Audit: Foundation lax in grant oversight

Raleigh, N.C. — A Rocky Mount-based foundation that uses money from cigarette companies to award economic development grants needs better oversight to ensure the grants are producing results, according to a state audit released Monday.

State auditors also scolded Golden LEAF for awarding some grants behind closed doors and for limiting access to its records.

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Golden LEAF defends its operations

The General Assembly created Golden LEAF, or Long-term Economic Advancement Foundation, a decade ago to handle part of the money the state receives every year under the nationwide legal settlement with cigarette manufacturers. The foundation has awarded more than $325 million in grants, which are supposed to boost the economies of rural areas that have traditionally relied on tobacco money.

Recent projects include laptop computers for Edgecombe County students and a $100 million grant to help bring an aircraft manufacturing plant to the struggling Global TransPark in Kinston.

The foundation doesn't independently verify information contained in periodic reports submitted by grant recipients, cannot determine whether some positive results are directly linked to grant awards and doesn't check on the financial condition of the organizations receiving grant money, according to the audit.

"They don't have any rhyme or reason. They don't look at areas of risk where there might be some misappropriation of funds," State Auditor Beth Wood said. "(This is) typical for what we find in a lot of state agencies."

Golden LEAF officials responded that foundation staff members make site visits to check on some grant recipients, often withhold grant money until specific requirements are met and require all recipients to undergo a training session on grant management before money is released. Yet, officials agreed that tighter rules would be beneficial.

"We're dedicated to accountability and transparency," foundation President Dan Gerlach said. "We have some areas to improve upon. We'll do that, and we'll move on."

The audit also questioned the potential for conflicts of interest or political influence in investments and raised concerns over the amount of risk involved in some investments of state money. Foundation officials said influence has never played a role in investment decisions and said they try to achieve top returns on investments to make grants without eating into the endowment created by the annual payments from cigarette makers.

"The foundation's investment goals are different than those for state funds," Golden LEAF wrote in its response to the audit. "The foundation's asset allocation and investment practices are similar to those used by other foundations with similar investment objectives."

The State Auditor's Office also criticized Golden LEAF for not providing its investigators timely access to records and for violating the state open meetings law by approving $15 million in grants in a closed session of the foundation board. Foundation officials said there has been only one instance where grants weren't approved in open session, and they apologized for not having documents readily accessible.

"We've clarified that for people, and we won't make that mistake again. But that was one time out of 429 (board meetings)," Gerlach said of violating the open meetings law.

"The fact that there was even one meeting where they didn't comply with the law is important," Wood said.