The News & Record
South Boston News & Record
and Mecklenburg Sun
Home   •   News   •   Sports   •   Classifieds   •   Community   •   Health   •   Entertainment   •   Obituaries   •   Opinions   •   Weather
Advertising | Contact | Register
Advanced Search


Two others injured as vehicles collide head-on in Lunenburg County

Lakefest now set Sept. 18-19

Alga tenders resignation at Central Office; Mecklenburg trustees express concerns with school plan


Preparing for the new normal





State auditor raps commission for tobacco grant oversight, policy / November 27, 2019
A 20-month investigation into the operations of the Tobacco Region Revitalization Commission by state auditors turned up no evidence of fraud or abuse but does raise concerns about conflicts of interests and questionable practices by commission staff and the director.

The TRRC, also known as the Virginia Tobacco Commission, was created in 1999 to promote economic growth and development in the tobacco regions of Southside and Southwest Virginia, using proceeds from a nationwide legal settlement with cigarette makers to spread more than a billion dollars in grants around the two regions.

In early 2018, the Office of the State Inspector General undertook a review of the tobacco commission’s operations, and earlier this month the OSIG issued a 24-page report on the results of the audit for the review of Gov. Ralph Northam.

The tobacco region includes 40 localities ranging east from Sussex and Greenville and west to Bristol and Lee County. The region footprint includes six cities: Bristol, Danville, Emporia, Galax, Martinsville and Norton. Mecklenburg is a tobacco region locality.

A report by State Inspector General Michael Westfall found that TRRC staff does not adequately monitor program results for grant and loan awards, does not have a written policy for assessing the financial viability of projects seeking money from the TRRC, relies on the grants director to perform that function instead of an independent auditor, and has failed to address four findings from an earlier audit by OSIG.

The report also takes issue with the commission’s decision-making process, characterizing it as occasionally operating outside of policy guidelines or the broader review of the 28 members who serve on the commission.

One prominent example came when TRRC Executive Director Evan Feinman provided an emergency loan of $1.5 million to the Commonwealth Center for Advanced Manufacturing (CCAM) in 2018 to alleviate a cash-flow problem that the Prince George center was experiencing. Feinman acted despite knowing that the loan request was declined by the state lending agency, Virginia Resources Authority (VRA), which also reviews loans applications for the tobacco commission.

CCAM was formed in 2011 to develop a manufacturing workforce for the Rolls-Royce jet engine factory in Prince George County. According to Feinman, the non-profit was in the midst of restructuring its board — made up of members of government, academia and industry — and struggling to make payroll in 2017.

It asked the commission for a 10-year loan. “They [the CCAM board] had taken their eye off the ball,” said Feinman.

The request was approved by TRRC in September 2017, but after a four-month review, VRA declined to underwrite the loan. Commission staff knew the lender’s position by January 2018.

Feinman, after discussing the problem with key members of the commission, authorized the disbursement of $1.5 million from the Commission’s revolving funds in May 2018. He then asked the TRRC board to retroactively approve his decision at their next meeting, which they did in September 2018.

Feinman said the circumstances required a quick decision. He called CCAM “a tremendous asset for the region,” despite being located in Prince George County, outside the footprint of the tobacco region. He explained that even if VRA ultimately approved the loan after a second review, “the funds would not have been deployed soon enough to keep CCAM afloat.”

The OSIG audit report characterized the situation thusly: “At the moment of cash-flow crisis, there existed no other actor capable of saving the organization. The Executive Director exceeded his authority — in consultation with and agreement of Commission leadership — because that was what the situation demanded.” The full commission retroactively approved the loan, which “indicates that they viewed his [Feinman’s] action as appropriate,” the report states.

OSIG did not take issue with the fact both CCAM and the Rolls-Royce factory plant lie outside the tobacco region, as defined by the Virginia General Assembly. Instead, the auditors focused on the manner in which the loan took place, and according to Kate Hourin, Communications Director for OSIG, the timing of the notice to commission members.

“After some of the funds were disbursed, TRRC management notified the commission it [the money loaned] was no longer the VRA loan the Commission had approved,” Hourin explained.

