SOUTHEASTERN N.C. –– Three local governments in Brunswick County and one in Pender County have been removed from the Local Government Commission’s official watchlist. Through the list, the commission tracks financial red flags and encourages local officials to improve their standing.
Northwest, Southport, Atkinson, and the Lower Cape Fear Water and Sewer Authority (LCFWASA) now no longer appear on the latest Unit Assistance List, maintained by the Local Government Commission.
Their removal is a significant marker of improvement, N.C. State Treasurer Dale Folwell explained in an announcement earlier this month. Folwell said the clearance of 38 entities statewide was one of his office’s largest ever.
Roughly 24% of the state’s municipalities and 17% of its counties remain on the tracklist.
Off the list
Southport has struggled with finances for years, developing a history at the LGC of late-submitted audits and delayed recordkeeping. After two audits in a row (2018 and 2019) noted the material weakness of failing to reconcile bank accounts monthly and in a timely manner, the city hired a finance specialist, cross-trailed and reassinged staff in 2020.
The region’s water provider, LCFWASA, landed on the list in 2020, flagged by LGC staff for concerns with debt payments amid declining revenues. No audit procedures or reporting practices were at issue, LGC staff informed the utility.
As of the August list reorganization, the utility is no longer being observed with added scrutiny.
LCWASA passed a 21% rate increase in February, from $0.27 to $0.33 a gallon, which went into effect in July. It was the authority’s first increase in seven years.
“We have increased rates, but are still trying to keep costs low to our customers who in turn have processing and other costs they pass along to their residential and commercial users,” Holloman wrote to Port City Daily earlier this month.
A wholesale supplier, LCFWASA sells raw water to utilities in New Hanover, Brunswick, and Pender counties, which then treat it before selling it to residential and commercial customers directly.
“The Authority has always operated with a minimal budget to keep costs low to our other customers,” Holloman wrote.
It is not clear why Atkinson was on the list; an LGC spokesperson said the office had no review letters on file for its 2019 or 2020 audit. Both audits include no findings of any material weakness.
Northwest submitted late financial statements to the LGC five years in a row and in 2019 had insufficient cash flow to cover debt service. Though it submitted its 2020 audit several months late, the city no longer appears on the list.
Three still on
Belville, Navassa, and Pender County remain on the list, among 130 other municipalities, nine utility districts and 18 other counties.
Belville is the only municipality in Brunswick County that still hasn’t submitted its fiscal year 2020 audit, due to the LGC by October 31, 2020. The reporting lag was caused by the town auditor’s Covid-related delays, according to a Belville spokesperson. The town appeared on the list in 2019, marked with moderate issues with internal controls and financial issues in the general fund.
That year (the town’s latest audit on file) Belville’s auditor identified potential issues with federal and state grants obtained: “[C]ertain costs may be questioned as not being appropriate expenditures under the grant agreements. Such audits could result in the refund of grant moneys to the grantor agencies.”
Town management informed the auditor any required refunds would be “immaterial.”
Pender County finally submitted its fiscal year 2020 audit a few days after a mid-August LGC review, which identified the county as one of four statewide that still hadn’t done so. The LGC is currently reviewing the audit, according to an LGC spokesperson. In 2019 and 2018, the LGC categorized Pender County’s internal control issues as high risk.
The county’s 2020 auditor identified three violations and four material weaknesses in internal control (equaling four total findings). As noted in the previous budget, auditors identified several record-keeping errors in the Pender County Department of Social Services and multiple instances of ineligible individuals receiving full Medicaid benefits. Auditors once again identified expenses that exceeded multiple funds’ authorized authority (fire service district, revaluation, 911 emergency telephone), in violation with state law that mandates all expended funds must be accounted for in a budget ordinance.
The audit firm recommended increased training and heightened controls to ensure audit deadlines and reporting requirements are met in the future.
Unlike Pender County and Belville, Navassa did turn in its audit ahead of last month’s LGC list reorganization, but still nearly four months late. The town has long struggled with financial woes and is still marked as high risk as of its 2020 audit.
In a May letter, LGC staff identified “serious financial and operational problems” with the town’s 2020 audit after commending some areas of improvement. The general and water and sewer funds both had expenditures that exceeded authorized amounts per the town’s ordinance, a violation of state law.
“We are especially concerned that the auditor reported as a material noncompliance finding that expenditures were more than appropriations and that all of the debt service in the Water and Sewer fund was not budgeted,” the letter states.
Navassa town administrator Claudia Bray responded in writing last month, telling the LGC its review of financial statements compared to its budget and actual report “doesn’t reflect that we overspent our budget.” The town asked its firm to review its audit before it was submitted and “the auditor did not comply,” she wrote.
Bray blamed the late reporting on its auditing firm W Greene PLLC.
“I have expressed to Mr. Greene the importance of submitting our audit on time which he failed to do so,” she wrote to the LGC. “I have several questions regarding our audit which I think at this point I will not receive answers to.”
The town administrator told the LGC Navassa terminated its previous CPA, delegated those functions to staff, and selected a new auditor.
In August 2019, town council took budget duties away from its longtime mayor Eulis Willis and assigned them to Bray. After years of a struggling utility fund and disputing debts with Brunswick County, Navassa absolved its utility department and handed its infrastructure over to the county in July 2020. Despite the offloading of the debt-ridden utility, Navassa remains on the list.
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