NC IOLTA, a state bar program, uses the income generated from interest on lawyers' trust accounts to fund civil legal services and improve access to justice in the Tar Heel state. State Auditor Dave Boliek released a report Tuesday confirming the process for awarding those grants is in compliance.
Namely, the report found that grants are going to eligible 501(c)(3) nonprofits that serve the people of North Carolina. But once they are doled out, Boliek said, program administrators aren't monitoring recipients to make sure the money is being used for "allowable, approved, and intended purposes." The auditor recommended the state bar shore up post-award compliance measures to test how grant money is being spent, and to track results.
Tuesday's report comes amid a legislative funding freeze that has left the NC IOLTA grant program in limbo since last summer. Republicans had expressed fears that the grants were going to what they view as left-leaning organizations that promote diversity, equity and inclusion initiatives. They asked the North Carolina State Bar to appear before a House committee in October to help decipher how the money is being spent.
NC IOLTA could not open the 2026 grant cycle because of the funding freeze, which is expected to last until June 30.
In a statement announcing his report, Boliek, a Republican, claimed his office's audit revealed that "IOLTA grants are going to organizations with clearly partisan, political agendas."
"With IOLTA's revenues and grant payments surging, it's incumbent that the flow of dollars is met with additional scrutiny to ensure proper use," he said.
In a letter from the state bar included in the report, executive director Peter G. Bolac noted the auditor's report confirmed that NC IOLTA's grant-making process complies with the rules and policies governing how the program is administered.
He also said the report "does not identify any instance of a grantee misappropriating or misusing grant funds."
Bolac said in a statement Tuesday after the report's release that it "demonstrates NC IOLTA's steady, focused commitment to achieving our mission with the highest standards for how we work."
"The audit affirms that our grantmaking meets all eligibility requirements," he continued. "We welcome opportunities to further strengthen how we measure and report the impact of this important work."
Report Criticizes Lack of Follow Up
Revenue from NC IOLTA has skyrocketed in recent years, climbing "by more than 450% to $16.7 million in 2024," according to the auditor's report. The revenue is used to both cover administrative costs of the program and fund grants to nonprofits chosen by the NC IOLTA board.
The largest recipient of NC IOLTA funding is Legal Aid of North Carolina, a nonprofit that provides free legal services to individuals who could not otherwise afford them.
Legal Aid of North Carolina CEO Ashley Campbell previously told Law360 the organization does not engage in any political advocacy or lobbying. In fact, she said, it is strictly forbidden from doing so because it accepts federal funding through the Legal Services Corp., a public nonprofit that finances civil legal aid across the country.
As a result of the funding freeze, Legal Aid of North Carolina has been forced to shutter some of its offices in rural communities and lay off nearly 50 employees, according to a news release it sent to Law360 on Wednesday in response to the auditor's report. With fewer offices and staff, Legal Aid said it expects to serve 8,000 fewer people in 2026.
The state auditor's report noted Legal Aid received $4.5 million in NC IOLTA grant funding in 2024. More than $1 million each went to the North Carolina Justice Center and Pisgah Legal Services, while another $555,000 was awarded to the Charlotte Center for Legal Advocacy.
But the auditor's office said NC IOLTA did not follow up with recipients to ensure the money was used as intended.
At least 75% of a random selection of grant applications received between January 2023 and June 2025 also lacked information about goals and objectives, the report states. In the same time frame, the auditor's office said NC IOLTA administrators reviewed reports from the organizations that received grants about their budgets, but did not independently verify that the information was accurate, choosing instead to accept them "at face value."
In response, Legal Aid of North Carolina said it communicated both its goals and results as part of the grant reporting process and "consistently demonstrated that it is a responsible steward of IOLTA funds." The nonprofit touted serving more than 21,000 clients last year, including helping prevent evictions and foreclosures and secure domestic violence protection orders.
The state bar also noted in its letter that applicants are required to estimate how many clients they expect to serve using the grant money. If they are approved, the bar said those recipients must send "quarterly or semi-annual reports documenting their progress toward that core goal."
The audit was conducted between 2023 and 2025. After the close of the review period in December 2025, the state bar said NC IOLTA started requiring additional reporting metrics, including more detailed reports of client outcomes, such as the number of domestic violence orders obtained and settlements reached.
As to the alleged lack of monitoring of recipients that receive NC IOLTA grants, the bar said it has to balance keeping overhead costs low while maximizing money available for civil legal services.
Still, the bar said it plans to require more stringent monitoring going forward, including requiring any recipient that gets more than $100,000 in grant funding to provide a separate audit "that tests internal controls and compliance with IOLTA grant restrictions." According to its letter, that would encompass more than 86% of all grant recipients by 2025's metrics.
Grant recipients who receive less than $100,000 would be subject to site visits to verify the information they provide to NC IOLTA, the bar said.
"We believe these initiatives, taken as a whole, are responsive and adequate to meet the concerns identified in the audit report," Bolac wrote in concluding the letter.
Auditor Pushes for More Oversight
To combat the reported lack of oversight, the auditor's office recommended NC IOLTA staff test what grant recipients are reporting using the grant funding for against their payroll records, invoices and receipts each grant year.
The auditor also recommended requiring recipients to provide case listings or other metrics to show outcomes, and said NC IOLTA staff should create correction action plans in instances where recipients are out of compliance.
The report requested that staff design the recommended improvements and present them to the NC IOLTA board of trustees for approval within six months.
In its response, Legal Aid of North Carolina said it would support additional grant monitoring despite already operating "under extensive oversight and accountability measures," including regular financial audits and internal controls. Its most recent audit for fiscal year 2025 was clean, the nonprofit said.
Legal Aid also noted it gives the bar "regular, detailed reports" as a condition of receiving NC IOLTA funding. Those reports include case and client data, geographic information, breakdowns of the types of cases, explanations of the services provided, and documentation of how the IOLTA grant money is being allocated, the nonprofit said.
"IOLTA funding is essential to ensuring access to justice for people who otherwise could not afford legal help," Campbell said in a statement. "Our recent independent audit confirms that Legal Aid of North Carolina manages resources responsibly, complies fully with all requirements, and delivers meaningful results for the people we serve."
NC IOLTA executive director Mary L. Irvine said in a statement Tuesday that the board and staff have "strived to follow best practices as an IOLTA program and funder" since the program started in 1983.
"We were gratified to have the opportunity to demonstrate that commitment — and our adherence to all current NC IOLTA regulations — throughout the audit," she continued. "We believe this transparent and open process has provided the Office of State Auditor with a clear and thorough understanding of our important work and will result in an even stronger program going forward."
--Editing by Adam LoBelia.
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