A City Council Auditor’s report issued Wednesday found that the City has lost money because of a lack of oversight by the Jacksonville Economic Development Commission.
“Based on our audit, it appears that JEDC has been lacking in its administration and oversight of economic incentive agreements, as well as operations at Cecil Field,” said the report’s audit conclusions.
“The lack of basic internal controls and procedures has resulted in financial losses for the City of Jacksonville,” it said.
The 25-page report was submitted Wednesday by Council Auditor Kirk Sherman. It said the scope of the audit was Oct. 1, 2007-Sept. 30, 2010, comprising fiscal 2007-08, 2008-09 and 2009-10.
In summary, it found:
• It appears that JEDC does not administer and monitor economic incentive agreements in a proper manner.
• It appears that JEDC does not properly administer expenditures related to Cecil Field operations.
• It appears that management controls established by JEDC to ensure accurate and timely collection, recording and depositing of Cecil Field revenues are inadequate.
“To correct this issue, we believe JEDC should develop and enforce detailed standard operating procedures, provide proper training and increase management’s oversight,” the report said.
Mayor Alvin Brown said Wednesday that he has yet to read the JEDC audit but would review it and ensure in the second phase of his propsed government reform that the administration is “making the corrections they are asking.”
“I welcome the audit report,” Brown said. “That’s one of the reasons I changed JEDC … I’m excited about it and I look forward to really making those changes.”
Under Brown’s reform proposal, the economic development director will report directly to the mayor.
“That person will be held accountable and responsible,” Brown said, “and that’s the key, holding people accountable and responsible.”
The commission is the City’s economic development agency. It oversees the administration of local and state incentives, Downtown development and permitting, film and television initiatives, sports and entertainment programs and redevelopment of Cecil Field.
The City’s part of Cecil Field, a formal Naval Air Station, is usually called Cecil Commerce Center.
The Auditor’s Office did not include the film and television or the sports and entertainment programs in its audit, but said they should be considered for future audit work.
Among audit findings for economic incentives:
• Compliance with reporting, Jacksonville Small and Emerging Business program involvement and jobs creation requirements is not adequately enforced.
• Data provided in jobs and JSEB reports by incentive recipients is not verified by JEDC staff.
• Out-of-state jobs were included in job creation reports by two companies that were overpaid by at least $156,000, although the Auditor’s Office said $328,620 has now been recovered from one company.
• JEDC does not adequately monitor the use of Qualified Target Industry funds once they are sent to the state.
• Some incentive payments were calculated inaccurately, although findings showed $26,570 has been recovered.
• Multimillion dollar contracts are awarded by City procurement after minimal advertising.
• JEDC does not have standard operating procedures and JEDC employees are not reasonably cross-trained.
• $180,000 could be saved annually if JEDC moved into a City-owned building.
• The Sports Trust Fund balance is more than $593,000, which could be used to reduce the subsidy of sporting events from the City’s general fund.
Among audit findings for Cecil Field:
• A five-year Cecil Field maintenance contract for $7.5 million was not advertised well and was awarded after only one bid was submitted by the existing service provider.
• Adequate supporting documentation is not received for large invoices and receivables.
• The maintenance contractor overcharged JEDC in multiple billings.
• The JEDC failed to seek reimbursement of $54,000 for utilities from a tenant at Cecil Field, and the auditor said that recovery is unlikely because of the tenant’s bankruptcy.
• There is a lack of segregation of duties between employees who process revenues.
• The Cecil Field Trust Fund’s balance is more than $3 million, which could be used to offset a subsidy from the City’s general fund.
• The post office occupied a building without a signed lease for about 10 years.
• Four checks totaling about $50,000 were lost for an extended period of time.
• The tenant leasing the housing complex for the past 10 years has not provided, and the JEDC has not requested, annual financial statements required by the contract.
According to the report, the Auditor’s Office provided a draft audit report to the JEDC and excerpts to other City agencies addressed in the report on July 8.
It said the office requested written and electronic responses to the comments be provided by July 22.
It said it received responses from five officials who are no longer employed by the City in the positions they held when responding. The officials are Chief of Procurement Michael Clapsaddle, Budget Officer Kent Olson, Central Operations Director Devin Reed, Public Works Director Joey Duncan and Recreation and Community Services Director Roslyn Mixon-Phillips.
