The Department of Commerce administers the Promoting Employment Across Kansas (PEAK) program, which allows eligible businesses to retain some of their employees’ state income tax withholdings. Our 2013 audit found that the department had exceeded statutory limits on the amount of benefits that could be given to expanding businesses. In 2014, the Legislature clarified the law, creating more specific limits for both expanding businesses and retaining jobs in Kansas. We reviewed PEAK benefit records to determine compliance with statutory benefit limits. We found PEAK benefits paid to expanding businesses have stayed within the statutory limits. Benefits paid to retain existing jobs exceeded the statutory cap slightly in fiscal year 2015, but remained within the cap in other years. Finally, the Department of Commerce has authorized benefits for job retention to be paid in fiscal year 2019 – beyond the date currently allowed by state law.
Statewide Financial Compliance Audit--Fiscal Year 2016 Part 1, Office of the Chief Financial Officer Comprehensive Annual Financial Report
State law calls for an annual audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” CliftonLarsonAllen, under contract with Legislative Post Audit, conducted this two-part audit. This first part is the report on the state’s Comprehensive Annual Financial Report (CAFR). The second part, the Independent Auditor’s Report on Compliance for the Major Program and on Internal Control over Compliance Required by the Uniform Guidance, will be issued as a separate report.
The auditors expressed an unmodified opinion on the financial statements, meaning that, financial statements present the state’s financial position fairly and in conformity with generally accepted accounting principles in all material respects. However, the auditors did emphasize two matters with regard to the financial statements. First, at the end of fiscal year 2016, the state had a deficit in its general fund of $504 million which raises concerns about the state’s ability to meet its future financial obligations. Second, adjustments were made to the beginning net positions and fund balances to correct errors from prior years.
The audit disclosed no instances of noncompliance with applicable legal requirements that were material to the state’s financial statements. However, the auditors reported two material weaknesses in the state’s internal control over financial reporting. The material weaknesses included various issues related to identification of errors that occurred in prior years. Because of this, some previous fund balances were restated.
Sales Tax and Revenue Bonds: Evaluating the Heartland Park STAR Bond Project
In 2014, the City of Topeka developed a proposal to expand an existing STAR bond redevelopment district and issue new bonds to purchase the Heartland Park racetrack. We evaluated eight areas of the city’s proposal and found all eight areas appeared to meet the requirements of the STAR Bond Financing Act. However, we also identified several issues based on that review. For example, we noted concerns about whether the current Heartland Park STAR bond proposal is the type of project the Kansas Legislature envisioned for STAR bonds and about the independence and reliability of the studies that demonstrate Heartland Park’s statewide economic impact. Additionally, we identified several areas where current statutes could be strengthened or made clearer.
State of Kansas: OMB Circular A-133 Audit of Fiscal Year 2014
State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” CliftonLarsonAllen, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-14-018, released in December 2014). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that, except for the Foster Care program, the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. The auditors found material non-compliance in the requirements regarding subrecipient monitoring in the Foster Care program. The auditors reported 27 deficiencies in internal control, including five material weaknesses. The auditors also identified questioned costs for a number of programs. Five of the findings were repeated from prior years.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 3
The implementation of major Kansas economic development programs appears to have been successful based on our evaluation of the returns generated from 42 economic development projects. According to our analysis, all six major programs appeared to create significant returns on investment with regard to business activities and tax revenue for state and local governments. However, return on investment is an indicator of program success and should not be interpreted as an absolute value. Additionally, a couple of factors significantly influenced the return on investment of the 42 projects we evaluated such as the jobs the project created and the likelihood the project occurred in Kansas because of the state and local incentives provided.
We also found that the High Performance Incentive Program (HPIP) is fundamentally different than the other major economic development programs because of its entitlement nature, structure, and lack of documentation.
