A recent legislative audit of the state’s Department of Arts, Culture and History — now under the purview of the West Virginia Department of Tourism — makes finding an upside a stretch, to say the least.
An optimist might say, “It could have been worse.”
Auditors found major financial and inventory problems, including funds over-encumbered by as much as $2 million, roughly $900,000 in grants that had not been properly accounted for, and years of sales-tax and cash-handling failures. They also found more than 10,000 museum items outside the official inventory system.
The Department of Tourism, which now oversees the agency, says it is tightening financial controls and rebuilding the inventory process.
Delegate Marty Gearheart, a Republican and member of the House Finance Committee, was — appropriately — in disbelief.
“If I’m a week late with my sales tax return, I get a notice,” Gearheart said. “It is beyond me to understand how 10 years of sales tax could be neglected. There’d have to be a room with notices that could fill a closet.”
Every business has basic financial statements. Among them is a profit-and-loss statement, commonly called a P&L or income statement. Those statements are typically reconciled monthly and ultimately rolled into annual financial reporting.
The P&L does exactly what its name suggests: it tells an owner whether a business is making money or losing it.
Calls to various state officials revealed another finding.
Spoiler for the optimists: it is indeed worse.
The gift shop at the Culture Center — where merchandise is sold and sales tax should be collected — does not have a P&L according to a spokesperson in the Governor’s office.
It appears any distinct accounting of profit or loss has been absent from the operation since inception. Whether the business activity of the shop is recorded as part of other financials is not clear.
Fundamentally, that means the state cannot readily say whether the shop is making money, losing money or breaking even. There is no basic financial statement available to make the kind of analysis any respectable private business would consider routine.
Who cares? It’s just a gift shop.
You should care.
Because the gift shop is indicative of a larger reality: government is often poorly suited to operate commercial ventures. Without the same incentives, discipline and accountability faced by private businesses, inefficiency can become institutionalized, and often does.
It also raises a more fundamental question: Why is the state in the gift shop business in the first place?
Clearly, turning a profit isn’t a driver if basic reporting isn’t completed. Is this the only gift shop in Charleston that sells West Virginia memorabilia? Are people beating down the doors for this merch?
The audit should prompt lawmakers and bureaucrats to a much broader question.
What other businesses is the state operating that it should not be?
Travel centers on the Turnpike? Go further than having the private sector run them, sell them completely. Put that capital into roads or other needs.
The state liquor warehouse and distribution system? Ask whether a private operator could perform that function more efficiently.
West Virginia also owns substantial commercial real estate. Is that property being managed as effectively and efficiently as comparable privately-owned real estate? Taxpayers deserve an answer.
Why not sell most of the state’s auto fleet? Rent when a vehicle is needed just as many companies do? There for a while, we didn’t know how many vehicles we owned.
History tells us the state should never have been in the logistics business. The Heartland Intermodal in Prichard proved that while sitting vacant for years.
Perhaps the former Division of Arts, Culture and History is an outlier. Perhaps every other state commercial venture is a model of efficiency and accountability.
Maybe.
But this audit provides ample reason to look.
The larger lesson should not merely be that one agency needs better bookkeeping. It should be a call for state government to examine every commercial venture, asset and service it operates and ask a simple question:
Does government truly need to be doing this? Is it readily clear and incontrovertibly documented that government is providing a service better and at less cost than the private sector could?
Where the private sector can perform the function better, more efficiently and with less taxpayer risk, the state should get out of the way.