Feds may end Ohio manufacturing program after audit cites $20.9 million in misspending

A longstanding, federally funded Ohio manufacturing program that provides job training and technology support to companies could be shut down for good if federal officials follow recommendations in a new audit.

In an audit released this week, the U.S. Department of Commerce’s Office of Inspector General faulted Ohio for poor oversight of $20.9 million it received over a decade through the Manufacturing Extension Partnership.

The report identifies a mix of waste and abuse, including what it said was unauthorized spending, as well as self-dealing by board members of the six local affiliates that received the federal money, which is passed through by the state.

The report specifically faults the Ohio Department of Development’s oversight, as well as actions by local affiliates, including the Manufacturing Advocacy and Growth Network in Cleveland and Ohio State University South Centers in Piketon.

Audit recommends trying to recoup money from Ohio

The audit recommends that the U.S. National Institute of Standards and Technology, which oversees the federal partnership, consider terminating Ohio’s funding permanently and try to recoup the money.

“Receipt of federal financial assistance is a privilege. This audit, as well as our prior work, demonstrates that the Ohio MEP Center failed to uphold its financial and ethical obligations, resulting in inadequate oversight and mismanagement of public funds,” the audit says.

The new audit, which covers program spending from 2017 through 2024, contains many of the same details that were privately shared with state and federal officials last fall. Officials have been waiting for the audit to be completed since then.

The federal government responded to the audit’s preliminary findings by abruptly pausing in December the millions of dollars in MEP funding Ohio receives. This triggered complaints from elected officials, who support the affiliates as vital training centers. Also, as a result of losing money, several affiliates announced plans to close. Before it was suspended, the state’s funding was set to expire regardless at the end of next month.

In its written response to an earlier draft version of the audit report in July, NIST said it’s considering all the report’s recommendations, including whether to terminate the program. Signal Statewide has reached out to the institute for comment but it did not respond before publication.

Cleveland MAGNET disputes ‘false’ picture of local program

MAGNET CEO Ethan Karp provided a lengthy statement contesting the audit’s findings. The statement said the agency didn’t get a chance to review the report before its release, and found instances of what it said were inaccuracies that he said “create a false and unfair picture of MAGNET.”

“We are reviewing every claim and will have much more to say,” the statement said.

Mason Waldvogel, a spokesman for the Ohio Department of Development, which administers the federal money, said in a statement that the state has “zero tolerance for fraud, waste and abuse” and has been cooperating with the audit.

“(ODOD) will continue to work with NIST to address the report’s recommendations, including reviewing and, where necessary, revising financial reports to ensure they are current, accurate and complete,” Waldvogel said. “We will also continue to review and strengthen our oversight of the programs we administer, including our processes for monitoring subrecipients and verifying financial and performance information.”

Audit confirms details shared earlier with officials and reported by Signal Statewide

The final audit contains some of the same details that were previously shared with state and federal officials and reported by Signal Statewide in February.

This includes $2.3 million that Ohio’s MEP affiliates spent on what federal auditors described as unnecessary spending on events, marketing, sponsorships and similar costs. Among these charges were $62,954 that Ohio State University South Centers spent on promotional T-shirts, and nearly $100,000 that MAGNET spent on two events, a conference and a groundbreaking ceremony for a new headquarters.

But it also contains some new details, like faulting $6.6 million that MAGNET made selling personal protective equipment, often referred to as PPE, during the COVID-19 pandemic. The agency generated the sales by drawing on $1 million in COVID relief money that MEP received, the report states.

The audit said NIST, the federal agency that oversees the program, was unaware of this spending. It said MAGNET needed to report the spending as program revenue, which could have resulted in it being eligible for a smaller amount of federal money.

MAGNET said in its statement that the PPE effort came at the request of Gov. Mike DeWine. The agency received the $6.6 million from the state and private purchasers, and then paid the money directly to manufacturers producing the equipment, the statement said. It made no profit as a result, the statement said.

The audit also found the state improperly gave $9 million to Cincinnati’s TechSolve, even though the audit said the Cincinnati-area agency had failed its past performance reviews conducted by the state.

Previously released records have detailed what federal auditors viewed as self-dealing among the agencies that spent the MEP money on the state’s behalf. This included $250,000 paid to Ohio State University that helped pay Ned Hill, a retired OSU professor, to perform a manufacturing study while he also served as a board member for MAGNET. MAGNET officials previously have said the state chose the professor to perform the research and that MAGNET only played an administrative role. The final audit said it identified another $231,000 in payments to OSU involving Hill.

The final audit also contains some new alleged examples. One case is what the audit described as $45,158 paid to cover the salary of interns who worked for an unidentified “billion-dollar company with manufacturing facilities around the world” and $26,748 to pay another intern for an unidentified “publicly-traded multi-national corporation.”

The audit said executives with both companies sat on MAGNET’s board when the internship money was awarded, although it doesn’t identify them.

In another case, an official working for Polymer Ohio, a past recipient of MEP funding from the state, shared a residential address with a Polymer Ohio contractor, the report states.

“ODOD’s monitoring of its subrecipients was ineffective, allowing millions of dollars in taxpayer funds to be wasted to finance an underperforming subrecipient. At the same time, because it did not disclose significant real and potential conflicts of interest to NIST as required, board members—and potentially at least one subrecipient employee—financially benefited from their involvement with the Ohio MEP Center,” the audit says.

Manufacturing agencies around the state have cut back services

The MEP program dates back to the 1980s and is meant to boost small and medium-sized manufacturing companies.

In Ohio, the services the regional nonprofit affiliates provided include apprenticeships, operational advice and technical assistance to help bring new products to market.

But several of those affiliates have severely curtailed their operations since the federal funding was paused.

TechSolve in Cincinnati and FastLane in Dayton and the Center for Innovative Food Technology in Toledo were among the organizations that announced plans to either suspend operations or close completely.

MAGNET is still open – it even recently announced it received a $500,000 award from the Burton D. Morgan Foundation in Northeast Ohio – but has laid off roughly half its staff and sharply reduced its services.

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This story was originally published by Signal Ohio and distributed through a partnership with The Associated Press.