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Audit Report 2015-3 Job Creation Incentive Program - Arthrex. Inc. and Arthrex Manufacturing, Inc.InternalAuditDepartment AuditReport2015-3 JobCreationInvestmentProgram: Arthrex,Inc.,andArthrex Manufacturing,Inc. DwightE.Brock ClerkoftheCircuitCourt andComptroller 3299TamiamiTrailEast Suite#402 Naples,FL34112-5746 www.collierclerk.com Issued:June3,2015 1 Preparedby:PatrickBlaney,SeniorInternalAuditor MeganGaillard,SeniorInternalAuditor ReportDistribution:BoardofCountyCommissioners LeoOchs,Jr.,CountyManager NickCasalanguida,DeputyCountyManager MarkIsackson,Director,CorporateFinancial&ManagementServices BruceRegister,Director,BusinessandEconomicDevelopment AmyPatterson,Manager,ImpactFeesandEconomicDevelopment JeffKlatzkow,CountyAttorney Cc:DwightE.Brock,ClerkoftheCircuitCourtandComptroller CrystalK.Kinzel,DirectorofFinance&Accounting JamesD.Molenaar,InternalAuditManager TABLEOFCONTENTS SUMMARY..................................................................................................................................2 OBJECTIVES...............................................................................................................................2 SCOPE..........................................................................................................................................2 BACKGROUND..........................................................................................................................2 OBSERVATIONS........................................................................................................................3 MANAGEMENTRESPONSE.....................................................................................................3 Thefilesanddraftversionsofauditreportsareconfidentialandexemptfrompublicrecordsrequestsduringan activeauditunder Nicolaiv.Baldwin(Aug.28,1998DCAofFL,5 th District)and§119.0713,FloridaStatutes. Workpaperssupportingtheobservationsnotedwithinthisreportbecomepublicrecordandwillbemadeavailable uponrequestoncethefinalauditreporthasbeenissued. 2 InternalAuditprovidedadraftofthisreporttotheOfficeofBusinessandEconomicDevelopmentformanagement responseonMay21,2015.CountymanagementprovidedthatresponseonMay28,2015. Summary ThisexaminationgeneratedthefollowingobservationsregardingtheJobCreationInvestmentProgram: Arthrexinitiallyindicatedthatithadcreated282eligiblejobs.UponInternalAudit’sreviewofArthrex’ methodology,itwasdeterminedthatmorethan400positionswereeligibleundertheprogram. ByreviewingArthrexpersonnelrecordsandcontactingarandomsampleofArthrexemployeesinpersonto establishtheirvalidity,theOfficeofBusinessandEconomicDevelopmentandtheClerk’sInternalAudit Departmentcorroborated400jobsthatqualifiedforaJobCreationInvestmentProgramincentivepayment of$266,667. Objectives Theobjectiveoftheauditengagementwastovalidatethenumberandeligibilityofnewjobsthatqualifiedforthe JobCreationInvestmentProgramincentivepayment. Scope Theauditengagementconsistedof,butwasnotlimitedto,thefollowingtasks: ReviewingapplicableFloridaStatutes; ReviewingapplicableCollierCountyOrdinances; ReviewingapplicableBoardofCountyCommissioners(BCC)AgendaItemsandrelatedMeetingMinutes; ReviewingtheBCC’sJobCreationInvestmentProgramAgreementwithArthrex; ExaminingpayrollandpersonnelrecordsfromArthrex; Tracingpayrolldata,suchasemployeenumbers,names,jobtitles,hireand/orpromotiondates,wages,work locations,andlawfulUnitedStatesresidency,tothepersonnelrecords;and Contactingsampledemployeesinpersontovalidatetheirexistence. TheOfficeofBusinessandEconomicDevelopmentandtheClerk’sInternalAuditDepartmentverified100%of applicablepayrollandpersonnelrecordsforthepositionsthatArthrexcreated.InternalAuditalsoselecteda randomsampleof11.75%oftheemployeesholdingeligiblepositionsatlocationsinCollierCounty.InternalAudit