Audit by county’s Office of Inspector General identifies multiple problems with economic incentives program

Changes in staff oversight of program include focus on improved procedures and protocols, county administrator says

This is the cover of the audit report. Image courtesy of the Sarasota County Clerk of the Circuit Court and County Comptroller

Sarasota County Commissioner Michael Moran has made his concerns about economic development incentives clear to his colleagues since he was sworn in as a board member in November 2016.

Generally, whenever a proposal for an incentive has come before the commission, Moran has asked a multitude of questions in his endeavor to ensure the county invests wisely in long-term job creation.

Last year, Moran spent time pulling together data from county records to underscore his assertion about how little return the county has received for its incentives.

On April 10, as the commission was concluding its business during a regular meeting, Moran asked to be recognized. He had learned just that morning, he said, that the Office of the Inspector General of the Sarasota County Clerk of the Circuit Court and County Comptroller had issued an audit supporting the arguments he has made over the past two-and-a-half years.

Turning to the Executive Summary of the audit, Moran read that the Office of the Inspector General had found that the county’s economic development incentive fund program had failed in a number of ways:

  • It reimbursed an entity although the company had failed to perform in accord with the company’s agreement with the county.
  • The program lacked “sufficient supporting documentation for payment requests.”
  • It lacks “approved policies and procedures.”
  • It “is not compliant with Florida Statute 125.045(4).” (That law says that “a contract between the governing body of a county or other entity engaged in economic development activities on behalf of the county and an economic development agency must require the agency or entity receiving county funds to submit a report to the governing body of the county detailing how county funds were spent and detailing the results of the economic development agency’s or entity’s efforts on behalf of the county.”)
  • It is not compliant with accounting policies and procedures.
  • It lacks “monitoring and retention processes related to completed applications.”

“The most troubling part to me,” Moran told his colleagues, is that of the $16.4 million that was allocated to incentives from the 2009 fiscal through the period of the audit, “almost just shy of $11 million has been spent,” in spite of the lack of proper oversight. That is taxpayer money, he emphasized.

The County Commission, the audit said, “has approved a total of $16,676,000 to be committed to economic development projects since the start of the [incentives] fund [on April 14, 2009]. As of September 19, 2018, the fund has an available balance of $6,829,291, which includes interest earnings,” the audit added.

Commissioner Michael Moran. File photo

Addressing County Administrator Jonathan Lewis, Moran said, “You’re new to this position. This was going on long before you were here.”

Moran added that this is the third time the Office of the Inspector General “has blown the whistle, pulled the fire alarm, and said, ‘You need to pay attention to this.’”

Moran asked that Lewis make certain that county staff sets, as a priority, complete compliance with all the appropriate laws and regulations, as outlined in the audit.

Lewis, who joined the county staff as an assistant county administrator in April 2017, became interim county administrator in December 2017. In January 2018, he and the commission agreed on a contract that formally made him a successor to the previous administrator, Tom Harmer.

Responding to Moran on April 10, Lewis pointed out that, with the Oct. 1, 2018 start of the current fiscal year, a reorganization of the handling of the economic incentives program went into effect. The county’s Governmental Relations Department, headed by Rob Lewis, has taken over the responsibility. (Prior to the reorganization, the county had an Office of Economic Development that oversaw the program, the audit explained.)

Rob Lewis and his team, Jonathan Lewis continued, “immediately started working on procedures and protocols.”

The audit, Jonathan Lewis noted, covered the program through 2017.

Referring to Moran’s comment about ensuring that following the audit’s recommendations is a staff priority, Lewis said, “That’s exactly what we’re doing … and I have great confidence in Mr. Lewis and his team.”

“I appreciate it very much,” Moran replied. “I trust you,” he told Jonathan Lewis.

“At a minimum,” Moran continued, “we need to stop going forward on these contracts.” (The commission approved two new incentive deals earlier that day. On both agenda items, Moran cast a “No” vote.)

Just before the second vote, Commissioner Nancy Detert pointed out that the incentives program had been in effect for about 10 years. “It’s a good time for us to review our policy.”

The commission also needs to look at actions it should take to respond to the audit, Moran told his colleagues.

Details of the audit

County Administrator Jonathan Lewis. File photo

Under the terms of the county’s economic incentive grant program, the audit explained, a company must retain its current number of jobs, create the specified new full-time jobs and compensate those new employees at a specified starting wage. Additionally, “in any single year of the Job Creation Period,” which covers one year, “the average starting salary … for all full time employees hired in that year must, at a minimum,” meet the grant allocation wage, the audit said.