The reports said JEDC management did not provide responses but requested a meeting that was held in the Council Auditor’s office on July 20. It said the JEDC requested additional support for some audit findings and some verbiage changes to the report and also agreed to provide more information.
The process was then prolonged by the City budget process from July 15-Sept. 28 and also the release of JEDC Executive Director Ron Barton in September. Barton declined to comment Wednesday.
According to the report, the Auditor’s Office provided an updated draft report to JEDC on Oct. 14 and requested responses by Oct. 31, but did not receive a response.
The report said that on Nov. 23, the acting JEDC director provided draft written responses but that many did not address the findings and recommendations “and in some cases the responses were misleading.”
According to the report, the Auditor’s Office met with the City’s CFO for better responses, but received nothing further as of Dec. 20.
“At this time, five months after receiving responses from other City agencies, we need to issue our report so that the City can consider our recommendations during the reorganization process,” he said.
Brown, who took office July 1, has called for changes in the City’s economic development strategy and structure.
His plan calls for the JEDC, which has overseen both Downtown and overall Duval County economic development, to be reconstituted as a Downtown agency, while overall county economic development would be handled by an “economic development commission” within his administration.
The Duval Legislative Delegation has backed Brown’s request to file a local bill that would allow the City to repeal and amend the JEDC, but is waiting for a City Council decision before issuing a resolution of support.
The JEDC has been the clearinghouse for City economic development efforts, including Downtown development, since 1997. Barton joined the JEDC in August 2005, becoming its third full-time executive director.
After Brown was elected May 17, Barton was one of the department heads expected to submit his letter of resignation, which is standard procedure with new administrations. The letter was accepted and he left the City at the end of September.
The commission, created by the John Delaney administration, is the City’s economic development office.
It covers the county as it negotiates incentives for projects and monitors the deals, assists developments and also serves as the Downtown development arm of the City.
The stated mission of the JEDC is to develop and execute policies that result in sustainable job growth, rising personal incomes and a broader tax base throughout Northeast Florida.
Its five main objectives are to recruit and expand higher-wage job opportunities; promote and encourage private capital investment; increase the growth and expansion of small business; promote and leverage investment in economically distressed areas; and promote a healthy and vibrant downtown.
A nine-member commission meets regularly to review and approve economic development projects and then sends them to City Council for further approvals.
Barton said in July that the JEDC staff, which had reached 42 people at its peak, had contracted to 16.
The Auditor’s Office reported that full-time staff was 18 in fiscal 2007-08 and 2008-09 and 17 in 2009-10, while three positions in 2007-08 were funded by the Tourist Development Council.
JEDC revenues rose from $12.2 million in fiscal 2007-08 to almost $12.6 million the next year and fell to about $11.3 million in 2009-10.
Expenditures were $12.2 million in fiscal 2007-08 and rose to $12.7 million the next year and fell to $11.3 million in 2009-10.
Among the recommendations from the Auditor’s Office about incentives:
• JEDC should establish verification controls for the jobs reports submitted by the incentives recipients.
• JEDC and the Central Operations Department should start communicating about the incentive agreements that are in progress and Central Operations should be notified about every newly signed economic incentive agreement.
• JEDC should establish and enforce carefully designed standard operating procedures and implement effective internal controls to ensure that incentive agreements are approved in a manner required by the incentive policy and that mandatory reports are submitted by the companies and reviewed by JEDC before any incentive payments are made.
• JEDC should review its templates to ensure that formulas used to calculate payments are in compliance with the incentive agreements’ requirements.
• JEDC should consider publishing comprehensive annual public investment reports as it did through 2005 to increase transparency and make data on public investments easily available to the public.
Among the recommendations from the Auditor’s Office about Cecil Field:
• As the contract administrator, JEDC should make it a standard operating procedure to request and review detailed supporting documentation for invoices submitted for payment.
• JEDC should develop and implement standard operating procedures that include detailed personnel duties.
• JEDC should seek reimbursement for expenses, plus markup, not allowed by the contract but billed to the City. The audit report showed $3,425.46 in expenses not allowed under the contract, including subscriptions to the Daily Record, The Florida Times-Union and the Jacksonville Business Journal, along with DirectTV service, a blood pressure monitor, coffee, cocoa, a decorative brass egg and sphere stand and other purchases.
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