State of Kansas: OMB Circular A-133 Audit of Fiscal Year 2013
State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” RubinBrown, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-13-016, released in December 2013). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. However, the auditors reported 26 deficiencies in internal control. The auditors also identified questioned costs for a number of programs. Six of the findings were repeated from prior years.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 2
Studies suggest many economic development initiatives are difficult to evaluate or have not been successful, yet states must offer them to remain competitive. Our analysis showed that Kansas has the appropriate programs for enhancing the state’s economic development. That is because overall Kansas generally has the same types of economic development programs as five other states we reviewed. Kansas’ programs also generally provide the incentives that stakeholders indicated are useful. Business officials and other respondents disagreed about how lowered income tax rates would affect economic development in Kansas. Lastly, stakeholders offered a number of suggestions for improving the state’s existing programs.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 1
REGARDING THE ECONOMIC BENEFITS OF PEAK AND HPIP
The Promoting Employment Across Kansas (PEAK) program and the High Performance Incentive Program (HPIP) use different forms of tax incentives to promote job creation and capital investment. Assessing the benefits of the PEAK program is difficult because the Department of Commerce has not compiled meaningful program-level information. However, based on the best information we could compile, companies participating in PEAK have generated an estimated 5,200 jobs in exchange for $21 million in forgone withholding taxes through December 2012. Most of the jobs associated with the PEAK program are relatively high paying, are located in metropolitan counties, and represent several different industries. However, a similar program in Missouri and a recent reduction of Kansas income tax rates could undermine the benefits of the PEAK program in the future. With regard to HPIP, the Department of Revenue reported companies made $310 million in capital investments and created or retained 6,900 jobs in exchange for $21 million in tax credits in tax year 2010. However, the department’s tax credit data may not be completely reliable. We also identified a number of problems related to the Department of Commerce’s management of the PEAK and HPIP programs. Problems with the PEAK program include the department exceeding the statutory cap on authorized incentives, not thoroughly and timely reviewing companies’ applications and periodic reports, and not having a systematic process for managing the program.
REGARDING THE ENFORCEMENT OF PERFORMANCE CLAUSES
The Department of Commerce included clawback terms in the agreements of the six economic development programs we reviewed. Our work showed the Department of Commerce generally enforced clawback terms when it became aware that companies had not met performance requirements. However, it did little to enforce reporting requirements, which limited its ability to identify underperforming companies. We also identified additional problems with the department’s management of the four programs we reviewed in depth, including inconsistent enforcement of some agreements and poorly worded agreements in three programs. Further, all four economic programs we reviewed lacked adequate written policies, and the department had not developed annual reports to allow it to better manage those programs.
State of Kansas: OMB Circular A-133 Audit of Fiscal Year 2012
State law calls for an annual financial-compliance audit of the general purpose financial statements and “the financial affairs and transactions of a state agency required to comply with federal government audit requirements…” RubinBrown, under contract with Legislative Post Audit, conducted this two-part audit. The first part was the report on the state’s Comprehensive Annual Financial Report (report R-13-005, released in March 2013). This second part, the Report on Federal Awards in Accordance with OMB Circular A-133, reports on compliance with laws, regulations, and provisions of contracts and grant agreements.
The auditors concluded that, except for the Unemployment Insurance program, the state complied, in all material respects, with the requirements applicable to each of the federal programs audited. However, the auditors reported 28 deficiencies in internal control, two of which were material weaknesses. The auditors also projected up to $73.4 million in questioned costs ($65,000 in known questioned costs). Six of the findings were repeated from prior years.
State Agency Information Systems: Reviewing Selected Controls in Selected State Agencies (CY 2012)
We evaluated six important IT security controls and the comprehensive IT security management process at nine state agencies. We found that most agencies’ IT security controls we reviewed were not strong enough to help ensure that confidential information was adequately protected. Moreover, most agencies had weak controls to help ensure strong and secure staff passwords, and almost all agencies did a poor job of patching software vulnerabilities for both workstations and servers. Most agencies did not adequately train staff on IT security issues, and none of the agencies had fully developed and tested a continuity of operations plan. While most agencies adequately controlled their IT inventory, four agencies were missing or had lost track of computers. On the other hand, we found only a few problems with network access points, which were largely controlled by the Office of Information Technology Services. None of the agencies had a fully developed security management process, but all nine had at least some process components. Finally, security controls were far stronger at agencies where management made IT security a priority.
