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RALEIGH (AP) — The foundation managing half of North Carolina's share of the national tobacco settlement violated open meetings laws and could be better protected from investment risk and political influence, State Auditor Beth Wood's office said Monday.

The audit said the Golden LEAF foundation, which has awarded $393 million in grants to help tobacco-dependent and economically troubled areas since 2000, approved a $15 million investment to lure a beverage company to the state in a 2005 private board meeting that was closed to the public.

The Rocky Mount-based foundation is chartered by the Legislature and subject to the state's open meetings law. Auditors said the group also initially failed to provide minutes from 29 of the panel's 429 meetings.

"As a result, operational transparency and the public's right to monitor the administration of state funds were compromised," the audit said.

The auditors decided foundation staff were uncooperative to the point that they couldn't be sure the audit is based on their complete review of records.

Foundation President Dan Gerlach said some open meetings mistakes were made but disagreed with Wood's "limited scope" label on the audit. He said auditors arrived just before he became president in October 2008 and as the foundation tried to protect its assets as financial markets collapsed.

Golden LEAF defended its investment practices, saying the foundation has different objectives from other state funds because it awards grants, and it follows a code of ethics when determining how investments are made.

"We have a model conflict of interest policy," Gerlach said in an interview. "Our policy is like that of other foundations."

The General Assembly created the Golden Long-term Economic Advancement Foundation in 1999 to distribute half of the $4.6 billion that North Carolina is expected to receive from cigarette companies.

Gerlach, a former budget adviser to Gov. Mike Easley, acknowledged the board shouldn't have approved in closed session the $15 million grant to lure Gatorade to build a plant in Edgecombe County. The foundation's other 824 grants have been approved property, he said. The grant was rescinded 60 days later in an open meeting.

Gerlach and the auditors said the foundation had improved their open meetings and minutes procedures since the audit began.

Wood's review asked Gov. Beverly Perdue and the Legislature to consider whether laws should be changed to make foundation members subject to state ethics laws when it decides how it will use the foundation's $550 million in assets. The governor, House speaker and Senate president pro tempore appoint the 15 board members.

The ethics code doesn't subject violators to crimes or other penalties like the ethics laws would, auditors said.

With Gerlach offering some details, auditors pointed out situations where potential or political or financial influence was possible:

— the foundation invested up to $30 million in Hatteras Venture Partners, whose co-founder is well-connected political fundraiser John Crumpler.

— the foundation agreed in 2006 to invest $6 million in Charlotte-based Carousel Capital, who was co-founded by University of North Carolina system President Erskine Bowles and who remains a senior adviser. Bowles used to serve of the Golden LEAF board but had left by 2006.

— a board member voted for a $10 million biodiesel plant investment although he previously acknowleged his brother was on a board related to the project, which ultimately didn't occur.

Gerlach said the Hatteras and Carousel investments occurred after an extensive financial review. As for the biodiesel plant, the board member only voted to direct the president to sign a document, but "it was a mistake and we're not going to do that again."

Auditors also urged lawmakers and Perdue to consider limiting the foundation to the percentage of assets it can place in alternative investments, such as other state investment funds.

The audit also recommended better monitoring of grant recipients to ensure they are generating new investments for areas with high unemployment or where the tobacco industry is in decline.