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Arizona Commerce Authority audit finds fraud risk, lack of policies for $100 million grant

A new report reveals that the Arizona Commerce Authority could not show that companies receiving nearly $11 million in incentives held up their end of the bargain by investing those funds or hiring workers at agreed-to wages.

The commerce authority receives as much as $100 million a year to lure companies to do business in Arizona.

They accomplish that in part by administering various tax grants and incentives to businesses that meet job creation and capital investment requirements.

But according to the Auditor General, the commerce authority did not properly verify that businesses met those targets before approving about $11 million in incentives.

"ACA's lack of verification documentation increases risk of fraud and waste of public money,'' Auditor General Lindsey Perry said in her report to the Arizona Legislature. And she said the agency "lacks oversight and accountability mechanisms for ensuring businesses meet job creation and capital investment requirements.''

The audit was part of a sunset review before routine legislative debates next year to determine whether to reauthorize the agency or to eliminate it. 

Previous audits in 2015 and 2017 raised no similar concerns.

Lack of rules, policies for federal broadband grant

The report also found that although the agency met some legal requirements for overseeing $100 million in federal money Arizona received in 2022 to expand broadband internet service in the state, it lacked required documentation for some companies receiving the money. It also lacked rules for evaluating grant applications and written policies and procedures for overseeing that pool of cash.

And nearly two years after receiving the $100 million, it had yet to finalize policies and procedures for the grant program, the audit concluded. It could not even show auditors drafts of those items.

The Commerce Authority runs the state broadband office. In June, Gov. Katie Hobbs announced the state was getting another $993 million in federal money that would be doled out by the agency.

Not having rules in place, said Perry, means there is an increased risk of the money being misused, accounting problems or inaccurate reporting, the audit found. That could come back to bite the Commerce Authority and the taxpayers who fund it.

"Ultimately, the ACA could be responsible for repaying any questioned costs to the federal government,'' the audit said.

Authority responds to audit

The ACA agreed to a series of recommendations made by the auditors. But pushback from Sandra Watson, president and CEO of the authority, began even before the report was released a week ago.

In her written response to the auditor's report, Watson praised Perry for her "service to our state and coordination over the last year,'' as Perry’s staff did the audit. Watson then turned that praise inward, touting ACA talking points that her agency "has successfully won 1,180 competitive projects, representing a projected 267,000 new jobs with average wages of $60,000 and over $113.4 billion invested in Arizona communities across the state.''

But the formal response went on to contradict several of Perry's findings, insisting the ACA did indeed have documentation showing that companies that won grants and tax credits created the jobs and made the investments they were required to make.

Current House Speaker Ben Toma and Senate President Warren Petersen, both Republicans, declined to comment on the new audit, saying they had not yet reviewed its findings.

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Greg Hahne started as a news intern at KJZZ in 2020 and returned as a field correspondent in 2021. He learned his love for radio by joining Arizona State University's Blaze Radio, where he worked on the production team.