DiNapoli says ESD failed to meet economic-development program reporting requirements; ESD calls audit “politically motivated”

ALBANY, N.Y. — Empire State Development (ESD) “failed to meet more than half” of the reporting requirements for tax-credit and job-creation programs, “diminishing transparency and accountability.”

That’s according to an audit that New York State Comptroller Thomas DiNapoli released Wednesday.

ESD is New York State’s chief economic-development agency.

“Too often Empire State Development Corporation is either late or not reporting on the results of economic-development programs,” DiNapoli said in the release. “We need better reporting to ensure transparency in economic-development spending and to promote an informed analysis on the return of the investments state taxpayers make in these programs.”

Empire State Development has reacted to the Office of the State Comptroller’s (OSC) audit in an email message sent to BJNN on Friday.

“This report is yet another example of a politically motivated ‘independent audit’ that cherry-picks information and profoundly misrepresents our efforts,” Jason Conwall, spokesman for Empire State Development, said in the email message.

 

About the audit

Under various state laws and regulations, ESD is mandated to report on the outcomes of many of the programs it supervises, DiNapoli’s office said.

Reporting requirements for specific programs vary and some of the requirements are specified in the legislation that established each program.

Auditors found that ESD failed to produce many of the “statutorily-required” performance and outcome reports that were due between April 2012 and September 2016.

Auditors found 27 of 57 of general-outcome reports, or 47 percent, were not finished.

They also found 17 programs requiring independently prepared evaluations were not evaluated.

And 93 of 152 program-specific reports, or 61 percent, were not completed.

In most cases, ESD officials didn’t provide auditors an explanation for why they had not completed required reports, DiNapoli’s office said.

Auditors also had “difficulty” obtaining information and feedback from ESD during fieldwork.

DiNapoli’s office noted that the outcome reports ESD prepared for its subsidiary corporations contained all the required data elements.

However, the required general-summary reports, which are “supposed” to account for all programs, “actually accounted for less than half” of the programs that provide financial assistance to participants.

For example, 12 programs with appropriations during the period totaling more than $500 million “were not reported on at all.”

For the reports that ESD prepared, auditors often could not determine whether they were done on time because there was no evidence when they were published.

For 27 reports with evidence of when they were completed, auditors found that “generally” ESD submitted them late, although the majority of reports were provided within two weeks of their due dates.

For example, ESD issued the 2015 START-UP NY annual report 91 days past its due date, DiNapoli’s office said.

 

ESD reaction

“While this might be a convenient way to distract from what the comptroller has not done to clean up his own house following a massive fraud within the $178 billion state-pension system, we encourage OSC to be more objective in their review of our efforts,” Conwall said in the email message.

“ESD holds itself to the highest standards and consistently adheres to robust standards of transparency and disclosure, while providing sound and timely information to the public – including thousands of pages of reporting, hundreds of publicly accessible meetings, and regular dissemination of important information through email, social media, live webcast and other platforms,” Conwall added.

ESD disagrees with DiNapoli’s findings in two “key respects,” the agency said.

It believes that the findings regarding ESD’s subsidiary reporting are contrary to previous OSC findings.

It also disputes OSC’s suggestion that it was not “fully transparent” during the audit process.

ESD contends it complied with OSC’s requests for information regarding numerous ESD programs and did not refuse an interview with ESD staff.

OSC alleged that ESD failed to report on 158 out of 173 active subsidiaries, “which is false,” ESD contends

These 158 entities “do not require” ESD-generated reports, the agency said, noting that they fall into “distinct non-reporting categories.”

They include five entities that are local development corporations, not ESD subsidiaries; 44 housing corporations that were transferred to another state agency and are no longer with ESD; 98 housing corporations that do not have a continuing financial obligation to ESD and in which ESD no longer has an interest; and 11 housing corporations that have a continuing financial obligation to ESD but which ESD does not manage or control.

OSC also alleges that ESD failed to report on another 98 subsidiaries, the agency said.

However, these entities are subsidiary housing companies that were created in the 1970s to hold title to individual housing projects and are no longer active.

 

Recommendations

DiNapoli recommended that ESD “develop and adhere” to procedures for meeting statutory outcome-reporting requirements.

He also advised the agency to review information contained in summary-outcome reports to ensure all active programs are included.

DiNapoli also recommended that ESD ensure that all existing subsidiary corporations meet reporting requirements under the Public Authority Law.

ESD should also ensure that it issues required reports “in a timely manner” to provide decision makers with relevant information to evaluate the various economic-development programs.

ESD officials “generally disagreed” with the audit’s findings and conclusions, DiNapoli’s office said. However, officials indicated that they were implementing new internal controls to ensure compliance with all reporting requirements, it added.

 

Contact Reinhardt at ereinhardt@cnybj.com

 

Article updated Friday 5/19/17 at 4:20 p.m