Some financially strapped small and rural local governments across North Carolina are struggling to file on-time audits with the state, and that has prompted State Treasurer Dale Folwell to call on regulators to take a more active role in addressing the issue before serious problems like careless spending or even embezzlement occur.
“Many small and cash-challenged local governments do not have trained staff, and in many sparsely populated areas, there are few if any outside private resources capable of balancing government bank accounts and writing financial statements,” Folwell said in a press release. “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 that their elected and appointed officials are being faithful stewards of their hard-earned tax money.”
The Local Government Commission 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.
Folwell said some audit firms have been slow in completing local government audits or not communicating or responding to queries about the status of outstanding audits.
At a recent meeting of the LGC, he recommended that the N.C. State Board of Certified Public Accountant Examiners attend future meetings of the Commission to get a first-hand look at the problems. The press release said that Beth Wood, N.C. state auditor, 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.
Folwell suggested in the press release that as a last resort, dechartering could be an option for communities facing financial hardships. 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.
He said they have been working with the General Assembly and thanked them for passing S.B. 473, S.B. 314, and S.B. 265, which are all bills aimed at local government transparency and LGC “Toolkits,” but he said more needs to be done, including updating the “toolkit” in the future.
“When we mention that we are working with legislators, we want to make sure that they understand when one of these communities within their district is not getting access to capital, it is important to understand why,” Folwell told Carolina Journal. He said some of the five local governments that came to the meeting entered into five-year contracts with auditing firms and haven’t received anything in return.
Auditing sheds a light on issues such as careless spending. “Some of these communities were broke, but they were going out and procuring fire trucks that cost hundreds of thousands of dollars,” Folwell gave as an example. “In some instances, they were doing this because of the limitation of how much you can borrow without notifying the LGC.” He said communities would split purchases up instead of having one big purchase, which would put them over their limit. The new law corrects this.
He said they are also trying to create safety nets with the audits to keep things like what happened with Spring Lake from happening in the future. Former Spring Lake finance director Gay Cameron Tucker is accused of embezzling more than $500,000 from the town, according to a news release from the U.S. attorney’s office. Tucker “carried out the embezzlement through fraudulent checks containing forged signatures of the mayor and town manager,” according to the indictment.
“We have a cancelled check from a person who forged nursing home checks of hundreds of thousands of dollars off the town of Spring Lake to the nursing home and put her mother’s name on the memo line. Auditors should have caught that,” he said.
Folwell says there is also a felony forfeiture law that allows the state to take a pension away from the period of time that a person is indicted or convicted of embezzlement or a sex crime, etc.
He said property taxes for many low and fixed-income citizens are the highest tax burden they have. “For them to know that their money is properly going toward the essential services is very important to me.”