Sen. Harding & Martin: Audit Shows Room for Improvement at Job Creation Quasi-Public
September 13, 2024Audit: Connecticut Innovations failed to verify new job claims
Hearst CT
Connecticut Innovations, the state’s venture capital firm, failed to adequately verify jobs the agency said resulted from its investments in emerging businesses and new technologies, according to a recent state audit.
“The lack of reliable job data limits the General Assembly’s ability to determine the impact of CI-administered programs,” auditors said, pointing out the agency does not require formal audits of those receiving financial assistance or incentives.
CI is charged with stimulating and encouraging research and development of new technologies, businesses and products. The agency provides tens of millions of dollars in grants, investments and other incentives to help companies. The audit covered the 2021 and 2022 fiscal years.
Phil Siuta, CI’s chief operating officer, said the agency reports jobs created and conducts site visits.
“They are asking us to validate jobs,” Siuta said. “We do report jobs. They have talked to us about going to the [state] Department of Labor, but it’s dated information. The cost of an audit is prohibitive to our clients. We are trying to find the best solution for that without being cost prohibitive to the companies.”
This week, in the wake of the audit’s release, State Sen. Henri Martin, R-Bristol and ranking member of the commerce committee, and Senate Minority Leader Stephen Harding urged CI to make good on its promise to better verify jobs created.
“A key measure of success for any taxpayer-funded government entity that is working to grow private sector jobs is: How many jobs did our tax dollars actually help create and retain?,” the senators said in a joint statement.
“This finding from the state auditors is appreciated, as is CI’s pledge to take future corrective action steps,” the senators said. “We are all focused on growing Connecticut’s innovation economy, but we must have processes in place to gauge our performance. Republicans will continue to emphasize the importance of evaluating government incentive programs.”
Lack of job verification
Auditors noted state law requires CI to include an analysis and accounting of the effect of its programs on the state’s economy, including the number of new jobs created or retained.
“Connecticut Innovations, Inc. does not validate the number of jobs created and retained for the business assistance and incentive programs it administers,” auditors said.
Auditors noted CI reported creating or retaining 59,886 new jobs during the audited period but questioned the accuracy of the count.
“There is reduced assurance of the accuracy of reported job data,” auditors said. “CI does not require recipients of business assistance or incentive programs to have their reported job records audited by a certified public accountant. In addition, CI has not developed procedures to validate job numbers.”
The finding had not been reported in previous audits.
“Connecticut Innovations, Inc. should ensure the accuracy of the number of created and retained jobs reported in the Department of Economic and Community Development annual report,” auditors said.
In response, CI agreed to look for a more verifiable reporting method.
“CI does survey all portfolio companies where they must verify their employment levels,” the agency said, adding the process includes site visits to the companies.
“This provides an extra layer of comfort that the companies are in existence and do provide some level of employment,” CI said. “CI will work to improve in this area. We may seek Department of Labor assistance or other validation techniques to validate the employment totals.”
New Opportunities Fund not formed
Auditors pointed out CI failed to create the Connecticut New Opportunities Fund mandated under state law to invest in seed stage and emerging growth companies.
“CI did not establish the Connecticut New Opportunities Fund,” auditors said. “It still invests in seed stage and emerging growth companies through its other programs.”
Auditors added “CI informed us that it drafted guarantee language and provided it to the Office of Policy and Management, State Comptroller, and State Treasurer. CI planned to have the guarantee signed before it began raising and distributing money. No one signed the guarantee or provided funds to pay out the guarantee.”
The finding has been previously reported in audits covering the fiscal years between 2017 and 2020.
“Connecticut Innovations should seek legislation to eliminate Section 32-41v of the General Statutes regarding the establishment of the Connecticut New Opportunities Fund,” auditors said.
In response, CI said it will seek to eliminate the legislative requirement to create the fund. “Connecticut Innovations will seek legislation to eliminate this language,” the agency said.
Reports not filed on time
The auditors said state law requires quasi-public agencies to annually submit various reports to the governor and the Auditors of Public Accounts. Despite that requirement, a review of 13 statutorily required reports found:
- CI submitted the 2021 annual report seven months after the end of the year.
- The CTNext March 31, 2022, quarterly financial report included data from the incorrect period. CTNext never submitted a financial report with the March 31, 2022, data.
- CTNext submitted the 2022 Innovation Places Grants-in-Aid Report 62 days late.
- CI submitted the 2022 Connecticut Bioscience Innovation Fund (CBIF) annual plan of operations and budget 378 days late.
“Inaccurate and untimely reporting limits the state’s monitoring of quasi-public agencies,” auditors said. “The inaccurate and untimely reporting appears to be the result of a lack of managerial oversight due to the number of required reports.”
The finding has been previously reported in audits covering the fiscal years between 2011 and 2020.
In response, CI said it’s working on eliminating delays.
“CI did submit 100% of the required annual reports (62 in total),” the agency said. “The delays were attributable to reduced administrative staffing levels and the legislative requirement where some reports must be approved by their oversight board before submittal. CI will strive to continually improve on the timeliness of our reporting requirements.”
CTNext’s funding expired this year, and its office was closed. The subsidiary of CI served as an “incubator” for new business and specialty technologies, and there has been discussion about replacing it with a new Office of Innovations.
