Audit finds $397,171 in misappropriated NC block grant funding

kreilly@newsobserver.comFebruary 18, 2014 

An internal audit of the state’s Community Development Block Grant program found $397,171 was misappropriated by Michael Walser, an employee of the community planning and engineering firm Hobbs, Upchurch and Associates.

The firm was hired by local governments to carry out projects funded by the block grant program. The audit focused on the 26 local governments for which Walser was a project administrator between January 2007 and December 2012.

The N.C. Office of State Budget and Management said Walser misused funds for 10 of those local governments. All of the misuse involved payments to Tri-County Development and Carolina Governmental Services, both owned by Walser.

“He was getting checks written to companies that he controlled directly,” said Fred Hobbs, co-owner of Hobbs, Upchurch and Associates and a former Democratic state senator.

Hobbs was not implicated in the audit. Walser no longer works for the firm.

The report concluded that lack of internal controls and inadequate oversight by local governments provided opportunities for Walser to mismanage assets and ignore contract requirements.

The investigation found Tri-County Development was paid $271,547 for services that had been performed by other contractors. It also found $122,190 of questionable payments to both Tri-County Development and Carolina Governmental Services.

Yadkin County was one of the local governments affected. County Manager Aaron Church said both Hobbs and Walser initially denied wrongdoing when the misuse was first reported in 2011.

“I think it’s clear, three years later, that there was wrongdoing,” Church said.

He said the county has changed its procedures for hiring third-party firms.

The report on how the money was handled was turned over to the State Bureau of Investigation earlier this month, the Commerce Department said in a statement. SBI spokeswoman Noelle Talley did not respond to a message from The Associated Press seeking comment.

The report recommended that the Department of Commerce better monitor local governments by requiring a risk assessment for each grantee at the time of the award and increasing the number of on-site monitors. It recommended local governments enhance internal controls and appropriate funds to adequately staff oversight of the grants.

Hobbs said his firm has also changed its business practices in light of the findings. “We just have a much closer rein on what people do, and we do it all out of Southern Pines now,” Hobbs said.

Hobbs said he does not know how much business his firm has lost as a result of the misappropriated funds.

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