Incubator scandal leads to new oversight for Raleigh’s nonprofit grant recipients

ccampbell@newsobserver.comNovember 11, 2013 

— Months after a scathing audit prompted city leaders to sever funding for the Raleigh Business and Technology Center, the city council has tightened its oversight on grants to nonprofits.

The council approved the new grant process last week for the $3.8 million in grants provided to dozens of arts and human services organizations, from the Carolina Ballet to the Inter-Faith Food Shuttle. New controls are aimed at preventing a repeat of the scandal at the Southeast Raleigh business incubator, where financial problems weren’t discovered for several years.

The business and technology center was set up by the city and several partners in 2000 to nurture small minority-owned businesses. The city audit, released in July, found unexplained cashier’s checks and payments to the incubator’s tenants, and they discovered that the agency’s nonprofit status had been revoked. Bob Robinson, the incubator’s longtime director, resigned after auditors found he had drawn $65,000 in teller checks from the incubator. Police are now investigating possible fraud, and the agency has left its city-owned building.

Under the new rules, groups receiving $25,000 or more in grants must provide copies of an annual audit. The incubator’s auditors had found annual losses of up to $200,000 dating to 2007, but there’s no record those reports reached city hall until this year.

“We review the audits, and we look very carefully at the CPAs that provide those audits,” assistant city manager Dan Howe said.

The city will now put a red flag on any troubling audit findings, Howe said, and the information will be provided to the city commission that reviews grants.

“It may be that they’re on a watch list, so if they don’t improve that problem over the next 12 months, they will not be on the list” for city funding, Howe explained.

In addition to audit reports, all nonprofits – regardless of funding level – must submit copies of their annual IRS reports, known as 990 forms.

That requirement could pose a problem for at least one current grant recipient. The African American Cultural Festival – which puts on a street fair each summer – has not filed forms in several years, and its nonprofit status has been revoked, according to IRS records. The organization did not return calls seeking comment; it received $75,000 from the city this year.

Nonprofits also won’t get their funding at the beginning of the fiscal year anymore. “In most cases, payments are made by reimbursement” after receiving receipts, Howe said.

Among other requirements: Nonprofits will have annual contracts with the city, they’ll file quarterly reports on their work, and they’ll get annual in-person inspections from city staff members.

Changes are also afoot for the nonprofits that receive the majority of their annual budgets from city dollars. Those organizations will either have their funding gradually reduced to about 25 percent of their total budget, or they’ll be folded into city hall.

“It might be more efficiently operated as a function of a city department instead of us paying a third-party operator to do it,” Howe said.

That change would affect at least two nonprofits, the Southeast Raleigh Assembly and the Raleigh Historic Development Commission. The assembly received more than 70 percent of its funding from tax dollars in 2012; it was originally a department within city government charged with aiding residents of Southeast Raleigh.

The agency’s director, Rita Anita Linger, did not return a call seeking comment about the city’s new policy.

The historic commission operates as a separate nonprofit, but its board is appointed by the city council, and city employees run its day-to-day operations.

The grant application process for the next fiscal year will begin in the coming months.

Campbell: 919-829-4802; Twitter: @RaleighReporter

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