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Due Diligence: NCInnovation board member calls for state auditor investigation


Carolina Journal

At a Feb. 14 board meeting, directors of NC Innovation (NCI), the private nonprofit written into the biennial state budget last fall to the tune of $500 million in taxpayer funds, labored over the interpretation of financial statements and statutory definitions. At issue was whether or not NCI is adhering to the law requiring the entity to use Generally Accepted Accounting Practices (GAAP), especially with respect to private donations and pledges.

The questions were raised by board member Art Pope. Pope is the owner and chairman of Variety Wholesalers Inc., which owns and operates a chain of discount retail stores spanning 17 states. He’s also a founding board member of the John Locke Foundation and chairman of the John William Pope Foundation, a family grant-making organization he has led since its creation in 1986. He was also a member of the North Carolina General Assembly and served as the state budget director from 2013-14.

The answers provided by NCI executives must not have been sufficient to allay concerns. Documents obtained by Carolina Journal via a public records request show, before the board meeting was even over, Pope filed a request for an official audit of NCI with the North Carolina State Auditor.

“Respectfully, I do not believe that as of December 7, 2023 NCInnovation was managing its records, accounts and financial reporting in accordance with generally accepted accounting principles (“GAAP”),” writes Pope in his request for an official audit.

He concludes, “I cannot say with certainty whether NCInnovation is GAAP compliant as of today because the management of NCInnovation has denied most all my requests for documents and refused to answer most of my questions in regard to NCInnovation’s accounting, despite the fact that I am a member of the NCInnovation Board of Directors appointed by the [North Carolina] House of Representatives.”


As the letter to the state auditor indicates, and records confirm, concerns over possible non-compliant accounting at NCI have been ongoing for months. Upon appointment to the board in the fall of 2023, directors made initial inquiries related to accounting and capital positions within the context of statutory requirements. The enabling legislation, the state budget, requires NCI raise a certain amount of private capital, among other stipulations, to qualify for the first and second tranches of taxpayer funds, each a whopping $250 million.

In December 2023, email exchanges show Pope inquiring with executives about the integrity of NCI accounting practices and requesting meetings with the third party accounting firms retained by NCI in order to go over the books.

“It is evident that NCInnovation does not have a procedure in place to document, review and determine if a commitment should be recorded as income in accordance with GAAP, including FASB Accounting Standards No. 116 in particular,” writes Pope in a Dec. 21 email to NCI executives in which he lists a series of questions regarding accounting compliance. Records show that just one day before that word of caution, that the general counsel for the North Carolina Department of Commerce emailed NCI executives with her own note of caution regarding the certification required for the first check of $250 million to be delivered:

“[…] GovOps has flagged a question we need to resolve before we can provide the check to NCInnovation,” writes the general counsel for NC Department of Commerce on Dec. 20, 2023.  “GovOps reached out today regarding DOC’s certification, and specifically whether or not DOC had verified NCInnovation’s compliance with general accepted accounting principles (GAAP) through prior years financials in order to determine compliance with the specific provision 143-728(d)(9).  We’ve explained that we hadn’t done so […]”

Later that afternoon, NCI CEO Bennet Waters responds that they “have moved NCInnovation’s books and records in-house, and we are maintaining those books and records in compliance with GAAP in accordance with 143-728(d)(9).”

A few weeks later, Pope reiterated his questions upon receiving notice of a special meeting originally scheduled for Jan. 18, 2024. The meeting was to include an update on the accounting review from a third party accounting firm. Though he received a response from the board chairman, it did not include answers to the accounting mysteries raised by Pope.


“Thank you for acknowledging my requests,” wrote Pope in an email dated Jan. 11, 2024. “I regret that I was correct, in that you are limiting the information that will be made available to what you choose to put in the Board Effects material, and that I am not to be given an opportunity to talk to Kristen Hoyle, the accountant at Thomas, Judy and Tucker. At this point we will respectfully disagree on the role of individual members of the Board of Directors and the authority of the Chairman of the Board to limit the corporate information, including accounting records and financial information, that will be made available to Board members in preparation for an agenda item for the noticed Board meeting, and in general.”

The special board meeting called for Jan. 18 was subsequently cancelled. A week later, the certification question presumably resolved, NCI receives a wire transfer of $250 million in taxpayer funds. The below draft timeline of financial and accounting milestones ends with a note lamenting that NCI was “unable to accrue what would have been more than $1.33 million in ‘investment income’ during the 37 days that transpired between 18 December (when Commerce indicated a check would be ready for pick-up) and 25 January (when the funds were wired. Interest accrued in that period remained with the State and is unrecoverable by NCI.”

This brings us to the aforementioned board meeting on Feb. 14, in which the accounting compliance issues were again raised, finally culminating in Pope’s official request for an audit to determine compliance with state law.

The documents and underlying uncertainty regarding compliance may lend further credence to a recent warning from senior vice president of research at the John Locke Foundation, Brian Balfour. In a blog post entitled, Time to Pump the Brakes on This Unproven Experiment? Balfour writes, “With no proof of concept nor a single example of a successful research grant to point to, perhaps the legislature was too hasty in awarding NCInnovation $500 million. The group already received $250 million in last year’s budget and is slated to receive the second $250 million in the new fiscal year that starts July 1. It’s not too late to redirect that second $250 million elsewhere and allow NCInnovation to demonstrate its worth before receiving any more taxpayer dollars.”

Moreover, the timeline of key NCI activities also raises questions about the actions of bureaucrats and legislators after the initial flagging of “GAAP compliance” issues. After Commerce alerted NCI that the NC House had objections to certification, the NC Senate purportedly “disputed the House interpretation […] and conveyed that to Commerce.” A week later, House senior staff allegedly called Commerce to remove their objection to releasing the $250 million in taxpayer funding, and, thus, the wire process was initiated.

Yet, NCI only had a cursory third-party accounting review (not an audit), in addition to the given word of their CEO, that they were in compliance with the law before receiving hundreds of millions of taxpayer dollars. Removing all doubt about whether NCI is compliant with the law giving them this taxpayer money may indeed require a full audit. In the meantime, as Balfour suggests, it may be time to pump the brakes on distributing any additional taxpayer funds to an already well-endowed nonprofit raising transparency and accounting alarms.

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