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Problems at Wis. economic development agency cited

Scott Bauer, Associated Press

MADISON, Wis. (AP) -- A block grant program that sends millions of dollars to communities across Wisconsin will no longer be administered by the state's beleaguered quasi-private economic development agency after the federal government questioned the legality of such an arrangement.

The decision was announced Tuesday at a meeting of the board of the Wisconsin Economic Development Corp., which has been beset with problems ever since its creation last year. A pair of independent reviews of WEDC's operations identified a number of problems and issued a series of recommendations, including upgrading computer software and hiring more people to better track loans and other financial transactions.

Creating the WEDC to replace the Department of Commerce was one of Gov. Scott Walker's top priorities. It has a roughly $85 million annual budget and spearheads Wisconsin's flagship job-creation efforts. Walker serves as chairman of the board that includes both state lawmakers and private business leaders, and promised during his 2010 campaign to create 250,000 new jobs.

The agency has had high-profile missteps, such as its handling of the Community Development Block Grants, since it became operational in July 2011.

The U.S. Department of Housing and Urban Development sent the state a letter in August, saying that WEDC failed to follow federal law and its own policies in awarding $9.6 million in CDBG money to four communities in February. When the letter became public in September, Walker tried to downplay HUD's concerns as routine.

But on Tuesday, Mike Huebsch, secretary of the Department of Administration, said his agency would take over issuing the grants in order to address the federal government's concerns. Huebsch said in a memo that WEDC will continue "communicating, marketing and serving as a liaison with communities and businesses on facilitating these grant opportunities." Anything that's done will be with the blessing of the federal government, he told the board.

Democratic state Rep. Peter Barca, a member of WEDC's board and a frequent critic of how it's operated, said it was "very unfortunate" the problem with issuing the grants wasn't anticipated before the agency was created.

Numerous problems with the creation of WEDC were cited in both an audit by accounting firm Schenck SC and a separate independent review by Financial Institution Products Corp., a subsidiary of the Wisconsin Bankers Association. The audit released Monday said that poor record keeping, a lack of basic accounting controls and high staff turnover all contributed to problems.

In its response to the audit, WEDC detailed procedural and internal changes that were being made to better track loans and fix other problems, such as improper accounting journal entries and deficient credit card policies for employees.

Walker said at the meeting that work isn't done yet, but he feels better that "we have a handle on this and are going to move forward."

The FIPC report released Tuesday detailed even more problems at the fledgling agency. While none of the issues were deemed unfixable, the report said considerable work is needed to make the necessary recommended improvements. Problems identified included:

— Creation of WEDC was done without enough attention to what would be needed to manage the agency, leading to a lack of clarity in authority, accountability and responsibility. There is a "definitive need for an integrated, complete, defined set of management policies," the report said.

— Computer software programs used to track loans, tax credits, grants, documentation and other reporting are not efficient or effective and will not meet long-term needs.

— Credit risk management procedures are insufficient.

— The agency's collection policy on past due loans needs to be better defined.

The first head of the agency, former Green Bay Mayor Paul Jadin, resigned in October. Reed Hall, the retired executive director of the Marshfield Clinic, is currently serving as interim chief executive officer. The board was told Tuesday that more than 100 people applied for the job, and a search committee hopes to forward a list of five finalists to Walker, who will make the appointment.