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Wisconsin jobs chief grilled over WEDC audit findings
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Joint Audit Committee co-chairs Rep. Samantha Kerkman (R-Randall) and Sen. Robert Cowles (R-Allouez) listen to testimony on the audit.
Credit:Nora G. Hertel

Tensions were high on Thursday at the Joint Audit Committee hearing on an audit of the Wisconsin Economic Development Corporation (WEDC) that uncovered six violations of law.

"This is deeply concerning," said Rep. Melissa Sargent (D-Madison), a member of the committee. "These are taxpayer dollars." WEDC spent about $80.1 million in fiscal year 2011-12.

Legislators raised concerns from the audit about WEDC's failure to follow statutory requirements and the mere 5,000 actual jobs created by the corporation.

"This document does not reflect what we are today or what we want to be in the future," acknowledged Reed Hall, named as interim CEO of WEDC last year before being confirmed to the position by the state Senate in February.

Governor Scott Walker, chair of the WEDC's board, created the organization in 2011 as a public-private partnership to help with job creation and economic growth. It took over some functions formerly performed by the Wisconsin Department of Commerce. The audit conducted by the Legislative Audit Bureau primarily explored the functioning and practices of WEDC, but it included elements of a financial audit on the organization that are still in process. During fiscal year 2011-2012, the term of the audit, WEDC distributed $519 million in tax credits, loans, grants, and bonds to businesses around the state.

The audit's 120-page report (PDF) exposed delinquent loans and a failure on the part of WEDC to develop and implement policies required by law. State Auditor Joe Chrisman identified six ways that WEDC broke the law, including a failure to list expected results for the economic programs it administers and failure to pursue progress reports from loan and grant recipients that are required by contract.

Sargent and Rep. Jon Richards (D-Milwaukee) pressed Hall on these violations.

"We have to agree to disagree on whether or not that's true," Hall said in response.

"Reasonable people can disagree as to both the substance and interpretation of facts, and the conclusions that may be reached from those facts," wrote Hall in a formal response to the audit. "Such is the case with the viewpoints of [Legislative Audit Bureau] and WEDC leadership with regard to parts of LAB's audit of FY2012."

Despite contesting the validity of the audit's results, Hall assured the committee his agency plans to "comply with the law. That's why we've upgraded our compliance department."

Reed acknowledged that WEDC's policies have been insufficiently documented, but said it has operated with informal, unwritten policies from the Wisconsin Department of Commerce.

The corporation is in the process of upgrading its computer system to better accommodate loan tracking and job reporting, and Hall said the organization will soon hire a new chief financial officer.

The most recent CFO quit after a day and a half to take a promotion with his previous employer.

"We've had some bad luck," said Hall about the CFO search.

WEDC is "moving in the direction of making the organization much more like a bank," said Hall about forthcoming changes.

Rep. Samantha Kerkman (R-Randall), co-chair of the Joint Legislative Audit Committee, expressed hope that WEDC would make positive changes in the future.

"We need you to succeed," she told Hall and other WEDC representatives.

Kerkman said she plans to continue following up with WEDC and asking questions -- just as she would with the University of Wisconsin System -- as the organization makes changes.

A separate audit recently turned up a $648 million surplus in the University of Wisconsin System, outraging many Republican legislators. Kerkman said she was equally concerned with the UW System surplus and WEDC audit findings.

"How many laws did [the UW System] break?" Richards shot back.

The Legislative Audit Bureau audit found the WEDC had helped create about 5,000 actual jobs and that 19,000 additional jobs were anticipated.

Hall stood by a figure in WEDC's annual report, claiming the organization created 24,000 jobs. The agency calculates jobs numbers by checking independent payroll records and unemployment compensation.

The audit addressed this point: "It is difficult to assess the accuracy and completeness of the number of jobs that WEDC reported having been created or retained."

As Sen. Kathleen Vinehout (D-Alma) told the WEDC representatives, "You and I know, collecting the information and verifying the information are not the same thing."

Hall assured Vinehout he and WEDC employees would follow through with the requirements and concerns, demanding more documentation and transparency from the companies that receive WEDC support. But Vinehout wanted more: "I think I need more than just good intentions.I need to see policies and evidence that those policies are followed through."

WEDC is expected to report to the legislature in October on the status of its outstanding loans and its efforts to comply with state statutes, as recommended in the audit.

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