Audit knocks agency for losing track of $25M loan program
CHARLESTON — The West Virginia Economic Development Authority lost track of a $25 million venture capital loan program and has little to show for success according to a new report.
The West Virginia Post Audit Division released a report Tuesday highlighting the failures of the EDA’s $25 million Non-Recourse Loan Program.
“It is the Legislative Auditor’s opinion that the Loan Program did not achieve the intended outcomes and what was achieved is difficult to quantify,” the report stated.
Created in 2002 by the Legislature at the request of then-governor Bob Wise, the EDA borrowed $25 million from the Investment Management Board (now the Board of Treasury Investments). The EDA then used that money to fund seven venture capital firms who agreed to invest funds in West Virginia and create jobs in the state.
Between 2002 and 2016, the EDA invested more than $24 million in the seven venture capital firms. Since then, auditors found that two of the seven companies received a total of $8 million and never invested any money in West Virginia, and four of the seven companies have since entered into receivership.
When the State Treasurer’s Office tried to close out the EDA loan in 2019, it found missing and incomplete records. A letter in the Fall of 2019 from former state treasurer John Perdue to the Legislative Auditor’s Office spurred the performance audit of the EDA program.
“BTI staff were unable to complete the review as the underlying accounting records and stand-alone financial statements … for fiscal years 2012 through 2017 were unavailable,” Perdue wrote. “This letter is to inform you of the above issues that the BTI encountered attempting to close out the loan program and the discrepancy in the remaining balance of the Non-Recourse Loan Program.”
In their report Tuesday, auditors said the EDA didn’t maintain adequate records of the loan program. The audit found that the loan program could not quantify the number of jobs or businesses created by the seven venture capital firms. Of the $25 million loaned to the EDA for the program, only $674,222 was repaid on the principle to the Board of Treasury Investments not counting interest, leaving more than $24 million outstanding.
Venture capital companies receiving EDA loans included Adena Venture LP; Anthem Capital II LP; INNOVA – WV High Tech; Mountaineer Capital; Novitas Capital; Toucan Capital Corp.; and Walker Ventures. The first investment dispersed was May 16, 2002, and the last investment dispersed was July 29, 2016. The EDA investments spanned three governors: Wise, Joe Manchin, and Earl Ray Tomblin.
Caren Wilcher, associate director of the EDA under Gov. Earl Ray Tomblin, said the seven venture capital companies did raise more than $190 million combined including the nearly $25 million from the EDA loan program, claiming the five of the companies invested $41 million in 25 West Virginia-based businesses and helped create or retain 409 jobs. Wilcher said most of the issues found in the audit happened under previous EDA leadership.
“Current leadership and staff at WVEDA were not employed at the inception of the Program,” Wilcher wrote in her response to the audit. “Management and staff involved with the inception of the Loan Program have either retired from WVEDA or left state government.”
Legislative auditors questioned the job creation claim since the EDA was unable to provide specific records. The report recommended that any future program created by the Legislature provide clear guidelines and benchmarks to ensure the program is working as advertised.
“While the performance of these investments did not provide the returns intended, it is likely the Loan Program did create jobs within the state,” the report stated. “However, the total number of jobs created that were attributable to the Loan Program were unable to be quantified by the audit team from the information provided by the EDA.”
“Whether the state received a fair return on investment in terms of job creation and economic development in relation to the roughly $24.5 that remains in unpaid principal is not clear based on the information available,” the report concluded.