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Auditor Logo Susan Montee

Report No. 2010-106
September 2010

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Findings in the audit of Enterprise Zone and Enhanced Enterprise Zone Tax Credit Programs

Program Administration
Improvements are needed in the administration of the Enterprise Zone Tax Credit (EZTC) and Enhanced Enterprise Zone Tax Credit (EEZTC) programs. The Department of Economic Development (DED) does not adequately verify data submitted by businesses claiming the EZTC and has not adequately monitored the businesses receiving credits from either program, and the economic benefits of both programs reported to the legislature are overstated. These weaknesses make it difficult to determine whether the programs are an effective use of state resources. If the DED takes corrective action and subsequently determines the programs are effective, opportunities exist to more fully utilize program capacity.

Verification of business data
The DED does not require businesses claiming EZTCs to submit supporting documentation of the number of new jobs created and the amount of new investment put in place. In addition, the DED has not utilized its access to employment security data to verify employment levels of businesses claiming EZTCs.

The DED has not performed adequate site monitoring to verify the information provided by applicants of both tax credits. As of March 30, 2010, only 15 of the 51 businesses that had been issued EEZTCs since the inception of the program in fiscal year 2006 had been visited. Also, none of the 158 businesses authorized to receive EZTCs since fiscal year 2000 had been visited.

Economic benefit forecasts
The business investment and jobs assumptions used to create the economic forecasts provided to the General Assembly for the EZTC and EEZTC are overstated. The DED economic forecasts do not utilize actual activity created by the tax credits, but instead use estimates of activity provided by businesses. Our review of 19 businesses authorized for tax credits in 2007, noted actual jobs created were 6.1 percent less than proposed and actual investment was 29.5 percent less than proposed.

Erroneous economic benefit information
Our review of the data inputs used by the DED to prepare the tax credit analysis form presented to the General Assembly identified erroneous information. Our review of 40 businesses that submitted information to the DED for an EEZTC in 2008 found errors in the number of estimated jobs or estimated investments for 17 businesses (a 43 percent error rate). For example, one business submitted an estimate to the DED indicating it would invest $11,388,848; however, the DED used an assumption of $49,358,848 (333 percent more) in the economic forecast. Another business estimated it would invest $5,697,000, but the DED used $87,600,000 (1438 percent more) in the economic forecast.

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