State Agency Information Systems: Reviewing Selected Systems Operation Controls in State Agencies
State agencies make enticing targets for hackers because of the wide range of sensitive information they maintain. A significant threat to securing agency data is failure to comply with basic security procedures such as installing software patches and controlling the software on computers. We looked for unpatched or unauthorized software in five agencies, and found that three of the five agencies had significant vulnerabilities because of inadequate workstation patching processes—vulnerabilities that potentially could be exploited to gain access to sensitive data. Those agencies had few problems with unauthorized software, but two still need to improve their process for managing software.
Affordable Airfares: Reviewing the Benefits Claimed As a Result of State Funding to Lower Airfares
Overall, the Affordable Airfare program appears to have had the desired effect. Since Wichita’s original affordable airfare program (FairFares) began in 2002, fares have decreased, while the number of passengers and the number of available flights have increased. However, the Regional Economic Area Partnership’s (REAP) annual reports on the program contain numerous inconsistencies and inaccuracies. For example, REAP officials don’t report on everything as required – flight data was only included in one annual report. Further, the economic impact of the program has been significantly overstated because of key methodological errors, such as incorrectly accounting for indirect job creation, and the use of inaccurate data in the base year. These and other errors resulted in the economic impact being significantly overstated. We also found that overall accountability for the State funds is lacking.
State Hiring Practices: Determining Whether Requirements Related To Veterans’ Preferences Are Being Met
State law provides that eligible veterans who meet the minimum and preferred qualifications for a State classified job be offered an interview. Of the 426 veterans’ applications reviewed, there were only two instances where a veteran should have been interviewed, but wasn’t—both times because of an oversight acknowledged by agency officials. The reasons most veterans weren’t interviewed were because they didn’t meet minimum and preferred qualifications for the job or submitted incomplete application materials. In addition, we couldn’t conclude whether agencies mailed a certified letter to each veterans’ preference applicant as required by State law and identified several smaller issues that need to be addressed to make the veterans’ preference law more efficient and cost effective. These include considering eliminating the statutory requirement that State agencies have to mail certified letters to veterans not hired, giving guidance to State agencies on what documentation they should keep to show they mailed a certified letter to each veteran applicant, and advising State agencies to wait a certain period of time after a job closes to print a list of applicants to be considered for the job.
American Recovery and Reinvestment Act: A Review of Reporting
The State has implemented ARRA reporting requirements fairly well. Agencies generally have done a good job of filing their Section 1512 reports timely, and all agencies required to report have done so. All but two of 74 reports flagged by federal reviewers were satisfactorily resolved. The methodology agencies used to calculate jobs created and retained was consistent with federal guidance. However, two of the four programs we reviewed inaccurately calculated and reported the number of jobs created. We were able to reconcile expenditures listed on the Section 1512 report to the State’s accounting system for 16 of 18 programs we reviewed. However, the differences were relatively minor.
American Recovery and Reinvestment Act: A Preliminary Assessment of the Risk That Recovery Act Moneys Won’t Be Appropriately Accounted for or Spent
The $787 billion American Recovery and Reinvestment Act of 2009 (ARRA) requires unprecedented accountability and oversight of federal moneys being spent at the State and local levels. State agencies in Kansas will receive more than $2 billion in formula grants under the Act through 2011. The 2008 Statewide Single Audit had identified procedural or control weaknesses in four State programs that will be receiving ARRA moneys. Correction of those weaknesses, which related to things like reconciling records, improving eligibility determinations, and implementing computer edits to prevent improper payments, will be checked during the 2009 Single Audit. In eight other programs reviewed for this audit, the risk that agencies won’t comply with the requirements of ARRA appears to be relatively small. We found no weaknesses in the way that agencies are accounting for the ARRA moneys. However, in areas of monitoring and quarterly reporting, we found that officials from several of the programs needed to commit their procedures to writing to ensure consistency and, in a few cases, needed to further develop procedures or hire additional staff to ensure that monitoring or reporting functions could be carried out effectively. In separate work, we found that the Department of Transportation’s process for selecting highway projects to fund appears to comply with Recovery Act requirements.
