By Kathy Chaffin

Salisbury Post

EAST SPENCER — Partly because of problems his auditors found in the ARISE youth mentoring program here, State Auditor Leslie W. Merritt Jr. launched a new initiative Monday to track state and federal "pass-through" grants to nonprofits.

Another reason for the initiative is a new summary report released by the State Auditor's Office in conjunction with the Local Government Commission revealing a total of $13 billion in grant funds going to local governments, $180 million of which goes to sub-grantees such as ARISE.

"North Carolina's taxpayers have a significant problem," Merritt said in a press release, "if a large amount of grant dollars are funneling through local governments to nonprofits and proper active monitoring is not in place."

The new initiative, he added, "should confirm whether my suspicions are true that both the state and local governments believe that the other is monitoring the $13 billion in grants, but neither is doing much monitoring."

Chris Mears, spokesman for the State Auditor's Office, said in a telephone interview Monday that the ARISE (At-Risk Intervention of Social Enhancement) Structured Day Program review "is the first clear example of a state and federal pass-through grant being mismanaged."

Merritt went on to say in the press release that the town of East Spencer had agreed to "provide monitoring of the grants but later stated in the review that they bore no responsibility to conduct programmatic monitoring." The review, prompted by an anonymous tip that grant funds were being used improperly, "confirmed the lack of active monitoring even though the town did confirm that receipts were attached for all requested reimbursements."

"While I think that East Spencer is just being honest," Merritt said, "my primary concern is that this review could indicate a widespread problem that could be exploited.

"If a shepherd thinks the sheepdog is watching the sheep and vice versa, it is all too easy for a wolf to sneak in and steal from the flock, or in our case, $180 million of taxpayer money."

Besides saying there was no consistent documentation of students served through the ARISE program, state auditors found that the program gave more than $23,000 — mostly in cash payments — to the Rev. Eric Henley and his wife in addition to his salary as program director. Henley said he and his wife had loaned the program the money in advance, though auditors found no documentation for the loan.

Henley said he had done nothing wrong and had provided documentation on all of the areas addressed in the review.

Samuel A. Washington, chairman of the ARISE board of directors, said he and the other board members were aware that Henley would be using more than $20,000 of his personal funds to enable the program to operate prior to the receipt of the reimbursement grant funds.

The review also found that there was no consistent documentation of students served and that ARISE had incurred $1,152 in nonsufficient funds fees between August of 2006 and August of 2007 due to poor cash management.

Funding to the program — aimed at reducing the dropout rate for youths between the ages of 10 and 15 in East Spencer, Spencer and Salisbury — was suspended in March. At that point, ARISE had received $81,638 of an original grant of $145,000 awarded by the Governor's Crime Commission.

Attempts to reach the Grants Management Section of the Governor's Crime Commission for comment on the ARISE review were unsuccessful.

Mears said current state laws do not require the State Auditor's Office to track state and federal pass-through grants, which are awarded to local government entities to be forwarded to nonprofits or grants to the university system.

At least with grants awarded to the university system, he said the State Auditor's Office is provided a summary report of the grants.

"So these grants through local government are the last remaining loophole that we believe this new initiative will fill," Mears said.

Contact Kathy Chaffin at 704-797-4249 or kchaffin@salisburypost.com.