Governance during a period of crisis: Lesson learned
The COVID-19 pandemic requires leaders to live up to the complex nature of the moment and include good governance in decision-making. Good governance is achieved through transparency, accountability, responsiveness and efficiency. Unfortunately, the reactive nature and public call for Congress to expediently address the economic fallout from the health crisis gave us the Coronavirus Aid, Relief and Economic Security (CARES) Act that included help for small businesses through the Paycheck Protection Program. Its purpose is now obscured by the lack of transparency and accountability associated with it.
The public should be able to look to government for needed assistance and receive it, especially during times of crisis like the one before us. However, leaders must also exercise and apply due diligence, particularly when such significant spending of taxpayer dollars at stake.
Many politically connected companies, large companies, public companies and otherwise healthy companies took money meant to help small businesses recover and drained the initial round of funding dry within days. In many cases, small businesses, those most vulnerable to the crisis, our minority businesses received nothing. And we don’t even know the full extent of how the funds were spent, because the U.S. Small Business Administration doesn’t have to report it. Instead, the enforcement mechanism used to ensure accountability of your money is the “honor system.”
We do know that out of Delaware’s 82,121 small businesses, only 5,171 received a loan, and $1.1 billion was approved, with enough money to cover about 55 percent of eligible payrolls, according to an article by Bloomberg. Small businesses both in Montana and North Dakota - states with comparable populations to Delaware - received loans for firms to cover about 70 percent and 79 percent, respectively. In other words, the PPP provided no means to guarantee fairness in how funds were dispersed or to ensure that firms with the greatest need were prioritized.
When leaders had the opportunity to revise program rules with the approval of a second round of funding, very little was done to ensure the appropriateness of businesses applying or to insert accountability and transparency.
Firms had to now report that funds were a “necessity and no other funding source was available,” but even this wording is ambiguous and broad enough to fudge for the savvy among us. This time, Delaware small businesses were approved for 4,872 loans totaling more than $366 million.
Twelve percent. That’s the total percentage of Delaware small businesses receiving PPP approved loans to date. Did Delaware businesses fail or did the PPP fail us? The latter is the obvious choice. This is a good example of why practicing good governance must include each element when leaders promulgate laws and policy, because adhering to just two, responsiveness and efficiency, as PPP has demonstrated, is a setup for failure.
The program has drawn criticism and questions from leaders, small businesses and taxpayers from coast to coast. As the Delaware Auditor of Accounts with a mission to root out mismanagement of taxpayer dollars in the form of fraud and abuse, it’s now my responsibility to help ensure your money has been well-spent.
I’ve joined forced with Pennsylvania’s Auditor and Maryland’s Comptroller to provide the necessary oversight for the PPP program that was not included from the start.
Delaware small businesses deserve more than 12 percent from their leaders; they deserve 100 percent.