RALEIGH, N.C. — A legislative watchdog agency says North Carolina needs to better monitor how hundreds of millions of dollars sent annually to nonprofit groups is spent.

The General Assembly's Program Evaluation Division also said in a report Monday the Legislature should shift from earmarking grant money and move toward a competitive process.

Nonprofit groups received $694 million from state agencies in the fiscal year ending June 2008. Division director John Turcotte says there's no streamlined process in the agencies to make sure recipients are accountable for the money.

The division also recommends up to 2 percent of grant awards be withheld to fund oversight in state government.

The Legislature approved more grant reporting requirements earlier this decade.

Last week, a state audit criticized the grant oversight of a foundation that uses money from the nationwide tobacco litigation settlement to fund economic development projects.

Golden LEAF needs more follow up to ensure its grant recipients make progress toward specified goals, the audit said. Officials also need to guarantee that political favoritism doesn't play a role in awarding grants, the audit said.