Audit an Embarrassment for Wisconsin Economic Development Corp.

Audit an Embarrassment for Wisconsin Economic Development Corp.
May 3, 2013

Ryan Ekvall

Ryan Ekvall writes for WisconsinReporter.com. (read full bio)

Another audit, another finding of incompetence and waste at Wisconsin’s top jobs agency.

The operation at the Wisconsin Economic Development Corp. apparently is so muddled the Legislative Audit Bureau could not adequately “assess the effectiveness of WEDC’s economic development programs.”

The bureau’s audit, released May 1, found information WEDC submitted to the legislature in November “did not contain all the required information, contained some inaccurate information and did not clearly present information about the number of jobs created and retained as a result of its programs.”

Auditors found it “difficult to assess the accuracy and completeness of the number of jobs that WEDC reported” because WEDC did not independently verify the information submitted by the companies that took WEDC cash or tax credits, or follow up on the 55 percent of contractually required progress reports that were never submitted.

Inernal Reports Contradicted

WEDC also reported information to the public that didn’t jibe with internal results.

The audit found internal WEDC documents show no jobs created or retained as a result of Community Development Block Grant awards, whereas WEDC’s report indicated 302 jobs created and 63 jobs retained.

That’s just the tip of the 94-page iceberg released by the audit bureau, which underlines the quasi-public economic development corporation’s neglect of statutory requirements and internal policies in almost every facet of operation.

‘Problem After Problem’

The audit was so alarming that Rep. Samantha Kerkman (R-Randall) and Sen. Robert Cowles (R-Green Bay), co-chairs of the Joint Legislative Audit Committee, called for a public hearing May 9.

“As I read page after page and problem after problem . . . there’s not consistency or uniformity when they are awarding grants and tax credits, and as a taxpayer and a legislator I’m very frustrated,” Kerkman said.

“Money the state is giving out to create and retain jobs is not being used wisely. It’s been one of those days where you take a lot of deep breaths,” she said.

In its report, the audit bureau makes recommendations that presumably would seem apparent to a taxpayer-funded agency which granted more than $500 million in awards—including bonds, grants, loans and tax credits—in 2011-2012:

  • Tax credits should be allocated only to eligible recipients, for eligible projects, and for amounts allowed by WEDC’s program policies.
  • WEDC should manage and oversee its contracts appropriately, including by ensuring that the contracts contain all provisions required by program policies.
  • WEDC should ensure that it does not allocate tax credits for economic development projects that occurred before the contracts were executed.

The audit highlights two instances where tax credits were awarded for projects that had already occurred.

No Fulfillment, No Problem

Where businesses rewarded with taxpayer dollars didn’t hold up their contractual obligations, such as creating jobs or training employees, auditors noted, “WEDC indicated to us that it typically does not [recoup awards] because recouping awarded funds may impede economic development and job growth.”

One $2.5 million contract through the Jobs Tax Credit program did not require a business to create any jobs.

The audit found WEDC waived a required 2 percent origination fee on six of 10 loan contracts for more than $200,000 apiece. The auditors noted those fees would have totaled $77,300, making the total amount of the loans nearly $3.9 million.

Another loan for $500,000 was contractually not secured by any assets, contrary to WEDC’s internal policy. When the balance came due a year later, the loan recipient couldn’t pay, so WEDC extended the contract another year.

Twelve of 14 recipients of grants or loans of more than $100,000—which had spent all the awarded funds by December 2012—did not submit statutorily required verified financial statements.

“The files we reviewed contained no indication that WEDC took action against these 12 recipients,” the audit states.

Multiple Policy Violations

Other problems included $34,000 granted to a business in the hospitality industry, against WEDC internal policy. Unless a significant number of jobs are involved, WEDC doesn’t incentivize the hospitality industry. The funds were used for new employee orientation, also against WEDC policy. Half the jobs created paid less than 150 percent of the federal poverty level. That too is against WEDC policy.

Asked for comment on the audit, WEDC spokesman John Gillespie pointed back to the audit.

WEDC CEO Reed Hall in a written response to the audit said WEDC respects the findings “with the recognition that WEDC has made significant progress in addressing operational shortcomings.”

“The vast majority of issues raised by LAB have already been identified by WEDC and other parties, and substantive solutions are already in place or are in the process of being implemented,” Hall said.

Among other notes, the audit found $1,109 spent from three transactions for rooms rented in Madison for unspecified meetings. Taxpayers spent $1,789 for six season tickets to UW-Madison football games. One WEDC staff member made $208 worth of long-distance calls over a two-day period at a hotel in Texas.

WEDC has seemingly been embroiled in controversy since its inception.

Created by Gov. Scott Walker (R) and majority Republicans in the legislature in 2011 to replace the state Department of Commerce, WEDC had previously lost track of tens of millions of dollars’ worth of loans, including $12 million dollars in past-due loans.

Ryan Ekvall (rekvall@wisconsinreporter.com) writes for WisconsinReporter.com, where a version of this article first appeared. Used with permission.

Ryan Ekvall

Ryan Ekvall writes for WisconsinReporter.com. (read full bio)