Bad Compliance: Where Incentive Deals Go To Die

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Working in the field of site selection and incentives can be exciting. Big announcements, meeting important elected officials, and attending celebratory dinners are all in a day's work.

Then there is incentives compliance, which is probably considered the opposite of exciting. Compliance? You know, the piles of paperwork that must be completed at least annually to ensure that the state and local economic incentives everyone was celebrating at the groundbreaking are actually realized by the employer.

Boring, right? But SO important.

This topic is fresh in my mind as our team just completed more than 300 abatement compliance filings in time for Indiana’s May 15 filing deadline. Like many states, Indiana has a very rigid and unforgiving law: If this filing is late by even one day, the entire abatement can be denied. No questions asked. Given that the value of a single abatement can be worth hundreds of thousands of dollars, complying with these deadlines is critically important.

Studies estimate only 25 percent of all incentives are fully realized. When I served as an economic development director for a local Indiana community, I saw this firsthand. The amount of money companies left on the table due to non-compliance was staggering.

After my stint in the public sector, I entered the private sector knowing strong compliance services had to be at the cornerstone of what I did. So for more than a decade I built a national site selection practice at a commercial real estate firm, and I took pride in the quality of compliance services we provided to our clients. Often, the commercial real estate brokers I worked with would scratch their heads and ask me why I spent so much time in the compliance weeds, especially when a lot of my competitors ignored that part of the work. Somewhat smugly I would explain the importance of these efforts, content in the knowledge that my clients were getting superior service.

Then I joined an accounting firm. And my prior compliance efforts were put to shame. Our team – comprised of CPAs, tax attorneys, MBAs, and even an economist – not only makes sure the right forms get to the right places on time (essentially what my prior efforts covered), they consistently identify client reporting errors that result in tens of thousands of dollars our clients would otherwise lose.

And it’s not just client reporting errors that are an issue. Government processing errors are to blame as well. For example, earlier this year our team had the opportunity to teach a new gubernatorial administration in a western state how their incentive program was supposed to be implemented. The initial interpretation was wrong, and it would have cost our client $3.5 million. That’s no small number.

In most cases, compliance errors such as these result in lost savings that can’t be fixed. In other cases, errors can result in a lost year of benefits or even the termination of incentives altogether.

Back to the statistic I mentioned: Only 25 percent of incentives awarded to a project are actually received by companies. Due to a thorough compliance strategy and long-term partnerships with our clients, more than 97 percent of the performance-based incentives our clients qualified for last year were received. This serves to prove that it pays to have an effective compliance strategy in place. Without one, you will almost certainly be short-changed.

Katie Culp is president of KSM Location Advisors in Indianapolis.

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