A state audit released Monday found that the N.C. Commerce Department needs to improve the way it tracks performance of companies that receive state economic incentives.
The State Auditor’s Office determined that the department’s format for gauging performance “contains gaps in measurement” and “uses unreliable data to measure some performance.”
The auditors also recommended that the Commerce Department be more active in pursuing applicants for film-production grants that have gone mostly unclaimed since being restored in 2016.
The time frame of the audit was July 1, 2016, to June 30, 2017, encompassing the department’s performances under the McCrory and Cooper administrations.
N.C. Commerce Secretary Anthony Copeland said in a May 9 letter sent to State Auditor Beth Wood that he requested the audit because “it was important to me to gain an immediate assessment of how the department was operating and if there were specific areas that needed my attention and direction.”
“With these results … we now have important areas on which to focus in the coming weeks — specifically working to strengthen and better integrate our strategic planning, performance measurement and budget decision-making processes,” Copeland wrote.
He said the Commerce Department provides legislative leaders with more than 50 annual performance reports.
“There is no shortage of data that is tracked, and many of the improved measures that were suggested in the audit can be found in these reports,” he said.
Commerce Department and Visit NC officials said in March that the state film-production grant program would have $65 million in its pool on July 1 — $34 million now in hand and another $31 million contained in the 2018-19 budget.
It has since committed up to $2.85 million to two projects.
State film and entertainment officials say the top obstacle to getting projects back in North Carolina is overcoming Hollywood concerns about the stability of the film-production incentives, and the lingering reputation damage from the March 2016 passage and March 2017 rescinding of House Bill 2, best known for its transgender restroom restrictions.
Visit NC officials say memories remain fresh in Hollywood about the Republican-controlled legislature’s decision in 2014 to eliminate film-production tax credits, leading many companies and a touted production-crew base to uproot and move to Georgia.
The auditors said grant funding for film production should be measured in program costs per job created and average grant funding per job created.
Auditors recommended that the Commerce Department review its performance measurement plan and approve specific measures to make sure they are outcome-based.
The audit determined that just three of the plan’s 25 performance measures had outcome-based evaluations in use.
Current performance measures include the number of companies served, grant awards made, visitors to websites and people attending training sessions or webinars.
The auditors suggested adding a step that compares announced job-creation and capital-investment pledges in economic development with the actual realized jobs, as well as measuring how much incentive money was required for each job created.
Auditors recommended being more proactive in tracking and publicizing whether companies fulfilled their full job and capital-investment commitments, settled for a pro-rated incentives amounts, or didn’t claim or earn anything at all. They also suggested measuring wages per created jobs to determine the “quality” of those jobs.
A February 2015 study from the left-leaning research group N.C. Justice Center determined the state’s top incentive program is failing to deliver at a 60 percent rate.
Authors of the group’s report, titled “Picking Losers,” said the Commerce Department was forced to cancel 62 out of 102 eligible Job Development Investment Grant awards from 2002 to 2013 because of companies’ failure to fulfill their job pledges.
That includes nine of 16 failed projects in the 14 counties of the Triad and Northwest North Carolina, accounting for 7,263 jobs.
Perhaps the top failure was the $110 million Dell Inc. plant in Winston-Salem, particularly the corporation’s inability to fulfill its pledge of 1,700 jobs at the computer-assembly plant before it was shut down after five years in November 2010.
Meanwhile, Caterpillar Inc. is at less than one-third, or 160, of its pledge of 510 full- and part-time employees at its $428 million Winston-Salem plant.
Linking performance to goals
A related step recommends “specific performance measures that are clearly linked to the mission, goals and sub-goals so that decision makers can measure goal achievement and evaluate performance.”
“Failure to link performance measures to goals may increase the risk that the goals will not be achieved,” according to the report. “Additionally, time and effort could be wasted if spent gathering data for, and reporting on, unnecessary performance measures.”
The third main recommendation involves the department implementing a formal review process to help ensure the accuracy and completeness of data used in performance measures.
Of the 128 performance measures used by the department, about one-third, or 42, were determined by calculating inaccurate data or lack supporting data.
For example, the number of unemployment insurance benefit appeals by claimants to the N.C. Division of Employment Security were understated by a range of 15 to 27 a month for the 12-month period.
“Failure to use reliable data for performance measurement could result in erroneous decision making” by management, according to the audit.
Copeland said he has formed a strategic planning task force for fiscal 2019-21 that will plan “to incorporate as many of the suggestions as feasible in the development of the new plan.”
The goal is having the task force complete its work by November.