State Auditor Les Merritt - North Carolina

RALEIGH - The state auditor is expected to send warning letters today to about 1,000 nonprofit organizations that haven't accounted for how they spent millions in state dollars.

State Auditor Les Merritt is sending the letters to the groups, which were supposed to provide their spending reports by March 31.

Merritt's letter-writing campaign and a new set of state regulations are part of an effort to get a better grasp on the flow of tax dollars to nongovernment organizations.

North Carolina awarded $580 million in grants last year to 3,000 nonprofit groups. More than 1,800 of those groups received enough state money that they are required to file financial reports or audits, but auditors won't know how it was all spent for another year.

One problem is that the state and the nonprofits operate on different calendars, leaving a jumbled array of deadlines that make it impossible to monitor the state grants for as long as 18 months after the money is spent.

A new set of regulations set to take effect in July would more clearly assign responsibilities and deadlines for nonprofits.

Auditors can assemble an analysis one day, said David Nance, an audit manager with the State Auditor's office, and "the next day it's no longer relevant, because [the information] is coming in on a constant basis."

The analysis for March 31, for example, did not cover dozens of audits that are not due until later this year.

At least some on the delinquent list likely have sent in audits or reports, but sent them to the state agency that gave them the money instead of the auditor's office.

Complicating the money-tracking process further, some of the check-writing systems in state agencies and universities, which handle most of the grant money, are unable to communicate with the state's auditing computers.

The auditor's office also has no enforcement power if a group fails to report. But legislation passed last year directs the Attorney General's Office to pursue those groups.

"There really hasn't been a good tracking system," said Merritt, a Republican elected last fall.

Republican legislators have for several years called for cuts in funding to nonprofits or at least to scrutinize them more closely.

Former State Auditor Ralph Campbell asked for authority two years ago to audit a random sampling of groups, but a bill to do that failed in the General Assembly. Such proposals have resurfaced this year, as lawmakers try to close a $1.3 billion gap between revenue and planned spending in the state budget.

"We should get a handle on any time the taxpayers' money is being spent," said Sen. Tony Rand, D-Cumberland.

Two years ago, a state audit found that then-Congressman Frank Ballance had used a nonprofit foundation that he headed to channel thousands of state dollars to his daughter, his mother, his church and his political contributors.

Ballance had previously served as a state senator and steered state funding to the foundation. He pleaded guilty in November to a federal conspiracy charge.