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The Civitas Institute Money Maze Guide

A Lack of Accountability

The Money Maze of State Grants

An analysis by the Civitas Institute of state government grant oversight shows a need for more transparency, easier access to public records and stricter state and federal laws.

State Grants are not loans but state and federal funds awarded to organizations and companies with no repayment required for performing services under a contract. State agencies decide which applicants are awarded grants but by state law the Office of State Budget and Management (OSBM) has oversight. That relationship, however, is a little fuzzy at times.

Funding for over 1,000 recipients of North Carolina state grants has been suspended, repeatedly in many cases, mainly for not filing required annual reports of how the money was spent, but many of them still received additional grants. By the time many of the grants were suspended, however, the funds had already been spent with no accounting for how the money was used.

Interestingly, two of the non-profits whose grants were suspended were found to owe delinquent taxes to the Internal Revenue Service (IRS). One was Quality of Life Association of Hertford County. The organization received $50,000 for a women’s health grant in 2007-2008. The other was UHURU Community Development Corporation in Northampton County which received $12,785 in 2007-2008, also for a women’s health grant. The two grants were awarded through the state Division of Mental Health. A spokesman at OSBM, Jonathan Womer said in an email response his office was investigating non-profits but wasn’t sure how much money would be recovered. In fact, we never received a response on just how much had been recovered from any of the suspended grantees.

By law it is the responsibility of OSBM under General Statutes 143C-6-22 and 143C-6-23 to track the funds recovered from suspended grant recipients. Womer said in most cases the office leaves it up to state agencies to take action because OSBM doesn’t track that information. Apparently there is no central database on how much has been recovered.

Moreover, State Agencies do not rely on the state Department of Revenue to actively screen applicants to find out if they owe state taxes. The grantees are required only to file a statement that they don’t owe taxes. Womer said OSBM has “started to investigate matching Department of Revenue data against our grantee information.” This means that organizations who are delinquent on paying their state taxes can often still receive taxpayer funds through state grants if they simply don’t admit they owe state taxes.

Fourteen of the grantees with suspended funding have also lost their tax exempt status with the IRS.

Another fourteen suspended grantees received money for dropout prevention grants.

Some companies and non-profits had funding suspended one year and would still be awarded a grant the following year. In some cases the funding continued for three or four years.

An example is Cognosci, Inc., a medical research company in Research Triangle Park. It received a $12,500 grant in 2006 through the state Commerce Department. The funding was suspended in 2007 for not reporting how the money was spent. But that same year Cognosci received another state grant for $75,000. The funding was again suspended in 2008, the same year Cognosci received two grants for $18,750 and $56,250. The funding was once again suspended in 2009, but in 2010 Cognosci was given $22,500. A spokesman for the Commerce Department said the agency is working with the company to resolve the matter but didn’t say if any of the money had been retrieved.

About half of the 1,000 suspended grants were for child and adult nutrition programs administered by the state Division of Public Health. Most of those grant recipients had funding suspended over the course of three to four grants in consecutive years, but they continued to receive the grant funds anyway. Those recipients knew they wouldn’t lose their money even if they didn’t comply with reporting rules. The state couldn’t actually withhold those funds because of federal law. Those food programs were paid for with federal tax dollars that the Division of Public Health simply administered. Under federal law even if a grantee receiving federal funds doesn’t comply with state reporting rules the state still has to continue the funding.

There is no hard or strict rule about how much a grant recipient should spend on administrative costs, such as wages. A benchmark used by a national charity watchdog is 60 percent of funds should go to program services, leaving 40 percent, at most, to administrative costs.

That benchmark was clearly not followed by some non-profits that received state grants. The organization Ray of Hope, Inc. based in Goldsboro received a dropout prevention grant of $150,000 in 2008. Federal tax forms showed the salaries and other employee benefits amounted to $101,314. Executive Director Olavee Williams is shown on the tax forms as receiving $30,000 but forms don’t indicate who was paid the balance of salaries and benefits. Ray of Hope was also one of the non-profits to lose its federal tax exempt status.

The Alliance for Children and Youth, Inc. in Gaston County received dropout prevention grants in 2007 totaling over $75,000. It had its funding suspended but not before receiving the money. Federal tax forms for the year 2009 show revenue of over $1 million for that year. Salaries and other employee benefits were reported at $497,013, nearly 50 percent.

During the recent session of the General Assembly Sen. Andrew Brock (R-Davie) introduced SB460 to limit administrative expenses of state grant recipients to 15 percent. It was referred to the Senate Appropriations Committee and disappeared.

The Office of State Budget and Management did create a web site called NCOpenbook where the public can research what organizations are receiving grants and the amounts. Despite the fact grant recipients are required to file reports electronically the public does not have access to that database. So to find out what the grantees are reporting a citizen would have to request those as public records under the state public records law chapter 132.

That’s the money maze the public is left to navigate.

A Citizens’ Guide: How to Research State Grants

You’ve seen our analysis and overview of state grant programs and examples of misuse. Now it’s your turn. The Civitas Institute put together a Money Maze Guide with videos to show how to search for organizations awarded grants and how to find their tax filings.It will walk you through the process of requesting public records to look at reports grantees are supposed to submit on how they spent the tax dollars and what they accomplished.

You’ll find a list of resource links. One takes you to NC Openbook where you can start your search on grants. There’s a link to the Office of State Budget and Management page that contains updated lists of grantees that have had funding suspended. The resource links also take you to the reports on federal stimulus funds in NC Recovery. Use the link to Guidestar to find federal tax forms filed by grantees. The Money Maze Primer also links you to a detailed description by Peter Swords of how to look through tax documents to study how an organization is structured, how much revenue it receives and what part of the income is spent on administrative costs, such as salaries. Another link sends you to a template for writing public records request letters.

Searching for Grants

NC Openbook is a good place to start looking up state and federal grants. Watch this short video to learn how to use the site.

State Grants Primer

  • To start your own search go to NC Openbook grants page.
  • The State Office of Budget and Management memorandums page is another place to browse grants. It posts a Suspension of Funding list of grantees which have failed in some way to comply with grant rules.
  • NC contains reports on where the funds from the Federal Stimulus Plan went.

Searching for IRS 990 forms

This short video will help you navigate a web site to search for federal tax forms non-profits are supposed to file with the IRS.

How to Find Tax Forms on Guidestar

Public Records Requests

After you find the grant or grants for which you were looking you’ll realize the information you find on line gives you very little detail other than how much money an organization received. Tax forms usually won’t give you everything you want either. So the next step is to make a public records request for the reports grantees are supposed to file with the state or federal government. The reports are supposed to detail how the money was spent and what it accomplished. They are required to file those reports electronically so you can ask for them in that format. There is a Freedom of Information Act public records request form at the Reporters Committee for Freedom of the Press web site. You type in the contact information of the agency holding the reports and it creates a letter you can download and print. You can also make the request through email.

Knowledge is power so here is the link to the State Public Records Law, G.S. Chapter 132.

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