October 24, 2012
Paul Jadin, the head of the Wisconsin Economic Development Corporation (WEDC), was surprisingly agreeable when he appeared before my colleagues and me at the recent hearing of the Joint Committee on Audit.
He was surprisingly agreeable; but less than forthcoming.
Mr. Jadin never mentioned that the state’s lead economic development agency had lost track of all $69 million in loans to businesses, including $9 million where were past due or in default. He never mentioned the problem even as he answered Legislators’ questions about the failures of WEDC’s own oversight processes.
Following the lengthy hearing, a reporter received a tip about the lost delinquent loans. The next day I learned the rest of the story.
State officials failed to track 48 loans that were delinquent by more than 30 days. Another 49 loans were referred to the Department of Justice for collection. These loans totaled $9 million. This failure to track loans extended over the past 16 months. The information was first reported by Milwaukee Journal Sentinel Capitol reporter Jason Stein who attended portions of the hearing.
As I chaired the hearing, I quizzed Mr. Jadin on problems with late reports and the skipping of key process management steps like underwriting loans. Committee members engaged in a lengthy discussion about recouping payments and overseeing businesses that failed to deliver promised jobs or meet contract terms.
Mr. Jadin agreed to improve transparency, to tighten reporting, and to subject all management staff to state ethics laws. He agreed to nearly every change requested. We concluded the hearing with directions to draft legislation codifying changes agreed to by Mr. Jadin. But he failed to make any mention of the lost delinquent loans.
In conversations with those close to WEDC, I learned the lost loans were likely ‘discovered’ in preparation for forthcoming audits: first, an independent firm recently hired by WEDC and second, the Legislative Audit Bureau.
Later, Ryan Murray, WEDC chief operating officer, told reporters Mr. Jadin didn’t discuss the issue because he wanted to notify the board first. But the board met twice in just the past few weeks. Board members could also be called at home or come into emergency session; none appeared to have happened.
Mr. Jadin had an obligation to inform the Legislature when he was asked to explain work to remedy serious problems of oversight and accountability.
Dishonesty is not only about what you say. It is about what you don’t say.
Hiding bad news is becoming a pattern for WEDC. Just a few weeks ago the Secretary of Administration apologized to Board members when, for over a year and a half, he failed to disclose a federal inquiry into the awarding of Housing and Urban Development (HUD) grants. WEDC apparently gave out more than $9 million without legal authority to do so.
The dishonesty began in the very creation of WEDC.
The Wisconsin Economic Development Corporation, despite its name, it is not a corporation. It is an arm of state government, run with taxpayer funds and revenue from loans made with taxpayer money.
Organized as an “authority”, WEDC is one of the most independent parts of state government. Despite its independence, the agency dispenses public money and is subject to Legislative oversight.
As Chair of the Audit Committee, at the conclusion of Mr. Jadin’s testimony I made very clear his obligation and our expectations.
“Because public dollars are at risk we need information at the program level of your operation to determine the effectiveness and the outcome of every program you administer,” I told Mr. Jadin.
I anticipate the Audit Bureau’s work will provide us with key information about WEDC’s structure, operations and program results. Auditors will examine the failure of ‘internal controls’ – those systems that should be in place to catch errors of omission like lost delinquent loans.
But the error of omission that concerns me the most is the lack in honesty in official testimony before the Legislature.
I expect WEDC staff and board members to cooperate fully and ensure the Audit Bureau receives any information the State Auditor needs to complete its work.