RALEIGH, N.C. -- North Carolina fails to provide enough or consistent oversight to ensure hundreds of millions of dollars disbursed to nonprofits annually from state agencies are used appropriately, a legislative watchdog agency said Monday.

The report released by the General Assembly's Program Evaluation Division reviewed how agencies tracked $694 million distributed during the 2007-08 fiscal year to nonprofits.

The report found there's no streamlined process to evaluate if the money is meeting expected outcomes, which means there are varying levels of accountability across state government.

"Right now, we have a game of checkers with no spaces on the board," John Turcotte, the division's director, told lawmakers. "It's just a hodgepodge from agency to agency."

The Legislature toughened reporting requirements earlier this decade after a state auditor's report questioned expenses by a nonprofit foundation started with help of state funds secured by then-state Sen. Frank Ballance. Ballance ultimately went to federal prison after pleading guilty to conspiring to divert foundation money to his family and others.

State agency oversight is important because 94 percent of the 2,758 nonprofits receive or spend less than $500,000 in funds annually, the report said. Under that threshold, the nonprofits only must file annual reports with line-item expenditures but aren't required to document those expenses and or get an outside audit.

"These forms ... may be only worth the value of the paper they're written on," said Carol Ripple, the report's primary author.

About 7 percent of the nonprofit recipients got 79 percent, of $549 million, of the 2007-08 funds, led by the Rural Economic Development Center with $145 million and the Child Care Services Association with $25.4 million.

Even grantees who spend at least $500,000 must file annual audits don't necessarily provide more detailed information to the agencies or the state budget office, the report said.

Lawmakers should require grantees to provide more information about the number of people served or services delivered so state officials can determine whether the state got a good return on the money invested, according to the report.

The division said nonprofits also should be required to file financial reports within 90 days of the end of the state's fiscal year because the current system can lead to delays.

The report also recommended that lawmakers:

- Move away from earmarking, or identifying grant recipients, in legislation and toward competitive grant processes.

- Withhold up 2 percent of state grant money to fund oversight activities by the state budget office and agencies.

- Direct the State Controller's Office to electronically stop payments to nonprofits that aren't complying with reporting requirements.

Lawmakers who heard the presentation said they supported better oversight, but at least one was frustrated because he's been unable to get solid information on what percentage of nonprofit grantees aren't following the rules. Sen. Martin Nesbitt, D-Buncombe, said he didn't want to needlessly place more requirements on smaller nonprofits that have few people to file paperwork.

"I don't want to create any more of a convoluted system," Nesbitt said.

State Budget Director Charles Perusse and State Auditor Beth Wood, in written responses to the division, generally agreed with the recommendations, which would have to be approved by the full Legislature.

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