I obtained a copy of the independent auditor’s report to the Iowa Department of Economic Development concerning the complete lack of management and oversight at the Iowa Film Office. It’s a doozy. For a time, Iowa had the largest tax incentive in the nation, besting even Michigan. When combined, Iowa’s incentives could put 50% of “qualified expenditures” back in the pocket of filmmakers and the film office proudly sold itself for offering “two for one film making.” It seems as though everything was considered a “qualified expenditure” even if purchased out of state and even if it was not used–in any way–in the actual production of a film! Nice.
Here are my favorite highlights in the nine-page report:
Film Office files for all projects were maintained in a disorganized fashion. Despite being engaged to review all 22 projects which revived tax credits, we found that vendor invoices and/or receipts had been received by the Film Office for only 2 of these 22 projects. We also noted the custom-made data base that IDED had developed for tracking the status of the projects had not been used.
The film office tracked just two of 22 films? Really? At least the folks at Enron pretended to do “accounting”. And then we have this…
Often, the tax certificates awarded to the investors and producers were transferred to other taxpayers. The tax credit are purchased by the taxpayer from the investors and producers at a negotiated discount. Brokers are used to find buyers for the tax credits. Fees are paid to the brokers by the investors and producers, usually structured on a contingent fee basis of 3 to 4 percent of the certificate value. In many cases, the broker’s fees were included as qualifying Iowa expenditures used to calculate the Iowa credits, even though the certificates had not yet been issued. Thus, the expenditure for broker’s fees actually occurred after the issuance of the certificate.
We identified amounts for broker’s fees included in the qualifying expenditures which exceed $100,000 for certain films. The total amount of broker’s fees included in the productions exceeded $500,000, generating in excess of $250,000 in tax credits.
I am going to call the film office tomorrow, but I read this as saying that the broker fee was discounted by the incentive program as a “qualified expenditure” (i.e. they got 25-50% of the commission back in cash for paying a full commission). Is that right?
The entire report is now available in the report library page and provided here:
2009 Iowa Dept. of Econ Development Report on Film Incentive
[...] they did know, then they really are criminals). I covered the collapse of Iowa’s incentive HERE, and the lawsuits of angry filmmakers (ironically including some Canadian interests) upset with the [...]