When Water for Elephants and "42" were filmed in Chattanooga, state officials rolled out the red carpet with nearly $1 million in incentives and tax credits.
The two films are among more than two dozen across the state that have been awarded more than $20 million in three years.
Now a state comptrollers report is questioning how state officials administered the awarding of filming incentives since June 2006.
"The Department of Economic and Community Development and the Department of Revenue have disregarded their statutory responsibility and exercised poor management and administrative oversight of the state's headquarters film incentive program," states a performance audit released Monday by the Tennessee Comptroller of the Treasury.
The audit does not indicate anything correct or amiss with the Chattanooga film projects, or any others in the state. Part of the incentives are refundable tax credits and because tax credits are protected by taxpayer confidentiality laws, auditors will not disclose what records of which film projects were reviewed.
But the audit does indicate that at least one state law already has changed regarding the incentives and the comptroller recommends further change. Additionally, the report suggests further investigation may be made into a possible conflict of interest involving a former executive director of the Tennessee Film, Entertainment and Music Commission.
"The former executive director's husband worked for ... a law firm involved with at least three film projects that received a Film Commission incentive," the report states.
Deborah Loveless, director of the comptroller's office, likened the film incentives to incentives offered to industries being enticed to Tennessee.
"This is an important program -- and valuable. But in it its past life ... there was just never really any oversight," Loveless said.
Film companies until July 1 could apply for two incentive programs: an up-to 15 percent tax credit from the Department of Revenue and a 17 percent film incentive funded by $10 million allocated by the General Assembly to the Film and Television Fund. That fund has been administered by the state film commission and the Department of Economic and Community Development.
In the audit, comptroller said they found misrepresentations, disregard of obvious financial pass-through arrangements, inconsistent data and a general lack of due diligence.
"The Department of Economic and Community Development and the Department of Revenue have disregarded their statutory responsibility and exercised poor management and administrative oversight," the audit states.
David Smith, spokesman for Gov. Bill Haslam, said he could not comment Monday afternoon because preparations for the governor's state of the state address Monday night were pressing.
The Department of Revenue spokesman, Billy Trout, did not return a phone call.
Bob Raines, the present executive director of the Tennessee Film, Entertainment and Music Commission, referred a request for comment to Clint Brewer, spokesman for the Tennessee Department of Economic and Community Development.
Brewer said the Economic and Community Development Department has "worked aggressively to reform the state's film incentive program since early 2012 when the Comptroller's staff shared preliminary audit details.
"That reform included working with legislative leadership to repeal the film tax credit last year. ECD has also hired an outside audit firm with expertise in the entertainment industry to audit more than a dozen different productions that were awaiting approval in early 2012."
Both Brewer and Loveless said the tax credit was the most flawed aspect of the state's film incentive program.
Loveless said the state now is working toward a single, 25 percent incentive program.
"So going forward that means there be no more of this cloaking," and the program should be more transparent, she said.
Missy Crutchfield, administrator of the Chattanooga Department of Education, Arts & Culture, and a former film commission board member, said film projects in Chattanooga and Tennessee bring jobs, money and tourism dollars.
She said when film prospects contact the city, she directs them to the state film commission.
"The incentives are very complicated," she said. "And we don't have anything to do with that here."
Contact staff writer Pam Sohn at firstname.lastname@example.org or 423-757-6346.