HARRISBURG -- The state awarded $2.4 million in tax dollars to a Beaver County nonprofit in 2004, even though records showed that audits from prior grants were months overdue and those that had been submitted revealed problems.

The funds stopped flowing in 2005, but there is dispute as to why. State officials said they moved to cut funding for Beaver Initiative for Growth -- also known as BIG -- because of poor financial reporting.

But representatives from BIG said they halted the money stream because the nonprofit was closing and didn't want any more state money.

"I never heard anyone say they were cutting us off. We said, 'We are no longer going to accept these grants because we were shutting down,' " said BIG's chief financial officer, Cynthia L. Vannoy. An April 2007 letter from Ms. Vannoy to the Department of Community and Economic Development backs that up.

DCED, which oversees grants, insists it made the decision to cut funding because of missing, late and flawed audits and closeout reports, which are required six months after funding periods end.

"They were not completing their audits and the audits they did submit had findings they were failing to put grants into interest-bearing accounts, and that the people writing checks were not sufficiently insured," said department spokesman Mark Shade. "We said we're withdrawing funding [for three grants that had been approved but not yet paid] and we're not going to provide any more to them."

When BIG's officers decided to dissolve the nonprofit in spring 2006, three grants were still in the pipeline and DCED's former secretary, Dennis Yablonsky, was still referring to the nonprofit as "a good partner" and a "valid recipient."

BIG closed because its founder, state Rep. Mike Veon, lost his re-election campaign and resigned from the nonprofit around the time of his arrest in a government corruption scheme that also involved some of BIG's employees. Prosecutors say those BIG employees, some of whom also had state jobs, received taxpayer-funded bonuses for campaign work, which is illegal. Meanwhile, a separate grand jury meeting in Pittsburgh had begun an inquiry into whether Mr. Veon was using BIG as his personal piggy bank to pay campaign expenses and to funnel money to a consulting firm that employed his brother.

Ms. Vannoy provided records to the Post-Gazette showing that BIG now has four outstanding audits, not 18, as DCED indicated last week. She acknowledged that the audits should have been turned in by now, and that one is for a grant awarded nearly six years ago.

Reached Tuesday, Mr. Shade said he initially misspoke.

Mr. Shade could not immediately provide invoices and receipts for BIG expenditures and could not say whether BIG had submitted any.

State Rep. Craig Dally said DCED's record keeping doesn't instill confidence.

DCED has become a clearinghouse for what has become known as "walking around money" or WAMs -- discretionary funds that lawmakers release for community projects in their districts to curry favor with constituents and voters.

Attorney General Tom Corbett blames Mr. Veon as well as DCED for the problems. At a recent news conference, Mr. Corbett said the department failed to ensure grant money was used properly. He said DCED should have been concerned that only a fraction of BIG's grant funds were going to programs that benefitted communities while 77 percent went to administrative costs, salaries and consulting firms, including Delta Development, which employed Mr. Veon's brother Mark.

DCED does use more than just audits to oversee the use of grants. In BIG's case, in-person compliance checks began in 2006, when it became clear that the nonprofit was at the center of a grand jury investigation, Ms. Vannoy said.

Audits that DCED was able to provide to the Post-Gazette reveal problems, including a failure to get approval for changes in how grants would be spent. For example, BIG spent $109,297 on salaries and benefits for Marie DeMarco, manager of a Main Street revitalization program, instead of the $56,000 budgeted in an application for a 2005 grant.

DCED also provided copies of grant applications submitted by BIG since 2001. They reveal that at times grants were awarded based on vague descriptions of projects, including some that never came to fruition and one that appears to have been funded twice.

For example, in 2004, the state provided $75,000 so BIG could create a secure Web site that would track the status of economic development projects using "a project matrix with pertinent information concerning projects, timelines, priority lists and task lists."

A year later, in a subsequent grant application, BIG requested $518,000 for consultants whose tasks were described the same word-for-word as in the application for the 2004 grant. DCED approved the funding.

Although both applications said the Web site was "just now being considered," Ms. Vannoy said Monday that the site already was running when BIG applied for the second grant. The additional funding was for improvements, she said.

DCED awarded other funding based on several applications that used identical language to describe how the money would be spent: "to supplement existing resources, to retain [staff] and provide working capital to assist in feasibility and other aspects of economic development, with the possibility of hiring additional staff."

BIG's former executive director John Gallo testified before a Pittsburgh grand jury that applications were intentionally vague. He told grand jurors that Annamarie Perretta-Rosepink, who was Mr. Veon's top aide during his House tenure and also helped run BIG, and Colleen Kopp, a former Veon aide who now works for Gov. Ed Rendell, told him: "This is legislative earmarks. It doesn't have to go through the process so ignore what it says on the grant application."

Mr. Shade said BIG's standard description of its mission, which was included with the applications, may have been enough for grant screeners who were already familiar with the nonprofit.

Grant screeners look to see that applications are complete, that they satisfy legal requirements and that they fall within program guidelines. "If [the applicants] do those three things, then its our assumption that we take the rest on face value -- that what they are saying is what they are going to do," he said.

DCED expects to demand back any money BIG may have spent improperly, Mr. Shade said. He had no estimate of what that amount could be.

It is clear that BIG did invest some of its state-provided resources in lasting projects that benefitted the region.

For example, the nonprofit demolished 66 blighted structures in Midland and Beaver Falls, including the Moltrup Steel plant.

The effort returned properties to the tax rolls, eliminated eyesores and paved the way for construction of new homes, Ms. Vannoy said. BIG used proceeds from the sale of the blighted buildings to invest in landscaping and other beautification projects in the community, she said.

BIG also developed baseball fields, commissioned a public broadband study that laid the groundwork for Beaver Intermediate Unit to get Internet access, joined with other agencies to build New Brighton Fishing Park and created a consortium to help 10 riverfront communities coordinate efforts to improve recreation, promote tourism and attract businesses.

"It's disappointing, what has happened with BIG," Ms. Vannoy said.

"There were a lot of good things that happened as a result of what we did, but people think we missed the mark because of all the controversy around us."