The USTAR Audit: A Follow Up

The USTAR Audit: A Follow Up

The December 2013 edition of “The Utah Taxpayer” reported the results of a  legislative audit of USTAR, the Utah Science Technology and Research Initiative. That article reported that the Audit highlighted a variety of discrepancies between what USTAR told the Legislature and what USTAR records show. The article also reviewed USTAR’s response published with the Audit, in which USTAR agreed with all of the Legislative Auditor’s 15 recommendations.

While USTAR agrees with and is implementing the Auditor’s recommendations, USTAR has finalized a more formal response to the USTAR audit, which they shared with members of the Legislature and your Taxpayers Association. The formal response acknowledges that the audit compared USTAR’s performance against a one-page promotional piece USTAR provided to Legislators during the 2013 General Session.

USTAR notes that its Governing Authority did not fully vet that piece, which “unintentionally mischaracterized USTAR’s Total Economic Impact as ‘Return on Investment.’” This one-page piece also failed to incorporate the “promises and expectations” contained in USTAR’s 2005 Prospectus. The Auditors were asked to verify the claims of this one-page summary, which they did. As the formal response indicates, USTAR has been successful “in meeting the performance measurements projected to date in the 2005 Prospectus.” In other words, the audit focused on the promotional piece, not USTAR’s original Prospectus.

Tanner Report confirms USTAR’s economic impact

USTAR’s formal response builds on accounting procedures conducted by Tanner LLC, a local CPA firm. USTAR hired Tanner LLC to verify projections provided to the Legislature when the USTAR Prospectus was created with USTAR’s actual performance. These projections focused on the number of jobs USTAR would create and the amount of outside dollars USTAR would attract, while accounting for the lower than projected revenues the Legislature actually appropriated for USTAR.

As Table 1 notes from the Governing Authority, USTAR’s economic impact has been significant. External funding through USTAR have far exceeded both original and revised cumulative economic commitments between 2006 and 2013. USTAR engineering contracts have also emerged much more quickly than USTAR’s Prospectus envisioned. The Governing Authority notes that developing appropriate technology to bring to market and license takes longer, so licensing revenue is below projections. The number of jobs created is also behind projections. Nonetheless, USTAR has always understood that it is an investment in the future, and is moving forward to meet its short, medium, and long-term goals.

Table 1: Summarizing USTAR’s Key Performance Metrics, 2006 – 2013

Source: Tanner Report and the USTAR Governing Authority’s Formal Response.

USTAR Governing Authority Notes Differences with Audit

Much of the rest of USTAR’s formal response to the Audit focuses on differences in tone and severity between the Audit’s findings and USTAR. For example, the Audit claimed that USTAR failed to budget for sales tax in the construction of its nanofabrication facility, resulting in significant change orders. USTAR’s formal response lays the blame for the sales tax mistake with an error by the architect. According to the USTAR Governing Authority’s formal response, “The state filed a lawsuit against the architectural firm that designed the facility, and settled for $700,000.”

The formal response further notes that the Audit faulted USTAR for not having appropriate contracts in place between USTAR and its Bioinnovation Gateway (BiG) after June 30, 2011. The formal response notes that USTAR and BiG signed the 2013 memorandum of understanding (MOU) in July 2012, and the 2014 MOU on November 22, 2013.

Recommendations from Your Taxpayers Association

Your Taxpayers Association has spoken with USTAR’s then executive director, Ted McAleer, and with the Legislative Auditor General, John Schaff. It’s clear that USTAR management did not get as involved in the audit process as they should have. They were more focused on USTAR’s research, and in their political naivete didn’t recognize what negative repercussions the audit could, and eventually did produce for USTAR.

As with every audit, the Legislative Auditors gave USTAR many opportunities over several months to review the auditor’s facts, findings and recommendations. However, USTAR management did not check and double check the facts and findings against their own understanding and internal documentation.

Your Taxpayers Association appreciates the important work the Legislative Auditor General and USTAR both do for the state of Utah. We recommend that improved protocols between the Legislative Auditor General and entities being audited be put in place to ensure that formal agency responses address not only audit recommendations, but also the audit’s facts and findings.

This audit has helped all Utahns better understand how transparency and accountability protect Utah taxpayers, and insure elected and appointed public officials are effectively managing the programs enacted by the Legislature and Governor.