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The Maryland Department of Business and Economic Development spent $184,000 in recent years on yacht cruises, Hollywood parties, poker tournaments and other events that weren't adequately documented to gauge their results and effectiveness in attracting new companies to the state, according to a legislative audit released Wednesday.

The state agency concurs with most findings and has put procedures in place to ensure that economic development marketing events are adequately reviewed and documented, said David Tillman, a DBED spokesman. He noted that most of the time period of the audit, which covered from Aug. 1, 2004, to Sept. 30, 2007, was during the previous administration of Robert L. Ehrlich Jr.

Moreover, auditors didn't appear to have serious concerns over the appropriateness of the events, but more the "lack of documentation afterwards," Tillman said.

"I can't comment on the wisdom of actions taken by the previous leadership," Tillman said. "DBED agreed with the lion's share of auditors' suggestions. … Whatever promotional or marketing efforts we support [now], each has individual review and each is implemented with return on investment in mind."

Aris Melissaratos, who was DBED secretary from 2003 until January 2007, declined to comment on the audit through a spokesman with Johns Hopkins University, where Melissaratos is now senior adviser to the president for enterprise development.

In a previous interview with The Gazette, Melissaratos said that DBED should be credited with much of the economic success of the state during his tenure. He cited the creation of thousands of jobs, work on biotechnology, nanotechnology and other high-tech development, and programs to expand Maryland exports as some of the highlights under his leadership.

Poker face at DBED

The review by the General Assembly's Office of Legislative Audits found that DBED did not prepare a report about a poker tournament in October 2005, and a report on another poker tournament that same month did not adequately evaluate its effectiveness. The agency spent $32,000 to host the two tournaments as "entertainment for business prospects," auditors said.

The poker events did not involve winning money and were used to "interact with the business executives and to build good relationships with them," DBED officials said in a written response included with the audit. Expenditures included catering, equipment rental and a host to organize the games, they said.

"In FY 2005 and FY 2006, DBED company successes that came from consultants resulted in capital expenditures of $78 million and $83 million, respectively," DBED officials said. With ensuing events, DBED plans to ensure that final reports will be written within two weeks of the event.

The Maryland Film Office, a DBED unit, also spent about $122,000 from 2004 to 2007 to host four annual networking receptions at a bowling alley and bar in Hollywood, Calif., to promote Maryland's film industry. DBED did not prepare a written report on those events' effectiveness, auditors said.

The Maryland Film Office has hosted an annual marketing event in Los Angeles for more than two decades, officials said. In recent years, Thomas Rothman, a Baltimore native and co-chairman of the parent company of Twentieth Century Fox, has been its honorary host.

While last year's event resulted in discussions with a guest doing a production that Maryland film officials are scouting for, the office is not hosting such a reception this year "in light of current economic conditions," said Karen Glenn Hood, a DBED spokeswoman.

The Division of Tourism, Film, and the Arts, also under DBED, agreed that the division should prepare reports on results of events and consider canceling or rescheduling events where there is lower than expected interest, officials responded.

"However, we are not able to construct a report for this particular event in retrospect due to absence of accurate, verifiable records," they said.

DBED has gone

‘back to basics'

The department now employs a "much different investment model about reporting and tracking" such events, Tillman said.

"In the last year or so, it has been a back-to-basics approach" to strengthening key business relationships, he said. That includes a modest advertising campaign with "select publications" and participating in trade shows "that really pay off," such as the BIO International Convention in San Diego this year, Tillman said.

"It's a new day," Tillman said. "State taxpayers should know that we are looking at each operation on a case-by-case basis. We take state investment very seriously and have put in place the appropriate level of review."

Other findings

DBED disputed some auditors' findings, including one that said the agency did not adequately verify eligibility for income tax credits. But officials agreed that in one case in 2006, DBED incorrectly issued a biotechnology investment incentive tax credit for $100,000 and had notified the applicant and state comptroller about the error.

DBED is forming a review committee to oversee those applications, officials said.

Auditors also found that DBED paid about $150,000 to 12 employees the agency had entered into separation agreements with, paying them during times beyond their termination dates. DBED officials said they had stopped that practice.

Most state agencies are audited by the legislative office for fiscal compliance every three years. In 2005, DBED's last audit for fiscal compliance, auditors said that employment data reported by entities that received economic development loans, such as the number of jobs created, was not effectively verified.

DBED officials vowed then to establish new procedures to reconcile any discrepancy in employment reporting.

But this week, auditors found again that DBED's process for verifying employment data reported by loan recipients was "not effective." In response, DBED officials said they feel "strongly" that the validation process in place was sufficient and the problem stemmed more from discrepancies between the primary documentation process through reports provided and certified by loan recipients, and a secondary process involving information from the state Department of Labor, Licensing and Regulation extracted by the University of Baltimore.

"The department acknowledges that the reports provided by the University of Baltimore as a secondary source of information usually will not reconcile to employment reports provided to the department by recipients of assistance," DBED officials said. "This is due to inherent differences in the data needs between DLLR and DBED. Thedifference in the reporting needs include, among other things, DBED using a more restrictive definition of employees to be reported, more than one unemployment number for the recipient, and multiple locations for the recipient within the state covered by the same unemployment number."

But DBED agreed to have the Office of Internal Audits review employment data for some loan recipients.