Federal Funds State Audit Flags Issues and 'Questionable Costs'

A new statewide audit of federal spending is raising concerns that could affect programs and services across western North Carolina, including in Rutherford County and surrounding communities.

The North Carolina Office of the State Auditor released its 2025 Statewide Single Audit this week, reviewing billions in federal funding that supports health care, social services, and education programs relied on heavily in the mountains.

While the report found no material noncompliance — a first in more than two decades — auditors identified 19 findings, including reporting failures, internal control weaknesses, and more than $340,000 in questioned costs statewide.

“These are programs that directly impact people here in western North Carolina,” said State Auditor Dave Boliek. “This audit helps identify where taxpayer dollars may not be fully accounted for and where oversight needs to improve.”

Local impact: health and human services funding

Much of the concern centers on the North Carolina Department of Health and Human Services, which administers major federal programs used by counties across WNC, including Medicaid, food assistance, and family support services.

Auditors found the agency failed to properly report millions of dollars in funding distributed to counties under key programs like the Social Services Block Grant and Temporary Assistance for Needy Families.

Those programs help fund services such as:

• Child care assistance

• Foster care and adoption services

• Adult protective services

• Work and job training programs

According to the audit, none of the sampled subawards were reported to the federal tracking system, including:

• $39.4 million in Social Services Block Grant funding

• $99.4 million in TANF funding

An additional $138.8 million in county-directed funds also went unreported.

Auditors classified the issue as a “significant deficiency,” meaning it could affect transparency and federal compliance.

For counties like Rutherford, McDowell, and Polk — where federal dollars play a major role in delivering services — proper tracking is critical to ensuring continued funding.

Questioned costs raise oversight concerns

The audit also identified $342,093 in questioned costs, including an improper payment of more than $113,000 made by DHHS. That money has since been recovered.

While the dollar amount is small compared to the overall scale of federal spending, auditors say the findings highlight broader weaknesses in oversight that could have ripple effects at the local level.

Federal agencies will ultimately decide whether additional funds must be repaid.

Schools and colleges in the region affected

The audit also flagged issues with how colleges and universities — including those serving western North Carolina — administer federal student aid.

Findings included:

• Errors in tracking student enrollment

• Weak internal controls

• Financial aid awarded beyond eligibility limits

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Institutions across WNC rely heavily on federal aid programs to support students, making compliance essential to maintaining funding streams.

Commerce reporting errors could affect economic programs

Separately, auditors found major financial reporting errors at the North Carolina Department of Commerce, which oversees economic development programs that often benefit rural and mountain communities.

The report identified hundreds of millions of dollars in misstatements due to inadequate internal review processes. While corrections have been made, auditors warned the errors could have misled decision-makers.

Commerce programs frequently support job creation, small business grants, and infrastructure projects across western North Carolina.

A mixed picture for WNC

Overall, the audit paints a mixed picture: improved compliance at the state level, but ongoing concerns about how federal funds are tracked and managed.

North Carolina was not classified as a low-risk auditee, meaning additional scrutiny is expected in future reviews.

For communities across western North Carolina — still recovering from recent natural disasters and economic challenges — the findings underscore the importance of accountability as billions in federal dollars continue to flow into the region.

State officials say corrective actions are already underway, but auditors stress that continued oversight will be key to ensuring those funds are properly managed and reach the communities that depend on them most.

Read the 264-page report here.