Update: After publication, LCFWASA’s director informed Port City Daily its inclusion on the unit assistance list was in error. Port City Daily removed references to the utility and included an update notice stating as much. In September, Port City Daily learned the inclusion was not in error. The article appears as originally published below:
CAPE FEAR REGION — Pender County, the Lower Cape Fear Water Utility Authority, and six regional towns were included on the state’s 2020 Unit Assistance List (UAL) due to concerns of subpar financial management.
The list is determined by the Local Government Commission, a state body of elected officials and appointees that oversees financial management of local governments statewide and approves government loans.
In December, North Carolina State Treasurer Dale Folwell said he hoped a proposed bill in the General Assembly would give the Local Government Commission “teeth” in its oversight of statewide government bodies. The LGC is part of the North Carolina Treasurer’s office.
Though the LGC is tasked with overseeing the finances of local state governments, it has no actual punitive arm to enforce good financial practices, short of assuming a town’s finances entirely — a dramatic action taken as a last resort.
Some towns, like Kingstown just east of Charlotte, have had their finances recently taken over by the LGC.
The state-level agency’s most recent UAL as of December 2020, includes more than 100 towns, counties, and public utility authorities with budget problems, issues paying utility bills, or shoddy record-keeping and reporting practices.
Regional governmental bodies that landed on the list include Pender County, Lower Cape Fear Water and Sewer Authority (the region’s largest water supplier), Southport, Navassa, Atkinson, Northwest, Holly Ridge, and Belville. It noted Belville had not yet submitted its audits, due in October, by the time of its December publication.
One official was even caught off guard that his town was included. When asked to describe the factors that led to the LGC placing Holly Ridge in southern Onslow County on the UAL list, Mayor Jeff Wenzel said he had “no idea what [Port City Daily] was talking about.”
“We haven’t been notified of being on a list,” he said early Friday evening.
In December, Folwell said his office intended to push for new state measures in future legislative sessions to encourage local governments to more responsibly control their finances. One proposed measure is placing towns under a “historical charter” status, which would remove its ability to control its finances but allow it to retain municipal identity.
Folwell said he hopes the struggling towns feel pulled toward this option by choice, rather than pushed into it. “We’re not trying to push anyone into historical charters,” he said. “We’re trying to create an on-the-shelf option for these communities.”
This option would be presented to municipalities whose finances are perpetually unstable.
“We want to create a statutory vehicle where these cities that can no longer function as a city can keep their identity where you can continue to call yourself what you’ve always called yourself,” Folwell said. “But the functions of the city can be dispersed or redirected and taken up by other governmental entities.”
He said a small handful of the 500-plus cities in North Carolina have no municipal function. “They don’t even collect taxes,” he said.
“They’re just what I call MINO — not a RINO, but MINO — a ‘municipality in name only.’ They have two stop lights, no roads, and they call themselves a city,” Folwell said.
Other local governments are simply late on their audit reporting or reveal holes in their accounting practices.
In a letter to Pender County Chairman George Brown last July, the North Carolina Department of State Treasurer said an analysis of the county’s 2019-2020 audit, which continued a three-year pattern of being submitted after the state’s deadline, revealed “areas of concern regarding the county’s financial operations.”
“We are concerned about the finding in the Medicaid Cluster, which was significant enough to result in a qualified opinion on both the federal and state awards reports,” wrote Sharon Edmundson, director of the department’s Fiscal Management Section.
Those findings were related to how the department needed to improve its internal controls so Medicaid funding complies with state and federal requirements. Edmundson pointed to specific “internal control weaknesses” within the county: Some state and federal award revenues were accrued inappropriately, the finance department experienced “significant delays” in its year-end accounting and reporting process, and bank reconciliations were not performed on a monthly basis.
Edmundson noted a corrective action plan was created by the county and urged it to implement the plan.
In a September letter signed by Pender’s finance director, Meg Blue, its county manager, Chad McEwen, Brown and the remaining commissioners, the county stated it was fully committed to ensuring a more timely audit of the 2019-2020 fiscal year.
The letter began by stating the county had hired Blue as the finance director in March 2019 because of her previous work in governmental auditing. A “significant and thorough evaluation of existing policies and procedures” led to Blue’s department revamping and overhauling certain financial processes and procedures, according to the county. The letter explained in a detailed fashion the county held a two-day financial training seminar for all departmental staff. It, furthermore, overhauled its method of reviewing transactions from a completely manual paper process to an electronic review and approval process.
