Lawmakers heard Monday that the state’s massive Medicaid program was in the hole at the end of last year’s fiscal year, despite prior statements by state health officials that the program finished that year with a surplus.

The Medicaid program had $350 million in liabilities for 2013-14, not the surplus of $63.4 million highlighted last fall by the N.C. Department of Health and Human Services, according to the 127-page financial audit released Monday.

The financial discrepancy was discussed Monday by N.C. State Auditor Beth Wood, as she spoke to the Joint Legislative Program Evaluation Oversight Committee about the DHHS financial audit conducted by her office.

The $350 million deficit represented prior liabilities that had been accrued over years, and wasn’t a cash deficit due to the agency overspending its budget by that much in a single year, said Wood, an elected Democrat.

The state’s $14 billion Medicaid program, funded with both federal and state dollars, is the state’s largest expenditure. The mandated federal program provides health care for low-income seniors, disabled persons, children and their families.

North Carolina is one of several Republican-led states rejecting Medicaid expansion (and federal dollars) offered up as part of the Affordable Care Act that would extend coverage to hundreds of thousands North Carolinians currently without affordable health care options.

Gov. Pat McCrory and Republican legislative leaders have pointed to Medicaid overruns and difficulties projecting its budgets as reasons to not expand Medicaid.

The audit may play into frustrations some at the Republican-controlled legislature have had with DHHS, as lawmakers are considering contracting with managed care organizations to run the $14 billion program or transferring the program to a stand-alone agency.

Wood’s audit (click here to read) was ordered up last year at the behest of the state legislature and cost $1.4 million to produce. It looked at the detailed financial statements of DHHS’ 10 divisions, a type of analysis that Wood said hadn’t been conducted in the last 20 years.

Similar audits on the state’s public instruction and public safety department are forthcoming.

“It gives you a better economic picture,” Wood told lawmakers. “We were surprised to see the spending in some areas and the lack of spending in other areas.”

Wood said the audit will give lawmakers an idea if the budgets they are setting for the agency are covering the real costs of programs.

DHHS officials released a press release saying Wood’s audit offered a “clean financial bill of health” as it found no material weaknesses. The agency also received word late last week that the federal government was certifying its Medicaid billing system, NC Tracks, nearly two years after its troubled launch. The certification will bring $19 million more in federal funds to pay for the system.

N.C. Health and Human Service Secretary Aldona Wos, a Greensboro physician and prominent Republican fundraiser appointed by McCrory in 2013, told lawmakers in September that the department finished the year with a surplus, and did not mention the liabilities Wood pointed out in her audit.

“This is the first time in five years that the Division of Medical Assistance has not asked for hundreds of millions of dollars extra,” Wos told an Associated Press reporter in September. “We are so proud of that.”

After Monday’s meeting, DHHS Chief Financial Officer Rod Davis said the $350 million in liabilities uncovered by the audit was “not a real number” and reiterated that the agency is on solid financial ground. The agency did reduce the debt, which Davis said has been on the books since 2009, by $58 million from 2013 to 2014.

“You don’t fix it in one biennium,” Davis said, referring to the state’s two-year budget cycles.

The $350 million liability didn’t appear to overly concern lawmakers who attended Monday’s meeting.

State Rep. Nelson Dollar remarked that the Medicaid program’s size means that there are often outstanding bills, and the audit stated that, overall, the financial books at DHHS were in order.

“Material weaknesses were not found as part of the audit,” Dollar said.

Want to see the numbers for yourself? You can read the audit by clicking here.

Reporter Sarah Ovaska can be reached at (919) 861-1463 or [email protected].