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Preliminary Report Joint Legislative Audit & Review Committee December 1, 2011

Microenterprise Development Program Meets Statutory Objectives But Department of Commerce Oversight is Inadequate. Preliminary Report Joint Legislative Audit & Review Committee December 1, 2011 Fara Daun, JLARC Staff. Presentation Focuses on 3 Things.

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Preliminary Report Joint Legislative Audit & Review Committee December 1, 2011

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  1. Microenterprise Development Program Meets Statutory Objectives But Department of Commerce Oversight is Inadequate Preliminary Report Joint Legislative Audit & Review Committee December 1, 2011 Fara Daun, JLARC Staff

  2. Presentation Focuses on 3 Things • What the state program is and how it works • How the program is addressing 3 areas the Legislature was interested in • Creating microenterprises (jobs) • Improving microenterprise access to capital • Leveraging state funds • Conclusions and Recommendations Microenterprise Development

  3. What is a Microenterprise? Three Characteristics 1 2 3 Employs 1–5 people, including owner Requires no more than $35K–$50K in start-up capital Lacks access toconventionalforms of financing In 2009, employed 598K people in WA • Including 389K self-employed persons Employ people in a broad range of industries from manufacturing to farming Report Page 1 Microenterprise Development

  4. What is a Microenterprise Development Organization? MDOs Provide Business Development Services and Loans Training Technical Assistance Technology Financial Literacy • Credit Counseling • Lending & Loan Packaging • TaxPreparation • Mentoring • Networking Report Page 4 Microenterprise Development

  5. Commerce Contracts with WSMA to Provide State Program • Commerce contracts with the Washington State Microenterprise Association (WSMA) as its agent to provide business development services and administer grants to MDOs • Commerce is required to: • Provide organizational support to WSMA • Administer the contract with WSMA Report Page 5 Microenterprise Development

  6. How Does Washington’s State Program Work? Assist Receive Services • Assists MDOs Microenterprises From MDOs • Provides business development services to MDOs • Provides grants for: • Capacity building • Technology • Training & technical assistance • Provide business development services to entrepreneurs • Provide financial services, including some loans • Access non-state funds for microenterprise • Establish and operate businesses • May take out microloans Report Page 3 Microenterprise Development

  7. JLARC Interviewed 12 MDOs that Received Grants & Services • Community Capital Development • Jump Start Fund (Diocese of Olympia) • Washington CASH • Spokane Neighborhood Economic Development Association (SNEDA) • SNAP Financial Access Metropolitan Development Council BURST (Children’s Home Society) Seattle Spokane Renton Moses Lake Tacoma Opportunity Industrialization Center Olympia Enterprise for Equity Yakima Richland Longview Lower Columbia Community Action Program Rural Community Development Resources Benton Franklin Council of Governments Report Page 6 Microenterprise Development

  8. Entrepreneurs Who Received Assistance Operate Businesses Nine MDOs provided 476 records of those that received assistance related to state grants issued between May 2008 and May 2011. Information Not Available 111 Closed 62 Had a Unified Business Identifier (UBI) 365 303 Open as ofAugust 2011 Source: JLARC analysis of WSMA contract and grant files. Report Page 10 Microenterprise Development

  9. Additional Business Activity Indicators in 365 Microenterprises • MDOs assist ongoing businesses: • 135 of the businesses opened before they received grant related assistance • 17 entrepreneurs have more than one business • 139 Businesses had Taxable Revenue in Fiscal Year 2010 • 74 businesses opened in 2010 and 2011—late for 2010 taxes Report Page 10 Microenterprise Development

  10. WSMA & MDOs Bring Capital to Microenterprise Development Matching Funds Achieved by WSMA Matching Funds to State Grants Achieved by MDOs State funds to WSMA FY 2008-11 State funds to grants for MDOs FY 2008-11 Total non-statematch: $236,513 Total non-statematch: $216,462 20% additional match 61% additional match $484,787 25% match required by state law 25% match required by state law $95,265 $167,423 $276,358 $121,197 $69,090 Source: JLARC analysis of WSMA contract and grant files. Report Page 9 Microenterprise Development

  11. MDOs Also Leveraged Non-State Funds • Leveraging is using one source of resources, including grants, to obtain other resources • MDOs reported leveraging an ADDITIONAL $866,000 in non-state funds • Two Typical Examples: • MDO used the experience they gained under their grant with WSMA to compete for and obtain a later $73,000 grant • One MDO leveraged WSMA grants and training to obtain a $220,000 federal grant, half of which will be used to fund microloans Report Page 10 Microenterprise Development

  12. Conclusions about WSMA • JLARC’s independent review indicates: • WSMA assists MDOs to help entrepreneurs establish and maintain microenterprises • WSMA has fulfilled its contractual obligations and its actions are consistent with the purposes of the state program Report Pages 11-12 Microenterprise Development

  13. Commerce is Not Providing Required Organizational Support Statute requires Commerce to provide WSMA with “organizational support.” Does Commerce have any program staff or management assigned to this program or otherwise engaged with this program? Not since 2010 Does Commerce provide technical assistance to this program? Not since 2010 Can WSMA staff readily reach Commerce staff with authority to answer questions? No Does the Commerce website link users interested in microenterprise to this program? Unable to find program on website Report Page 11 Microenterprise Development

  14. Commerce is Not Providing Required Organizational Support Recommendation #1 The Department of Commerce should comply with the statute and provide organizational support to the Washington State Microenterprise Association. Report Page 11 Microenterprise Development

  15. Commerce Has Inadequate Reporting & Verification Processes Are performance measures clear and defined? No Are there minimum performance thresholds for compliance? No Are progress reports required? Yes Is required documentation adequate to support progress statements made in progress report? No Report Page 12 Microenterprise Development

  16. Commerce Has Inadequate Reporting & Verification Processes Recommendation #2 The Department of Commerce should develop measurable performance targets for its contract with WSMA and should establish a process to verify that the WSMA has met the requirements of the contract. Report Page 12 Microenterprise Development

  17. Next Steps • Proposed Final Report in January 2012 • Contact Information: Fara Daun360-786-5174f.daun@leg.wa.gov Microenterprise Development

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