Department of Commerce: A K-GOAL Audit Reviewing the Department’s Management Staffing Levels
The Department of Commerce had more staff in management positions than any of our five comparison agencies. On average, the Department had fewer people reporting to each of its managers, and many of these managers were located at fairly low reporting levels in the Department. The heaviest concentration of management staff--one management position for every 1.2 non-management positions--was in the Employment Services Section of the Department’s Workforce Development Division. In addition, the Department had organized its five workforce development regions with a double layer of management. Overall, we estimated that $61,000 to $99,000 could be saved annually by bringing the Department’s proportion of management more in line with other agencies. Finally, we found that discrepancies between authorized and filled positions, as well as limited access to complete organization charts for some State agencies, hampered good analyses of agency staffing levels.
Economic Development: Determining the Amounts the State Has Spent on Economic Development Programs and the Economic Impacts on Kansas Counties
The estimated cost of economic development in Kansas for the preceding five years has been at least $1.3 billion, which includes both spending by State agencies, and State and local forgone tax revenues. Of the $453 million State agencies reported spending, most related to the Department of Commerce. Of the estimated $860 million in forgone tax revenues, most has been local property tax revenues related to industrial revenue bond exemptions. Assessing the effectiveness of economic development programs can be hampered because of the lack of data, and when data are available, most traditional economic development programs or incentives show negative or inconclusive results. Nonetheless, there are some success stories, both traditional and technology-based. The literature suggests that states now must offer economic development assistance to remain competitive, regardless of its cost-effectiveness.We took several approaches to try to assess the results of spending for economic development--from the global to the specific. First, we asked State agencies to report their accomplishment data to us, which showed that more than 130,000 jobs had been created or retained over five years. However, there’s likely to be double-counting in those figures between some programs and tax credits. Second, using historical county-level data, we found there has been a small but measurable statistical relationship between economic development spending in a county and the growth in jobs and businesses in that county between 2003 and 2007. However, all other things being equal, factors like population and employment levels that existed before the assistance was provided had a much greater impact on job and business growth in a county. Third, we analyzed the impact Nebraska Furniture Mart has had Statewide and on individual counties. Statewide, furniture sales increased by 88% from 2002 to 2007, but since 2002 the number of furniture stores and the amount of furniture store sales in nearby counties have declined--sometimes significantly. Finally, we followed up on the findings of an earlier audit, which showed that about one-third of the companies or individuals assisted by several State economic development programs in 1998 were operating a business in Kansas in 2008.
Kansas Housing Resource Corporation: Reviewing the Section 42 Housing Tax Credit Program
From 2004-2007, 93 developments comprising 3,200 housing units and costing about $316 million were constructed with Section 42 tax credits. Developers were awarded tax credits with a 10-year value of $217 million, which they sold for approximately $184 million, to offset their development costs. About two-thirds of the housing units built were new and one-third were rehabilitated. The Kansas Housing Resources Corporation has recently taken steps to increase the number of rehabilitated developments receiving tax credits. Overall, 87% of developments approved were in one or more of the higher-need areas identified in either federal requirements or State plans used to administer the Program. However, in many smaller communities with waiting lists for public housing, developers haven’t proposed any developments. Overall, the average rents charged for many of the tax-credit-financed housing units were well below federal limits, and in most regions, were below rent limits set for HUD-administered low-income housing. For 14 developments receiving tax credits, the Corporation didn’t compare the proposed development to other developments as required by State regulation. Finally, compared to Kansas, several other states made more funding available to supplement their Section 42 tax credit program. The most common ways other states supplemented their Section 42 tax credit programs included general fund appropriations, state-level tax credit programs, revolving loan funds, and earmarking certain fees (such as mortgage registration fees) for housing.
State Hiring Practices: Determining Whether Requirements Related to Veterans’ Preferences Are Being Met
State regulations implementing the Kansas Civil Service Act create a veterans’ preference for classified positions. The regulations require State agencies to interview eligible veterans who apply for a classified position and who meet the minimum requirements of the position. Our review of 144 veterans who applied for 61 classified positions at four State agencies during 2006 found that in all but three cases, the veterans either were given an interview or there was a valid reason the interview didn’t occur. During our review, we saw no evidence that veterans received only “token” interviews. State regulations are silent regarding a veterans’ preference for unclassified positions.
