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An audit has found the state’s economic development agency planned to give Taiwanese electronics manufacturer Foxconn tax credits for employees who did not perform work in Wisconsin, which would have been a violation of its contract with the company and state law.

But Wisconsin Economic Development Corp. CEO Mark Hogan said in his official response in the audit document the agency is holding off on an immediate change, arguing work done by employees outside of Wisconsin should count toward tax incentives because they’re directed by Foxconn’s Wisconsin location.

The release of the audit comes amid national media reports suggesting the company had considered recruiting foreign employees for the project and undertaking a smaller initial investment, prompting critics to suggest the marquee economic development project was a bad deal for state taxpayers.

Foxconn has denied all such reports.

Gov. Scott Walker and Republican lawmakers in 2017 approved a massive tax incentive program that could provide the company with up to $2.85 billion in tax incentives over a 15-year period if it fulfills contractual obligations to create jobs and make capital investments on a massive factory currently under construction in southeastern Wisconsin that will make liquid-crystal displays.

Under the contract, Foxconn will receive $1.5 billion total from the state if it creates 10,400 jobs by 2032 and $1.35 billion if it makes at least $9 billion in capital investments.

The Legislative Audit Bureau report released Wednesday shows WEDC, which executed the contract with Foxconn, had crafted written procedures that do not comply with state statutes nor the contract between Foxconn and WEDC.

The procedures, which the WEDC board never approved, would have allowed the company to receive tax credits for employees who did not work in Wisconsin but were designated as “remote,” “working from home“ or “sales,” as long as they were paid in the zone.

Both state law and the contract require Foxconn’s employees to perform work in the state if the Taiwanese manufacturer is to receive tax incentives.

The contract does allow for the company to qualify for tax credits for employees who perform work for Foxconn but are located outside of the Racine County economic development zone, such as at its innovation centers in Racine, Eau Claire and Green Bay or its corporate headquarters in Milwaukee.

The Audit Bureau, along with the Joint Audit Committee co-chairs Sen. Robert Cowles, R-Green Bay and Rep. Samantha Kerkman, R-Salem, recommend WEDC revise its procedures for awarding jobs tax credits, submit them to its board for approval and report to a legislative committee by the end of January on its progress.

“The Legislative Audit Bureau has uncovered a discrepancy that had the potential to cost Wisconsin taxpayers money,” Cowles said in a statement.

Hogan in a statement reiterated the agency has not yet doled out any tax credits and will not plan to do so until 2019. He said that will give WEDC “ample opportunity” to consider changes to its procedures, “if necessary.”

Under state law, the Audit Bureau is required to annually evaluate for the next five years WEDC’s process for verifying tax credits and if it complies with state law and the stipulations in its contract with Foxconn.

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