State officials are set to launch an expansive audit into how Connecticut’s 169 towns and cities spent roughly $60 million in federal relief funding — money that was meant to help local governments cover emergency costs during the pandemic.
The state Office of Policy and Management informed local officials on Nov. 19 that it had hired an independent auditing firm to examine how each municipality in Connecticut used federal CARES Act money that was distributed last year.
The rollout of the statewide audit comes on the heels of an FBI investigation into the alleged misuse of federal aid in West Haven.
The FBI arrested two former West Haven employees, including former state Democratic lawmaker Michael DiMassa, for allegedly funneling more than $636,000 in federal relief funds to a shell company they controlled.
A team of auditors hired by OPM is already sifting through financial records from West Haven to trace where that city’s $1.1 million in federal CARES Act funding has gone and to understand how the allegedly fraudulent transactions went unnoticed by city officials for more than eight months.
That level of scrutiny will soon be expanded to every municipality in Connecticut.
Chris McClure, a spokesman for OPM, said the state entered a contract with CohnReznick, a Hartford accounting firm, to review all of the municipal relief funding.
Republican leaders in the Connecticut General Assembly have repeatedly called for more oversight following the federal fraud charges in West Haven.
A handful of Republican lawmakers sent a letter to OPM Secretary Melissa McCaw in late October asking her to explain how her agency oversaw the millions of dollars that was sent to the municipalities last year.
Kevin Kelly, the Republican leader in the Senate, pointed out that the state is still responsible for any of the federal money that was passed on to the local governments, since Connecticut was the primary recipient of those funds.
“This money was entrusted by the federal government to the state of Connecticut to help people who were being negatively impacted by a pandemic of historic proportions,” he said. “It was given to Connecticut for a very specific purpose, for a very specific need. And the state has a responsibility to make sure that the funds were used for that purpose.”
The alleged fraud in West Haven might be an isolated incident, Kelly said, but the only way OPM can determine that is by inspecting records in other municipalities.
OPM already has some insight into how the towns and cities spent roughly $14.8 million between March and June 2020.
During that early stage of the pandemic, the state required the municipalities to pay for coronavirus-related expenditures on their own and to request reimbursement for that spending afterwards.
But those procedures changed late last year as state officials attempted to push more money out the door and into the hands of local elected leaders, who were clamoring for more financial assistance to help carry them through the pandemic.
“The administration heard from local governments early and often that they were deeply concerned about their municipal budgets and their inability to simultaneously handle increased costs and losing property tax revenues,” McClure said.
To “streamline the process,” OPM officials decided late last year to give every city and town a lump sum payment based on their population.
The state also dropped the requirements for the municipalities to immediately report information about every expenditure they billed to the CARES Act funding.
The only thing the towns and cities had to do in order to claim their share of the money was to certify that they would follow the federal rules surrounding the grant funding.
The state government, McClure said, made it clear to municipalities that the federal funding could only be used for specific purposes related to the pandemic. OPM also emphasized that the money could be subject to audit at a later date, he said.
Sen. Catherine Osten and Rep. Toni Walker, the Democratic co-chairs of the legislature’s Appropriations Committee, said the decision to hand out lump-sum payments was necessary because many municipalities didn’t have enough cash on hand to pay for expenditures on their own before seeking reimbursement.
“Many of the towns and cities that were affected were already in the red because of the pandemic and expenses that they had not prepared for,” Walker said.
“That’s part of the reason why it took so long for the monies to get dispersed, because they just didn’t have the depth to be able to cover everything up front.”
Changing the rules worked. It got the federal money into the communities that needed help coping with the pandemic. But it also left OPM with only a vague understanding of how the municipalities allocated a combined $45.5 million.
Up until last month, the state had almost no information about what the cities and towns had spent that cash on.
Since then, OPM required each municipality to file an interim report on the spending — something it warned the towns and cities would be required from the outset.
The agency asked the municipalities to break the costs down into 14 broad categories, including cleaning supplies, COVID-19 testing, office modifications, local health spending, payroll costs, food assistance for local residents, and masks and other personal protective equipment for public employees.
But that high-level data provided no insight about who may have profited from the local emergency spending or whether the money was actually used for its intended purposes.
In West Haven, for example, the city’s finance director provided data to OPM that showed almost all of the $1.1 million the city received had been spent by this fall.
Yet it is impossible to know based on that information that more than half of West Haven’s funds were allegedly diverted to a limited liability company that DiMassa and the other city employee controlled.
The independent auditing firm hired by OPM is likely to delve into that level of detail, however.
In a letter that was sent to the towns and cities last week, state officials instructed the municipalities to itemize every expenditure and to prepare an explanation for why those costs are eligible under the CARES Act.
But that could be just the beginning of the process.
Once the audit actually begins, McClure said, OPM could ask the municipalities to provide more extensive documentation on each expenditure.