Department of Commerce: Personnel Practices Related to Employees in the Divisions of Business and Workforce Development
At the time of the audit, 217 of the 300 people transferred from the Department of Labor still were working for the Department of Commerce. Of the 83 transferred employees who’ve since left the agency, most voluntarily resigned, retired, or transferred to another State agency. Most replacements for those employees came from outside the Department, had less experience related to workforce development, slightly better education levels, and were hired at the same or lower salaries. Since the transfer, at least 23 fewer direct-service positions were filled, and a number of higher-level positions had been created and filled. Although a number of current employees expressed concerns about leaving direct-service positions unfilled, Department officials said such changes were necessary to reflect different agency needs following the reorganization. For most personnel actions we reviewed, the Department followed statutes, regulations, and best practices. However, we found some problems related to conducting annual performance evaluations, retroactively paying employees, getting approval before downgrading information technology positions, and using reallocated positions to promote employees without competition. When surveyed, Department employees generally rated the Department’s performance appraisal process and general workplace policies and practices fairly high, but they rated the fairness of the hiring and promotion process much lower. As a group, employees transferred from the Department of Labor tended to have more negative assessments of the Department’s personnel practices.
Workforce Development: Reviewing the Use of Workforce Investment Act Moneys in Kansas
Overall, Kansas’ administrative structure conforms to the requirements of the Workforce Investment Act. Issues we identified at the State level: the State board that is supposed to advise the Governor about workforce development programs has rarely met, program monitoring hasn’t been carried out well in recent years, the Department of Commerce’s administration of programs in two local areas conflicts with its State-level oversight and monitoring role, and most of the Department’s current workforce development contracts weren’t competitively awarded. At the local level: three of five local areas don’t have comprehensive One-Stop centers as required, federal reviews have identified numerous instances of spending problems and weak financial controls, and performance goals haven’t always been met. Most local area contracts were competitively bid, and we found no situations that appeared to financially benefit board members or employees.Statewide, 11% of the Workforce Investment Act moneys spent in fiscal years 2003 and 2004 was for administration; the rest was for programs and services for workers and employers. Total spending and the percent spent on administration varied significantly among the five local areas. Local Area 4 (Wichita) recently increased its annual building lease costs by more than $500,000 when it more than doubled the amount of space leased for its comprehensive One-Stop center.Programs and activities that fit the Joint Committee on Economic Development’s definition of workforce development included 35 State and federally funded programs primarily operated by State agencies that received $129 million in funding for 2006, nearly 680 training partnerships between businesses and post-secondary educational institutions, and numerous specialized certifications, associate degree programs, and short courses aimed at qualifying persons for a specific type of job without having to fulfill additional general education requirements.
Encouraging Entrepreneurship: Examining Ways Kansas Could Improve Its Efforts
Entrepreneurs who want to start a new business in Kansas can get technical or financial assistance through 16 State-funded programs and other government and private programs. From 1998 to 2002 the State spent an estimated $33 million on such start-up programs, about 8% of the total spent on economic development activities. In comparison, the State spent about $23 million on programs designed to recruit established out-of-State businesses. Most of the State's universities and community colleges offer at least one entrepreneurship course, although the emphasis varies among institutions. Areas where Kansas could better promote entrepreneurship include making it a higher strategic priority, increasing venture capital funding, developing business mentoring programs, and creating an inventory of existing programs. We couldn't compute an overall return on investment for moneys spent on entrepreneurial and business recruitment programs. Historical employment and payroll information we could review gave some insight into the results such programs have achieved. In general, the businesses recruited to Kansas in 1998 created more lasting jobs and more payroll than a sample of start-up businesses that received State financial assistance that year.
