Audit critical of DCED job creation programs

Audit critical of DCED job creation programs

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Dec. 2014 DCEDThe Department of Community and Economic Development needs to improve oversight and transparency of some job creation programs that doled out hundreds of millions of taxpayer funds, according to a report released Wednesday by Auditor General Eugene DePasquale.
The 61-page audit report, which focused on about $213 million awarded through five programs from 2007 through 2010, found that 44 percent of the businesses that received the grants or loans did not meet their job creation commitments.
Projects that failed to meet goals were not a wasted investment, DePasquale said, adding the department should learn from those efforts and work to improve the loan and grant process.
In some cases, some businesses were granted extensions to try and meet the goal, some hit economic hardships and didn’t create any jobs, and some didn’t quite meet the goal, according to DePasquale’s office.
The department considers a business that pledged 100 jobs and created only 98 jobs a “sound investment” during one of the worst economic downturns, said DCED spokesman Steve Kratz. Those businesses would still end up in the 44 percent category, according to DePasquale.
DCED pointed out, as did DePasquale, that the other 56 percent appeared to pull more weight because the total number of jobs created or retained (133,329) met 96.7 percent of projections and was only about 4,000 short of the total promised (137,749).
DePasquale said his auditors weren’t concerned about the total number.
“DCED makes a calculation by aggregating the job number, not looking at the statistic overall,” DePasquale said. “Our point is, regardless of which point you want to use, 44 percent didn’t meet their number. We should be looking at why that happened and what needs to be done to fix it.”
DePasquale said DCED should set overall performance goals for each of its job creation programs, continue to impose penalties against businesses to recoup funds, require businesses to provide actual payroll records to verify jobs created/retained, and monitor and verify job creation numbers for all businesses awarded loans after they are paid off.
The five programs reviewed were Customizing Job Training (CJT), Opportunity Grant Program (OGP), Infrastructure Development Program (IDP), Pennsylvania Industrial Development Authority (PIDA) and Small Business First (SBP) program. CJT, OGP, IDP were merged under Pennsylvania First by Gov. Tom Corbett in 2011, partly because of the multiple contracts a single business could hold and voluminous paperwork they would have to fill out, Kratz said. SBP is consolidated along with other programs into PIDA, because of a recent law.
The audit also looked at DCED’s monitoring efforts during Gov. Tom Corbett’s term. DePasquale credited DCED for making improvements in monitoring businesses and in assessing and collecting penalties from businesses that fail to meet commitments since the department’s last audit in 2007.
However, annual budget cuts to DCED during Corbett’s term probably contributed to some of the monitoring and accountability problems his auditors uncovered, he said. The department shifted staff around to cover jobs lost through attrition and retirements, Kratz said.
“In general, Office of Auditor General and DCED have the same goals in mind, and that’s transparency and accountability in the expenditure of these funds,” Kratz said.
DCED and DePasquale were also at odds on a few points in the audit. In its official response to the audit, DCED said the report “is peppered throughout with general comments that seem more like opinion than fact, incongruous in an audit and, in many cases, are not supported by facts.”
Auditors “strenuously disagreed” and said DCED provided no basis for the comment.
DePasquale said 44 percent of the 600 businesses which received a total of about $213 million from 2007 through 2010 failed to create or retain the number of jobs promised when they obtained a grant or loan from DCED. Kratz said the department wouldn’t call them 600 “businesses” but 600 “contracts” since a single business could hold multiple contracts with the five job creation programs audited by DePasquale.
A footnote in the audit report acknowledges this, and auditors said the term was used for the ease of reporting.
Another problem identified by DePasquale is what he said was DCED’s failure to independently verify through payroll records the job-created/retained number submitted by businesses. Kratz said DCED obtains signed affidavits from company officials about their reported job numbers, which the department believes is satisfactory.
Kratz said DCED has not had to pursue legal action against any company over false employment statements.
–Kevin Zwick, Capitolwire