State freezes funding for economic development affiliate, promises audit

Following an explosive news report regarding a state economic development affiliate earlier this week, Gov. Mike Braun announced Thursday that funding for Elevate Ventures has been frozen and state government will conduct a forensic audit of the Indiana Economic Development Corp.

“What we’re talking about today originated in the prior administration (and) was brought to our attention,” said Braun, referencing the report from Indiana Legislative Insight. 

“I have directed the hiring of an independent forensic auditor of the IEDC and its affiliated entities. Where we have found impropriety — or even the appearance of it — we have reported it to the inspector general,” he continued. 

The story unearthed allegations of self-dealing, unreported side gigs for employed IEDC staff and questions about potential conflicts of interest impacting tens of millions of dollars in economic development deals. 

Regarding Elevate Ventures, an economic development affiliate and venture capital firm, allegations include imprecise accounting, questionable staff compensation and not returning unspent funds to the state’s general fund.

In a statement, Elevate CEO Christopher Day pushed back.

“Elevate Ventures was established 15 years ago to serve the entrepreneur and innovation ecosystem in Indiana through venture development services and venture capital investments. We will continue to operate with transparency and are eager to participate in the forensic audit as directed by the Governor to correct the record on factual inaccuracies and misrepresentations made by anonymous sources.”

Braun emphasized that the administration is not “rushing to any conclusions,” though some of the concerns stem from an executive order he signed earlier this month. Under the rule, state-affiliated nonprofits would need to disclose their funders, including the IEDC’s companion foundation. 

Previously, that entity didn’t have to publicize such information because it had an exemption from the federal government. Those “missing audited financials” have now been shared with the State Budget Committee, Braun said. 

The process for hiring a firm for an independent audit is ongoing, said Commerce Secretary David Adams, and will be paid for by IEDC funds. Once a firm is selected, Adams said the audit could take up to a year. 

“The current funds that have been designated for Elevate Ventures are now frozen. That includes a second tranche of funds from the (State Small Business Credit Initiative). We are going to place those funds on hold until further evaluation,” said Adams.

The latter fund is a federal program.

Adams also said that the IEDC’s foundation will not “expend any additional dollars at this point.” The foundation has accepted money from business in the state for years and used it to fund international trade missions. But they have declined to give specifics on donors and expenses.

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Also in question is whether other affiliates will get caught up in the probe. 

“We don’t know … that’s the intent of hiring an independent, national firm to come in and do an audit of all of this to help understand if there are issues — and there may not be issues,” said Adams. “But we thought, instead of trying to do this on a piecemeal basis, the appropriate action to take is … (to) look at everything comprehensively.”

Adams said there have been “no issues” raised from the entity’s financial audits in the past, but that “a forensic audit is a very different type of audit.”

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“This is looking beyond the financials, but is looking beyond the financials into specific transactions as well as processes.”

The IEDC was created as a public-private entity under former Gov. Mitch Daniels but became a major target for scrutiny in the last election cycle, including criticism from Braun. 

In particular, both the LEAP district in Lebanon and a SK hynix project in West Lafayette — projects worth billions of dollars that launched under the direction of former Gov. Eric Holcomb — have encountered local opposition. 

But such an audit should have “no impact” on ongoing projects, said Adams — though he acknowledged that competing states may use the audit to leverage potential bids away from Indiana.

“I do want to say that the IEDC plays a critically important role in this state. It’s a strong agency. We help Indiana businesses grow. We help attract businesses here, from entrepreneurs to large organizations,” said Adams. “We are going to bring transparency to this agency and its partners and it’s going to make us overall much stronger.”

But the agency got a 25% cut in the most recent version of the budget, which strikes funding for deal closing and other line items. Adams, however, didn’t tie those eliminated dollars to the IEDC’s performance, but rather the state’s $2.4 billion projected shortfall. 

“But we’re also looking at efficiencies and where are things that we can do to help it really be a more effective agency,” said Adams. “… we’re going to reshape the IEDC to support (regional economic development) in a very different way than we have in the past.”