A lack of internal auditing led to the budget and cash flow problems at the North Carolina Department of Transportation (NCDOT), a new legislative report found.
Despite having the second-largest internal audit unit in the state, NCDOT’s Office of Inspector General has not completed a performance audit since 2016, according to an evaluation report completed by the General Assembly’s Program Evaluation Division.
Evaluators told the Joint Legislative Program Evaluation Oversight Committee on Monday that performance audits could have detected and prevented NCDOT from overspending by $742 million in fiscal year 2019 and maxing out its cash balances.
Program Evaluation Division lead program evaluator John Horne said the blames lies with the North Carolina Council of Internal Auditing for not reviewing NCDOT’s auditing process.
“The council has been viable and active but has not probed or challenged the effectiveness of internal auditing,” Horne said.
Evaluators believe if the council had followed its standards set by state law and examined NCDOT inspectors’ process, the problems would have been identified earlier.
The 2007 Internal Audit Act was enacted after a 2006 state audit found internal deficiencies in nearly every state agency. It requires the Council of Internal Auditing to monitor and go as far as conducting hearings to review the internal audits.
The act called for an internal audit of agencies with an annual operating budget of $10 million and more than 100 full-time employees, or any agency that receives and processes more than $10 million in cash each fiscal year. According to the State Auditor Beth Wood, there are about 187 internal auditors in the state that cost North Carolinians about $18 million a year.
The Council of Internal Auditing is lead by the state controller. It includes a state budget officer, the attorney general, secretary of administration, secretary of revenue and the state auditor, who is a nonvoting member.
State Controller Linda Combs, who attended Monday’s meeting virtually, said it is important to remember internal auditors report to agency management.
“The internal auditors do their work in support of their own agencies,” she said. “Management in the agencies oversee their job performance.”
Program evaluators said the General Assembly should propose legislation to direct the State Board of Transportation Audit Committee to include completed and pending reports from NCDOT’s Office of Inspector General in every board meeting. They also want lawmakers to recommend the Council of Internal Auditing work with NCDOT to improve its audit process and require all state agencies’ performance standards.
Combs said she disagreed with the recommendations, which she said adds “additional layers of bureaucracy.”
“The ownership of this problem rests with the executive leadership,” she said. “Effective executive leadership around departments and agencies in the state government must step up.”
Monday’s meeting was just one step in reviewing the state’s internal auditing process, committee Chairman Rep. Craig Horn. R-Union, said. Lawmakers will not be able to propose legislation until the General Assembly reconvenes in January.
In her reply, NCDOT Inspector General Mary Morton said she agreed that the audits need improvement, but the agency does not have enough resources to do the work.
Wood said agency heads are equipped to identify qualified staff to the internal audit positions. She also said the council could do more to ensure compliance by the agencies.
“Get the right people in the right agency, and together we can fix the inefficient and wasteful spending,” Wood said.
