The audit, commissioned by the legislature in 2013, detailed the organization’s financial investments, returns, and liabilities. It recommended 18 different points of improvement, all of which the UFOF has adopted since its publication. The audit found several problems with the UFOF, most notably that the organization (when considering administrative costs) was revenue neutral, but that most of their funds were being invested in companies headquartered outside of Utah.
The fund, whose objective is to invest tax payer money into local businesses, was reformed during the 2014 legislative session with Representative Jim Bird’s (Republican – West Jordan) HB 243. The law adjusted the UFOF’s investment strategy from debt-based to equity-based in hopes for a more stable investment fund. The organization recently took on the change, but the audit found several notes of concern for the legislature.
The auditors noted a lack of consistent metrics when measuring returns and the number of jobs created as the result of the fund, both directly and indirectly. “We do not question the existence of these jobs, what we question is impact,” said Brian Dean, a member of the audit team. Furthermore, the audit found that the Fund of Funds lacks the paperwork to back such claims of job creation. According to auditors, when the cost of operating UFOF is factored into the return on investments, the organization is considered to be revenue neutral. “Public reports of the performance of the Utah Fund of Funds have been misleading because program costs have not been included,” said Dean.
Representative Brad Wilson (Republican – Kaysville) asked several questions of UFOF regarding its investment plan and its overall purpose. “Back when this fund was created in 2003, from what I can tell… we thought there was a real need for this. I think the fundamental question is ‘should we still be in this business?” Wilson then suggested changing the metrics of capitol return rather than jobs created.
The report continued, noting that of the $130 million invested by the UFOF, only $16 million was invested in businesses located inside of Utah. Outgoing Senator John Valentine (Republican – Provo) asked pointedly “Why shouldn’t we just close it down right now?” Bret Jepsen, head of the UFOF, defended their strategy, noting that the organization realized that investing in Utah-based companies was much more risky than investing in out of state businesses. “We want to invest profitably, we think the ratio is the right one,” said Jepsen.
Other problems noted by the auditors was a lack of metrics for it bonus structure, noting the $331,000 in bonuses over the last nine years with no supporting documents and UFOF having a small staff.
In his closing remarks, Representative Jim Dunnigan (Republican – Taylorsville), co-chair of the Business and Labor Interim Committee, reiterated many of Wilson’s and Valentine’s sentiments about whether the fund was even needed. “We don’t want to make bad investments, but still… why isn’t more of that money invested in Utah?” The auditors were unable to give recommendations on the need for UFOF, nor legislative recommendations to remedy the situation.