andBusinessandEconomicDevelopmentstaffphysicallymet,ordocumentedtheabsenceof,everyemployeein thatsample. Background TheClerk’sInternalAuditDepartmentassistedtheOfficeofBusinessandEconomicDevelopmentinvalidating jobscreatedbyArthrexinaccordancewiththeJobCreationInvestmentProgram.Thisprogramisaperformance- basedinitiativeauthorizedinCollierCountyOrdinance2003-60,asamended.Theprogramprovidesgeneral revenuefundingtolocalbusinessesforthecreationofjobsthatmeetthecriteriaspecifiedintheOrdinance.Those criteria,whichvarybygeographiclocationwithinCollierCounty,includeminimumnumbersofnewjobsator exceedingspecificwagelevels. CollierCountyOrdinance2003-60statesthattheprogram’spurposeis“topromoteandfostereconomic diversificationthroughtheretentionandcreationofhighwagejobsintargetedindustryclusters.”Ordinance2006- 36definesjobsas“limitedtoindividualpermanentlegalresidentsoftheUnitedStateswhoareemployedineach newcreatedpositionofemploymentataprimarylocationinCollierCounty,andasapplicablemaintained,asa resultoftheprogram.”Ordinance2003-60originallyterminatedthisprogramonOctober1,2008,butonSeptember 3 9,2008,theBCCenactedOrdinance2008-46,whichextendedtheJobCreationInvestmentProgramthrough October1,2013.TheBCCapprovedaJobCreationInvestmentProgramagreementwithArthrexonJanuary24, 2012,priortotheordinance’sexpiration. Tobeeligible,businessesmustapplytotheCountyManagerpriortomakingthedecisiontolocateorexpand withinCollierCounty.InkeepingwiththeJobCreationInvestmentProgramandtheBCC’sagreementwith Arthrex,thegeneralfundpays$2,000overathreeyearperiodforeachjobcreatedtoqualifiedandapproved businessapplicants. Observations 1)Arthrexactuallycreatedmoreeligiblepositionsthanitinitiallyestimated. Initsinitialscheduleofemployeesprovidedforvalidation,ArthrexincludedemployeestransferredtoLeeCounty. Thewagesofthosetransferredemployeeswerereflectedasnegativenumbersinthatschedule.Thosenegative amountscausedtheaveragewageofallnewhirestobeunderstated,andresultedinpotentiallyonly282newhires toqualifyfortheJobCreationInvestmentProgramincentive.Clerk’sInternalAuditdiscussedtheunderstatement fromincludingthetransferredemployeesinthevalidationschedulewithArthrexmanagement.Arthrex managementexplainedthat,becausethiswasitsfirstJobCreationvalidation,Arthrexemployedaveryconservative approachinitswagecalculationmethodology.AllpartiesagreedtoremovethetransfereestoLeefromthe schedule.Thisincreasedtheaveragewagesufficientlytoqualify118moreCollier-basedemployeesfortheJob CreationInvestmentincentive,thusachievingthecontractualupperlimitof400qualifyingnewhires. 2)TheBusinessandEconomicDevelopmentOfficeandClerk’sInternalAuditDepartment corroborated400newjobsthatqualifiedforaJobCreationInvestmentProgram incentivepayment. TheOfficeofBusinessandEconomicDevelopment,inconjunctionwithClerk’sInternalAuditDepartment, reviewedArthrexpersonnelrecordsandcontactedarandomsampleofnewArthrexemployeesinperson.These validationprocedurescorroborated410jobsthatqualifiedforaJobCreationincentivepayment.TheBCC’s agreementwithArthrexislimitedtopayingforupto400jobscreatedinPhaseI.IthasbeenverifiedthatArthrexis eligibleforaJobCreationInvestmentProgramincentivepaymentof$266,667. ManagementResponse “IhavereviewedthesubmittedAuditReport#2015-ArthrexregardingArthrexManufacturing’scompliancewith incentivecriteriaestablishedbyJobCreationAgreementinplacewithCollierCounty.Iconcurwiththeaudit findingsandconsidertheArthrexManufacturingcurrentlyincompliancewiththeobligationswithintheJob CreationAgreementuptoJune30,2014asspecifiedforPhaseOne. StaffappreciatestheprofessionalandpragmaticapproachexhibitedbytheInternalAuditDepartmentforthis performancevalidationprocess.” InternalAuditComments : InternalAuditacknowledgesthecooperationofArthrexmanagementandCountystafffortheirassistancein research,review,anddocumentation.TheassistanceandresponsesprovidedbytheOfficeofBusinessand EconomicDevelopmentgreatlysupportedtheauditprocess.