Job Expansion Programs: Determining Whether State Agencies Are Collecting the Information Needed To Know Whether These Programs Are Successful (limited-scope audit)
The Department of Commerce administers the State's major job expansion programs. Department officials ask companies that participate in these programs to provide the types of information they would need to assess whether the promised jobs were created, but companies don't always provide it. Our review of a sample of files showed that Department officials didn't receive 24 of the 137 reports (17%) that companies were required to file. Also, Department staff generally don't verify the accuracy of the information companies do provide; instead, they rely on participating companies to submit accurate information. Finally, the Department's annual report shows the number of jobs companies promised to create, not the number of jobs actually created, or even the number companies report they've created. The 12 companies in our sample that had submitted complete information to the Department reported that they have created only 67% of the jobs promised by the established deadline.
Economic Development in Kansas: A K-GOAL Audit Reviewing Coordination and Effectiveness of Programs
The Department of Commerce and Housing and KTEC appeared to be fulfilling their statutory roles, but Kansas Inc. hadn't become the strong planning and evaluative agency originally envisioned, primarily due to a lack of statutory authority, lack of staff and funding, and potential conflicts in its roles. There's been almost no strategic-level coordination between the heads of the 3 economic development agencies; each agency is independent and had its own philosophy about economic development efforts, and all 3 were rivals for a share of a fixed amount of funding. Coordination among program staff was somewhat better, but no formal mechanisms existed to foster that coordination.Collectively, the Department and KTEC reported that their programs benefitted the Kansas economy by about $1.3 billion and impacted over 9,500 jobs during fiscal year 2000. Generally, there was sufficient accountability over the moneys coming back to the agencies from investments, loans, and grants, although there was some question about what type of information could be reported publicly. Since 1988, KTEC invested about $9.3 million in 66 start-up companies. The 43 companies that were still operating employed about 600 people. These investments earned about $1 million in returns and had a book value of $5.6 million.Kansas is one of only 3 states that used gaming revenues to fund economic development. Most of the 27 other states we contacted relied heavily on general fund appropriations for economic development. The cap on the Economic Development Initiatives Fund created a situation in which overall spending for economic development can't grow, and agencies were forced to compete against each other for those limited funds. This situation was aggravated by the use of EDIF moneys to fund other agencies' programs.
Assessing Whether State Regulation of Meat Processing Plants is More Stringent and Costly than Federal Regulations Require
New federal regulations adopted in July 1996 are less stringent on meat and poultry plant operators than the draft regulations initially proposed in 1995, and appeared to take small plants’ concerns into account. These new regulations, which the Department of Agriculture incorporated by reference into the Kansas Administrative Regulations, required plant owners to implement sanitary operating procedures and testing requirements by September 1997, and will require them to develop food safety systems by January 2000. A number of factors contributed to the anxiety and uncertainty about these new requirements, including inaccurate and conflicting information about the impact of those new requirements on Kansas’ small plants, uncertainty about implementation dates, and meat inspectors’ inability to answer plant owners’ basic questions about some of the new requirements. It’s still difficult to know how these new requirements will affect Kansas’ small meat plants. Plant owners will incur some additional costs, and some may choose to go out of business, but the nature and number of such changes is likely to be less significant than the Legislature initially was led to believe. Finally, most plant owners we surveyed said they generally were satisfied with the fairness of their inspectors, but some expressed concerns about inspections being inconsistent across State regions or between inspectors.
Reviewing Selected Actions by the Mid-Kansas Community Action Program (Mid-Kansas CAP) in El Dorado (100-hour audit)
Management at Mid-Kansas Community Action Program has terminated several employees over the past two years without giving them proper notification and without documenting the reasons why. Some employees who were fired had a documented history of good work performance. Employee grievance procedures are being misused by both employees and management to document petty bickering and engage in retaliation against one another. Employees also have been reprimanded without proper notification, and weren’t given a chance to correct performance problems. In addition, the agency doesn’t have procedures in place to prevent abuse of time and mileage reimbursements. Finally, we concur with a September 1997 monitoring report by the Department of Commerce and Housing, which concluded Mid-Kansas CAP’s Board has assumed a very limited role in setting policy for the agency.
