Officials at the Department of Economic and Community Development (DECD) didn’t report more than $23 million in loans that were “likely uncollectible,” because the department hadn’t “developed a sufficient method” to estimate the number and amount uncollectible loans, relying instead on whether a business has closed, according to a scathing new audit by the Connecticut Auditors of Public Accounts that found departmental fault across a wide range of issues from inadequate monitoring of grant funds to overpayment of historic building tax credits.
“DECD only reports receivables as uncollectible for borrowers that are out of business,” the auditors wrote. “We reviewed receivables as of June 30, 2023 and 2024 and noted that DECD’s estimate of uncollectible receivables did not include $22,624,555 and $567,601 of receivables that were delinquent over one year and likely uncollectible.”
The auditors also reported DECD did not adequately monitor grant and loan recipients, not obtaining reports and audits for grants and loans made under the Manufacturing Assistance Act and Small Business Express programs, among others. In one instance, “DECD did not properly approve a $1,000,000 payment on one award.”
DECD officials say they underreported uncollectible loans due to the COVID pandemic and have since updated their policy for recording estimated uncollectible loans. The audit covered years 2022 and 2023, and the department said that during that time payment schedules were “drastically altered,” and that it was a “one-time change in nature to reflect the dire situation many businesses were facing.”
The department also indicated they are working with the Department of Administrative Services and the Office of Policy and Management to develop “a consistent database for management of grant and loan projects.”
However, auditors also found poor monitoring of DECD’s third-party lenders and administrators of loans to ensure the partners are using the money for its intended purpose, a finding that has repeatedly been made by the auditors since 2013.
Inside Investigator previously reported that HEDCO, which administers small business loans for DECD programs in the Hartford area, had gone to court to try to collect $4.6 million in outstanding loans, including multiple loans made to the same businesses that hadn’t repaid their initial loans.
HEDCO also partnered with SHEBA, a nonprofit started and run by the alleged girlfriend of Sen. Doug McCrory, D-Hartford, who had a hand in directing state and federal funds toward the organization. According to audits submitted to the Office of Policy and Management, SHEBA was made administrator for $6 million in forgivable loans and lines of credit through DECD’s Restart program. SHEBA and McCrory are both under federal investigation but have denied all allegations.
The auditors also faulted the department for not immediately reporting $1.4 million in missing funds that were almost entirely related to FBI investigations, including the wire transfer loss of $300,000 that led to the closure of the Blue Hills Civic Association, through which McCrory allegedly directed most of the money to SHEBA.
Auditors, however, found that DECD failed to recover a $12,500 deposit a third-party administrator claimed to have made as part of the Small Business Express Recovery Bridge Loan Program, but the bank never received the deposit. While this was reported in a previous audit, “DECD failed to fulfill its responsibility to safeguard state funds by not taking reasonable steps to recover the missing funds.”
Despite the small amount, auditors wrote that it was “significant from a qualitative standpoint as it could be indicative of financial misconduct.” DECD responded that they couldn’t pursue the matter as third-party administrators are released from liability under DECD’s contracts.
Auditors also found the department awarded excessive historic rehabilitation building tax credits, including separating a single building into two units, allowing the department to exceed the tax credit cap of $4.5 million.
“DECD split a single project receiving $6,399,688 in tax credits into two parts. DECD provided $4,500,000 for one part and $1,899,688 for the other. As a result, DECD exceeded the $4,500,000 per project statutory cap,” the auditors wrote. “DECD did not collect the $1,000 application fee for two projects, but applied the $1,000 credits against the final amounts due.”
Furthermore, the auditors found DECD wildly exceeded the $30,000 cap for the Historic Homes Rehabilitation Tax Credit and added a ten percent contingency to the tax credit reserve “without statutory support for the practice.”
Of $658,431 in tax credits awarded to ten projects reviewed by auditors, 80 percent of the credits were unsupportable and based on “ineligible expenses, claimed expenses that were not adequately documented, or were over the $30,000 cap.” The report goes on to note tax credits upwards of $201,771 were awarded that should have been capped at $30,000.
“One person is responsible for all facets of the program and the tax credits were not subject to any supervisory review and approval. We also noted that DECD accepted applicants’ claimed expenses without reviewing or often not obtaining supporting details,” the auditors wrote. “The significant control weaknesses and lack of supporting documentation increased DECD’s risk of improper issuance of tax credits. DECD issued $266,875 in non-statutorily authorized tax credits.”
Department officials agreed with the finding and noted the State Historic Preservation Office now has an online application system to ensure all documents are properly uploaded, will no longer group multiple vouchers for one homeowner together, and will no longer add the ten percent contingency.
DECD has long been plagued with audit reports that show lax monitoring of loans, third party lenders and tax credits. In 2024, auditors cited over $100 million in improperly awarded film tax credits; in 2023, the department was cited for over and under reporting revenue tied to grant revenue and small business loans.
Of the sixteen previously reported issues listed by the auditors, eleven were repeat problems, while five were reportedly resolved.
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