Eficiencia y costo administrativo (instrumentos)

In report 13-7, we found that WEDC made some grant and loan awards in ways that did not comply with its program policies and that WEDC’s contracts with award recipients did not always contain provisions required by its program policies. In October 2013,

WEDC reported to the Joint Legislative Audit Committee that it had established policies and implemented procedures for ensuring that grant and loan awards comply with its program policies.

During our current audit, our file review found that WEDC’s grant and loan contracts did not contain all statutorily required

provisions, and that WEDC continued to execute grant and loan contracts in ways that did not consistently comply with its policies. WEDC’s contracts specify project activities businesses must

complete in order to receive grant or loan funds. Our file review found that WEDC’s grant and loan contracts in FY 2013-14 did not contain all statutorily required provisions. Statutes prohibit the awarding of grants or loans unless the contract “requires” the recipient to repay a grant or loan if, within five years after being awarded the funds, the recipient ceases to conduct the economic activity in Wisconsin for which it received the award and

commences substantially the same economic activity outside Wisconsin. This provision was enacted in July 2005. Grant and loan contracts we reviewed that require such a provision indicated that WEDC “may” require the recipients to repay the grants and loans if this situation occurs. Although WEDC may be able to use the permissive language to enforce the contractual provisions, WEDC’s contracts should explicitly require recipients to repay grants and loans if, within five years after being awarded the funds, the recipients cease to conduct the economic activity in Wisconsin for which they received the awards and commence substantially the same economic activity outside Wisconsin. Including such

contractual language would clearly indicate to recipients that they will be required to repay the funds in these circumstances.

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Recommendation

We recommend the Wisconsin Economic Development Corporation execute only grant and loan contracts that contain all statutorily required provisions.

During our current audit, our file review found that WEDC continued to execute grant and loan contracts in ways that did not consistently comply with its policies. In addition, our file review found that WEDC’s most-recent staff reviews did not consistently evaluate all grant and loan program policy requirements that were in effect when these staff reviews were completed. For example:

Our file review found that WEDC continued to execute grant and loan contracts in ways that did not consistently comply with its policies.

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 Although Business Retention and Expansion Investment program policies required recipients of loans in amounts of $200,000 or more to pay a 2.0 percent origination fee, five of six contracts did not require origination fees totaling $114,000. WEDC indicated that it waived the fee for these five recipients, but the program’s policies did not contain provisions allowing the fee to be waived, and the staff reviews for the five projects did not document the fee’s waiver. When the most-recent staff reviews associated with the five projects were completed, policies required recipients to pay the fee. Policies for the Business Opportunity Loan Fund program, which replaced the Business Retention and Expansion Investment program in FY 2013-14, do not require origination fees.  Although Workforce Training Grant program

policies required recipients of grants in amounts of $200,000 or more to pay a 2.0 percent

administrative fee, one of two contracts did not require a $4,000 administrative fee. WEDC indicated that it waived the fee, but the staff review for this project did not document the fee’s waiver. When the most-recent staff review associated with this project was completed, policies required recipients to pay the fee. In its FY 2014-15 program policies, WEDC removed the requirement for recipients to pay an administrative fee.

 Although Workforce Training Grant program policies required grant recipients to maintain newly created jobs for two years, one $200,000 contract that WEDC executed in July 2013 required a business to retain newly created jobs for only one year. When the most-recent staff review associated with this project was completed, these policies were in effect, and the staff review documented this issue. WEDC indicated that the one-year retention requirement in the contract was an oversight.

 Although Business Retention and Expansion Investment program policies required recipients that contractually agreed to create or retain jobs to be awarded funds based on the wages paid to employees earning at least 150.0 percent of the federal minimum wage, five contracts did not

contain wage requirements for retained jobs, and one of the five contracts did not contain wage requirements for created jobs. When the most- recent staff reviews associated with these five projects were completed, these policies were in effect, and the five staff reviews documented this issue.

 Although Business Retention and Expansion Investment and Business Opportunity Loan Fund program policies provided that contracts must require recipients to submit annual reports for five years documenting their expenditures and achievement of specified outcomes, eight contracts contained annual reporting requirements, but not for the full five-year periods.

 Although Business Opportunity Loan Fund program policies did not list debt repayment as an allowable use of awarded amounts, in May 2014 WEDC executed a $4.0 million loan contract that allowed a business to use

$1.6 million of the awarded amount in this manner. WEDC indicated that in this instance it considered debt repayment to be working capital, and its policies indicated that working capital was an allowable use of program funds. We also noted that the award amount was four times greater than the maximum amount “generally” allowed by program policies. WEDC indicated that award maximums in its grant and loan policies are guidelines that can be exceeded if warranted by a recipient’s unique circumstances.

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Recommendation

We recommend the Wisconsin Economic Development Corporation:  ensure staff reviews evaluate all grant and loan

program policy requirements; and

 execute only grant and loan contracts that comply with its program policies.

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