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NEWS RELEASE
For Immediate Release
Contact: Steve Halvonik 717-787-1381
Audit Text

Auditor General Jack Wagner Faults DCED’s
Monitoring of Opportunity Grant Program

HARRISBURG, Oct. 31, 2007 – The state’s leading agency for economic development must improve monitoring of financial grants it gives to businesses to help them create or retain jobs, Auditor General Jack Wagner said today.

Wagner’s recommendations are contained in a special performance audit of the Department of Community and Economic Development’s Opportunity Grant Program that covered grants awarded during the period July 1, 2000, through June 30, 2005, with information updated through July 2007.

“The Opportunity Grant Program is a valuable tool to help Pennsylvania create and retain jobs in a hypercompetitive world economy,” Wagner said. “As such, DCED should administer the program in a way that maximizes and accounts for each and every grant awarded. Taxpayers must be assured they are getting maximum economic development for their investment buck.”

The Opportunity Grant Program is one of DCED’s largest economic-development programs. DCED disbursed $215 million in opportunity grants to 724 businesses during the five-year audit period.

Wagner said that enhanced goals and performance measures would help DCED identify businesses or market segments with the greatest opportunity for significant returns on investment. His special performance audit made 17 recommendations, including:

  • DCED should develop a more accurate process to evaluate success and failure rates on a grant-by-grant basis.
  • At the start of the grant process, DCED should require the signatures of a company’s highest-ranking officer and chief financial officer on every grant application, letter of intent, and contract.
  • During the monitoring process, DCED should accept only job data signed and certified by the company’s highest-ranking official and chief financial officer and should independently sample data to ensure accuracy.
  • DCED should perform periodic site visits beginning in the first year of grant disbursement, and it should pursue legislation requiring grant recipients to submit annual progress reports.
  • DCED should increase the number of grants in which the full amount is not disbursed until certain measurable benchmarks have been achieved.
  • DCED should track the names of the owners of businesses that receive grants, in case they apply for future grants under a different company name.
  • DCED should outline goals and performance measures for using program dollars in its legislatively mandated Annual Financing Strategy.

According to DCED data, 46 percent of grants awarded during the audit period – 335 of 724 – went to projects in manufacturing, one of Pennsylvania’s largest economic sectors (15.1 percent of gross state product, 660,000 employees). Information technology businesses received the second-largest number of grants, 13 percent, followed by health care-related services, 6.5 percent.

During the five-year audit period, opportunity grants were projected to retain 172,714 jobs and to create 105,236 new jobs. The average grant was $296,611 and the average cost per job to be created or retained was $773. Grants ranged from a low of $153 to a high of $12 million, with 65 percent less than $200,000 and only 5 percent over $1 million.

DCED established a performance monitoring division in 2003 to determine whether goals such as job retention/growth and private investment guidelines were being met. Its internal policies do not require DCED to monitor businesses during the first three years after receiving a grant, and auditors found that DCED officials seldom communicated with grantees during that timeframe. In fact, DCED officials were unaware that at least three companies they had given grants to during the audit period had ceased operations before DCED made the first contact. As the result of the audit, DCED has now agreed to begin more frequent monitoring and to require grantees to submit reports annually.

Auditors also found that, while DCED had improved its performance in assessing and collecting penalties from companies that fell short of their job projections, it nonetheless failed to use its maximum enforcement authority. During the five-year audit period, DCED waived more than $49 million in penalties/repayments it could have assessed against 187 companies that had received grants dating to 1996. DCED did assess $26.2 million in penalties/repayments during the audit period, but collected only $3.4 million, or 13 percent.

Wagner noted that DCED officials had picked up the pace in recent years, collecting $7 million in penalties from July 2005 to August 2007. Almost half that amount came from Vanguard Group, an investment management company. It paid a $3 million penalty in July 2007 for failing to meet job targets it had promised in return for a $12 million grant it received in April 2002 for a land acquisition and construction project in Chester County.

Wagner faulted DCED for failing to place a ceiling on the size of individual opportunity grants. He also recommended that DCED not agree to conditions outside the control of grantees, citing the Vanguard case for which job creation and retention goals were contingent on the upgrade of a highway.

Opportunity grants are typically awarded as part of a larger package of state assistance, such as loans, tax credits and technical assistance. Private enterprises are required to invest $4 for every $1 received from the state, and may be penalized for failing to meet commitments such as promised job growth or retention.

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits, and special investigations. The Department of the Auditor General conducts approximately 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.

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Chart of Opportunity Grants to Companies by County