The North Carolina Department of Health and Human Services (NCDHHS) generated $386 million in tax dollars for jobs that were never filled for Fiscal Year 2024-25, according to the first report from the North Carolina Office of the State Auditor’s (NCOSA) Division of Accountability, Value, and Efficiency (DAVE).
DAVE, which was signed into law in August, requires each state agency to report to the DAVE on how the agency spends taxpayer funds and instructs NCOSA to put together a report by the end of the year on which state agencies and jobs can be cut.
NCOSA conducted the analysis using Office of State Budget and Management (OSBM) reports, North Carolina Financial System (NCFS) data, and vacancy and lapsed salary data self-reported by NCDHHS.
The budgeted or lapsed salary funds can still be received by a state agency for associated salaries and benefits for vacant positions and used for other expenditures until a position is filled.
According to a press release from NCOSA, OSBM reported that NCDHHS generated the $386 million in lapsed salaries, with $151 million coming from state appropriations and $235 million from receipts and federal funding, which represented 30.6% of all lapsed salary funds in North Carolina for fiscal year 2024-25 and was the most of any state agency.
Auditors also said that from September 2025 through June 2026, NCDHHS could generate as much as $210 million in lapsed salary funds, with September alone being conservatively estimated at $23.3 million.
In addition, the agency never advertised or posted 340 positions from August 2024 to August 2025, resulting in $16.5 million in lapsed salary funds, with $4.9 million from state appropriations and $11.6 million from receipts.
The report noted that the amount is coincidentally similar to DHHS’s recent $13 million request for Medicaid technology upgrades.
The release stated that NCDHHS is statutorily mandated to report the detailed uses of lapsed salaries annually to the Joint Legislative Oversight Committee on Health and Human Services and the Fiscal Research Division by Nov. 1, and has been routinely late in publishing them, averaging 296 days late since 2017.
BOLIEK: “Bureaucracy is being placed ahead of the needs of North Carolinians”
“When a state agency is generating hundreds of millions of tax dollars from job openings it fails to fill, and then voluntarily enacts cuts to health care services, bureaucracy is being placed ahead of the needs of North Carolinians,” State Auditor Dave Boliek said in the press release. “Lapsed salary funds are not meant to be a permanent supplement to agency budgets. Taxpayers in North Carolina expect state agencies to provide services to the people, not let job openings stay vacant so budgets can be buoyed.”
NCDHHS officials and Democratic Gov. Josh Stein have been calling on the General Assembly to return to Raleigh to fund the Medicaid rebase, with the governor requesting they convene a special session that would have taken place on Nov. 17.
Senate Leader Phil Berger, R-Rockingham; and House Speaker Destin Hall, R-Caldwell, issued a joint statement saying that Stein’s demand was unconstitutional and unnecessary.
Legislators noted that when they allocated an additional $600 million to address the Medicaid rebase, NCDHHS “decided to use $100 million of that to cover administrative costs, not services.” They also cited public comments from the DHHS secretary acknowledging that Medicaid funding was sufficient “for Medicaid to operate uninterrupted until April 2026.”
NCDHHS indicated there would be a $319 million shortfall after covering the program’s administrative requirements and has instituted cost-cutting measures, including a 3% reduction in provider reimbursement rates across all providers, and an 8-10% reduction to select Medicaid services.
NCOSA states that it does not express that the lapsed salary figures can be directly diverted to cover the Medicaid funding gap, because it is likely that NCDHHS has already expended or encumbered these funds for future expenses.
Auditors say that NCDHHS provided no contradictory data to the figures presented and states that it relies heavily on lapsed salary funds to ensure continuity of operations by covering needs that are not otherwise funded through recurring appropriations. The agency reported to NCOSA that it uses lapsed salary funds for overtime and temporary workers to cover understaffing, state-mandated salary, retirement, and medical cost increases, as well as equipment.
NCDHHS responds, saying the report contains “misleading associations & ommissions of context”
In an emailed statement to Carolina Journal, a spokesperson for NCDHHS hit back, saying the report contains “misleading associations and omissions of context.”
“Important statutory and operational realities are ignored, including NCDHHS’s compliance with vacancy and spending restrictions,” the spokesperson said. “Additionally, OSA did not consult with NCDHHS staff through a formal audit process under generally accepted government auditing standards or incorporate publicly available information already shared with the General Assembly regarding NCDHHS lapsed salaries.”
The statement also said that the report inaccurately conflates NCDHHS’s lapsed salary with the Medicaid rebase shortfall.
“The Medicaid rebase shortfall is a result of the North Carolina General Assembly not fully funding DHHS’s forecasted cost to deliver Medicaid services,” the spokesperson said. “In its analysis of DHHS lapsed salaries, OSA also omits pertinent information about how lapsed salary works and the inherent restrictions on its use. The report also cites a $386 million lapsed salary estimate for SFY 2024-25 without disclosing the methodology or data sources used to calculate it.”
NCDHHS also told CJ in the email that its questions and feedback that were submitted were not all addressed or incorporated, and NCDHHS was specifically told a response was not necessary, as is standard for state audits.
Two of the questions included:
- Were the reasons for NCDHHS not posting certain positions considered, including that some positions were not posted because they were being abolished?
- Could OSA share how the $386 million lapsed salary figure for SFY 2024–25 was calculated? This figure is higher than our current estimates.
“This lack of verification reflects insufficient due diligence and undermines confidence in the report’s utility,” the statement said.
Editor’s Note: This story has been updated to reflect an extended response from NCDHHS