Governor Andrew Cuomo last week announced a new “Innovation Venture Capital Fund” to invest up to $50 million in public funds into start-up companies. Meanwhile, an existing state venture fund, known as Innovate NY, is the subject of a federal audit focused on a firm whose managing director served on Cuomo’s 2010 gubernatorial transition team and on a regional economic development council.

The Treasury Department audit of Innovate NY, reported by Newsday but so far ignored by other news media, highlights the pitfalls of using taxpayer funds to underwrite speculative investments in private firms. It also raises questions about financial controls and oversight at Cuomo’s Empire State Development Corp. (ESDC).

Innovate NY was established by state law in early 2011 to disburse $45 million—$35 million in federal stimulus funds and $10 million put up by Goldman Sachs—to venture capital (VC) firms in New York. Though supposedly geared to “technology companies and other high growth firms throughout New York State,” Innovate NY investments have included $846,000 for an artisanal luxury furniture dealer and $1.2 million for a company that delivers meal ingredients.

According to Newsday, the federal Treasury Department is auditing an Innovate NY investment by Canrock Ventures, one of seven private VC firms selected in 2012 to disburse the funds. The managing partner of the Jericho-based fund, Mark Fasciano, served on Governor Cuomo’s 2010 post-election transition team and was also one of the original members of the Long Island Regional Economic Development Council, though his name has since disappeared from the council’s website. (Here is a video of Cuomo visiting the Canrock offices during his 2010 campaign.)

The Treasury Department reportedly is reviewing Canrock’s placement of in Innovate NY funds into startups in which Canrock partners had a financial interest.

A concerned shareholder in one of Canrock’s holdings, William Mich of Smithtown, first wrote to ESDC over a year ago about ties between Canrock and one of the startup firms. In November 2013, ESDC President Kenneth Adams told Mich that “Canrock is in compliance with the program’s requirements.” After Mich took his concerns to Gov. Cuomo in a subsequent letter, ESDC agreed to investigate further. While ESDC has not disclosed its findings, the agency announced in September 2014 that it was suspending Innovate NY investments on Long Island in response to the federal review.

Questionable decisions and oversight aside, why does the state government even bother to get involved in such investments? New York is hardly known as having a dearth of venture capital: according to data collected by the National Venture Capital Association, nearly $2.8 billion in VC was invested in Empire State companies in 2013–the third-highest amount of any state.

The combined total of $45 million in Innovate NY investments and $50 million for the just-announced Innovation Venture Capital Fund is a mere drop in the bucket by comparison with the amounts invested by VC firms using private money. Why should New York’s taxpayers take such risks–even assuming the state exercised better judgment and had better financial controls?