Report 99025 Summary - December 1999

California Trade and Commerce Agency:

It Has Not Demonstrated Strong Leadership for the Manufacturing Technology Program, Collected Data Necessary to Measure Program Effectiveness, or Ensured Compliance With Program Requirements

RESULTS IN BRIEF

The Manufacturing Technology Program (program), a program administered by the Trade and Commerce Agency's Office of Strategic Technology (OST), provides funding to public agencies and nonprofit organizations (centers) that assist small- and medium-sized manufacturing companies within California. Before the program was established, the National Institute of Standards and Technology (NIST) funded centers through a similar federal program. Since 1996, the state and federal programs have jointly funded three centers in California.

OST has not taken a strong leadership role in overseeing this program. It has failed to develop statewide goals for the program, set reporting standards for the centers, closely monitor the centers' progress toward meeting the goals in their grant agreements, and ensure that the centers are meeting funding requirements. Although the centers are fulfilling their mission of serving small- and medium-sized manufacturers, insufficient data exists to evaluate the effectiveness of the program. Further, OST's lack of comprehensive oversight could adversely affect future funding for the centers and ultimately service delivery to the manufacturing companies the program is intended to serve.

Ensuring that California's small- and medium-sized manufacturers stay competitive is important because these companies have a strong impact on the economy: In 1996 alone, manufacturing contributed $134 billion to the gross state product and employed one in every eight workers in the State. Additionally, according to the National Research Council, small- and medium-sized manufacturers represent more than 98 percent of all manufacturing firms in the United States; however, these companies often lack the resources necessary to improve their manufacturing performance.

Even though ensuring that these manufacturers remain competitive is important, it is difficult to determine how effective the program is at this task. OST has not yet established statewide goals and performance measures for the program or gathered the information needed to evaluate program effectiveness. Although OST sets goals for the individual centers and requires them to submit quarterly progress reports, it has not given the centers a reporting format. As a result, the centers do not collect consistent data or report on consistent performance measures. Additionally, data in the reports is not documented or is inaccurate. We had similar concerns with the information in the 1999 Report to the Legislature. Thus, it is also of little use in assessing the program.

Studies claiming to show the success of the program should be viewed with caution. For example, using an economic analysis performed by NIST, OST claimed that the program was responsible for increasing the value of goods and services produced in California by $64.1 million; increasing personal income by $43.6 million; raising an additional $10 million in federal, state, and local taxes; and adding 873 jobs. We question the reliability of these numbers, however, because of our concerns over the methods used to collect the data. Other studies purporting to show program success do not specifically address California's centers, so they do not provide unequivocal evidence of the effectiveness of California's program.

Besides failing to set statewide goals and gather sufficient data to assess the program, OST has not ensured that the centers comply with state funding requirements. For example, one center overstated its share of program costs for two grant periods by more than $216,000 because it incorrectly included funds from other federal programs. OST also did not ask centers to correct reporting and performance deficiencies. Indeed, despite poor performance, one center received an increase in funding of $200,000.

As required by the Budget Act of 1999, we reviewed additional aspects of the centers' operations: whether they appropriately spent state and federal funding for travel, lobbying activities, and the amount of their administrative costs. Our review found that, in general, the centers spent public funds appropriately, although two centers did not in a few instances. One center used $1,300 in federal funds to purchase alcohol and paid more than $120,000 to a consultant over a 32-month period after its written agreement with the consultant had expired. Another paid more than $5,100 in unauthorized bonuses to external consultants. Regarding lobbying activities in which two centers were involved, we determined no current statutory limitations were violated and the centers spent no federal funds on these activities. Lastly, although the centers' administrative costs appear fairly low, a closer look at how center staff spent their time indicates that true administrative costs may be higher.

RECOMMENDATIONS

To ensure that the program meets California's needs, OST should do the following:

  • Develop a statewide strategy that identifies its role, the program goals and objectives, and specific performance measures and milestones that it can use to assess the progress of the program in meeting California's needs.

  • Develop a standard reporting format and require that the centers' quarterly and legislative reports address all performance measures.

  • Use the quarterly reports to monitor center performance and require centers to promptly address deficiencies.

  • More closely monitor the centers' compliance with program funding requirements and consider reducing grant amounts when centers do not comply.

  • Evaluate the propriety of the time centers spend on administrative tasks.
Finally, the centers should reimburse the federal government for disallowed costs.

AGENCY COMMENTS

The California Trade and Commerce Agency agrees with our recommendations and has begun taking corrective actions.

The three centers agreed with our conclusions.


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