Friday, July 15, 2022 - 00:00

Treasurer Folwell Says Regulators Can Help Solve Pressing Problems Local Government Commission Continues Grappling With Missing Government Audits

Local Government Commission Continues Grappling With Missing Government Audits
Raleigh, NC
Jul 15, 2022

(Raleigh, N.C.) — Some small and rural local governments already struggling with finances and fiscal reporting paperwork at times receive shabby or neglectful services from private auditing firms, and State Treasurer Dale R. Folwell is calling for regulators to take a more active role in addressing the problem.

At the July 12 meeting of the Local Government Commission (LGC) Treasurer Folwell, a CPA himself, recommended that the North Carolina State Board of Certified Public Accountant (CPA) Examiners attend future meetings of the Local Government Commission to get a first-hand look at the problems. State Auditor Beth Wood said she is considering reporting some auditing firms to the state board due to poor performance or failure to fulfill audit contract requirements, leaving local governments in noncompliance with state law.

The issue arose when LGC members were apprised that 12 local governments still have not submitted audits for 2020 and 2021, while two have not submitted audits for 2019, 2020 or 2021. The independent audit reports are required to be produced under NCGS 159-34(a). As part of a new accountability initiative, five of those local government units were directed to appear before the LGC to explain why their audits are missing.

“What we saw and heard at our meeting is similar to the issues and concerns we have been encountering across the state for years. We continue working with the General Assembly and our other partners to strengthen our ability to jointly solve these challenges,” said Treasurer Folwell, who chairs the LGC. He thanked the General Assembly for passage of Senate Bill 314 and Senate Bill 265, which provide the LGC with tools to assist local governments in fiscal distress.

But more needs to be done, he said, because the LGC staff is not nearly large enough to tackle the increasing volume of governments at risk. He plans to make a new set of recommendations for lawmakers to take up next year.

“Many small and cash-challenged local governments do not have trained staff. In many sparsely populated areas there are few if any outside private resources capable of balancing government bank accounts and writing financial statements,” Treasurer Folwell said. “That, in turn, can make a thorough, reliable audit extremely difficult. Without a trustworthy audit, we have no way of knowing if money is being mismanaged, lost or embezzled, and taxpayers can’t have confidence their elected and appointed officials are being faithful stewards of their hard-earned tax money.”

During Tuesday’s meeting some government officials explained why they were two and three years late on submitting audits. Lack of staff expertise and frequent personnel turnover are common problems. Audit firms can be slow to complete their work, and in some cases fail to communicate or respond to queries about the status of outstanding audits.

“In Engelhard we don’t even have a bank or a grocery store,” said Jo Ann Spencer, a board member of the Engelhard Sanitary District. There are no private CPA or auditing firms in the community, a resource vacuum many rural governments grapple with. She said she would be willing to merge or regionalize the sanitary district with a larger, better funded system. The LGC increasingly proposes that option to financially troubled utility districts. But Engelhard is geographically isolated, like many utility districts, making that alternative impractical. 

While LGC staff offered to help some units find an auditing service, Treasurer Folwell also suggested that dechartering could be an option. That would allow the towns to retain their name, history and heritage, but without the taxing authority or the auditing and other financial reporting requirements of incorporated municipalities.

The LGC sent letters to 14 government units concerning the late 2020 and 2021 audits, and all 14 responded. Five units did not provide sufficient explanation for the missing audits and were asked to appear before the LGC. They were Black Creek (Wilson County), Hamilton (Martin County), Lucama (Wilson County), Engelhard Sanitary District (Hyde County) and Swan Quarter Sanitary District (Hyde County). Lucama and Black Creek also have failed to provide an audit for 2019.

Badin (Stanly County), Bailey (Nash County), Green Level (Alamance County), Jackson (Northampton County), Micro (Johnston County), Newport (Carteret County), Ramseur (Randolph County), Ronda (Wilkes County) and Wilkesboro (Wilkes County) have not submitted audits for 2020 or 2021, but provided acceptable responses for the delays to LGC staff, together with a plan of action to bring the audits current.

