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An Audit Report on the Texas Enterprise Fund at the Office of the Governor

September 2014

Report Number 15-003

Overall Conclusion

While there were control weaknesses in the Office of the Governor's (Office) administration of the Texas Enterprise Fund from September 2003 through August 2013 (the scope of this audit), the Office made all disbursements auditors tested after the effective dates of the associated Texas Enterprise Fund award agreements. In addition, it safeguarded state resources by ensuring that it disbursed funds only to recipients with award agreements. The Office also recovered $14,507,385 in funds (referred to as "clawback penalties") from Texas Enterprise Fund award recipients when it became aware of recipients' noncompliance with requirements in award agreements.

Recipients of Texas Enterprise Fund awards reported that they had created 48,317 direct jobs as of December 31, 2012. However, as a result of the control weaknesses identified during this audit, it was not always possible to determine whether award decisions were supported, or to determine the number of jobs that recipients of awards from the Texas Enterprise Fund have created.

The Office should strengthen its control structure for its administration of the Texas Enterprise Fund. The absence of an adequate control structure impaired the Office's ability to consistently administer the awarding, award agreement establishment, monitoring and award agreement termination, and reporting functions for the Texas Enterprise Fund. The following units within the Office administer the Texas Enterprise Fund:

- The Office of Economic Development and Tourism accepts applications for awards, conducts a due diligence review, and prepares information packets for decision makers (the Governor, the Lieutenant Governor, and the Speaker of the House of Representatives).

- The Office of the General Counsel develops award agreements and related amendments.

- The Compliance and Oversight Division monitors recipients' compliance with award agreements.

One requirement the Office established for receiving a Texas Enterprise Fund award is that a recipient's proposed Texas site must be in competition with another viable out-of-state option. However, auditors were unable to verify applicants' assertions regarding competition outside of Texas because sufficient information to perform that verification was not usually available.

Senate Bill 1390 (83rd Legislature, Regular Session) required the State Auditor's Office to conduct this audit (see Appendix 5).

Auditors communicated other, less significant issues to the Office separately in writing.

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