The Office of State Budget and Management’s (OSBM) North Carolina Pandemic Recovery Office (NCPRO) didn’t ensure state funds were spent appropriately. That’s according to an audit released by State Auditor Beth Wood’s office.

The audit spanned the period of May 24, 2021, through June 30, 2022.

The audit concluded that NCPRO didn’t design and implement procedures to ensure that $635 million in State Fiscal Recovery Funds were spent per State Fiscal Recovery Fund legislation or that programs operated by recipients of those funds achieved legislatively intended results.

As a result, there was an increased risk that funds could have been misused without being detected and corrected promptly, and NCPRO had limited ability to know if this was occurring.

What is NCPRO?

Legislation signed by Gov. Roy Cooper in May of 2020 directed his Office of State Budget and Management to set up a temporary North Carolina Pandemic Recovery Office. The two pieces of legislation passed at that time spent almost $1.6 billion for public health and safety, educational needs, small business assistance, and state government operations. The legislation also directed the OSBM to oversee and coordinate federal COVID-19 funds.

North Carolina received $5.4 billion in financial assistance for the State Fiscal Recovery Fund as part of the American Rescue Plan Act enacted in 2021. On May 24, 2021, the General Assembly enacted Session Law (S.L.) 2021-25 which established the State Fiscal Recovery Fund, in which the federal funds would be appropriated to various entities across the state.

The State Fiscal Recovery Fund (SFRF) was established to respond to the COVID-19 public health emergency and its negative economic impacts, to respond to workers performing essential work, to provide for government services, including revenue reductions due to the pandemic, and making necessary investments in water, sewer, or broadband infrastructure.

S.L. 2021-25 required OSBM to administer the SFRF to carry out the law’s provisions and ensure the proper reporting and accounting of the SFRF.

OSBM’s NCPRO is responsible for providing technical assistance, ensuring coordination of federal funds received by state agencies and local governments, and ensuring proper reporting and accounting of all funds. 

Money distributed without goals and plan to meet them

Auditors tested all 56 (100%) monthly expense reports submitted by recipients of SFRFs to determine whether NCPRO reviewed the expense reports for inclusion of the required information for the reporting period and whether they independently verified recipient spending by comparing supporting documents (i.e., invoices, receipts, payroll records) to expenditures reported by the recipients. 

They also tested all 55 (100%) program reports submitted by the 17 recipients and 55 programs that received SFRF disbursements to determine whether the recipients and programs had an objective for what they would do with the funds, goals for how they would accomplish the objectives demonstrated how progress toward meeting their goals would be measured, and a timeline for achieving the goals. 

Auditors tested all (100%) of the project plans submitted by 55 recipients that received SFRF disbursements through June 30, 2022, and found one (2%) recipient totaling $12.6 million reported objectives for what they would do with the funds but not goals for how they would accomplish their objectives. 

Auditors found that NCPRO distributed $635 million SFRFs with limited monitoring and without ensuring recipients had a method to measure results.

Specifically, NCPRO didn’t independently verify spending as of May 2023. They also distributed the funds without ensuring that all recipients had an objective for what they would do with the funds, had goals for accomplishing the objectives, demonstrated how progress toward meeting the goal would be measured, and had a timeline for achieving the goal. 

Of the $635 million distributed, $575 million (90%) was distributed to prime recipients to be used directly by the prime recipients for specific purposes, and $61 million (10%) to prime recipients to be provided to and used by sub-recipients for specific purposes.

Some of the limited monitoring from NCPRO included reviewing required spending plans and providing guidance to prime recipients on allowable uses of the funds using Standard Operating Procedures. However, prior to February 2023, NCPRO had not independently verified prime recipient spending to ensure that it was spent in accordance with SFRF legislation. 

For prime recipients that received SFRFs to be provided to sub-recipients for specific purposes, NCPRO provided training on how to monitor the use of SFRFs by sub-recipients and required prime recipients to develop a monitoring plan for each sub-recipient to whom it provided funds to. But NCPRO did not require prime recipients to submit monitoring plans for review and approval. As of May 2023, NCPRO had not independently verified that prime recipient agencies monitored the use of SFRFs by sub-recipients. 

All of the information NCPRO used for monitoring to date was self-reported by prime recipients. NCPRO did not independently verify that prime recipient spending was accurate and spent in accordance with SFRF legislation or independently verified that prime recipient agency monitoring procedures were implemented or effective. 

Auditors say NCPRO management plans to perform audits of certain SFRF prime recipients, and as of May, they were currently in the planning stages of seven SFRF audits.

The audits include procedures to determine whether prime recipients spent funds in accordance with SFRF legislation and whether prime recipients monitored sub-recipients use of SFRFs. However, by the time these audits are completed, more than a year will have passed since recipients began receiving and expending SFRFs.

little progress sinc 2021

This isn’t the first time NCPRO was audited for the same issues. Wood’s office said a May 2021 audit produced the same results.

While NCPRO has taken additional measures to provide oversight of emergency relief funds it has the responsibility for administering since the May 2021 audit. Auditors say the results of this audit indicate that there are further opportunities for improvement in the oversight and monitoring of emergency relief funds. 

They say auditing recipient use of SFRFs after the funds have been expended instead of independently verifying on a more regular basis limits NCPRO’s ability to know whether funds were achieving legislatively intended results and take timely corrective action, if necessary,

OSBM told auditors that NCPRO management had delegated the responsibility of monitoring the use of SFRFs to the administering agencies and that they required all agencies to sign a memorandum of understanding, which included developing a monitoring plan, in order to receive the funds. Wood’s office said NCPRO management retained the responsibility for monitoring as the state’s administering agency of SFLF.

recommendations from auditor

Recommendations from auditors include that NCPRO should develop policies and procedures to ensure all recipients have objectives and goals for what they will do with the funds, measure their progress, and have a timeline for achieving their goals. 

They should also independently verify prime recipient spending and ensure that prime recipient agencies monitor the use of SFRFs timely to ensure funds are being spent in accordance with SFRF legislation. 

In addition, the General Assembly should consider including specific monitoring requirements in future legislation regarding the spending of SFRFs or other emergency relief funds.

Kristin Walker, state budget director, responded to the report saying they “take the findings of the report seriously,” and many of the strategies that have been recommended in the report have been or are in the process of being implemented. 

Auditors, however, said they needed to respond because even though OSBM agreed with the results and discussed several planned corrective actions, the audit did not verify or validate the corrective actions included in OSBM’s response, as the audit period was May 24, 2021, through June 30, 2022. 

Therefore, the audit doesn’t provide any assurance as to whether the OSBM’s statements regarding corrective actions are accurate.