Dept. of Commerce hit with another scathing audit of economic development grant monitoring | Eastern North Carolina Now

    Publisher's Note: This article originally appeared in the Beaufort Observer.

DOC audit has eerie similarities to the Rural Center Audit Report

    Governor McCrory and his Secretary of Commerce have a major problem on their hands.

    Recently the State Auditor issued an audit detailing the failings of the N. C. Rural Center for failing to properly monitor and insure accountability for millions of dollars that the Center has given to select businesses and organizations for "economic development." Gov. McCrory responded assertively, calling for a house cleaning at the Rural Center and the General Assembly recented defunded the Center, moving its programs and functions to the Department of Commerce.

    Now the State Auditor has just issued an audit report of the Department of Commerce (DOC) that details failings in DOC to monitor and insure accountability for millions of dollars in corporate welfare given to select business in the state for "economic development."

    When you read the DOC audit report you find striking similarities between the DOC audit and the Rural Center audit.

    Click here to review the audit report.

    What this audit report reflects is what we have been reporting here at the Observer for four years now. Our Chief Researcher Betty Murphy has provided numerous examples of the inadequacies of DOC's grant management.

    But this is not a surprise to readers of the Beaufort Observer. In fact, we have published over two hundred articles over the last four years documenting the failings of DOC to properly monitor these grants. And the State Auditor has previously pointed this out. Click here to read a report from a year ago.

    The most troubling part of this report to us is Secretary Decker's response to the State Auditor. She essentially says, in bureaucratic speak: "we'll think about it." (page 14).

    We're sorry Secretary Decker, but that's not sufficient. As with the Rural Center, we think a good housecleaning at DOC is called for. The problem is systemic and only a systemic solution will suffice. The fundamental problem in DOC is that it is more interested in making ribbon cutting announcements than it is in see to it that the taxpayers' money is properly accounted for. Having companies "attest to the veracity of the information" supporting "job creation" is woefully inadequate. The problem is that the numbers they use are bogus to begin with. The Employment Security Commission data does not accurately reflect, monitor and track "new jobs". That system was not designed to do that. One systemic change is how the numbers for jobs are derived must be improved.

    But the most significant systemic change needed is to develop a way that top management/owners of companies that receive these grants are held accountable. Those principals should be required to collateralize the clawback provisions with personal guarantees, just as most banks require closely held companies to do to receive a loan.

    And while Secretary Decker is at it, she should also take a look at how DOC computes tourism numbers. We can give her abundant examples of how those numbers are even more bogus than the "jobs" numbers.

    In academic parlance, the data analysis systems at DOC lack rigor. They are neither reliable nor valid. Until that changes we will continue to have these scathing audit reports. For example, the question the system should answer is: "Would this business have created these jobs even without the taxpayer subsidy?" And "attesting to the veracity" of the response will not provide sufficient validity and reliability rigor to tell us that.

    But the real solution here is simple. The state should get out of the incentive grant business.