Update: 14 Nov. 12:51 p.m.-Following its Sunset Law study, a subcommittee of the General Assembly's joint government-operations committee voted today in favor of extending ECD's charter until 2017.-Ed.

The office of State of Tennessee Controller Justin Wilson today issued a report sharply critical of administration of the state TNInvestco program, the FastTrack program and other economic and community-development initiatives.

The report also includes responses from administrators to the criticisms. The state ECD department is led by Commissioner Bill Hagerty, and Hagerty's staff have rebutted some of the Comptroller's assertions, the reports shows. Though not singled-out in the Comptroller's report, the 10 TNInvestcos are listed here.

Update 14 Nov. 0559 - Both the Comptroller's report and Hagerty, in the form of a Nov. 13 statement issued in response to reporters' queries in the wake of the report, assert that Hagerty earlier requested the Comptroller audit ECD, prompted, according to Hagerty, by his own early findings of "deficiencies" in organizaton and controls. The Comptroller's report indicates that the audit continues and is scheduled for completion by June 30, 2013. 

Even though Hagerty's ECD is described as having "inherited" the TNInvestco program, and ECD is described as having suffered as a result of key staff turnovers during the Haslam Administration, it is characterized as not having taken adequate steps to ensure the program's performance. Both ECD and the TNInvestcos, generally, are described as not having put inplace adequate controls and diligence.

The TNInvestco program (officially created in 2009 as the Tennessee Small Business Investment Company Credit Program) authorized ECD to award allocations of monetizable insurance premium tax credits totaling $200 Million to qualified would-be TNInvestco funds, which were created for purpose of participating in the program, which has attracted national attention. Each of 10 TNInvestco funds ultimately ended-up with about $14MM to invest in seed- and early-stage companies that promised to headquarter in Tennessee, in the interest of creating more high-caliber jobs.

An initial review of today's report showed no criticism of individual TNInvestco funds, by name. Some funds that were not identified were described as having failed in some instances to have reported and documented activities as mandated; and, ECD was described as not having reviewed some of the activities of the funds, in some instances.

Audit findings include (quoting from today's report):

Finding 1 The Department of Economic and Community Development failed to establish the proper organizational structure or develop adequate internal controls over the Tennessee Small Business Investment Company Credit Program, resulting in serious and pervasive noncompliance with program requirements and increasing the risk of fraud, waste, and abuse (page 7).

Finding 2 Management has not ensured contracts were approved prior to allowing contractors to begin services, increasing the risk that the state may be liable for unauthorized services (page 24).

Finding 3 Management of the Department of Economic and Community Development has allowed grant and loan recipients to violate state contracts and federal requirements by not ensuring contractors submitted the required financial statements (page 27).

Finding 4 Staff of the Department of Economic and Community Development did not always follow loan receivable collection policies and did not pursue collection of all amounts due to the State of Tennessee (page 30).

Finding 5 The Department of Economic and Community Development did not ensure board and committee members signed annual conflict-of-interest forms, and department management did not identify the risks associated with board and committee members in the department’s risk assessment page 38). [end excerpt]

During the Bredesen years, ECD was directed by Commissioner Matt Kisber, and the TNInvestco program, which sprang from bipartisan legislation introduced to Members of the legislature by advocates of such programs, was mainly spearheaded by Kisber and by former Revenue Commissioner Regan Farr.

The Comptroller's report is here. This report will be updated, as warranted. VNC