Consequences of not properly overseeing COVID-19 federal funding: How a disaster can lead to a catastrophe

There is nothing uncommon about states receiving federal funding in the aftermath of a disaster. It is expected and makes sense as local and state budgets are burdened with these often extraordinary costs. According to a recent study by the National Oceanic and Atmospheric Administration (NOAA), the 2018 disaster bill amounted to $91 billion, and the trend of billion-dollar storms is only increasing in frequency. 

Congress has appropriated over $2 trillion to fight COVID-19 so far through three different pieces of legislation. As summarized by GovTrack.us: 

1. H.R. 6074: Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 — “Enacted March 4, 2020. Provided $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak related to developing a vaccine, medical supplies, grants for public health agencies, small business loans, and assistance for health systems in other countries. Allowed for temporarily waiving Medicare restrictions and requirements regarding telehealth services.”

2. H.R. 6201: Families First Coronavirus Response Act — “Enacted March 18, 2020. Guaranteed free coronavirus testing, established paid leave, enhanced unemployment insurance, expanded food security initiatives, and increased federal Medicaid funding.”

3. H.R. 748: Coronavirus Aid, Relief, and Economic Security Act — “Enacted March 27, 2020. A $2 trillion coronavirus relief bill, which will send $1,200 to each American making $75,000 a year or less, add $600/week to unemployment benefits for four months, give $100 billion to hospitals and health providers, make $500 billion of loans or investments to businesses, states and municipalities, and $32 billion in grants to the airline industry, and more.”

Each legislation provides funding to various federal agencies, such as the Centers for Disease Control and Prevention (CDC) and Health and Human Services (HHS), to in turn provide grants or loans to states, local governments, businesses, and hospitals to respond to COVID-19. With state and local governments receiving multiple sources of funding either directly or indirectly and no central coordination, they will likely have difficulty managing these funds. More importantly, how do they smartly spend this funding so that they do not end up with 18,000 vacant hospital beds or an untouched convention center-turned-alternate care site with no funding source (except for general revenue) to pay for it? For many state and local governments, this situation, or ones like it, can be a financial catastrophe. 

The table is certainly not an exhaustive list of the supplemental funding available for the response to COVID-19. The federal response briefly outlined there is truly remarkable. However, as you can see, the allowable costs for each funding source seem to deeply overlap with one another. Some federal agencies are starting to put together requirements for this funding, from reporting to reconciliation procedures; however, most have not made any such requirements for how to oversee this grant funding. 

How can local and state governments, who are already overwhelmed and may not have the ability or infrastructure to administer this amount of funding, be expected to oversee or monitor multiple funding sources for such a large event? Here are some recommendations. 

1. Local and state governments need to evaluate organizational capabilities and capacity. Some funding will be provided directly to local governments, and some will be provided through the state to the local government. Once funding is received, multiple agencies may be involved in the implementation of grant funding. Mostly likely the entity’s emergency management agency, department of health, law enforcement, education, and other impacted agencies will have access to federal funds as a result of COVID-19. Some agencies within may not have the financial management infrastructure needed to implement potentially millions in unexpected grant funding. For example, additional personnel, purchase of grant management systems, and government accountability/transparency software or other support may be needed to properly manage, monitor and oversee these funds. Each state and local government agency must evaluate its capabilities and capacity to manage these funds, as doing so will be crucial to a successful financial recovery. 

2. Ensure coordination and communication. No matter how your entity is organized, there will inevitably be multiple departments utilizing grant funding. To ensure that your entity is fully leveraging all federal funding, the all divisions, departments, and groups receiving this funding need to communicate and plan program design together. For example, if your entity incurred $1 million in PPE costs, it would be poor program design to have your Department of Health allocate $1 million of its CDC funding and your Department of Emergency Management allocate $1 million of its EMPG funding to the costs of PPE. The two departments need to coordinate and communicate in order to maximize the use of all potential funding sources.

3. Task force will coordinate across the enterprise. In order to ensure that your entity properly manages all of the available federal funds, it should consider forming a task force.  This task force can act as a centralized clearinghouse within your entity to orchestrate a cohesive design among all grant programs. A task force can monitor all funding sources coming to the state or its local jurisdictions, determine eligible costs among grants, and determine if there are areas where redundancy for costs is necessary or where redundancy would be a detriment to recovery. The task force may even provide oversight to implementing departments on program design or allocations, or provide technical assistance for grant management, internal controls, process mapping, and any other operational processes.

In conclusion, with an increasing emphasis on governmental accountability and transparency and ensuring that all grant funding is used as intended, state and local governments must be more diligent with the management of all federal funding provided for COVID-19. Properly trained personnel and strong systems, processes, and controls will be crucial to ensuring no negative audit findings and subsequent de-obligations. To support this effort, we strongly recommend reviewing organizational structure, ensuring coordination between implementing departments, and formalizing a centralized task force to oversee all funding for COVID-19. 

For more information, visit CohnReznick’s FEMA PA funding resource page and Coronavirus Resource Center.