The city of Richmond’s loosely enforced rules for awarding public grant funding to local nonprofits led the city to give at least $1.45 million to charitable groups that didn’t meet the city’s own application requirements, according to a new report from the city auditor’s office.

The audit reviewed nearly $6 million in grant funding to outside organizations in fiscal year 2023. Each year, the city invites local nonprofits to apply for city money that can be used for a variety of charitable services ranging from youth programs to housing assistance to arts and culture initiatives. 

The audit report issued Tuesday looked at how the city decides which groups deserve funding and tracks the impact of that money once it’s given out.

In the 2023 budget year, auditors found, the city awarded $1.45 million to 15 groups that “did not meet the published scoring criteria or deadlines noted in the application packet.” Another 34 organizations that met the criteria that year were denied $2.37 million they had applied for.

The report appears to validate recent concerns raised by City Council members about how the city awards and oversees the millions of dollars it distributes to nonprofits. City officials have praised many of those groups for filling gaps in government services, but council members have questioned the funding process and how the city can ensure public dollars are going to organizations best equipped to put them to good use.

The report issued by the office of City Auditor Riad Ali — an appointee of the City Council — says that in addition to an “inconsistent” application review process, city officials don’t conduct rigorous oversight on the grant funding and rely on charities to self-report on their own activities.

“Without adequate staffing, training, monitoring, and oversight, the city is exposed to significant risks, including fraudulent use of grant funds,” the audit report says. “The current environment creates vulnerabilities that could allow fraud to go undetected, undermining public trust and the effectiveness of these programs.”

In response to the audit, a city spokesperson said the audit reflects a “point in time” and stressed that officials have already taken several steps to improve the process, including lengthening the application period by 30 days and adding more “subject matter experts” to the teams reviewing requests for funding.

“We welcome the auditor’s work to ensure we have good processes and accountability,” the spokesperson said.

Employees in the city’s Human Services office, which handles much of the grant funding process, told the auditor’s office the application deadline isn’t strictly enforced. That meant applications were often accepted late, the report says. But the city only communicated the deadline flexibility to groups that had previously received funding, without notifying all applicants or the broader public.

The audit doesn’t identify specific organizations that received funding despite deficiencies with their applications. 

The application period examined in the audit occurred in the fall of 2021 in advance of the budget officials would approve in 2022. Former Mayor Levar Stoney was in office at the time.

City officials told the auditor’s office that some key documents from that year’s process — such as scoring sheets and conflict of interest forms meant to prevent bias — had been thrown away as part of a “warehouse cleanup.”

“Not maintaining the evaluations is potentially a violation of the Library of Virginia’s records retention requirements,” the report says, referring to state rules that limit how and when local governments can destroy public documents.

Even though the original scoring sheets weren’t available, some of the evaluation information was compiled into a spreadsheet the auditor’s office examined in its review.

A jumbled review process

In the audited year, officials recommended approving funding for 13 groups that had applied after the deadline. 

Five groups were recommended for funding despite getting an evaluation score lower than the 75 points the city had laid out as a condition of eligibility, a score based on potential impact on the city and the nonprofit’s level of organization and ability to deliver. 

Two groups recommended for funding scored lower than 75 and applied late, according to the report.

One applicant that scored 65 was recommended for $20,000 in public funding despite a note in the spreadsheet laying out weaknesses in the organization’s paperwork.

“Application did not show other sources of funding and application lacked substance and critical components such as reasonable goals and clear proof of previous success,” the note said.

Another applicant that scored 70 was recommended for $25,000 despite not providing the city with key information like its budget, the audit found.

Officials told the auditor’s office that the deputy chief administrative officer for human services could “override” the decisions of the initial review committee even if the applicant scored lower than 75 “based on the organization’s known work and past performance.” The Human Services office, the audit says, “did not adhere to the criteria communicated to the public, outlined in the application guidelines or established internally.”

“These practices may have resulted in funding awards to applicants less suited to meet the City’s needs, thereby reducing the effectiveness of the City’s investment of taxpayer dollars,” the report says.

The audit found similar deficiencies in application reviews conducted by the Department of Public Works and the Department of Planning and Developmental Review. 

A DPW reviewer initially told the auditor’s office they had not seen a particular group’s application and believed it had been handled by Human Services. When that employee was shown an email in which they recommended giving the group $50,000, the report says, “they explained that the recommendation was based on their knowledge of the organization’s prior work with the City and their belief that the amount was reasonable.”

With another application that went through DPW, the reviewer indicated the city was legally obligated to give the nonprofit $7,500 per year. The city attorney’s office told auditors there was no such obligation.

Lack of oversight

After grants were awarded, the city struggled with monitoring how the money was used.

Of 25 grants reviewed in the audit, eight nonprofits who received funding “did not meet all performance measures outlined in their contracts, based on their final reports.” Four grantees didn’t file final reports at all, the audit found.

“Without proper documentation and verification, there is a risk that funds could be misused, or excess funds retained without the necessary approvals,” the auditor’s office said, indicating that it would be doing more “in-depth reviews” of how the grant money was used “as staffing becomes available.”

When nonprofits failed to live up to the conditions of the grants they got from the city, there appeared to be few consequences, according to the audit.

“Additionally, grant managers confirmed that no significant consequences would be enforced for grantees who failed to meet performance measures,” the report says. “Funds were rarely reclaimed unless the program ceased operations, and there was no standardized process to determine when funds should be returned to the City.”

The audit report also faulted city officials for not giving the City Council enough information to make informed budget decisions on grant funding and pointed out the city sets no limit on how much money it gives out to nonprofits each year. In the city’s current budget, the amount awarded to nonprofit groups rose to more than $13 million.

Recommendations

The audit included a variety of recommendations for improving the process going forward, such as establishing standardized rules for how funding decisions are made, sticking to a clear application deadline, creating a cap on the amount of money available, better training for staff and stronger grant oversight.

City administrators concurred with most of the recommendations, but seemed to quibble with some, according to responses included in the audit report.

While agreeing that “consistent, repeatable, and well documented procedures are paramount in the grant award process,” the administration said the City Council can always make its own amendments to the budget, suggesting no new process can take away the council’s power to fund whichever organizations it wants to fund. The response also implied some charitable funding could be classified as “donations,” which “would not require grant agreements” like the ones the auditor said need to be more strongly enforced.

Pushing back on the idea of setting a predetermined amount of grant funding, the administration said it “cannot restrict the potential community benefits provided to the city by imposing a cap on grants.” 

The administration also defended its communication to the City Council, emphasizing it recently delivered a first-of-its kind impact report showing how grant funding was used in fiscal year 2024. When that report was presented earlier this month, several council members asked it could include clearer performance metrics on what the city was getting for its money. 

While presenting that report earlier this month, DCAO for Human Services Traci DeShazor said she and her team recently started holding an annual “celebration” for grant recipients to mark the end of one grant year and kick off the application process for the next. The first event was held on the Observation Deck at City Hall, DeShazor said.

“It was an incredible relationship-building exercise,” she told council members.

In order to enforce grant compliance the way the audit envisions, the city said in its response, the City Council would need to fund another five full-time positions to “build the resources and team necessary for a more robust grants administration unit.”

Contact reporter Graham Moomaw at gmoomaw@richmonder.org.