Iowa film program audit cites 'questionable items,' criminal probe launched

An audit of the Iowa Department of Economic development's film tax credits has been released, with auditors saying they lacked information to conduct a thorough examination of the program, but found many “items that appear unclear, or that may be questionable to qualify under Iowa statutes.”

Also, this morning the offices of the Iowa Attorney General, Auditor and Division of Criminal Investigation, as well as the Polk County Attorney's Office, announced they are undertaking a criminal investigation related to the Iowa Film Office tax credit program.

“We are not permitted by ethical rules to discuss the possible subjects, focus or other details of the investigation,” they said in a prepared statement released shortly after an auditing firm released its report of the tax credit program. “We are working intensively on this review.”

The West Des Moines firm of Clifton Gunderson LLP found that although 22 projects have received tax credits, it found vendor receipts for just two. It also found that a custom-made database that the economic development department had created for tracking the status of projects had not been used.

The full report may be seen at: http://www.iowalifechanging.com/downloads/filmreport09.pdf

The audit is the latest development in questions raised about the film tax credits. According to IDED, the state has paid about $32 million in tax credits to 22 film projects that completed production in Iowa. Another 26 projects have signed contracts with the state and 109 projects have applied for incentives that provide a 25 percent tax credit to investors and a 25 percent tax credit to producers for projects that spend at least $100,000 in Iowa. The program was amended effective July 1 to place a $50 million yearly cap on taxpayer outlays and to require filmmakers to have at least a four-year presence in Iowa – but many applications were filed before those changes took effect.

The Film Office Tax Credit program, which was suspended by Gov. Chet Culver Sept. 18, remains suspended. Given the problems that we have encountered, and the amount of money at stake, that is imperative, according to the statement from the Attorney General's Office it was imperative that the Governor suspend the program on Sept. 18, and continue to suspend the program.

The Attorney General's Office has found the statute regarding tax credits was not implemented properly in at least several ways: investment tax credits were not calculated according to the statute; expenses were not adequately vetted and verified; projects were not justified in terms of their economic benefit to the state compared to their cost; and the definition of “investment” sometimes was improperly applied.

The auditing firm found various inconsistencies with contracts. In its report, which was made public this morning, it cited a lack of notification of the director or deputy director of contract changes.

Clifton Gunderson also noted in some cases Iowa-based companies were established so movie producers could claim certain expenditures as qualifying expenses. However, it reported, there were instances where the majority of the purchases of property and labor appeared to have originated from out-of-state sources.

In certain films, the firm reported, the pass-through expenditure exceeded 40 of the total qualifying expenditures, with some totaling more than $1 million.