A new state audit has come down hard on the N.C. Rural Economic Development Center for keeping $20 million in interest from unspent funds while providing what state Auditor Beth Wood concluded was excessive pay for the organization’s top officials.
In the report (PDF), Wood said Rural Center President Billy Ray Hall “misleads the reader” five different times in his response to the audit report.
In addition, the report chided the Rural Center for failing to verify job creation and other performance measures for at least five years, and failing to enforce grant reporting requirements diligently.
Carolina Journal first raised questions about the Rural Center’s funding priorities and management in 1997. But Wednesday’s audit was the first independent state review of the center’s activities.
Wood acknowledged that the audit was hard-hitting.
“It’s hundreds of millions of our tax dollars going out and nobody’s appropriately overseeing it,” Wood said.
The report prompted Gov. Pat McCrory and House Speaker Thom Tillis to call for changes at the Rural Center. Senate President Pro Tem Phil Berger renewed his call to eliminate the center’s funding.
“Based upon the recent audit, I believe it is time for new leadership at the Rural Center in the roles of president and chairman of the board,” McCrory, a Republican, said in a statement. “At a time when rural areas of our state are suffering the most, we must ensure that we are using our limited funds by the most effective, efficient, and transparent means. These funds must be used to grow our rural economies and create jobs.”
The Rural Center’s board is chaired by Valeria Lee, who has served on the board since the center was founded in 1987. She is immediate past president of Golden LEAF, another state grantmaking agency funded with money the state receives from its share of the global settlement with tobacco companies. Golden LEAF has drawn scrutiny from lawmakers for its funding decisions.
Berger, a Rockingham County Republican, echoed calls to discontinue state funding for the center.
“Once again, Auditor Beth Wood has shone a bright light on a dark corner of waste and lack of accountability in state government,” Berger said in a statement. “This audit reinforces my belief that the Rural Center should receive no taxpayer funds in the state budget. Funding the Rural Center would send the wrong message to voters who elected Republicans to provide accountability in state government.”
Tillis, a Mecklenburg County Republican, said in a statement that the audit findings deeply troubled him.
“It is apparent to me that the time for change at the Rural Center has come,” Tillis said. “I look forward to working with Gov. McCrory and the Senate to determine the best path forward in a way that protects the interests of North Carolina taxpayers while maintaining our commitment to rural communities.”
Tillis’ spokesman Jordan Shaw noted that House and Senate leaders are negotiating their differences in the budget, and the Rural Center’s funding would be a topic of discussion.
Hall was not available for comment. Garnet Bass, communications director at the Rural Center, pointed reporters to a statement on the center’s website.
The statement, which concluded with Hall’s signature, said:
“The Rural Center is committed to being a good steward of state funds. In a report released today, the Office of the State Auditor has identified opportunities for us to strengthen the way we monitor the performance of those who receive grants, and we are currently making improvements to address those issues. We have a long history of serving the people of rural North Carolina and welcome the opportunity to improve our operations.”
Hall went on to discuss some of the findings. He said that the center follows accepted procedures on interest, and will work with the General Assembly to clarify how interest earnings should be used. He said the center is refining policies on monitoring those who receive grants. And he said the center regularly evaluates salaries with similar nonprofits and would in the future work with the Commerce Department to determine the appropriate amount of state funding to be used for executive compensation.
The report notes that Hall was paid $221,070 per year for an annual salary and car allowance during the 2012 fiscal year. “This is $96,394 (77.31 percent) more than the secretary of commerce, whose agency provided the primary funding for the Rural Center,” the report says.
Wood said that comparable salaries, particularly for an executive who doesn’t have fundraising duties, are much lower.
“It’s $70,000 out of whack,” Wood said. She suggested that $150,000 would be more in line with what executives in similar nonprofits make.
Wood said that she found the need to reply to Hall’s own response in the audit report, even though she doesn’t do that often.
“The evidence and the truth are on my side,” Wood said, adding that she vets audit findings thoroughly.
Bob Luddy, a Wake County businessman and Rural Center board member, said he’s not surprised by the audit.
“It’s not surprising because the Rural Center operates based on its own rules, not operating based on normal means of accounting, “ Luddy said.
Luddy agreed with Berger’s assertion on state funding.
“They certainly should receive no more state funds for any reason,” Luddy said. “The state should begin the process to get back any money they can from the center.”
The report recommends that the Rural Center and Department of Commerce request clarification from the General Assembly about the intended use of interest earnings from state funds.
It also says that the Rural Center should independently verify all information provided by grantees for accuracy and reliability, notify grantees when they become non compliant with grant terms, and compensate its employees at a rate that is comparable to executives in similar positions.
The audit report also said:
• The Rural Center had a balance of $241,856 in a severance pay account (presumably for Hall) as of June 30, 2012.
• The Rural Center is not required to deposit its finds with the state treasury, instead using a private bank account.
• There is an “increased risk” that more than $58.8 million in grant funds were not used for their intended purpose in 2011-12.
• The Rural Center had not verified that the number of announced jobs were created in Marion, Halifax County, and Harnett County.
• Grant recipients that had not submitted required progress reports were not notified they were out of compliance.
The Rural Center was established in an effort to address economic inequalities between rural and urban areas in North Carolina.
The mission of the center is to develop, promote, and implement sound economic strategies to improve the quality of life in rural North Carolina counties.
Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.
Editor’s note: The July print edition of Carolina Journal published a parody anticipating troubles at the Rural Center. Read it here.