Federal audit blasts Ohio manufacturing program
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A scathing federal audit accuses Ohio development officials and manufacturing nonprofits of mismanaging millions of taxpayer dollars intended to help small and midsized manufacturers.
Why it matters: The findings threaten the future of Ohio's Manufacturing Extension Partnership (MEP).
- It's a decades-old state and federal initiative whose Northeast Ohio affiliate, MAGNET, has already lost millions in funding under the Trump administration and laid off nearly half its staff earlier this year.
- A number of other MEP recipients in the state have already closed.
Driving the news: The U.S. Commerce Department's Office of Inspector General found the Ohio Department of Development (ODOD) failed to properly oversee the MEP program, allowing its six regional affiliates to spend federal money on unallowable expenses, underreport income and inflate economic impact figures.
- MAGNET contends it submitted all expenses to the state for approval and reimbursement, and shouldn't now be accused of misconduct for following the system Ohio administered.
- The ODOD, per Signal Ohio, says it has "zero tolerance for fraud, waste and abuse" and is cooperating with the audit.
By the numbers: Auditors questioned $20.9 million in costs statewide, including roughly $4.6 million attributed to MAGNET.
- The audit recommends the National Institute of Standards and Technology, which oversees the MEP program, determine which costs are actually unallowable and should be recovered.
- It recommends additional enforcement action, including the termination of future ODOD grants.
Zoom in: Among the MAGNET expenses auditors questioned were $402,000 for public relations, including more than $18,000 for ghostwritten articles, $60,000 for an event described as a headquarters groundbreaking, lobbying expenses and sponsorships, including golf fees.
- Auditors also say MAGNET failed to properly report revenue from rental income, client fees and $6.6 million in PPE sales during the pandemic, effectively profiting off of taxpayer dollars.
The intrigue: The report also identified potential conflicts involving MAGNET, including companies associated with board members receiving subsidized internships and contracts.
"Receipt of federal financial assistance is a privilege," the audit concludes.
- "This audit, as well as our prior work, demonstrates that the Ohio MEP Center failed to uphold its financial and ethical obligations, resulting in inadequate oversight and mismanagement of public funds."
The other side: MAGNET disputes the audit, saying investigators mischaracterized legitimate, state-approved expenses and applied outdated interpretations of federal rules.
- MAGNET also notes that while it accounts for roughly 22% of the questioned costs, it is mentioned far more often in the report than all five other Ohio MEP centers combined.
What they're saying: A statement from the organization said the audit's "factual errors and material omissions … create a false and unfair picture of MAGNET."
- MAGNET disputes 95% of the expenses auditors deemed unallowable, acknowledging only $219,000 in what it calls "administrative errors" — including the golf fees.
Between the lines: MAGNET says the $6.6 million in PPE revenue came from an emergency initiative requested by Gov. Mike DeWine.
- The money passed through MAGNET to more than 35 Ohio vendors producing protective equipment, and MAGNET made no profit, it says.
- It also says the supposed $60,000 "groundbreaking" was actually the 2021 launch of a regional manufacturing strategy, and it says the disputed marketing expenses were legitimate efforts, long encouraged by the state and NIST, to attract manufacturers and workers.
The last word: "We will transparently own honest administrative mistakes," the MAGNET statement says, "but MAGNET firmly believes all expenses submitted to the State of Ohio through the MEP program were valid and appropriate and we stand by them."