By Donald Bryson
Carolina Journal
On March 13, the North Carolina Office of the State Auditor released its performance audit of NCInnovation (NCI), a state-backed private nonprofit created to help commercialize research from North Carolina universities. The organization manages a $500 million taxpayer-funded endowment, and its investment income is used to fund grants that help commercialize university research and attract private-sector investment. Just four days later, on March 17, NCI issued a press release claiming the audit proved its “full compliance” and unqualified success.
I have previously written critically about NCI’s lack of transparency and its inappropriate use of taxpayer funds, and this audit only reinforces those concerns. While NCI met statutory requirements, it exhibited serious gaps in transparency, board communication, and investment oversight. A closer look reveals that the audit’s conclusions are far less celebratory than NCI would like the public to believe.
Misleading claims of “full compliance”
In its response to the audit, NCI’s most misleading assertion is that the audit found the group in “full compliance.” While the audit confirms that NCI followed state law in key areas, it explicitly warns that the organization must strengthen oversight practices, improve transparency in board reporting, and formalize private fundraising documentation. The claim of “full compliance” obscures these serious concerns, turning the press release into a marketing effort rather than an honest assessment.
Put simply, NCI met the bare legal minimum but failed the higher standard of full transparency and public trust.
A lack of transparency in grant selection
NCI also claims that the audit reaffirmed its commitment to transparency. In reality, the report found serious flaws in how its first (and only) round of grants were awarded. Some of the highest-scored projects were never presented to the board of directors before final approval.
This raises legitimate concerns about whether the selection process was truly competitive and objective. If NCI wants to build public trust, it must commit to greater transparency in distributing taxpayer dollars — not merely meet statutory technicalities while sidestepping real oversight and legislative intent.
Investment oversight
Perhaps the most troubling issue raised by the audit is how NCI selected its investment manager. While no legal violations were found, the report noted potential conflicts of interest. Wells Fargo, which NCI ultimately chose to manage its endowment, had previously pledged $2 million to NCI. The selection-committee chair was a former Wells Fargo executive, though he recused himself from the final vote after shepherding the rest of the selection process.
Even if nothing unlawful occurred, this process undermines public confidence. The selection process deserves heightened scrutiny when a major donor secures a lucrative contract to manage taxpayer funds. The board’s decision to select Wells Fargo as the investment manager was not unanimous; it passed with a 6-3 vote, reflecting internal disagreements and concerns about the selection process. NCI’s press release conveniently ignores this issue altogether.
Doubts on GAAP compliance
NCInnovation also claimed that it maintained compliance with Generally Accepted Accounting Principles (GAAP), but the audit raised questions about its certification to the North Carolina Department of Commerce before receiving the first tranche of $250 million of taxpayer funds.
In late January 2024, NCI received $250 million from the state after certifying that it had met all statutory requirements, including GAAP compliance. However, the audit found that NCI’s certification was based on having made “necessary and appropriate preparations” rather than an already established accounting framework. While two independent CPA firms later confirmed NCI’s GAAP compliance, this sequence of events raises concerns about whether NCI prematurely assured state officials of its compliance before fully meeting the legal accounting requirements.
Reclaiming the funds
Recognizing the risks of leaving taxpayer dollars in an under-regulated endowment with an organization that consistently resists oversight, the North Carolina General Assembly could take decisive action. House Bill 154 was filed by state Reps. Harry Warren, John Blust, Julia Howard, and Jake Johnson; this legislation, if passed, would reclaim state funds from NCI and redirect them to the General Fund, ensuring they are properly overseen and allocated where they are most needed. This move is significant as North Carolina faces massive fiscal challenges in recovering from Hurricane Helene.
By dissolving the state’s relationship with NCI and requiring the return of all taxpayer-funded assets, House Bill 154 prioritizes transparency and fiscal responsibility. Rather than allowing hundreds of millions of dollars to sit in a quasi-private endowment with limited oversight, this bill restores legislative control over public funds. In a time when every tax dollar must be accounted for, HB 154 is a prudent safeguard against the misallocation of state resources.
The public deserves the full story
Ultimately, NCI’s press release is an exercise in selective storytelling. While it heavily relies on the audit’s confirmation of statutory compliance, it deliberately ignores the report’s substantive critiques. If NCI truly values transparency and accountability, it should embrace the audit’s recommendations — not attempt to spin them away. The people and lawmakers of North Carolina deserve full honesty about how their public funds are managed.
Donald Bryson is CEO of the John Locke Foundation.