In other business on the agenda, Stanly County received approval from the Local Government Commission (LGC) for  $11.4 million in private financing to erect an educational trades facility on Stanly Community College’s Albemarle campus.  

Stanly Community College, which serves about 10,000 students in curriculum, continuing education and basic skills classes, needs classroom space for new and existing programs for its School of Advanced Manufacturing, Industry, Technology and Trades (AMITT). Fields of training will include heavy equipment operations, electronics, building trades, welding and machining. The money will come through an installment purchase contract that allows the county to make partial payments over time. No tax increase is anticipated.

The LGC, chaired by State Treasurer Dale R. Folwell, CPA, and staffed by the Department of State Treasurer, approved the request at its meeting on Tuesday, July 12. The commission has a statutory duty to monitor the financial well-being of more than 1,100 local government units. The commission also examines whether the amount of money units borrow is adequate and reasonable for proposed projects, and confirms the governmental units can reasonably afford to repay the debt. 

LGC members approved a host of other financing requests including up to $2 million for a police station in Boiling Spring Lakes (Brunswick County). The town has grown from 245 residents in 1970 to about 6,000 currently, and is served by a Police Department of 16 full-time and five part-time personnel when fully staffed. The town wants to use the money to purchase and renovate a 2,617-square-foot former bank building and build a 2,500-square-foot addition for the police headquarters.

The towns of Henderson (Vance County) and Oxford (Granville County) and Warren County were given approval for revolving loans of nearly $32 million, $5.5 million, and $2 million, respectively, to upgrade the Kerr Lake Regional Water System’s water treatment plant. The improvements will increase treatment capacity from 13.97 million gallons to 20 million gallons daily. The regional water system serves portions of Vance, Granville, Warren and Franklin counties. Henderson, Oxford and Warren County are the system’s three bulk customers.

The LGC voted in favor of up to $14.1 million in hospital revenue bonds requested by Henderson County Hospital Corporation, which operates the Margaret R. Pardee Memorial Hospital in Hendersonville (Henderson County). The money will pay back the corporation for a variety of projects that are already completed. Those include acquisition of equipment and buildings and capital improvement projects. 

CarolinaEast Health System headquartered in New Bern (Craven County) received LGC approval to issue $52.3 million in bonds to refund the outstanding principal on a 2016 bond that paid for construction, expansion and renovation. The system’s flagship is the 350-bed CarolinaEast Medical Center, but it also operates diagnostic and surgery centers.

LGC members gave a green light to Inlivian, formerly known as the Charlotte Housing Authority (Mecklenburg County), for up to $19.5 million in bonds to be loaned to West Boulevard Historic Preservation LLC. The money will finance a portion of the cost to acquire, build and equip a multifamily rental housing development comprising 60 one-bed and 60 two-bed units for seniors to be known as Historic Nathaniel Carr Senior Community.

Inlivian also asked for approval of a $5 million increase to a previous $23 million bond for construction of Sugar Creek apartments, and a switch to a different funding source for $20.8 million for the Union at Tryon project. Increased costs and interest rates were the catalyst for those revisions. The LGC approved both items.

LGC members also approved a number of other financing requests. They were from:

Government Unit Amount/Purpose
Albemarle (Stanly County) $6.1 million revolving loan to replace aged sewer lines
Waynesville (Haywood County) $5 million increase to a $19 million state revolving loan for a wastewater treatment plant project
High Point Housing Authority (Guilford County) $3 million increase to existing $11 million bond for Daniel Brooks Homes Phase I multifamily housing due to rising construction costs
Woodfin (Buncombe County) $2.3 million installment contract to repair and resurface town streets
Bessemer City (Gaston County) $1.3 million revolving loan to replace pump station and avoid sanitary sewer overflows during wet conditions
Beech Mountain (Avery and Watauga counties) $354,107 increase to $1.7 million state revolving loan for water line work