State business initiatives paying off

SALT LAKE CITY — Getting the most bang from every dollar isn't just the goal of summer fireworks purchasers. State lawmakers are looking for the same payoff for tax dollars, especially in an era of trickling revenue streams.

In fatter times, an allocation in the low six figures might not have not garnered much attention. But these days, the $100,000 being paid to the Utah Defense Alliance through the Governor's Office of Economic Development caught the eyes of state auditors.

In an otherwise glowing audit report about state-funded and business programs and initiatives released Tuesday, the Office of the Utah Legislative Auditor General notes "… we are concerned with the amount being paid" to the UDA for help in hooking up Utah companies that can supply products and services to the defense and aerospace industry.

The UDA is the middleman for Logistics Specialties Inc., which counsels and assists Utah businesses seeking to win the mostly federal government contracts for defense and aerospace projects.

LSI was appropriated $1 million by the Legislature in the 2009 fiscal year, which helped Utah companies secure more than $214 million in contracts. Under the current funding flow chart, the defense alliance receives 10 percent of the appropriated amount for LSI in return for board oversight and strategic direction.

The 10 percent going to UDA reflects the intent of lawmakers, but the "justification for both the $100,000 amount and the services UDA provides to LSI are unclear," the audit report states.

UDA governing board minutes routinely note that LSI invoices are approved unanimously and with no details or oversight of what the money actually bought, the report said.

GOED already has taken action to address those concerns. A draft contract shown auditors indicates the administrative fee has been reduced to 4 percent from 10 percent and that clear performance documentation is required under any new contracts.

Auditors also noted a potential conflict of interest for LSI. A subsidiary company provides parts and services to military bases within Utah. Because LSI is the only company contracted by UDA, and by association GOED, to provide consulting services, companies counseled by LSI could be in direct competition with a company owned by LSI.

Although an actual conflict is yet to occur, the perception that companies were being aided by state subsidies that gave them an unfair advantage has generated at least one complaint, the audit said. It was investigated by UDA and determined to warrant no further action.

Spencer Eccles, executive director of GOED, said the agency has duly noted the recommendations and has, in fact, already implemented changes.

"We will continue to identify best practices to ensure the most effective delivery of state-funded business services for the betterment of businesses across the state," Eccles said Tuesday.

e-mail: jthalman@desnews.com