RALEIGH — A new audit report says a group given $500 million in endowments by the legislature for research grant acceleration is complying with state law.
NCInnovation (NCI), a nonprofit organization set up to expedite the path of research done at state universities to the marketplace, was given two tranches of $250 million each.
“Within the scope of the audit performance, this report offers a clear evaluation of NCI’s private funding commitments and grant procedures. It’s straightforward, lays out the facts, and can help strengthen NCI’s internal operations,” said N.C. State Auditor Dave Boliek.
“According to NCInnovation, to-date, the full balance of the endowment has been invested in a cash equivalent government backed securities fund,” the audit notes about the funds given to NCI. “The endowment has earned $16.9 million in interest as of December 2024, with a rate of return for investments ranging from 4.38% to 5.27% over the last year.”
Additionally, donations from private businesses to NCI for operating purposes total more than $25.6 million.
The Office of the State Auditor’s (OSA) findings included that private funding commitments were documented and grants awarded were in accordance with state law and NCI procedures. Additionally, NCI enacted measures that ensured grant recipients had methods to measure results.
Recommendations by the OSA included NCI continuing to document all transactions and the use of a formal pledge agreement, as well as leveraging pilot program experience and documentation for future award activities. The report also recommended management continue working with the Program Committee of the Board of Directors, including details on projects that were not approved.
Not included in the scope of the audit was whether “pledges were accounted for in accordance with Generally Accepted Accounting Principles (GAAP),” which included a footnote referring to a section of the audit as a “Matter for Further Consideration.”
Two independent CPA firms verified that NCI’s records comply with GAAP and state law requirements.
In its response letter, signed by the group’s president, J. Bennet Waters, NCI agreed with the report’s findings and recommendations.
“We also appreciate OSA’s attention to the Matters for Further Consideration,” Waters wrote in the response before addressing the group’s critics.
“NCInnovation has been the target of a significant misinformation campaign by some media outlets,” wrote Waters. “And we concur with OSA’s findings affirming the process by which the organization’s Board selected an independent investment manager; how NCI certified its compliance with the requirements to receive State funding; and how NCI properly documented its lobbying expenses as affirmed by two independent accounting firms.”
Last year, one of NCI’s board members, Art Pope, requested the audit. Per a footnote on the audit, the work to complete it took more than 1,438 hours at an “approximate cost of $222,968.”
Pope is the founder of the John Locke Foundation, which runs Carolina Journal, an outlet that has been critical of NCI. He was appointed to NCI’s board by former House Speaker Tim Moore.
Earlier this month, a bill filed in the House seeks to claw back the $500 million endowment and any interest gained on the funds through investments. Rep. Harry Warren (R-Rowan), the primary sponsor of the bill, told North State Journal that NCI should be privately funded.
Not everyone in the House seems to be interested in defunding NCI.
In a memo authored by Rep. Ray Pickett (R-Watauga) obtained by North State Journal that was sent to multiple House committees, the lawmaker outlined recent criticisms made in a media appearance regarding NCI.
“Last week, Dr. Andy Jackson of the John Locke Foundation spoke to a media outlet about NCInnovation. We have enjoyed Dr. Jackson’s work and policy analysis for years,” Pickett wrote. “On this matter, though, Dr. Jackson missed the mark.”
Pickett went through several of Jackson’s recent remarks, describing his characterization of NCI as primarily benefiting Triangle-area universities as incorrect. The lawmaker noted that all current research funding has gone to institutions outside that region, with Western Carolina receiving the largest grant.
NCI currently operates seven physical locations at UNC System institutions, all outside the Triangle region, and has allocated $5.2 million to eight research projects, including lithium refining at UNC Greensboro, PFAS filtration at UNC Charlotte and mosquito-borne disease risk assessment at Western Carolina.
Pickett also notes NCI has not spent “one cent” of the $500 million endowment from the state and has funded its grants through the interest on that endowment.
Members of one UNC Board of Governors committee also seem to be backing NCI.
At its Feb. 26 meeting, NCI Executive Vice President Michelle Bolas updated members of the UNC Board of Governors Committee on Educational Planning, Policies and Program on the group’s progress.
In a post-meeting press release, NCI noted the committee members offered “strong support” for the organization and its work, with North Carolina A&T Chancellor James Martin calling it “a terrific program” with the “potential for very high” return on investment.
Committee Vice Chair Gene Davis said he thinks “it’s so important we use this extraordinary resource” to ensure “our best and brightest” don’t leave the state.
Member Woody White was quoted as saying, “This is seed money. It’s meant to be planted and then grow and blossom,” and compared it to similar programs at MIT, Harvard and Silicon Valley.
