State audit criticizes Golden LEAF

N.C. State Auditor Beth Wood says the Rocky Mount-based foundation charged with managing half the state’s tobacco settlement needs stricter oversight to ensure economic development grants aren’t being squandered.

In a 23-page performance audit released Monday, Wood also criticized the Golden LEAF Foundation for approving a grant in closed session and for limiting access to public records. The audit ultimately recommends state lawmakers hold the foundation to the same ethics law meant to safeguard other state funds from potential conflicts of interest, political influence and other investment risks.

Golden LEAF officials refuted some of the audit’s findings, arguing that the foundation pays a third-party auditor to track its grant monitoring process and that foundation staff make numerous site visits and phone calls each year to keep an eye on grantees.

The unfavorable audit comes as the foundation prepares to celebrate its 10-year anniversary. The N.C. General Assembly created Golden LEAF in October 1999 to manage half of North Carolina’s share of the federal settlement with cigarette companies — about $70 million a year. The foundation since then has awarded more than $393 million in grants, which are intended to boost economies in rural communities traditionally dependent on the tobacco industry.

However, Golden LEAF has not done enough to monitor grantee financial conditions or to verify grantee-submitted data, the audit concluded. The foundation also “does not conduct analyses to determine if program results are the direct result of grantee actions,” according to the audit, which was initiated last year under former N.C. State Auditor Les Merritt and completed under Wood’s supervision.

“Golden LEAF could waste state funds by failing to timely identify funded programs that are not achieving desired results,” the audit report states.

Per its founding charter, Golden LEAF is not subject to the state ethics law designed to ensure investment decisions involving state funds are free from political influence, which is a problem, Wood said. State auditors cited a few examples of potential political conflicts in past Golden LEAF investments.

“Subjecting Golden LEAF to the State Government Ethics Act would contribute to the integrity of the investment transactions, as well as provide an actionable basis for state authorities to evaluate Golden LEAF use of state funds,” the audit report states.

The audit also scolds the foundation for approving a $15 million grant behind closed doors in April 2005 and for deficiencies in keeping record of board minutes.

Golden LEAF officials, in a written response, acknowledged the foundation violated state law in approving a grant in closed session and agreed that the minutes for some meetings were not provided upon initial request. Foundation officials said most of the issues were with documents from meetings held more than four years ago and that the organization has already taken steps to correct the problem.

Furthermore, foundation officials wrote, the audit was launched during its busiest time of year when more than 250 grant applications were on the slate. The review of the investment files, officials added, came in the midst of the “greatest financial upheaval since the Great Depression” and as Golden LEAF President Dan Gerlach was preparing to take over the foundation. Those factors contributed to the delay in public records access, foundation officials said.

The Golden LEAF Foundation has pledged more than $3.8 million to projects in Nash County since 1999 for education, job training, public infrastructure and economic development. The foundation, which targets grants to spur development in poor and rural counties hard hit by the decline of tobacco, has spent a similar amount in Edgecombe County.