RALEIGH, N.C. — The state auditor calls a report released Tuesday the most damaging ever to come out of his office.
Investigators believe one of North Carolina's largest agencies misspent more than $400 million in taxpayer money.
Hundreds of millions in Medicaid money rolls into North Carolina hospitals to compensate for patients who cannot pay through the the Disproportionate Share Hospital program, or DSH.
State Auditor Ralph Campbell believes it needs emergency attention.
"This was clearly a scheme" Campbell said.
A 21-page state audit released Tuesday slams the state Department of Health and Human Services (DHHS) for failing to properly track billions of dollars in the program.
Auditors say millions went to ineligible hospitals, like Durham Regional.
Investigators found conflicts of interest because the state agency allowed Carolinas Medical Center in Mecklenburg County and a few other hospitals to control where the federal money goes.
"We're talking about allowing the vendor to essentially operate a program from which it benefits," Deputy Auditor Wesley Ray said.
The audit shows Carolinas Medical Center received 18 percent of the DSH money. The medical center and five other hospitals that have a legal relationship enjoyed nearly half of the funds.
Campbell says DHHS should be held accountable from the top down.
"Of real concern to us was an attitude that obviously existed in the division for several years that it could do whatever it wanted regardless of federal rules and regulations," Campbell said.
The department is already firing back with its own criticism. DHHS maintains the current administration inherited the mess and started working to fix the management issues before the audit started.
"There were clearly very substantial problems that date back to at least 1996," DHHS spokeswoman Debbie Crane said. "It would have been nice if the Auditor's Office had discovered this years ago. I understand he said this is something unusual that he has seen in his years. The same auditor for 10 years has been auditing this program and never found a problem -- only found the problem after first, we found it, and secondly, the news media publicized it."
Campbell's office runs random yearly audits on every state agency, but did not delve into this program until last year.
"We do not uncover every scheme in every finding in every audit," Campbell said.
The DHHS is currently in negotiations in hopes that hospitals will not have to pay back the millions in misspent money.
Campbell says he has turned over his department's findings to the U.S. attorney and the State Bureau of Investigation.
DHHS Secretary Carmen Hooker Odom was appointed by Gov. Mike Easley in 2001. Easley's office released a statement saying the governor has full confidence in the secretary.
The Medicaid program in question was in place before Odom took office, but this is not her first dealing with Carolinas Medical Center.
She worked for Carolinas in the late 1990s as vice president for government relations. Her husband, former legislator Fountain Odom, serves on Carolinas board of directors.