When Gov. Scott Walker and lawmakers created the state's partly independent jobs agency 18 months ago, they left out a basic legal requirement put on similar state authorities and commonly practiced by private businesses: to compile and audit its financial statements.
The Wisconsin Economic Development Corp. has drawn criticism for poor financial reporting and oversight, from both private experts and the federal government.
This month, with the agency releasing its first-ever consolidated financial statements, prepared by outside auditors, more attention is being directed to the question of how the board of directors could function for 18 months without such a basic tool.
"If they were in my class, they'd get a big 'F,' " said Paul Lapides, a business school professor who directs the Corporate Governance Center at Kennesaw State University in Georgia.
"Every single adult citizen in the state should be saying, 'Wait, you have people on this board of directors who aren't reading financial statements and don't have a clue about how internal controls work?' " Lapides added.
He said the board could be viewed as having a "reckless disregard for their duties." Like public company directors, members of boards such as the WEDC have a duty to act in the best interest of the company and are subject to the same liability, Lapides said.
As Wisconsin's flagship jobs agency, the WEDC must prepare numerous re ports for state officials on its job creation programs and its tens of millions of dollars in taxpayer subsidies to businesses. But unlike nearly every other quasi-public authority at the state level, the corporation is not required by law to report yearly on its finances.
Before Dec. 14, WEDC's audit committee of one businessman and two lawmakers had met just twice, and neither they nor the entire volunteer WEDC board had seen full financial statements.
With the state's economy in bad need of a boost, the WEDC has tried to focus on job creation even as it's been forced to address a pack of other problems stemming from its rushed creation, early staff turnover and inadequate planning and oversight. The agency had been touted by Walker and his administration as an improvement over the former state Department of Commerce in both job creation and financial reporting, saying WEDC would run with the efficiency of a private business. For years, the state commerce department had been under criticism of its own that it was not providing enough transparency and had conflicting goals and duplicative programs.
But initially, at least, financial oversight got worse under the WEDC rather than better.
Ray Dreger, chairman of the audit committee, said the WEDC board takes seriously its responsibilities for both the economy and for taxpayers. No reviews of WEDC have turned up any deliberate wrongdoing by the board or staff.
"There is absolutely no doubt in my mind that this board is dedicated to making this organization go. The objective is make this go and create jobs in this state," he said.
Dreger, the owner of Seeds & Stuff Farm Market in the northwestern Wisconsin community of Colfax, said he also cared about accountability. "For me, I'm a taxpayer and we cannot take that lightly."
In October, the Journal Sentinel first reported that the agency had discovered it had failed to track in one centralized database dozens of past-due loans -- worth $12.2 million -- that are financed by taxpayers to businesses. As a result of the mistake, the authority's chief financial officer resigned. Walker brought in Reed Hall, the retired executive director of the Marshfield Clinic, to serve as WEDC's interim chief executive officer. The agency said on Friday it had whittled down the applicants to three finalists to serve as a permanent CEO and replace Paul Jadin, who left that job in October to take a different economic development job.
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