Compliance and Control Audit: Kansas Department of Commerce and Housing
The compensation for economic development executives is set by the boards or officials they report to, and their compensation usually is based on studies of salaries for similar positions. Most economic development executives in Kansas receive compensation that’s comparable to what officials in other states receive. We identified relationships between economic development agency staff and 13 of the 61 technology-based companies we reviewed. Some of those relationships appeared to represent a conflict of interest. State law is unclear about whether some employees are subject to the State’s ethics laws. Also, most economic development agencies don’t have written policies and procedures in this area, and university conflict-of-interest forms don’t require full disclosure. Unlike in some other states, Kansas’ economic development employees aren’t prohibited from having an interest in companies that receive assistance from the agencies they work for.
Examining the Use of Economic Development Initiatives Fund Moneys
During fiscal years 1994 and 1995, four companies that relocated within Kansas received a total of about $1.2 million in Economic Development Initiatives Fund moneys (about 1.2% of the total Fund). All four received job training money, for which they were eligible regardless of whether they moved, and two received additional money for capital expenses directly related to their moves. We noted two problem areas. One company received $54,000 in training money for 50 new positions, but those positions were never created. Another company was given money intended for a “major expansion” that added only 16 new jobs. The Department of Commerce and Housing correctly accounted for the jobs tied to the companies that moved, but didn’t have an accurate overall system for counting new and retained jobs. Groups and businesses reported spending their economic development money for authorized purposes such as brochures, supplies, construction, and training materials, but the documentation they submitted generally wasn’t adequate to ensure that the money was spent as reported. Finally, Kansas Technology Enterprise Corporation didn’t always have good documentation to show why it funded some projects that its approval committee initially didn’t think were worthwhile.
Reviewing International Trade Activities Within The Department of Commerce and Housing (100-hour audit)
The Department of Commerce and Housing spent more on international travel during 1993 and 1994 than the Governor originally recommended each year. The Division of Industrial Development’s National Marketing Program encompasses most of the activities aimed at attracting out-of-State businesses to Kansas. Although the Division spent more than it budgeted on its National Marketing program during fiscal years 1993 and 1994, there was a slight decrease in actual expenditures for the program during between 1993 and 1994. We could not determine whether increases in expenditures for international travel had any impact on the small decrease in expenditures in this area. The Department has established controls to ensure that trade representatives comply with their contracts, but those controls could be strengthened.
Reviewing Economic Development Activities: A K-GOAL Audit of the Kansas Department of Commerce and Housing
The Department of Commerce and Housing has established programs in line with its mission, and it can demonstrate economic results in accord with that mission. However, in many cases the Department has not established specific criteria or gathered the kinds of data it needs to determine whether specific programs are achieving the intended results. Creating the Division of Housing has had little effect on the economic development activities of other divisions. In one case we reviewed, Department officials legally reallocated State General Fund money from the Division of Housing to another division. For the most part, Kansas’ organizational structure for housing programs was similar to the structure in other nearby states. Finally, we found the Department did not give proper notice of a public hearing held to consider possible amendment of the State Community Development Block Grant plan.
Examining Potential Duplication and Overlap in Programs for Kansas’ Aging Population
The Department on Aging and the Department of Social and Rehabilitation Services fund or provide essentially the same long-term-care services, but offer their programs to different groups of elderly individuals. When more than one agency provides or funds essentially the same services, there is considerable duplication of administrative effort, which can result in client confusion, clients falling through the cracks if coordination is inadequate, and in money being spent for administrative activities that otherwise could be spent for direct services. The State might gain some cost efficiencies from consolidating all its long-term-care programs in one agency, as two comparison states have done, but some disadvantages also would result. For an individual client, the State generally can provide home and community-based long-term-care services at a lower cost than nursing home services. However, the total cost to the State of providing those services may not decrease significantly, particularly in the short-run, because states’ new long-term-care programs tend to expand the number of people eligible for services, and because the Medicaid-Waiver Programs may be serving elderly individuals who would not be getting services in the absence of such Programs.
