North Carolina Audit Reveals $342K in Questioned Costs from Federal Grants

The release of the 2025 Statewide Single Audit by the North Carolina Office of the State Auditor (OSA) provides a revealing glimpse into the use of federal funding by state entities. This comprehensive review scrutinized $28 billion of the $43.9 billion in federal awards received by North Carolina for the fiscal year ending June 30, 2025.

North Carolina’s spending on federal awards prominently featured Medicaid, which represented more than half of the total expenditures. The audit, covering a significant portion of these funds, identified 19 findings and questioned costs amounting to $342,093.

The audit brought to light several issues within the North Carolina Department of Health and Human Services (DHHS), which accounted for eight of the federal findings. Notably, auditors highlighted that DHHS failed to report subawards totaling $138.8 million to counties as required. Other educational institutions, including universities and community colleges, also had findings related to federal awards.

Among the questioned costs, DHHS was noted for an improper payment of $113,115, which the agency has successfully recovered following the audit. For other questioned expenditures, federal oversight agencies have been notified to determine further actions regarding potential recovery.

“The federal government administers a massive amount of funding. Look no further than the $24.7 billion flowing through Medicaid. This annual audit gives us a chance to examine at a high level how federal grants are used in North Carolina and where there may be questionable expenditures,” stated State Auditor Dave Boliek. “It’s our duty at the state level to make sure any funds directed to North Carolina are used properly and responsibly. While the single audit provides a high-level financial overview, the work done by our team and the findings and questioned costs will help steer us toward deeper dives into Medicaid and other areas of government spending.”

Another significant finding was with the Department of Commerce, where OSA discovered inadequate internal controls and review procedures impacting financial reporting. This led to notable misstatements, including $873 million in overstatements and over $260 million in understatements, necessitating additional adjustments in the cash flows and net position balances.