Behind the $45 million reporting error from North Carolina Central University

The North Carolina Office of the State Auditor found significant financial reporting errors by N.C. Central University for the third time since 2021. This year’s audit, released last month, found more than $45 million in financial reporting errors from the 2023-24 fiscal year. 

The $45 million reporting error is comprised of a series of misclassified donations, scholarships, federal grants and other services and supplies, according to the report. Accounting errors tracking things like cash flow and payments led to multimillion dollar overstatements in the accounting recording. Scholarships and fellowships were understated, according to the report. 

Bill Mayew, an accounting professor at Duke University, said the goal in financial fraud cases would usually be to create an economic picture that’s more favorable than it really is. He said NCCU’s transactions were relatively random, with some numbers being overstated and some being understated, which could signify that the university did not commit fraud.

Lynn Dikolli, an accounting professor at UNC, said the $4.9 million cash overstatement from inaccurate journal entries stood out to her. Dikolli said NCCU makes decisions based on how much cash they believe they have, but the reporting errors provide an inaccurate financial picture. 

OSA Public Information Manager Randy Brechbiel wrote in an email that OSA performs these audits for the state of North Carolina, which includes state agencies and public universities. 

“The objective of a financial statement audit is to determine whether an agency’s financial statements are fairly presented,” Brechbiel said in the email. 

OSA’s report stated that NCCU management could have made financial decisions on unreliable or incomplete information. 

Donated capital assets, like property, were misclassified, according to the report. Dikolli said this could impact donors who intended to have targeted donations for specific departments or expenditures. 

“You want to make sure when you donate money to an institution that it goes to whatever objective you have with the donation,” Dikolli said. 

In order to stop financial reporting errors, internal controls are put in place to prevent, detect or correct financial misreporting. OSA’s report stated that NCCU’s internal controls were inadequate.

OSA’s 2021 and 2023 report, which also highlighted reported overstatement by millions of dollars, attributed previous inadequate internal controls to turnover among financial reporting staff. 

“It's hard for companies across the board right now to find the correct labor to underpin the infrastructure for financial reports, and it goes anywhere from a university to a public corporation,” Mayew said. 

Dikolli said there are internal auditors for every institution in the N.C. system. She said they test throughout the year to make sure everyone is following the policies, processes and the controls that have been put in place. 

“That's one area that I would take a look at," Dikolli said. "Is the internal audit group sufficiently resourced, and what's happening? Who listens to their findings?”

NCCU hired a new chancellor, Karrie Dixon — who has experience in improving internal controls — last June, who has achieved clean audits as chancellor at Elizabeth City State University. In February, Laurie Wilcox, who has an extensive background in university accounting, became the university's vice chancellor for administration and finance. 

In the report, State Auditor Dave Boliek said he has confidence that NCCU is on a better path.

“When you hire at the top with expertise, the idea is that it would trickle down, and they'd be able to hire the appropriate staff,” Mayew said. “And by making that change, I think they've already made the state of North Carolina appear that they're taking corrective action at the top.” 

@DTHCityState | city@dailytarheel.com