The county said certain changes to its finance procedures allowed for more “thorough and more routine reconciliations of accrual accounts and cash bank reconciliations,” which were not being performed on a monthly basis.
Audit reports for counties and municipalities are typically due by October 31 each year, four full months after the end of the fiscal year.
Blue replaced Katherine Brafford as finance director, who was listed on the late audit for the 2017-2018 fiscal year. In 2015 Brafford had replaced Claiburn “Butch” Watson, who resigned the previous summer amid concerns over the 2012-2013 audit. A draft of that audit, which was submitted around the time of his resignation, cited several mistakes by Watson, including issues surrounding financial reconciliation, according to WECT. The audit was sent to the Local Government Commission in July 2014, nine months after the deadline.
In June 2016, Pender commissioners voted to send nearly $333,000 from the county’s general fund to cover half of the deficit in the Pender EMS and Fire fund. The county stated the debt existed “as a result of numerous accounting and budgeting oversights in previous years.”
In Brunswick County just south of Leland, the small town of Navassa received two high-risk evaluations, one for internal control issues and another for financial issues with its water and sewer fund. Mayor Eulis Willis said Friday afternoon that his financial officer, Claudia Bray, would speak to the reasons why the town landed on the list.
Initially, Bray said it would be hard to address the issue as she resumed her role overseeing the town’s finances in July 2020. In a later email, she wrote that, to improve the town’s financial operations, it went through a series of staff changes — including shifting budget duties from the mayor to the town administrator and assigning another employee the duties of deputy finance officer.
She said the town “removed the duties conveyed onto the Mayor and [took] his duties back to [General Statutes] 160A-67 and 160A-69.”
“Therefore, the Mayor can no longer conduct business for the town,” she said.
She also said the town council terminated the contract with the town’s CPA, Kemmy Goodson.
“Ultimately, it is the finance team’s goal to improve the processes and strengthen the financial stability of the Town. We accomplished two of those goals by adopting the budget on time for the first time ever and the budget was balanced without using any fund balance appropriations for the General Fund,” she said.
Councilman James Hardy, who also began handling the town’s budget last July, said the town was sent a letter by the LGC stating its concern with the town’s pre-audit certification process, its internal controls, and the solvency of the general fund.
According to Hardy, for the past several years the town has taken roughly $250,000 to $500,000 from the general fund to offset negative balances in the water and sewer fund, which has been the biggest driver behind the town’s financial mismanagement. It was the water and sewer’s fund consistent issues with its debt that caused the town to absolve the fund and turn it over to the county last July, he said.
“We reorganized the entire finance department to start fresh more and less. It is our intent to stay in the good light with the LGC,” Hardy said late Saturday morning.
The reorganization included the hiring of Bray as the town’s finance officer “to minimize control issues” and the termination of the CPA’s contract.
“Since the implementation of these actions all members of the current finance department have been taking additional classes in governmental finance to ensure that we are equipped to remain financially responsible with taxpayer funds,” he said
In Southport, 20 miles to the south of Navassa, Port City Daily asked City Manager Gordon Hargrove questions about the town’s financial reporting, to which he said he couldn’t answer until next week.
Among the questions:
- Why didn’t the city send its audited financial statement until July 29, 2020 — nine months after its due date?
- Why had the city shown a pattern of sending late financial statements to the state, as described in a letter to the town from Edmundson?
- Which SBI investigations and personnel matters caused delays in reconciling key accounts (reasons Edmundson gave for the delayed audit)? (Note: Presumptively, the city was referring to the 2018 arrest of its two top raking police officials.)
- What factors led to the city’s auditor reporting it as a “material weakness that bank accounts were not reconciled timely every month”?
“The problems with the audits happened under prior administrations, and the current elected officials and I are taking the appropriate corrective actions,” Hargrove said. “We are committed to organizational excellence and full transparency and accountability – as indicated by the fact that our audit was on time this year.”
Treasurer Folwell said the number of towns, counties, and utility districts that experience financial difficulties will continue to rise due to the economic downturn caused by the Covid-19 pandemic.
“At the same time these cities are having stress, we have water and sewer districts that are in financial stress, on top of the city having financial stress,” Folwell said. “That’s a very serious problem. We’re not buying any Band-Aids. We’re trying to create timeless fixes for these issues.”
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