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Blistering Audit Faults Wis. Job Creation Agency

MADISON, Wis. (AP) — A blistering audit released Wednesday said Gov. Scott Walker's premier job creation agency repeatedly broke state law in its first year of operation, failed to adequately track money it awarded for economic development projects and sometimes gave money to ineligible recipients.

Employees of the public-private entity also made unexplained purchases of University of Wisconsin football season tickets, alcohol and iTunes gift cards, the far-reaching audit of the nearly two-year-old Wisconsin Economic Development Corp. found.

Walker and the Legislature created WEDC in 2011 and it has been beset by problems since it started operating in July of that year. The audit by the nonpartisan Legislative Audit Bureau only added to the woes, with Republicans who supported creating WEDC, along with longtime Democratic critics, calling for immediate changes.

"This audit shows there is a significant disconnect between our expectations of WEDC and the reality of their performance with regard to transparency and accountability," said Sen. Rob Cowles, R-Green Bay, co-chair of the Legislature's Audit Committee.

He said WEDC must immediately correct problems identified in the audit, saying there was "no excuse" for breaking the law.

Reed Hall, secretary and chief executive officer of WEDC, said he does not believe WEDC broke the law. Because WEDC is not a state agency, but a public-private partnership, there can be disagreements over its obligations under the law, he said.

Both in the interview and in a response letter to the Audit Bureau, Hall said WEDC has made significant progress toward addressing what he called "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," he wrote.

But Rep. Peter Barca, a member of the WEDC board and leader of Assembly Democrats, said "the time for excuses is over," and if improvements aren't made in a year the agency should be dismantled.

When WEDC was created to replace the Commerce Department, staffing levels were cut from about 300 to 50. The new agency lost its first CEO after just 16 months on the job and its third chief financial officer resigned last month after just 24 hours on the job. That turnover in key leadership positions contributed to struggles at the fledgling agency, Hall said.

"Ultimately the buck should stop with the governor," Barca said. "I would hope the governor would take responsibility for this."

Creating WEDC was one of Walker's top priorities after he campaigned on the promise of creating 250,000 private sector jobs. His spokesman downplayed the audit.

"This audit dates back to 2011 and largely reflects information that WEDC has known for some time," said Walker's spokesman Tom Evenson. "This new agency has taken proactive and positive measures to address its issues, and Gov. Walker is confident in the direction of WEDC as an agency that aims to promote job creation and economic growth for Wisconsin."

The Audit Bureau, in its nearly 100-page report, also called for more oversight in a number of areas.

The audit faulted WEDC for not having sufficient policies to administer its $520 million worth of grant, loan and tax credit programs effectively, including some policies required by law. It awarded $80 million in its first year.

The agency did not consistently follow the law or existing policies when making awards, and had no policies for determining how to handle delinquent loan amounts, the audit said.

It lacked invoices or other contractually required documentation showing authorized costs for seven of 29 grants reviewed, the audit said. Four contracts gave $906,000 total in tax credits for job creation and employee training that had already occurred, the audit said.

Twelve of 14 recipients of grant and loan contracts worth at least $100,000 did not submit verified financial statements as required by law, the audit found.

State law also requires WEDC's board to verify the performance information reported by a sample of grant and loan recipients. The audit said no such review was done in the first 18 months of WEDC's existence.

It also faulted WEDC for not including all the required information, and including some inaccurate information, in its annual report to the Legislature submitted in November 2012. It also did not clearly present information about the number of jobs created and retained as a result of its programs, the audit said.

This is the third audit that has examined WEDC's operations. The first two were ordered by WEDC and completed last year. One of those audits was done by accounting firm Schenck SC.

The Audit Bureau discovered that while Schenck was working on that audit, it was also representing a firm and negotiated a financial award with WEDC. The Audit Bureau said WEDC awarded the firm represented by Schenck $1.1 million in tax credits and a $300,000 grant.

Hall said he was not aware of the conflict when Schenck was hired in June 2012. He said the first he heard of it was when the Audit Bureau brought it to his attention.

"One would have thought that would been picked up before," Hall said. "It wasn't picked up."

He said new policies are being implemented to ensure there are checks for potential conflicts in all WEDC programs.

(© Copyright 2013 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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