NCInnovation (NCI), the state-funded venture aimed at turning university research into commercial successes, has cleared its first performance audit with no legal violations, according to a report released by the North Carolina State Auditor’s Office on March 14.
A private nonprofit created to bridge the gap between academia and industry, NCI secured a hefty $500 million from state taxpayers to back public university research with market potential, such as biotech advances and manufacturing innovations.
The audit reviewed the organization’s use of $500 million in taxpayer funds since its 2023 launch, affirming compliance with statutory requirements. The report makes clear that the audit objectives did not include determining whether private pledges were accounted for in accordance with Generally Accepted Accounting Principles (GAAP), nor determining “whether projects selected by NCI in the pilot grant program were the best projects to receive funding, scientifically and financially reasonable, or otherwise most deserving of selection.”
Overall, though, the findings confirmed NCI followed statutory requirements for documenting private funding commitments and awarding grants and that grant recipients had proper methods to measure results.
State Auditor Dave Boliek noted that NCInnovation’s board and financial reporting met requirements, calling it a “solid start” in a statement, though he urged more public detail on progress.
The report also issued recommendations for areas in which NCI should improve:
- Improve documentation – The audit recommends continued and consistent use of formal pledge agreements to ensure transparency and enforceability of private fundraising commitments.
- Enhance transparency and communication – The audit suggests better engagement with the Program Committee of the Board of Directors to keep all members, especially publicly appointed individuals, well-informed.
- Formalize policies and procedures for future grant awards to mitigate operational risks.
While NCI may have shared timely financial updates with the state, broader transparency is limited—taxpayers get summaries, not specifics. It’s a gap the report flags, recommending enhanced reporting to show what the money’s achieving.
Carolina Journal has previously reported on struggles for transparency among board of directors, with publicly appointed directors fighting to review records amid resistance by NCI executives. The board even formed a ‘special litigation committee’ to explore legal action against select directors, members of the public, and staff of the House Oversight Committee.
The report also urges NCI to pay more attention to conflict of interest awareness, consistently monitoring for and mitigating potential conflicts; ensuring financial records are maintained per GAAP; and, to be mindful of legal restrictions on lobbying expenses the organization incurred by the organization.
On conflicts of interest, the report states, “[d]uring this engagement, questions arose surrounding the selection of NCInnovation’s investment manager,” specifically related to conflicts of interest. The report further notes that Wells Fargo, the investment company ultimately selected to manage the $500 million endowment, was also a donor to the organization and a former Wells Fargo executive chaired NCI’s investment committee.
“Determining whether conflicts of interest existed regarding the selection of Wells Fargo as the investment manager were not included in this audit’s procedures and auditors did not identify any conflicts of interest, reads the report. “However, regarding the selection, the following facts came to our attention during the audit: Auditors noted that in May 2022, Wells Fargo pledged to donate $2 million to NCInnovation to be paid over five years in support of NCInnovation’s programs. Auditors confirmed that the pledge agreement did not contain any provisions, agreements, or conditions related to NCInnovation’s investment manager selection process. Additionally, auditors noted that the pledge was made more than a year before N.C.G.S. §143-72857 was enacted.”
The auditors further noted that the chair of NCI’s Investment Committee, who presided over the investment manager selection process, was a former regional president for Wells Fargo, but confirmed that he recused himself from the final vote on selecting an investment manager. The investment committee chair did, however, preside over the majority of the committee work for the selection process.
Boliek’s call for clearer updates hints at future oversight, ensuring taxpayers aren’t left guessing. Whether NCI can transform North Carolina’s economy—or just tie up much-needed funds—will be borne out over a relatively long time frame.
That time frame maybe too long for some lawmakers. While, NCI engaged in a lobbying blitzkrieg of sorts during the final weeks of 2023 budget negotiations, from which it ultimately landed the half-a-billion dollars in taxpayer funds from the state, this year it faces calls to reclaim and repurpose the taxpayer funds it received.
House Bill 154, co-sponsored by co-chairs of the House Oversight Committee, seeks to claw back the $500 million and instead commits the funds to disaster relief.