North Carolina Gov. Roy Cooper's administration failed to thoroughly monitor how $3.1 billion in federal coronavirus relief funds it oversaw last year were being used, increasing the risk for misuse, a state audit said Thursday,

The report from State Auditor Beth Wood's office focuses on federal funds that the state received toward COVID-19 aid in the spring of 2020. The legislature proceeded to pass laws directing how $3.6 billion should be given to state agencies, education, local governments, hospitals, and nonprofits for a host of medical, economic, and recovery needs.

The Office of State Budget and Management and a new temporary state Pandemic Recovery Office were charged with carrying out the laws, reporting how money was being used, and ensuring that the spending followed U.S. Treasury Department rules.

But auditors determined that the Pandemic Recovery Office failed to design procedures to ensure the money was being spent the way the legislature required and was achieving the anticipated results. The audit says the offices performed “limited monitoring" of the funds by failing to independently verify the monthly expenditure reports of recipients until November, when the majority of funds were already spent.

The Pandemic Recovery Office also failed to ensure the nearly 500 recipients of $3.1 billion combined through October set objectives on how funds would be spent and measurements of how to meet goals, according to the audit.

That includes whether the Department of Health and Human Services was spending $423 million it received for things like COVID-19 testing, contact tracing, and mental health services, or whether $34 million for hospitals was spent on patient care. Almost 10% of the recipients of funds failed to report any objectives, according to the review.

“As a result, (the pandemic office) was limited in its ability to know whether Coronavirus Relief Funds were achieving legislatively intended results and to take timely corrective action if necessary," auditors wrote.

According to the audit, the Pandemic Recovery Office said it decided to prioritize coordinating and distributing funds and providing technical assistance to recipients, instead of ensuring it had ways to measure objectives.

In a letter attached to Wood's report, State Budget Director Charlie Perusse and pandemic office Executive Director Stephanie McGarrah wrote, “we take the findings presented in this report very seriously.” They said changes were already being made to ensure the Pandemic Recovery Office “will be well-equipped to handle the additional federal recovery dollars” the state has received or will receive.

The legislature will have to decide how to spend another $5.3 billion earmarked for North Carolina in the American Rescue Plan approved by Congress in March.

Perusse and McGarrah also wrote the General Assembly funded the Pandemic Recovery Office at half of the amount requested, which led to understaffing and delays in verifying spending. The pandemic office is now hiring additional staff and strengthening its nine-part monitoring process, they wrote. Longer-term funding is also being sought for the pandemic office, which otherwise closes at the end of 2021.

Wood, a Democrat like Cooper, is elected statewide separately from the governor.

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