Study Finds Room for Improvement in State ED Program Auditing

An analysis of 122 audits of economic development programs in 44 states revealed many areas for improvement, according to Good Jobs First, a project of the Washington, D.C.-based Institute on Taxation and Economic Policy. Minding the Candy Store: State Audits of Economic Development, released online in September, issues harsh criticism of many public economic development efforts. The report's remarks are spread across the individual economic development programs, the state auditing agencies, and the state elected officials.

Good Jobs First states properly designed performance audits or other external evaluations can be beneficial tools for policymakers to use in economic development program design, measurement, and refinement. Benefit analysis and evaluation of effectiveness were often lacking as goals or deliverables for most of the audits reviewed for the report. Among the report's other findings were:

• Only 17 states require agencies to conduct regular performance auditing. Of these 17 states, four appear to be behind schedule in completing legislatively mandated audits. No relevant audits were found to have occured over the past ten years for ten states. On the other hand, three or more audits were conducted during the past decade in 13 states.
• The 122 audits reviewed generally tended to focus on process, accounting, and compliance-oriented measures rather than performance or outcome measures. As a result, few audits drew conclusions concerning the effectiveness of the economic development programs evaluated. Reasons cited by Good Jobs First include: lack of  benchmarking for effectiveness or economic indicators, poor agency oversight, over-reliance on customer surveys, and statutory limitations on the requirements of the audits.
• Auditors reviewing programs for impact (eg., job growth or decreased unemployment in targeted areas or populations) concluded most programs had minimal effect on economic growth.
• More than 10 percent of the audits analyzed found agencies not applying consistent criteria in award selection.
• Very few audits reviewed a state's entire portfolio of programs collectively. Individual program audits presented several problems in measuring results such as potentially counting job creation figures or other benefits multiple times across more than one economic development program.
• Audits were poorly used as tools for public policy and program evaluation and refinement.

The report encourages the development of stronger performance auditing for economic development in all states. Revision of many state monitoring practices legislatively and administratively would be necessary to integrate performance auditing into most states' economic development policy formulation and evaluation, according to the report.

Good Jobs First plans to maintain a web-based database on all performance audits conducted for state economic development programs. Currently the report, including a list of the audits reviewed with recommendations, is available for download on the project's website: http://www.ctj.org/itep/