Since 2015, the tobacco commission has been authorized to lend money to qualifying entities through a fund known as TROF (Tobacco Region Opportunity Fund). The money to CCAM came from a different fund, the Virginia Tobacco Region Revolving Funds. According to the OSIG report, Feinman disbursed money before CCAM was deemed to be financially viable by commission members.

The Inspector General found no current policy that allows Feinman to approve grants or loans from the revolving fund without a prior review and approval by the Commission, and found nothing in the law or TRRC policies that allowed the Commission to bypass a financial viability assessment prior to approving any grants or loans.

Feinman said that the loan to CCAM, which was secured by a $3 million lien on their equipment and which will be repaid in five equal installments starting January 2020, met the “aims and mission of the commission.”

While the auditor called for a policy that would allow Feinman to make similar loans in the future, Feinman said such a policy would be impossible to craft because of the singular nature of the circumstances that precipitated the loan to CCAM.

OSIG, in a separate finding, took issue with how TRRC staff conducts financial viability assessments for all project requests. The auditors interpreted Virginia Code to require TRRC to hire an independent manager to analyze the creditworthiness of companies seeking grants or loans. The office further called for this information to be communicated to the commission ahead of its vote on funding requests.

Currently, TRRC Grants Manager Tim Pfohl handles the financial viability assessments.

In response to the auditor’s findings, Feinman said state law expressly allows TRRC to assign these fiscal assessments in-house to an employee such as Grants Manager Pfohl. He said the grants team, as part of their duties, objectively and dispassionately evaluates the sustainability of every project before recommending whether to fund a request.

Feinman also noted that that the grants team, led by Pfohl, “adhere to universally accepted best practices” for evaluating grants and loans and “no less than six eyes” — three separate individuals — “review every grant or loan request along a number of metrics including financial viability.”

Hourin explained the OSIG’s rationale for the critique, noting, “We recommended a position independent of the grant and loan management process, not necessarily an independent contractor. The Grants Director works with the loan and grantees over the life of each grant/loan. Someone independent of the process would better help ensure that the viability assessment is free from bias.”

Without noting any instance where fraud occurred from grantees entering into contracts with family or friends, the Inspector General suggested that the TRRC should require all grantees to identify on the application any related interests they may use on their projects.

According to Hourin, the inspector general’s office believes that advance knowledge that grantees are planning to deal with related parties “will help TRRC to monitor and carefully review any potential transactions to ensure they are reasonable and appropriate.”

Feinman said this information would do nothing to improve the ability of the TRRC staff to monitor projects for fraud and abuse, which they already do. Since payments to grantees are done on a reimbursement basis, the staff already reviews submitted invoices for excessive payments or amounts that are outside the norm. Any potential fraud is “flagged and reviewed.”

He acknowledged the commission could do a better job to make loan and grant information more accessible to the public.

“Stepping into an agency that needed work, you always see areas in need of improvement,” Feinman said.

He also sees the need for TRRC staffers to improve processes for reporting the financial viability of each project, to track the history of grant and loan requests — including those that build on previous grant awards — and to better document the findings of site visits conducted by staff at commission-funded projects.

Taking these corrective measures should, in Feinman’s view, address the outstanding findings from OSIG’s earlier audit. With the new forms, policies, procedures and computer updates, Feinman said TRCC staff will satisfy OSIG’s need to see when and how staff is monitoring project results — by conducting site visits, monitoring advances for grants and loans, and receiving proof that grantees had matching funds for grant awards.

The issue of matching funds was called out by the Inspector General because the auditors found instances where grant matching funds were not received by TRRC until the end of the grant period.

Feinman said there is no requirement that TRRC report back to OSIG regarding the report, but he was confident that the inspector general’s office would “check in” with the commission as a follow-up.

In addition to an “annual follow-up report provided to the Governor’s office and TRRC management, OSIG auditors will also follow-up and reassess prior findings next time it audits the Tobacco Commission.

Tell-a-Friend | Submit a Comment


Classified Advertising

Buy and sell items in News & Record classifieds.