A recent audit conducted by the state comptroller’s office found problems ranging from inadequate documentation to mismanagementwithinTennessee’sTNInvestco Programand the department that oversees it-the Tennessee Department of Economic and Community Development.
The report found that theTNInvestco Programhas “serious and pervasive” problems, such as a lack of appropriate documentation, leaders said in a prepared statement Tuesday.
“Without adequate documentation, top ECD officials might have difficulty determining if the required investment strategy benchmarks are being met and if investments are free from fraud, waste or abuse,” Blake Fontenay, communications director with the comptroller’s office, said in a news release.“Furthermore, the lack of documentation raises questions about how accurate reports can be provided to the governor’s office.”
According to the audit,ECD leaders haveallowed grant and loan recipients to “violate state contracts and federal requirementsby notensuring contractors submitted the required financial statements,” among other problems.
Click here to read the audit report.
The TNInvestco Program came about as the result of 2009 legislation aimed at getting more capital to new, “innovative” companies throughout the state that are in early development states, according to the program’s website.
The program provides tax credits to businesses that invest in certain types of startup companies. Leaders launched it as a way to create jobs, boost entrepreneurship and help struggling companies with capital.
To qualify for the tax credits, businesses must meet certain criteria.
But the comptroller’s audit found that the program launched without the appropriate safeguards to determine that companies that received the startup funding were eligible. And according to the statement from the comptroller’s office, those safeguards are still inadequate.
Commissioner Bill Hagerty said in a prepared statement that he requested the audit of the department last year.
“After conducting our top-to-bottom review, deficiencies in the department’s organizational structure and internal controls were identified,” he also said. “An official review of our department was appropriate. We needed assistance and asked for it. During the audit process, the department worked diligently to address known areas of concern, and we have addressed the findings from the audit as of its publication.”
The auditors found thatDepartment of Economic and Community Development leaders failed to complete adequate annual reviews and its annual report, as well as did not evaluate program risks in its annual risk assessment.
Comptroller auditors also found that leaders did not make sure that companies that got tax creditscompletedstatutorily required investment strategy scorecards; provided the needed accounting reports of specific procedures; and give timely audited financial statements.
Other problems atDepartment of Economic and Community Development
The audit also found some other issues with ECD that are unrelated to the TNInvestco program. The ECD mission is to develop strategies to make job growth stronger in Tennessee.
Key findings include:
– The ECD did not establish appropriateorganizational structure or create adequate internal controls over theTennessee Small Business Investment Company Credit Program. This led to “serious and pervasivenoncompliance with program requirements and increasing the risk of fraud, waste and abuse,” according to the report.
– Leaders didn’t make sure that contracts were approved before allowing contractors to start services. This increases the risk that the state could be held liable for unauthorized services, according to the audit.
– ECD staff did not always follow the proper loan receivable collection policies and didn’t collect all amounts due to the state.
– And, in a repeated finding from a 2009 audit, ECD leaders did not make sure that board and committee members signedconflict-of-interest forms.
Updated @ 3:22 p.m. on 11/13/12 to add a comment from Commissioner Bill Hagerty.