A revised version of the state Department of Economic and Community Development’s 2017 annual report corrects many of the data errors found in the original version, however there continues to be errors in the department’s economic impact calculations, state auditors say.
In April, state auditors said the DECD, which oversees a number of programs to support new and existing businesses and promote economic growth, erroneously reported the amount of funds it issued for business assistance and incentive programs, as well as job retention numbers in its annual report.
The auditors concluded at the time that the data discrepancy likely resulted in the overstatement of “thousands of retained jobs,” and an overstatement of the total impact of the department’s programs.
The data discrepancies included understated and overstated figures in the areas of tax credits awarded; the amount of funds reported and leveraged for the Small Business Express Program; the amount of funds reported and leveraged under the Economic and Manufacturing Assistance Act, the Brownfield Remediation and Revitalization Program, and the Airport Development Zone Program; and overstated the number of jobs retained under the programs.
At the time, the DECD acknowledged flaws in some of the formulas it uses and the need to streamline its data collection methods, something it said already had begun.
In its review of the updated 2017 report, auditors said the latest data “did not disclose any material differences between the amounts reported in the annual report and the amounts per supporting documentation.”
Regarding the economic impact of the programs DECD administers, the auditors said that while the department addressed many of the specific errors noted in the previous audit, it continues to make other errors in its calculations.
Auditors said they noticed various errors in the inputs used to measure the impact of Manufacturing Assistance Act loans. After DECD ran a new calculation, it was determined that the department had overstated the cumulative net revenue to the state by more than $12 million, or 2 percent.
The auditors also said the department didn’t consider loan forgiveness awarded to companies when calculating the economic impact of the assistance provided. They said the DECD has forgiven over $230 million of loans for the Manufacturing Assistance Act and Small Business Express programs.
The auditors noted that the DECD said it didn’t include loan forgiveness in the calculations due to the “limited time available to reissue the report,” though it said that loan forgiveness would be included in the calculations used in the 2018 annual report.
The auditors said they identified “additional inputs” that may not be properly addressed in the DECD’s current calculations. They said DECD informed them the department would re-evaluate its methodology for calculating the economic impact of its programs for the 2018 annual report.
The audit of the revised 2017 annual report also noted that the DECD continued to omit data from certain business assistance and incentive programs from the report, including the Department of Labor’s Subsidized Training and Employment Program, or “Step Up,” and Connecticut Innovations’ Connecticut Sales and Use Tax Relief Program.
The auditors said the DECD did not think it necessary to include the Step Up program in its report because the Department of Labor prepares its own report on the program. DECD told auditors that information on programs administered by Connecticut Innovations would be included in the 2018 annual report.
The auditors also said that data pertaining to business and incentive programs not administered by the DECD — though still statutorily required — was not included in the report. The DECD proposed legislation to remove its requirement to report on programs it doesn’t administer during the 2018 legislative session, however the legislation was not adopted.
The auditors suggested that the DECD continue to work with the General Assembly to either modify the reporting requirements included in that particular state statute, or require that non-DECD administered programs provide the data needed to estimate the economic impact of those programs on the state economy.
The auditors also suggested that the DECD include information pertaining to uncollectible loans and potential and actual loan forgiveness, despite not being statutorily required to do so.
“DECD permanently loses funds on forgiven or uncollectible loans,” the auditors wrote. “In addition, the amount of uncollectible loans may indicate how well companies that receive financial assistance are doing, and whether incentive programs are helping businesses successfully grow and expand.”
At a joint hearing of the General Assembly’s Appropriations, Commerce, and Finance, Revenue, and Bonding committees this week, DECD Commissioner Catherine Smith said the department was “embarrassed,” and takes the reporting errors found by the auditors “extremely seriously.” She emphasized, however, that despite the errors, the results of the department’s programs “remain good.”
“These programs do work, and they are producing the jobs we expect, the revenue to the state we expect, and they are in fact helping us grow the economy here in the state,” she said.
