NCInnovation provides audit report to House Oversight and Reform Committee

NCInnovation (NCI), the private nonprofit given $500 million in state taxpayer funds to facilitate its vision of commercializing more public university research in the state, sent a third party audit report to the NC House Oversight and Reform Committee late last month.

NCI CEO Bennet Waters first gave testimony and answered questions for committee members back in July. Since then, the organization’s board of directors and executive leadership have clashed over issues of transparency, as legislatively-appointed directors have wrestled with legacy members and staff over records requests related to NCI financials and accounting.

In publishing the independent audit report for public consumption, which cover NCI’s fiscal year ending in June 2024, the Committee noted it was their first look at NCI financials since they received two $250 million installments from North Carolina taxpayers to fund an endowment.

A note on the Committee’s webpage puts emphasis on a particular acknowledgment in the audit report, conducted by BDO Audit Services, that NCI “did not have an independent audit before receiving its first $250 million in state funds[.]”

“The 2023 financial statements of the Organization were reviewed by other auditors, whose report dated January 10, 2024[,] stated that they were not aware of any material modifications that should be made to those statements for them to be in accordance with accounting principles generally accepted in the United States of America,” reads the audit report cover letter. “A review is substantially less in scope than an audit and does not provide a basis for the expression of an opinion on the financial statements as a whole.”  [emphasis added by committee staff]

The committee note goes on the specify the statutory requirements demanded of NCI, pointing to possible deficiencies in practice.

NC Gen. Stat. 143-728(d)(9) requires NCI to “maintain separate accounting records for and separate accounts [for State and private funds] and shall not commingle [the two],” but the audited financial statements do not make clear the separation of public and private funds. Despite this, it appears that grants are the only thing currently being paid from state funds. This is the largest expense for NCI as projects in the pilot round of grants qualify for their second tranche of funding and as NCI completes its first statewide round of grantmaking in early 2025. The Request for Proposals page states, “The deadline for the fall 2024 pre-application is Friday, December 13, 2024. Applicants can anticipate hearing a response from NCI within one to two months from the application deadline.”

House Oversight and Reform Committee

While the committee notes grants as the largest expense for NCI, it also emphasizes the second largest expense is staff salary and benefits — $2.6 million for the fiscal year. Because staff at the organization’s “regional hubs” did not start until November, notes committee staff, the annualized figure for salary and benefits would be closer to $3 million.

NCI has yet to select an investment manager for the $500 million endowment, which will provide the capital returns it plans to leverage for financing grants. At last reporting, the investment subcommittee had narrowed its list of possible managers from 18 candidate companies, to three. Concerns over the appearance of conflicts of interest arose at an August meeting of the board of directors.

At least one member of the investment committee has substantial holdings in one of the three finalist investment banks, but it was determined the member was simply too wealthy to constitute a material conflict.

The investment committee, which meets Dec. 4, may provide a final recommendation to the full board this week. NCI’s next meeting of the board of directors is scheduled for Thursday, Dec. 5.

It is as yet unclear if NCI executives will be called again to testify in front of the House Oversight and Reform Committee when lawmakers return for the long legislative session of 2025.

The post NCInnovation provides audit report to House Oversight and Reform Committee first appeared on Carolina Journal.