Festival audit finds $2 million loss

RALEIGH -- A state audit of the tall ships festival at Beaufort last year and a related land transaction found that the event was beset by numerous problems and ended up losing nearly $2 million.

Part of the turmoil is over a 36-acre piece of land controlled by a foundation related to the N.C. Maritime Museum. The land was supposed to have been deeded to the state years ago, but never was.

The museum foundation borrowed money against the land, but then couldn't meet those obligations. The state stepped in and paid for the land yet again last October, causing controversy.

The issue has been a heated one in Carteret County, where the tall ships festival didn't live up to expectations.

The event, which drew an estimated 160,000 people over the Fourth of July weekend to tour 13 ships, was run by Friends of the N.C. Maritime Museum and Pepsi Americas' Sail.

The festival became notorious for long lines of hot, angry tourists and a state-sponsored cruise for public officials that became an emblem of privilege.

State Auditor Les Merritt had raised concerns about the deal and began an audit.

Among the audit's findings:

* The tall ships event lost $2 million when it was predicted to generate a $2 million to $4 million profit. The auditor's report said several factors led to the losses, including a failure by the two lead organizations to limit costs "through inadequate planning, unrealistic attendance estimates, and failing to designate one individual or committee to ultimately manage or control the event."

* The state paid for land on Gallant's Channel in Carteret County the first time in the 1990s but had no signed agreement about its ownership or use.

* Two state agencies -- the Department of Agriculture and the Department of Cultural Resources -- violated regulations of a national grant program and skirted state laws. They paid for the 36 acres without having documents or plans in place to actually acquire it.

* The state's Property Office failed to complete the purchase of the land after Council of State approval in the late 1990s.

* The Council of State was not told of outstanding liens against the property, totalling $434,000, when it voted to acquire it again in October 2006.