June 5, 2014

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Star Bright

Will USTAR Improve or Implode?

By Rachel Madison

June 5, 2014

When the Utah State Legislature passed Senate Bill 75 in 2006, creating the Utah Science Technology and Research initiative, hopes were high among state officials, legislators and citizens alike. The program provided funding for strategic investments at the University of Utah and Utah State University, and according to its prospectus, would form more technology-based startup firms, offer more high-paying job opportunities and generate more business activity with an associated tax base expansion.

But in October 2013, a performance audit conducted by the Utah Legislative Auditor General’s office revealed USTAR was way off the mark. The audit found USTAR’s reported revenues and jobs were overstated and inaccurate, its return on investment was flawed, and commercialization success had been limited. It also found USTAR lacked proper oversight of areas like its budget and research teams, and management did not have proper policies and procedures in place in accordance with state laws. This proved to be a major concern to the state, primarily because more than $330 million in public resources has been used to fund USTAR since its beginning.

After the audit, changes to USTAR’s management and a bill passed during the 2014 legislative session showed state officials’ eagerness to remedy USTAR’s past and improve its future. Although many agree USTAR can have the bright future always expected of it, others are concerned it may be a sinking ship.

An Unsatisfactory Audit

Brian Dean, of the Legislative Auditor General’s office, was the supervisor of the USTAR audit. The role of the audit was to validate USTAR’s January 2013 ROI Report to the Legislature, as well as hold USTAR accountable to what it was created to do according to its prospectus.

“USTAR came and presented their ROI to the Legislature in January 2013,” Dean says. “The first thing we did was go through and validate those numbers, but we found all kinds of concerns.”

USTAR reported it had provided a 219 percent ROI to the state, but the audit found that to be inaccurate, especially because it did not reflect an actual ROI, or expansion of tax revenue to the state. More than half of the reported $463 million in revenue was invalid, including the overreporting of $254 million in engineering contracts and private investments, as well as $4.4 million in sponsored research.

When it came to jobs, the audit found USTAR reported it had created 3,380 jobs, but 1,737 of those were construction jobs to build USTAR’s two facilities at the U and USU. “Those jobs have been gone since 2011 and were publically funded anyway,” Dean says.

Research jobs weren’t reported any more accurately. USTAR reported it had created 1,102 research jobs, but the most jobs the auditors could find were 197 full-time positions and around 300 part-time positions.

“We couldn’t ever get any documentation on how they produced the numbers they came up with,” Dean says. “As an auditor, I audit the documentation provided to me, and I couldn’t do that. Part of it boiled down to [USTAR not being] managed properly. I know they had turnovers in their financial manager position, but when all was said and done, they didn’t have an adequate system in place to track numbers.”

The audit also found that statutory responsibilities of research buildings had areas for improvement—as of October 2013 lease agreements still had not been executed with university officials at the U or USU before research faculty took up occupancy in USTAR’s buildings—and USTAR management could improve guidance to the outreach programs by developing better contracts and administrative rules.

Other major findings in the audit included a lack of proper policies, procedures and metrics in place to measure USTAR’s progress. USTAR also took credit for projects it wasn’t affiliated with and funded non-USTAR projects. Overall administration and governance, including a conflict of interest policy and compliance with the open meetings law, were also lacking.

As a result of the audit, 15 recommendations were given to USTAR to address its structure, operations and oversight. “We believe by implementing these, this will position USTAR better to properly manage the program moving forward and to report accurate numbers that are validated and the Legislature can have confidence in,” Dean says.

Greg Bell, chair of USTAR’s governing authority, says USTAR’s response to the audit was to comply with every recommendation. “We’re implementing them all and we’re coming up with procedures to prevent a repeat,” he says.

Greater Oversight, New Management

Even though USTAR is working to implement the recommendations, its future became a hot topic during the 2014 Legislative Session. Sen. Brian Shiozawa, R-Cottonwood Heights, sponsored Senate Bill 62, which calls for stringent oversight of USTAR. Gov. Gary Herbert signed the bill into law in March.

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