An internal audit found that San Antonio’s Economic Development Department did not adequately monitor its funding agreement with a nonprofit business development organization with close ties to the city.
Prosper West, formerly the Westside Development Corporation, submitted incorrect quarterly reports, awarded a grant to an ineligible business, did not meet its matching fund requirements and did not return $53,500 in unspent funds to the city, according to the audit, conducted from April to August. The city auditor’s findings were forwarded to City Council on Sept. 26 via a memo.
The mission of Prosper West is to foster economic growth and business development on the city’s West Side, providing grants, guidance and other services to small businesses.
As part of its fiscal year 2023 funding agreement with Prosper West, the city provided the nonprofit with two pots of money: $100,000 in economic development incentive funds, used to provide financial assistance to small businesses, and roughly $259,000 in general funds for operations.
Brenda Hicks-Sorensen, executive director of the Economic Development Department, told City Council members during the Oct. 10 audit committee meeting that her department accepted the audit’s findings and had begun developing a comprehensive contract monitoring plan, to be overseen by a compliance team headed up by a new manager with longtime compliance expertise.
Department staff met with Prosper West President and CEO Ramiro Gonzales and its interim board chair and vice chair to review the audit’s findings. Hicks-Sorensen told the San Antonio Report on Tuesday that the department is working closely with leadership to bring the organization into compliance with the contract and make sure the remaining money is distributed to small businesses with the proper documentation.
“Brenda, no offense, but I think your department really fell down on the job with this one,” said Councilman John Courage (D9). “But I’m glad to hear there is a plan to resolve this … with better monitoring.”
Informal ‘workarounds’
Gonzales, who has headed Prosper West since 2020, confirmed the organization is working with the department staff to address the audit’s findings and said he also hopes the audit offers an opportunity to update the agreement so that it better serves both parties.
It has been difficult for Prosper West to comply with certain aspects of the city’s funding agreement, he said, in part because of delays getting the annual agreement from the city. Once that’s signed, it still takes a while for the money to flow, he said. Those delays put pressure on the organization to disperse money within the fiscal year, which ends Sept. 30. Informal “workarounds” had been the norm, he said, “for as long as I’ve been here.”
“It’s important to note that Prosper West gets an outside audit every year, and we get a clean audit every year,” he said. The findings from city’s audit are “more about the timing of how things are getting done.”
For example, he said, the audit found that in Prosper West’s fourth-quarter 2022 report to the city, it reported 15 loans and grants made to local small businesses. The audit found that in that time period, it had made only four. Gonzales said that’s because some of those loans and grants came from previous fiscal year funding allotments.
Gonzales said Prosper West is often a resource of last resort for small businesses, who need handholding to get to the point where Prosper West can issue a grant or loan. “It can take months,” he said.
Other audit findings don’t appear to be related to any time element. Auditors found that the organization didn’t keep the city’s money in a separate account as required by the agreement and that it did not supply auditors adequate documentation around the grants and loans it has dispersed.
Hicks-Sorensen told the audit committee that Prosper West appeared to have some “exceptions to their policies … that just weren’t documented accordingly.” She said the department would do a “detailed review of their policies” before a new funding agreement was created.
She also noted that the city did not grant Prosper West any additional economic incentive funds for fiscal year 2024, which began on Oct. 1, so that the department can monitor the disbursement of the remaining $53,500 from fiscal year 2023, much of which has been earmarked for businesses Prosper West is already working with.
Last year’s funding agreement expired on Sept. 30 of this year, and the department has yet to hammer out new agreement for fiscal year 2024. Hicks-Sorensen told the audit committee the department is working with the finance department, city attorney’s office and auditors “to ensure those contracts are absolutely explicit.”
She told the San Antonio Report the department’s first priority is to follow up on the audit recommendations and take those back to City Council. “Then, based on those conversations and feedback,” a new contract will be developed and taken to back to council for approval.
‘Significant conversations’
The Economic Development Department took over management of the city’s contract with the Westside Development Corporation in 2020 from the Center City Development & Operations Department; Hicks-Sorensen joined the department in 2021. She told the audit committee that before the audit the department had had “significant conversations” around contract management and compliance, duties that were “scattered around the department.”
Findings from the audit will be used to review all of the department’s annual funding agreements with business development organizations, which includes San Antonio Growth for the Eastside (SAGE) and Southside First Economic Development Council.
The broad mission of these organizations is economic development within the geographic confines of each group’s service area, all of which have historically suffered from neglect, disinvestment, high poverty and low educational attainment.
Prosper West is unique in that it was formed by the city as a local development corporation in 2006, to help spur economic revitalization through land redevelopment on the West Side, much as Brooks and Port San Antonio have done with former military base property. But the city never conveyed property to the Westside Development Corporation, and it never had the resources to acquire land.
Because it is still a local development corporation, however, the city still appoints the board, and Prosper West is not eligible for certain outside financial support because of its status as a quasi-governmental agency, or what Hicks-Sorensen called a “component unit of the city.”
In 2021, the WDC changed its name to Prosper West; the rebrand was meant to focus on the entire business and real estate ecosystem on the West Side and work as “an organization where people want to plug in and be part of that transformation,” Gonzales said at the time.
As part of that effort, Prosper West, in partnership with the DreamOn Group, is redeveloping the Basila Frocks building at 500 N. Zarzamora St. The goal is to house small and emerging businesses, as well as to create an additional revenue stream for the organization.
Gonzales said there has been some discussion around separating Prosper West from the city so that it operated more like other local business development groups. Those conversations haven’t gotten to the nuts and bolts of how that might happen.
Hicks-Sorensen said anything that helps support and strengthen organizations like Prosper West will ultimately help local small businesses. “And that’s really the city’s end customer.”
This article has been updated to reflect that the city’s funding agreement with Prosper West expired on Sept. 30 of this year. An audit report incorrectly stated the ending date.
