Earlier this month, the Office of the State Auditor (OSA) released a performance audit of NCInnovation, the controversial nonprofit that has been given $500 million of taxpayer money to fund the commercialization of low-probability research projects at North Carolina Universities.
While NCInnovation passed, the audit was limited in scope and should not be interpreted as a supporting argument for NCInnovation to keep the $500 million. On the contrary, the audit exposed several questionable practices within and beyond its scope that warrant deeper scrutiny.
Within the scope
Essentially, the audit’s scope was limited to determining whether NCInnovation was compliant when documenting private funding commitments (pledges) and awarding grants. OSA “found that NCInnovation followed what is statutorily required of it, regarding the stated objectives of the audit.” Despite technically complying, however, the audit revealed that NCInnovation curiously changed its policy for documenting pledges, and its process for awarding grants contained deficiencies in transparency.
Pledges policy shift: State law required that NCInnovation secure only $25 million in pledges to receive the $500 million in taxpayer money. Through 2022, NCInnovation accepted informal commitments through email as official pledges but shifted to a formal pledge agreement form in 2023. The initial acceptance of informal commitments through email suggests a laxity in financial oversight. Moreover, the shift to a formal agreement brings into question what sparked the transition to a more stringent system.
Obscure grant selection process: In 2024, NCInnovation awarded $5.2 million in pilot grants for eight research projects. NCInnovation staff received and reviewed 28 pre-applications, 19 of which were selected by management to submit a full application. The 19 projects were then evaluated by independent review teams, which scored each project using a rubric designed by NCInnovation management.
Management selected eight projects from the 19 to recommend for funding to the NCInnovation Board of Directors. However, the eight selected projects did not receive the highest scores, and the 11 unselected projects were not presented to the Board. This lack of transparency raises questions about whether funds are being irresponsibly awarded.
Beyond the scope
Despite being beyond the scope of the audit, the audit identified three matters for further consideration, two of which justify particular attention: potential conflicts of interest and lobbying expenses.
Potential conflicts of interest: NCInnovation’s business model is to give the $500 million in taxpayer money to a private investment manager, which will then expose it to market risk to seek out returns that will be used to fund research projects. NCInnovation’s Request for Proposal (RFP) for an investment management firm received 17 responses, which the NCInnovation Investment Committee eventually whittled down to four finalists.
From the four finalists, NCInnovation’s Investment Committee recommended Wells Fargo in December 2024, and in January 2025, the Board voted to approve Wells Fargo to manage the $500 million taxpayer-funded endowment.
It just so happens that in 2022, Wells Fargo pledged to donate $2 million to NCInnovation. Moreover, the chair of NCInnovation’s Investment Committee, who oversaw the investment manager selection process, was a former Wells Fargo executive. While the chair recused himself from the vote and safeguards were supposedly in place, the selection of Wells Fargo provokes questions about the impartiality of the process.
Lobbying expenses: To acquire the $500 million in taxpayer money to fund its venture capital ploy, NCInnovation spent nearly $700,000 on lobbying expenses. Such a large allocation of resources raises concerns about NCInnovation’s priorities and the possibility that the organization will ask the General Assembly for more money from taxpayers.
House Bill 154 “Reclaim Assets from NCInnovation”
House Bill 154 is “an act to dissolve the relationship between the state and NCInnovation and to require NCInnovation to return state funds and assets.”
Taxpayer money should be used to provide core government services, not given to lobbying-intensive nonprofits pursuing commercial interests. The citizens of North Carolina have much greater and more legitimate priorities than funding low-probability research projects at the discretion of NCInnovation.
Funding for the home reconstruction program for the victims of Hurricane Helene is likely insufficient by hundreds of millions of dollars. The $500 million NCInnovation swindled from policymakers should be reclaimed through HB 154 and redirected to the Helene recovery efforts.
