompliance with federal eligibility and internal control requirements under Uniform Guidance (2 CFR §200.303 and §200.518). Questioned Costs Estimated questioned costs include: • One Hundred Twenty-Six loan disbursements and grant awards using self-attestation eligibility criteria: $1,983,326. Recommendation The entity should: 1. Reassess eligibility criteria to ensure they are substantiated, equitable, and compliant with federal requirements. 2. Limit self-attestation to exceptional cases and implement verification procedures for all standard applications. 3. Strengthen internal controls to detect and prevent fraud, including random audits, third-party verification, and data cross-checks. 4. Document eligibility determinations and maintain records to support compliance with SLFRF rules and audit standards. Views of Responsible Officials The Foundation recognizes that self-attestation regarding impact of the Covid pandemic carries some fraud risk. The self-attestation process was developed as directed by the Washington Department of Commerce (the state recipient that contracted with the Foundation) to permit businesses not located in a geographic area that was presumptively disproportionately affected by the pandemic to participate in the program. Participants were required to explain the pandemic impact that they suffered in sufficient detail as to allow verification. The process attempted to balance fraud prevention against the desire to streamline qualification and reduce barriers to participation. The Foundation recognizes that documentation of the evidence of pandemic related impacts for self-attestation borrowers could be better.