NC audit of federal grants flags cost, reporting concerns

North Carolina’s latest statewide audit of federal spending identified questionable costs and significant reporting failures across multiple agencies, even as auditors reported no material noncompliance for the first time in more than two decades.

The North Carolina Office of the State Auditor released its 2025 Statewide Single Audit on April 6, examining $28 billion in federal grants administered by state entities during the fiscal year ending June 30, 2025. Overall, North Carolina spent $43.9 billion in federal awards during that period, with Medicaid accounting for more than half of total expenditures.

The audit resulted in 19 findings, including 18 related to federal awards and one tied to financial statement reporting. While the absence of material noncompliance marks a notable milestone, auditors pointed to persistent weaknesses in internal controls, financial oversight, and federal reporting compliance.

“The federal government administers a massive amount of funding,” state Auditor Dave Boliek said in a statement accompanying the report. “Look no further than the $24.7 billion flowing through Medicaid. This annual audit gives us a chance to examine at a high level how federal grants are used in North Carolina and where there may be questionable expenditures.”

Boliek added that the findings will help guide future oversight efforts.

“It’s our duty at the state level to make sure any funds directed to North Carolina are used properly and responsibly,” he said. “While the single audit provides a high-level financial overview, the work done by our team and the findings and questioned costs will help steer us toward deeper dives into Medicaid and other areas of government spending.”

DHHS leads in findings, reporting failures

The North Carolina Department of Health and Human Services (DHHS) accounted for eight of the federal findings — the most of any agency reviewed in the audit.

Among the most significant issues were failures to comply with federal transparency requirements under the Federal Funding Accountability and Transparency Act (FFATA). Auditors found that DHHS did not complete required reporting for subawards issued through the Social Services Block Grant (SSBG) and Temporary Assistance for Needy Families (TANF) programs.

According to the report, none of the subawards reviewed during the audit period were reported to the federal FFATA Subaward Reporting System, as required.

Specifically, all 228 subawards to counties under the SSBG — totaling $39.4 million — were not reported. Similarly, all 171 subawards under the TANF program — totaling $99.4 million — were also not reported.

Auditors classified the issue as a “significant deficiency,” indicating a breakdown in internal controls that could affect compliance with federal requirements and transparency standards.

In separate findings, auditors also determined that DHHS failed to report additional subawards to counties totaling $138.8 million, further compounding concerns about oversight and accountability.

In response to the findings, DHHS said they’re implementing corrective actions on varying levels and schedules, according to the report.

Questioned costs and improper payments

The audit identified $342,093 in questioned costs — expenditures that may be unallowable, unsupported, or improperly documented.

One of the largest issues involved a $113,115 improper payment made by DHHS. The report indicates that the payment has since been recovered by the agency following the audit.

Other questioned costs were referred to federal oversight agencies, which will determine whether to pursue recovery of those funds.

Auditors noted that while the total amount of questioned costs is relatively small compared to overall federal spending, the findings point to broader weaknesses in internal controls and financial management practices.

Commerce cited for financial reporting errors

The audit’s sole financial statement finding involved the North Carolina Department of Commerce, where auditors identified a material weakness in internal controls over financial reporting.

According to the report, Commerce lacked adequate review procedures and oversight to ensure accurate financial statements. As a result, auditors identified significant misstatements, including approximately $873 million in overstatements and more than $260 million in understatements across various accounts.

Additional audit adjustments were required to correct errors in the state’s financial statements, including misstatements affecting cash flow reporting and net position balances.

Auditors warned that without correction, the inaccuracies could have misled users of the state’s financial reports.

Higher education institutions also flagged

The audit also identified deficiencies at several universities and community colleges, particularly in the administration of federal student aid programs.

Common issues included failures to establish adequate internal controls, errors in reporting student enrollment status, and instances in which financial aid was disbursed in excess of student eligibility.

Auditors emphasized the importance of accurate reporting in maintaining compliance with federal requirements and ensuring proper allocation of aid funds.

Oversight continues despite improved compliance

The statewide single audit serves as a key accountability tool for monitoring how federal funds are managed at the state level. Agencies identified in the report are required to implement corrective action plans, which will be evaluated in future audits.

Despite avoiding material noncompliance, North Carolina was not classified as a low-risk auditee, signaling that concerns remain about internal controls and compliance practices.

The report ultimately presents a mixed picture: while the state has improved its overall compliance standing, recurring issues in reporting, oversight, and financial management continue to raise concerns about how billions in federal dollars are administered.

As federal funding continues to play a major role in North Carolina’s budget — particularly through programs like Medicaid — auditors and policymakers say sustained attention will be necessary to ensure accountability and proper stewardship of public funds.

“NC audit of federal grants flags cost, reporting concerns” was originally published on www.carolinajournal.com.