Improper monitoring of expenditures led to a $1.5 million shortfall at the government-funded nonprofit North Carolina Autism Society, the state auditor said Thursday.

Read: Full Investigative Report

Leslie Merritt said in the investigative report that the financial problems led to the resignation of the society's executive director, dismissal of the finance director and layoffs of seven employees. Because of the shortfall, the society was forced to sell assets to meet its payroll and other expenses, the auditor said.

"Responsibility for the success or failure of a nonprofit like the Autism Society rests dually with management and with the board of directors," Merritt said. "In this case, the board did not appear to be engaged to the point of asking appropriate questions and following up on issues related to the Society's financial condition."

The society's $11 million annual budget consists primarily of government funds, Merritt said. Since 2003, the group has received $45 million, including direct appropriations and payments from Medicaid and the State Mental Health Program.

The audit was conducted between January and June after Merritt's office received a hot line tip.

Society President Dr. F. Whitney Jones Jr. said in a written response to the audit that the group recognizes the need for improved financial oversight.

"As your review notes, one of the major causes of the deficit was providing services that were not funded but were consistent with the mission of the organization," Jones said.

The agency is an advocate for individuals and families with autism issues and provides public education about the needs of those with autism.

Jones said new controls include managers monitoring daily cash flow and requiring two authorizations to borrow from a line of credit and to liquidate assets.

The society also was told in 2006 that it had violated federal labor laws and was required to pay $191,840 in overtime to employees, the report said.

Auditors also called for stricter controls on agency credit cards, which are used to pay expenses for some autism programs. The audit said there were questionable charges totaling $2,673 on the finance director's card for staff appreciation lunches, baby showers and gifts.

Jones said stricter credit card controls are in place, including a requirement that any purchase more than $200 be approved in advance.

The society has facilities in Asheville, Charlotte, Fayetteville, Greensboro, Greenville, Laurinburg, New Bern, and Raleigh.