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ETF audit

ETF audit

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Published by Loren Steffy

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Published by: Loren Steffy on May 09, 2011
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05/09/2011

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John Keel, CPAState Auditor
 
An Audit Report on
The Emerging Technology Fund
April 2011
Report No. 11-029
 
 An Audit Report on 
The Emerging Technology Fund 
SAO Report No. 11-029April 2011
This audit was conducted in accordance with Texas Government Code, Section 321.0132.For more information regarding this report, please contact John Young, Audit Manager, or John Keel, State Auditor, at (512) 936-9500.
Overall Conclusion 
The Emerging Technology Fund (ETF) should makesignificant improvements to promote greatertransparency and accountability.Issues in a number of areas impair the ability toadminister the ETF in the best interests of theState. It is important to hold recipients of fundsaccountable. Auditors identified the followingweaknesses:
 
Decision making related to the ETF andrecipients of funds is not open to the public.
 
The ETF conducts limited monitoring ofrecipients’ performance and expenditures offunds.
 
The Office of the Governor does not report thevalue of the State’s investments through theETF on its financial statements.
 
The ETF does not administer its contracts withthe seven Regional Centers for Innovation andCommercialization (RCICs) and the Texas LifeScience Center for Innovation andCommercialization (Texas Life Science Center)in a consistent manner. Both the RCICs and theTexas Life Science Center evaluate and make recommendations to the ETF’sAdvisory Committee regarding applications for funds. The Advisory Committeethen makes its recommendations to the ETF’s trustees. Trustees make the finalapprovals on ETF grants and awards.The Office of the Governor, which administers the ETF, was cooperative andprovided all of the information the State Auditor’s Office requested during thisaudit.
Background Information
The Legislature established the EmergingTechnology Fund (ETF) in 2005 and initiallyfunded it with:
 
$100 million from the General RevenueFund.
 
$100 million from the EconomicStabilization Fund (Rainy Day Fund).As of August 31, 2010, a total of 153 grantsand awards totaling $342,336,567 had beenawarded to recipients.Recipients can receive funds in three ways:
 
Commercialization awards
areinvestments that help companies takeideas from concept to the marketplace.
 
Research matching grants
create public-private partnerships with highereducation institutions, federalgovernment grant programs, andindustry.
 
Research superiority grants
are awardedto higher education institutions to recruitresearch talent.The Governor, Lieutenant Governor, andSpeaker of the House of Representatives arethe trustees for the ETF. After receivingrecommendations from an AdvisoryCommittee, the trustees make the finaldecision about which applicants will receivefunds.
 
An Audit Report onThe Emerging Technology FundSAO Report No. 11-029ii
Key Point
The RCICs and the Texas Life Science Center do not have consistent processes, andtheir board members were not required to sign conflict of interest disclosurestatements until 2010.
The RCICs and the Texas Life Science Center do not consistently record boardmeeting minutes, votes, and recusals.Board members for RCICs and the Texas Life Science Center were not required tosign conflict of interest disclosure statements until 2010. Members of applicationreview committees are not required to sign conflict of interest disclosurestatements; those members are the first individuals to review a commercializationaward application to determine its viability.
Advisory Committee meetings, subcommitteeapplication review meetings, and teleconferencesare not open to the public.
Meetings of the ETF’s Advisory Committee arenot open to the public. Although the ETF isrequired to follow the Texas Public InformationAct, under Texas Government Code, Section490.057, ETF application information is treatedas confidential while an application isconsidered for an award or a grant. Ten otherstates with similar programs that auditors surveyed allowed significantly morepublic access to meetings and documents related to the award of public funds.
The Advisory Committee does not record meeting minutes, member votes onapplications, members’ recusals, or milestones that applicants must achieve.
Because the Advisory Committee does not maintain minutes of its meetings, it isnot possible to evaluate how the Advisory Committee addresses disclosures ofconflicts of interest. For example, one Advisory Committee member hadconsulting contracts with two recipients of ETF awards at the time that thoserecipients received additional disbursements of funds approved by the AdvisoryCommittee. It is unclear whether the Advisory Committee member who had theconsulting contracts voted to approve those additional disbursements of fundsbecause the Advisory Committee does not maintain meeting minutes or recordmember votes.
Advisory Committee
The Governor appoints the members of theAdvisory Committee, which comprises up to17 individuals who are industry leaders inTexas or nationally recognized researchersfrom higher education institutions.The Advisory Committee reviews applicationsfor commercialization awards, researchmatching grants, and research superioritygrants and makes recommendations to ETFtrustees.

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