The Maryland Department of Commerce oversees a range of taxpayer-funded incentives meant to help spur job creation in the private sector. But the agency has failed to verify that companies receiving incentives actually created the promised jobs, according to a new audit.
In many cases, the department relied on information provided by the companies or on infrequent reviews by its internal audits office — steps that were “insufficient to ensure compliance" with program regulations, state auditors found.
The review by the Office of Legislative Audits covered the period from July 2014 to December 2017. The audit focused on programs including the One Maryland Tax Credit, which offers up to $5.5 million in state income tax credits for projects that create at least 25 full-time jobs in “distressed” areas, including Baltimore.
Auditors found that the Department of Commerce lacked effective procedures to ensure One Maryland applicants accurately reported job creation. In one case, auditors wrote, the state issued the maximum $5.5 million tax credit for a project that wasn’t eligible — a finding the department disputed. The audit didn’t name the project.
During the audit period, the department certified 15 One Maryland tax credits totaling $69.8 million, but verified payroll records for only three tax credits totaling $15 million, the auditors found.
In another program, the Biotechnology Investment Tax Credit, auditors found that the department didn’t verify employment and ownership information before issuing $8 million in tax credits to dozens of investors in five biotechnology firms.
Auditors also reviewed the department’s loan program, in which conditional loans can be forgiven if a company creates a specific number of jobs. They found that during the audit period, the department forgave 20 loans totaling $8.3 million — but only verified payroll records for four of those loans totaling $1.3 million. The department disagreed that its process for verifying employment data was insufficient, but said it would consider “more frequent and comprehensive reviews of payroll records at the time of loan forgiveness," the auditors wrote.
In a letter to Legislative Auditor Gregory A. Hook, Commerce Secretary Kelly M. Schulz wrote that her department “has made strides” to adopt many of the auditors’ recommendations. Schulz started on the job in January, taking over after Mike Gill left the post.
Karen Glenn Hood, a Department of Commerce spokeswoman, said in a statement that officials there have resolved most of the findings or are “in the process of doing so.”
According to the audit, the department has agreed to changes such as requiring additional verification paperwork in some cases. But other changes, the agency said, would require hiring more staff.
Del. Shelly Hettleman, the House chair of the General Assembly’s Joint Audit and Evaluation Committee, said the committee plans to discuss the audit at an Oct. 29 hearing.
“The audit raises a number of questions about whether the tax credits that we have are serving the purpose that they’re supposed to, and also whether the agency is providing the appropriate level of oversight,” the Baltimore County Democrat said. “Audits like this have to shine a light on whether those kinds of programs that benefit the business community are actually working.”