The N.C. Office of State Budget and Management (OSBM) released a report today regarding an internal audit it conducted of the Community Development Block Grant (CDBG) program at the request of the N.C. Department of Commerce. Auditors investigated allegations of misappropriated state funds by an employee of a third-party administrator. The employee, Michael S. Walser, worked at the time as a project administrator for Hobbs, Upchurch, and Associates, a third-party administrator contracted by local governments receiving CDBG grants. The scope of the investigation was limited to local government grants in which Mr. Walser was designated as the project administrator from January 2007 until December 2012.
The investigation concerned 26 local governments that used Mr. Walser as the project administrator. As a result of the investigation, OSBM identified a misappropriation of funds for 10 local governments, including such things as duplicate payments for services and payment of invoices for costs that were identified as questionable. In sum, the audit identified a total amount of misappropriated funds of $397,171.
According to the report, the misappropriated amounts all involved payments to Tri County Development and Carolina Governmental Services, which are owned by Mr. Walser. According to the auditors, Mr. Walser was operating Tri County Development and Carolina Governmental Services at the time he was employed by Hobbs, Upchurch as the project administrator on various CDBG projects for local governments.
The primary purpose of the CDBG program is to provide grants to local governments to improve housing and economic opportunities primarily for low and moderate income persons.
The Department has already taken proactive steps to increase both local governments’ and its own monitoring activities of CDBG projects:
• The Department completes a risk assessment for each grantee at the time of award. Grantees with higher risk factors receive additional monitoring and technical assistance.
• Beginning in 2013, the Department requires that 100% of rehabilitation activities are monitored for compliance, previously, only a percentage of rehabilitation activities were monitored.
• If problems are identified with a grantee, the Department requires the grantee provide additional supporting documentation for each funding requisition, and additional desk review and monitoring visits are completed by Department staff.
In addition, the Department plans to develop some best practices to share with local governments highlighting the need for and importance of following proper internal controls when administering CDBG and other grants.
After receiving an initial draft of the report, the Department reported the alleged misappropriation of funds to the State Bureau of Investigation on February 5th pursuant to its statutory obligation.