Audit Rips Tall Ships Planners

The tall ships festival at Beaufort last summer ran up steep financial losses and was marked by poor oversight from the state and others, according to a blistering state audit released Monday.

Visitors who stood in long lines in sweltering heat to see a few ships complained about the festival at the time. More than 4,400 people sought refunds.

But the audit found unreasonable and unnecessary spending led to a $2 million shortfall for an event that was supposed to raise millions for the N.C. Maritime Museum. Some of that loss has been picked up by the state, records show.

Auditors also found trouble with a related land deal in Carteret County involving the state and the nonprofit Friends of the Museum, a foundation that staged the festival and was created to support the maritime museum.

The audit points out violations of state regulations and the skirting of laws by state agencies on the land purchase.

State Auditor Les Merritt, a Republican whose office conducted the review, suggested the state did not get the best deal on the land, which is costing taxpayers $8.9 million to acquire.

Merritt said in a statement the state "missed the opportunity" to buy the property at a lower price.

In 1997, the state reached a deal to pay much less -- and provided nearly $3.5 million that Friends of the Museum used to buy 36 acres of waterfront land.

But the land wasn't transferred from the Friends of the Museum to the state then, and it apparently fell through the cracks amid years of ongoing talks.

The audit said there should have been a signed agreement in place to consummate the deal. The State Property Office failed to follow through, the audit says.

The audit also says rules were broken because the Friends of the Museum -- which is not a state agency -- had received state money from a heritage trust fund to buy the land. That money should have gone only to state agencies, the audit says.

In the meantime, the Friends of the Museum ran up $5 million in spending and borrowing related to the land over several years, in large part getting ready for last year's festival, the audit shows. The costs included improvements on such things as a boardwalk, dredging and putting up a gazebo.

Merritt said it's an "open question as to whether the taxpayers will actually reap the full benefit" of the improvements, which he noted were made without state input or control.

Those improvements had been made possible when the Friends of the Museum borrowed millions from a bank, using the land as collateral.

Money raised from the tall ships festival was going to help pay that debt off, records show. The Friends estimated profits of up to $4 million, according to the audit. But the festival's widespread problems made that impossible.

The state eventually acquired the property amid controversy last year.

But it happened as contractors lined up to get paid for their work, the audit shows. Some contractors placed liens against the property in an effort to get paid.

The audit shows that the Friends of the Museum, faced with the mounting debt, looked to the state to take the property and the debt attached to it.

Top state officials, led by Democratic Gov. Mike Easley, agreed in October to accept the property as a gift and take on its debts.

Easley said the property was worth $36 million and it was a good deal to take on debts of almost $5 million.

The audit disputes the governor. It said the property is valued at about $20 million.

The audit shows that the 10-member Council of State was not told about all of the outstanding liens prior to approving taking the property. State property officials said it was an oversight.

The audit says that since January, the state has paid $4.9 million for "extinguishing of debt related to property improvements and [the] Tall Ships event." Another $434,000 went to contractors who had not been paid by the Friends of the Museum for their work.

The audit outlines numerous problems over why the festival failed to meet its goals. The audit labeled some expenses as "questionable." They include:

* $26,000 for food costs at meetings as the event was being planned. Some meals were bought for entire committees of up to 40 people.

* The event coordinator signed checks to himself totaling $21,000, though a board member co-signed on all but one.

* Nearly $750,000 on media and public relations costs, including three entities that had no signed contracts.

In all, seven contractors -- entities that provided chairs and equipment, food, advertising and event leadership -- did not have contracts. The absence of contracts allowed costs to escalate and prevented control, the audit says.

In a written response, the Friends of the Museum said the audit paints a "generally accurate" picture of the event.

"The event fell short of expectations in several ways, though it was far from a total flop," wrote president Eddy Myers and executive director Brenton Creelman. "Thousands of visitors enjoyed themselves despite the heat and disappointing turnout of ships."

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