Most Tennesseans would be overjoyed to stumble upon $10,000.
But when two checks for $5,000 each are found littered among a stack of yellowing papers on the desk of the former internal audit director for a major state agency, it's cause for concern.
"That's not something we normally find," said Deborah Loveless, assistant director of state audits.
The misplaced checks were just one among of a host of financial and regulatory red flags discovered during a recent Tennessee Comptroller of the Treasury audit at the state Department of Economic and Community Development.
Auditors on Tuesday blasted the agency, which is tasked with administering the state-funded $200 million TNInvestco program, for doing almost everything wrong that can be done wrong.
The audit found "pervasive noncompliance with program requirements," which increased the "risk of fraud, waste and abuse," as well as "increasing the risk that the state may be liable for unauthorized services."
Lawmakers say they plan to look into the agency to see what officials can do to prevent similar lapses from happening again.
"I can assure you that our Fiscal Review Committee and our Senate Finance Committee will look at this matter," said state Sen. Bill Ketron, R-Murfreesboro.
Even though the agency didn't keep very good track of the millions of dollars under its care under former Commissioner Matt Kisber, the situation is not as bad as it looks, argued current officials for the Department of Economic and Community Development.
In fact, it was current agency Commissioner Bill Hagerty who requested the audit when he realized that the previous administration had left things in a bit of a mess, he said.
"After conducting our top-to-bottom review, deficiencies in the department's organizational structure and internal controls were identified," Hagerty said in a statement. "During the audit process, the department worked diligently to address known areas of concern, and we have addressed the findings from the audit as of its publication."
TNInvestco was originally conceived during the Phil Bredesen administration as a government foray into small business job growth. Through a deal with the state's insurance companies, Tennessee exchanged $200 million in future tax credits for $150 million in cash. That cash was then distributed to 10 venture capital firms handpicked by the agency. Those firms were in turn required to invest the money in small, early-stage companies, minus $20 million for management fees.
The program had an ambitious schedule -- perhaps too ambitious, Loveless said.
"There was just the urge, the desire to get on with this program, to get this money out in the hands of the new companies, the startup companies, and that desire was overshadowing any desire for controls," she said.
Though Loveless says auditors can't prove that taxpayer money was misused, that's only because the record-keeping was so lax that it's impossible to prove much of anything.
"We cannot satisfy ourselves that mangement has done enough to know if there wasn't somebody with their hand in the cookie jar," Loveless said.
Worst of all, there's no proof that the agency is even accomplishing its mission, which is to create jobs.
"The department does not know" how many jobs it has created, Loveless said. "There are reporting requirements on the part of those companies to the TNinvestcos as far as how many jobs are created, and in turn those reports come to the department; those reports are incomplete."
According to figures released by the agency on Tuesday, the TNInvestco program has created 752 full-time jobs and deployed about $85 million to 114 startup companies. Including the $20 million management fee for the private firms, that's a price tag of about $140,000 per job, pending the release of a new report in December.
Agency spokeswoman Shannon Sumrall disputed some of the results of the audit. She said the agency knows where all its money is, and any mistakes date back to the previous administration.
"We do have correct records of how all taxpayer dollars were spent," she said. "All findings in the audit deal with past practices of the department dating back to 2007 and predating the current administration."
While the state agency may have been in a shambles, the actual venture capital firms have complied with state regulations and are doing their job, said Townes Duncan, founder of Solidus, which was picked to invest some of the taxpayer money.
"The TNInvestco program is working as intended, small companies getting the capital they need, but some paperwork tidying-up is advisable," Duncan said.
That's irrelevant at this point, argued state Rep. Joe Carr, who has proposed several amendments to make the program more transparent that were shot down by his fellow lawmakers.
Carr compared the $200 million program to the failure of Solyndra, one of a number of bankrupt green companies that were backed by the Obama administration.
"TNInvestco did nothing but pick winners and losers, based not on the merits of some transparent set of criteria by which we could inspire and produce economic jobs, but instead they did it in a smoke-filled room," Carr said. "Crazy doesn't do it justice."
Carr says he still doesn't know how the venture capital firms were chosen, because the agency hasn't released that information.
"Anytime this much money is held in secret and then doled out without us knowing who's getting it, why they're getting it, what the criteria is for getting it, this is what inevitably takes place when government is in business of picking winners and losers," Carr said.
Justin Owen, president and CEO of the Beacon Center of Tennessee, called for lawmakers to shut down the TNInvestco experiment.
"As this audit shows, taxpayers' money is handed out like candy with few safeguards or even a commitment to actually create jobs and boost the economy," Owen said. "If government truly wants to boost investments in startups, it should eliminate destructive taxes like the Hall Income Tax. That way, investors would put up their own money rather than have government take it away to pick its own winners and losers."
The legislative government operations committee will take up the issue today at 10:30 in Nashville to decide whether to keep, reorganize or eliminate the agency, Loveless said.
Contact staff writer Ellis Smith at email@example.com or 423-757-6315.