Objectives

To determine whether the New York City Department of Small Business Services properly administered the Employee Retention Grant program. We also examined whether SBS implemented the recommendations in the Small Business First Report. The audit covered the period from July 2018 to July 2021.

About the Program

The New York City Department of Small Business Services’ (SBS) mission is to help “unlock economic potential and create economic security for all New Yorkers by connecting New Yorkers to good jobs, creating stronger businesses, and building thriving neighborhoods across the five boroughs.” During the COVID-19 pandemic, SBS initiated the Employee Retention Grant (ERG) program to assist businesses and non-profit organizations across all five boroughs in retaining employees. Businesses with up to four employees that had a decline in revenue of at least 25% were eligible to receive a grant covering 40% of their payroll for 2 months, up to a maximum of $27,000. Businesses that received grants were required to sign an affidavit certifying that they would retain their employees for at least 2 months after receiving payment. The ERG application period was open from March 17, 2020 to April 3, 2020 – SBS received 8,005 applications and distributed 3,411 grants totaling nearly $25 million.

Several years prior, in July 2014, New York City (City or NYC) launched Small Business First, a combined initiative between the Mayor’s Office of Operations and SBS to help small businesses start, operate, and thrive. In 2015, a companion report, Small Business First (SB1), was issued and included 30 recommendations intended to make the City easier for small businesses to operate in by, among other things, making regulations less burdensome to navigate and eliminating and consolidating licenses and permits. SB1 also recommended the development of a comprehensive online business portal with access to customized information and online transactions. To accomplish its goals, SBS partnered with several City agencies and also worked closely with small business owners, advocates, neighborhood and community leaders, and elected officials to solicit ideas about how best to help small businesses.

Subsequently, in 2017, the City Council passed Local Laws 2017-209 and 2017-210, which required SBS to prepare and disseminate a survey to small business owners, the results of which would be used to create a comprehensive workforce development plan to address their needs. More recently, in a continued effort to assist small businesses, six City agencies were tasked with reviewing regulations with the goal of reducing fine schedules and allowing for cure periods (grace periods) or warnings for first-time violations. The resulting Small Business Forward report was released on May 15, 2022. We note that Small Business Forward intends to expand upon the NYC Business Portal, which was established as a result of SB1, to allow businesses to execute and track all interactions with the City in real time as well as receive information distributed by City agencies, such as updates on the law and renewal notices.

Key Findings

Despite expending nearly $25 million, SBS did not follow up on the effectiveness of the ERG program by determining whether businesses that received grants retained their employees for at least 2 months, as required.

Further, 4,594 applicants were rejected (3,113) or denied (1,481). According to SBS, 3,113 were rejected because their applications were incomplete and missing required documentation. However, SBS did not have any documentation supporting the rejection of these applications. In the absence of this documentation, SBS missed an opportunity to learn what caused the rejections and how to avoid a similar result in other programs.

There was also inadequate oversight of eligibility and grant amounts, with grants issued to businesses that were not eligible or did not submit documentation proving their eligibility as well as grants paid for incorrect amounts. For example, SBS paid $24,984 to an ineligible international business with revenues of $2.4 million – awarding this business a grant meant that an eligible small business may not have received a grant. The procedures also stated the number of payroll periods required to be documented; however, out of our sample of 53 businesses that received grants, three did not provide all of the required documentation. Further, some eligible businesses received higher amounts than they were entitled to under the program, with 14 of 53 businesses being overpaid a total of $71,106. The ERG awards were skewed toward Manhattan businesses, where 52% of all the grants and 62% of the funds were awarded, while the other four boroughs combined received only 48% of the awards and 38% of the funds. There was also a higher percentage of grant applications accepted in Manhattan than for any other borough.

Additionally, our review of SB1 found that SBS implemented 19 of the 30 recommendations in the report, partially implemented eight recommendations, and did not implement three recommendations. The recommendations that were not implemented or partially implemented were intended to make it easier for businesses to access streamlined information with coordinated services and support and to reduce the burden imposed by complex regulations and fines. For example, SB1 recommended a more flexible adjudication process by introducing remote hearing options; however, as of July 2021, SBS indicated that these options are still being explored. These recommendations, in some cases, have been carried forward by the new administration.

We also determined that, in accordance with Local Law 2017-210, SBS did conduct a survey of small business owners to identify their needs and concerns. However, SBS did not use the results of its survey to create a comprehensive workforce development plan to address these needs, in accordance with the requirements of Local Law 2017-209. This means it did not contain strategies to specifically address workforce development needs and skills necessary to fill small business jobs.

Key Recommendations

• Implement controls to ensure only eligible businesses participate in grant programs and that grant amounts are correct.
• Work with applicable City agencies to ensure that all initiatives in the SB1 report are implemented, and maintain formal records to support the results or document why these initiatives will not be implemented.
• Prepare a comprehensive workforce development plan, in accordance with Local Law 2017-209, that includes specific actions to address the needs identified by small businesses in the Local Law 2017-210 survey.