The state Department of Commerce issued $20 million in job-creation grants in 2010 without performing audits or onsite visits to confirm that the companies met the requirements of the grants, according to a state audit released Monday.
The department instead relied on withholding records from the Department of Revenue to confirm the accuracy of the wage and tax information being reported by companies, while also requiring companies to submit and certify annual reports.
“Relying on a company that is receiving grant payments to confirm that the company is in compliance with the grant requirements does not meet the definition of an objective and independent process,” the auditor’s report concluded.
The audit identified several other problems with the way Commerce officials administer the state’s Job Development Investment Grant program, which returns to companies a portion of withholding taxes paid by new employees. Companies that receive JDIGs are required to meet annual investment and job-creation milestones to receive payments.
The audit found that Commerce staff did not provide information about some potential JDIG grants to the Economic Investment Committee, a five-member body that oversees the program. The department also lacks a measureable criteria for determining the size of the JDIGs awarded for different projects.
In a written response to the audit, Commerce Secretary Sharon Decker said the department will come up with possible solutions to improve the verification process for grant compliance. It also plans to come up with a better formula for determining the size of JDIGs that is expected to be presented to the Economic Investment Committee before Aug. 15. The new model will also provide the committee with quarterly reports that include the list of projects that were not presented for consideration, as well as the rationale for why they were not being considered for a JDIG.
Decker said in an interview Friday that, while the state has “great” accountability measures in place for both the JDIG program and the One North Carolina Fund, the audit shows there’s still more work to be done. The One North Carolina Fund provides performance-based grants that must be matched by local governments.
“Are there ways to improve it? Yes. I think that continues to be true and we’re focused on doing that, continuously,” she said.
Monday’s report is the second audit to find fault with the Commerce Department’s oversight of economic development programs within the past nine months.
An audit released in November found that Commerce officials failed to adequately monitor $80 million that lawmakers earmarked in the 2011 budget for economic development projects. The agency did not follow its own procedures to assess 20 nonprofits and governmental entities that received the money to determine whether it was used for its intended purpose.
Commerce officials pledged to make changes to comply with the issues raised in that audit, but they also pointed the finger at state lawmakers who designated the money for the entities in the 2010-11 state budget.
In responding to the JDIG audit, Commerce officials agreed with some of the findings and recommendations, but disagreed on several points.
Commerce staff noted in the audit report that they believe onsite audits were never contemplated as part of the JDIG program, nor were funds allocated for such efforts. They also believe sufficient protections exist within the program to obtain accurate reporting from the companies.
Staff also noted that there are a variety of reasons that a potential JDIG project is never presented to the Economic Investment Committee for consideration. A company may decide to locate in another state, cancel a planned move or expansion, or fail to meet the requirement that it be considering another state or country besides North Carolina.
As for the size of JDIGs, Commerce staff said the amount is determined by what is needed to win the project as well as previous grant amounts for comparable projects.
The $20 million in payments identified in the JDIG audit were issued for 35 different grants. Since its inception in 2003, the state has awarded 145 JDIGs totaling $600 million.
The budget recently passed by the General Assembly and signed into law by Gov. Pat McCrory allocates $22 million for the JDIG program over a two-year period beginning July 1.
Staff writer J. Andrew Curliss contributed