At the end of each job creation period, a company is required to submit an affidavit about the jobs that have been created. Then county staff is expected to review the information to determine the net new jobs and ensure “that the entity met the requirements in order to receive grant funding,” the report explained.

The auditor identified and reviewed five of the incentive agreements into which the county entered after Jan. 1, 2014 and two that exceeded $100,000 for the period of Jan. 1, 2012 through Dec. 31, 2013, the report continued. Altogether, 19 payments were made in conjunction with the agreements, totaling $878,226, the audit said.

During the review of the payment requests for those seven agreements, the report added, the auditor identified three payments related to the first Job Creation Period for one firm, which showed “the company did not appear to be eligible for incentive grant funding.”

The 11 new jobs the firm created had an average starting wage of $41,266.73, the report continued. That amount failed to meet the minimum required, which was $43,304. “However, the County determined the company was eligible for incentive funding by removing the three lowest [paying] jobs from the Grant Allocation Wage calculation. By doing so,” the report said, “the Grant Allocation Wage increased to exceed the minimum of $43,304.”

In response to that finding, the report continued, the “Governmental Relations staff will review the specified grant agreement and documentation with the Office of the County Attorney and County Administration. For future grant agreements, staff will include all full-time employees hired in a single year of the Job Creation Period [to calculate the average salary, in determining] whether the Grant Allocation Wage has been met for that year.”

Rob Lewis addresses the commission in December 2018. News Leader image

For another example, the report said that under the terms of the county program, “an authorized, knowledgeable representative” of a company that has won a grant “shall deliver to the County” an affidavit showing job creation and retention data. That affidavit must include the number of full-time jobs created during the specified period and any new, full-time jobs that were eliminated, plus the annual starting salary of each eliminated position.

The auditor found that five payment requests failed to include Florida Employer’s Quarterly Reports, which are required “to support the job affidavit,” the document pointed out. Instead, the companies provided federal quarterly payroll reports (Form 941), the report said. Though those documents include “important payroll information,” the report continued, “the employees listed in a Form 941 could be located anywhere in the United States,” whereas payroll information listed [on the specified state forms] will include payroll data only for employees working in Florida.”

The auditor recommended that county staff ensure the documentation companies provide “is complete and supports the job affidavit” before the company makes a payment request under the terms of their agreements.

The county’s response, the report said, is that staff will make certain a completed job creation affidavit and the Florida Employer’s Quarterly Reports form (RT-6) has been received from a company before the company initiates a grant payment request.

The county response added, “No payment requests will be submitted without complete and sufficient supporting documentation as required by the grant agreement.”

Other issues

The report also explains how the county has failed in the past to comply with Florida Statute 125.045(4).

In January 2018 — for the first time, the audit said — the county filed a fiscal year report about the work of the county’s Economic Development Corp. That covered the 2016-17 fiscal year, the audit noted. “The first required filing due date was January 15, 2011,” the audit added. Thus, the county has not filed the EDC annual reports for the six prior fiscal years. “Additionally,” the audit continued, “the County has not posted [copies] of the EDC annual reports to the County website.”

The county response to that finding was that staff has developed new procedures and guidelines for the Governmental Relations Department in regard to economic development reporting to the state. The procedures are “in alignment with Florida Statute 125.045(4),” the county response said, including the requirements relating to the EDC’s annual report. The department’s procedures will be updated as necessary, but at least on an annual basis, the county response noted. Staff will file the EDC annual report with the state and make it available on the department’s webpage, the county response said.

The Office of the Inspector General operates under the purview of Clerk of Court Karen Rushing. Image from the Clerk’s Office website

Yet another issue pertained to non-compliance with residency requirements, the audit pointed out.

The financial incentive grant agreements call for a company to “undertake best efforts” to fill at least 50% of the new full-time jobs with Sarasota County residents. Yet, the audit found eight instances when companies did not comply with that. “Two job affidavits did not include any county residency information. One job affidavit included incomplete county residency information,” the report said.

The other five affidavits reviewed “indicated that the percentage of new full-time employees residing in Sarasota County was 48, 42, 33, 24, and 21 percent,” the audit added. “The supporting documentation did not indicate why the entities were unable to meet the 50 percent threshold.”

The county’s response, the report said, was, “Moving forward, if less than 50% of all new full time jobs have been filled by employees who are residents of Sarasota County, staff will request that the Company provide additional information for explanation.” That decision has been incorporated into the new Governmental Relations Department’s procedures and guidelines, it added.