Our Opinion: Due diligence reinforced in Mamtek audit
Thursday, September 27, 2012
Missouri’s experience with the manufacturer Mamtek illustrates the proverb: “Fool me once, shame on you; fool me twice, shame on me.”
State Auditor Tom Schweich released an audit Tuesday that faulted a state agency, a municipality and private entities for insufficient due diligence before awarding state tax incentives to a proposed manufacturer.
Amid an economic downturn, state and local governments obviously are eager to lure economic development projects.
Such was the case when Mamtek proposed building an artificial sweetener facility that would employ 600 people in Moberly.
The Department of Economic Development approved state tax credits and Moberly issued $39 million in bonds as incentives for the project.
The project, however, never reached fruition.
The state, thankfully, did not lose any of the $17 million in incentives it offered, which may be the basis for the state’s economic development agency’s response to the audit that it “performed substantial due diligence to the Mamtek project.”
Substantial? Perhaps, but substantial obviously was not enough to prevent damage and repercussions.
So far, they include: The auditor’s findings echo similar criticism from a state legislative panel; Moberly’s credit rating has been downgraded; Missouri’s attorney general has filed theft and fraud charges against Mamtek’s CEO; the federal Securities and Exchange Commission filed a civil lawsuit seeking financial penalties against the CEO; and an auction of Mamtek’s assets — such as they are — is scheduled in October.
The defensive response from the department is cavalier and inconsistent with improvements it has made in the due diligence process since the Mamtek debacle.
The enhanced procedures regarding state incentives were commended by Schweich in the audit as “significant improvements.” The auditor tempered his praise, however, by contending the process can be strengthened further.
The Mamtek episode reinforces three points:
• State and local governments must look, cautiously, before leaping at business proposals.
• Missouri continually must examine how it can tighten due diligence procedures.
• Reform of state tax credits and incentives — on the legislative table for years — is ripe for action.
Missouri and its municipalities must not get fooled again.
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