Mortgage Assistance Programs of the Department of Commerce
Low- and moderate-income homebuyers in the State would benefit from greater State involvement with both the mortgage revenue bond program and the mortgage credit certificate program. The State could administer the mortgage revenue bond program, but would need to contract with bond underwriters, bond counsel, and loan servicers. It could operate the mortgage credit certificate program in its entirety. In both cases, there is the potential to achieve greater Statewide distribution of loans and certificates, reduce homebuyer fees, and increase oversight of the programs.
The Community Development Block Grant program and the Rental Rehabilitation program have been adequately supported by the Department of Commerce. The two programs together have awarded Kansas cities and counties an average of about $1.4 million annually for housing rehabilitation and other housing-related activities.
Examining Issues Relating to Selected Housing Programs at the Department of Commerce
Although the number of housing assistance programs in Kansas gradually has increased, the programs reportedly have received limited support, and the Department of Commerce's Office of Housing has not carried out all the activities authorized or mandated by the 1990 Legislature. Because several aspects of the Low Income Housing Tax Credit Program have not been well-managed, the Department cannot always show how tax credits are awarded, or whether the people who got them should have. The Department's failure to comply with federal requirements also may have resulted in some developers receiving excessive tax credits. Finally, Department staff kept checks totaling as much as $84,000 before depositing those fees in the State Treasury.
Reviewing the Department of Commerce’s 1991 Bond Allocations
The Department's process for authorizing localities to issue tax-exempt bonds is inadequate. Some informal policies, procedures, and criteria for processing and evaluating applications exist, but they are not written and do not cover all aspects of the allocation process. The Department's process for allocating bonds in 1991 appeared to comply with applicable laws, but the allocation for mortgage revenue bonds was made much earlier than in previous years. Certain aspects of the allocation process were not adequately documented, but it appeared that decisions for allocating mortgage revenue bonds were, in essence, delegated to the bond underwriters on the Department's advisory committee.
Examining Whether the Department of Commerce Followed Its Procedures in Contracting For Services from Lane Marketing (100-hour audit)
The Department complied with State laws in contracting with Lane Marketing, but its contracting procedures were inadequate in several areas. For example, the contract with Lane Marketing called for payment upon receipt of an invoice. Lane often billed the Department for media advertisements--and the Department often paid those bills--before the advertisements were run. This prepayment practice is not standard for governmental agencies.
Direct State expenditures for economic development are generally lower than in surrounding states. Some nearby states also have dedicated specific revenue sources to economic development. Cities, counties, and local development organizations spend much more than the State on economic development. Local governments’ activities are funded through general tax revenues, industrial development taxes, and transient guest taxes.
Economic Development in Kansas, Part II: Reviewing Coordination of Economic Developments Groups in Kansas
The auditors visited seven cities across the State and talked with representatives of the major economic development groups for each city. Cooperation among the various groups is perceived to be good. Coordination is mostly informal. The State may be able to improve cooperation and coordination by establishing more contact with various regions and communities through the Department of Commerce.
The legislature authorized the enterprise zone program in 1982 as a means to encourage economic development in distressed areas of Kansas cities. The Department of Economic Development’s interpretations of the Enterprise Zone Act, especially since its amendment in 1983, have allowed some areas to receive enterprise zone designations which may not meet the spirit of the statutory requirements.
Administrative Office Procedures at the Department of Economic Development
The department is not fully in compliance with affirmative action requirements or with State regulation relating to posting position vacancies, completing performance evaluations and reviewing position descriptions. The audit recommends changes to address these issues.
Administration of the Small Cities Community Development Block Grant Program
Significant errors, miscalculations, and problems in the Department’s computations affected all community improvement grants reviewed. As a result, the outcome of the first year’s grant awards may have been substantially affected. Corrective action is needed to assure continued federal funding and to restore the Department’s credibility with local communities. Recommendations are made to correct these problems.
Analyzing the Performance Evaluation System in Kansas
The system is well designed, but performance standards often are not written so they can be objectively measured, ratings often are not adequately justified, performance improvement goals are rarely used, and the system is not always uniformaly applied. The evaluation system is addressing problems of poor performers , but without the merit pay incentive, its effectiveness at reinforcing good performers has deminished.