Fund of Funds Audit Reveals that Taxpayers May be Left Holding the Bag

wpid-ed-approps-1-and-2-009.jpegLast Tuesday, the Utah Legislative Audit Subcommittee met to review the findings of two audits of both the Utah Fund of Funds and the Utah Transit Authority. The meeting, which lasted just over two and a half hours, included a presentation of findings from auditors for both organizations, as well as a response from the organizations, and further questions from legislative members present at the meeting.

The meeting started with a review of the Utah Fund of Funds. The Fund of Funds is “a public-private partnership created by the Utah Legislature to provide the state’s entrepreneurs with increased access to a broad array of venture and private equity funding sources”. Known as UFOF, the agency has a partnership with 28 private and capital private equity firms, of which eight are located inside state.

The UFOF currently has bank loans totaling $103 million in outstanding loan balances, with $92 million in unused assets. The loans cover everything from investments made by the agency to day-to-day operating costs. According to the audit findings, the organization has helped Utah improve in venture capital and, by extension, improved the economy of the state. Indeed, in 2006, Utah ranked  18th in overall in venture capital investment; in the eight years since then, Utah has risen to 15th.

However it was not all roses for the UFOF. The audit found that financing costs have negated all investment gains, which have exceeded $37 million. Over the past 10 years, the organization has paid $10.2 million in administrative costs. Much of the bonus pay and severance pay has occurred without any sort of documentation.

Further concerning is that the organization isn’t breaking even. If this trend keeps up, a large outstanding financial liability could fall on taxpayers to cover the UFOF. The organization to date has invested $103.5 million in venture capital, with $121.7 million in total committed funds. With loans included, Utahns could be footing a bill of $130 million over the next few years. The UFOF will receive an additional $75 million in “phase two” taxpayer investment, which was approved during the 2014 legislative session. It is hoped that these additional funds will further balance the UFOF books and turn a profit for taxpayers in the following years.

UFOF loans do not come due until 2017, which does buy taxpayers and legislators some time.

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