Auditor finds deficiency in state biotechnology center

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An image from Biotechnology Center website. (Ncbiotech.org)

RALEIGH, N.C. — The state’s Biotechnology Center has been found by the State Auditor’s Office to have some deficiencies in internal controls and instances of noncompliance with auditing standards.

The routine audit for fiscal 2011-12 was released Thursday and is the latest in a series of 10 high-profile reports released by the state auditor since Sept. 1.

The center, based in Raleigh, has a regional office in Winston-Salem.

Auditors said the center did not provide adequate oversight for all grant recipients. They reviewed 21 payments representing $662,233 and found that four payments — at a combined $277,563 — did not include items, such as invoices and payroll registers, to determine whether “the sub-recipient actually incurred the expenditures reported.”

“The lack of formal communication between the financial staff and program experts may result in payments being made to sub-recipients that should have otherwise been stopped or reduced,” the auditors said. The auditors recommended better communication to prevent future non-qualified payments.

Biotech center officials acknowledged the non-qualified payments, saying all were made to large institutions. The officials said large institutions typically do not submit payment documentation on behalf of sub-recipients, but do keep the documentation on file.

On grant monitoring, the auditors said that although program experts and financial staff communicate regularly, they could enhance it through additional documentation.

Center officials said in a statement that State Auditor’s personnel spent three weeks in their offices.

“They were very positive about our process for managing grants and loans,” the center said.

“When monitoring grants to larger institutions, we have traditionally used two key pieces of information to ensure grants are spent as proposed: a federal audit; and informal communication between the program (scientific) and financial teams.

“In accordance with the auditor’s recommendations, we will begin directly inspecting receipts for a random sample of large institutions that receive our grants. This documentation is held on file at the institution. We will also formalize the communication between our program and financial staff.”

The center has been operating with less funding since the Republican-led General Assembly approved a 27 percent budget cut, or $4.6 million, during the 2013 session.

Since late August, the center has reduced its staff from 83 to 62 to reduce expenses, spokeswoman Robin Deacle said Friday.

“We had 10 staff members take our voluntary separation package,” Deacle said. “It did not include any of the people in the Triad.” There also were seven filled and four vacant positions that were eliminated.

“We’re tightening expenses all around, but there are no personnel or deep cuts to the Triad,” Deacle said.

The center received $17.2 million in appropriations in fiscal 2012-13. The initial budget proposal from Gov. Pat McCrory in March would have reduced financing to $7.2 million annually. The annual appropriation ended up being $12.6 million.

“It is difficult to shutter programs that are significant to our life science community,” Norris Tolson, the center’s chief executive, said in a statement in August. “Each of these programs had outstanding success metrics, leveraging additional investment and jobs.

“However, with limited resources, and with the legislature’s direction in the budget resolution, changes must be made.”

Allen Freyer, public policy analyst for the N.C. Budget & Tax Center, said the cuts to the biotech center “undermine the goal to help assist broad-based prosperity in the state, particularly in areas being left behind by the global economy.”

“‘They are filling gaps in economic assistance that N.C. Commerce Department can’t fill because it is not part of its mission and (what) the private sector is reluctant to do.”

By Richard Craver/Winston-Salem Journal