Sunday, April 2, 2023

Financial reports late again? Navassa council member blames lack of auditors, state treasurer calls out mismanagement

The town of Navassa is set to drastically change if developers continue with their proposed plans. (Port City Daily photo/Johanna Ferebee)
The Town of Navassa is expected to turn in another late audit this fiscal year due to problems contracting an auditor. (Port City Daily photo/Johanna Ferebee)

NAVASSA — The Town of Navassa’s finances have been under close scrutiny by the state for years. Now, another complication may prevent the municipality from getting back in the state’s good graces.

The Town of Navassa is expected to turn in another late audit this fiscal year due to problems contracting an auditor. 

READ MORE: Catch up on Navassa reporting from PCD here

Municipalities have a deadline of Oct. 31 to submit the 2022 audit to the state’s Local Government Commission, which exercises financial oversight over local governments under the purview of the state treasurer. 

At the council’s regular meeting on Aug. 18, council member James Hardy — approved on June 16 as the town’s financial officer — announced its annual audit is not expected to be done until January or February 2023. 

Navassa’s audit has been late for the last three years and the town has been named on the LGC’s Unit Assistance List, a register of municipalities under increased LGC inspection for problems in government, for the last three years as well.

According to State Treasurer Dale Folwell, the town will remain on the list if the audit is late. He added Navassa will have an “extremely difficult time” borrowing money if that happens.

As of June 30, 2021 Navassa had $180,869 outstanding in long-term debt, all of it in installment purchases. According to the LGC, the town has not issued debt in the last three years that required the commission’s approval. The town did enter into an installment purchase contract to buy three vehicles in 2019. 

In May, the LGC cited the town faces “serious operational issues” in a letter sent to Navassa leaders. The letter was in response to the council’s inability to hold regular meetings, as some council members refused to attend due to internal politics. The town manager and finance officer Claudia Bray put in her notice to leave, effective June 3. By then, the town still hadn’t hired her replacement, meaning it would lose the ability to pay bills and staff. 

Also, its budget was due by July 1 and the town had yet to agree on the breakdown of finances for fiscal year 2022-2023 or to use the previous year’s budget in the interim. 

The LGC was close to stepping in, meaning it would revoke Navassa’s charter and reassign the town’s services to other private or county entities.

A closed sign was posted on the door to town hall on June 3. Two weeks later, on June 16 the council came together to appoint a finance officer — council member Hardy — and pass a budget.

The town has made strides to improve its governance in the last two months. Enough members have shown up to create a quorum at its July 21 and Aug. 18 meetings to vote on agenda items. In July, the council voted on a land donation for the Moze Heritage Center and tidal restoration project, another step in the initiative commemorating Navassa’s Gullah Geechee ancestry. 

Hardy explained to Port City Daily the recent audit delay comes from the town’s original auditor pulling out of the deal due to understaffing in his firm. The town planned to use the auditing firm, S. Preston Douglas & Associates, the same firm used the previous fiscal year. 

“[Douglas] sent the contract to us,” Hardy said. “That was one of the things we all kind of admired — they are sending us a contract right as soon as our old one expired.” 

To assist town searches, the LGC provides a list of firms that offer annual audits; S. Preston Douglas & Associates is included.. 

“Neither the LGC nor its staff recommend or endorse firms, and the inclusion of a firm on this list does not imply an LGC or staff endorsement, recommendation or approval,” it clarifies on the state website. 

Though the towns are not relegated to only choose from the list, the LGC must approve contracts between auditors and municipalities to assess the validity of the agreement. 

“To give an audit is one thing, but for the audit to reflect the financial integrity of a city is quite different,” Folwell said. 

Navassa’s 2021 audit was submitted late but reviewed by staff on Jan. 3, 2022. However, it was not approved because the contract was not submitted to the LGC prior, according to Folwell. 

After publication, the LGC told PCD a request has been sent to the auditing firm to submit a copy of the contract.

Still, the town signed a new contract with S. Preston Douglas & Associates for this year’s audit, according to Hardy. The town sent the document back on June 22, he said, but did not hear back until town staff sent a follow-up Aug. 4. 

Hardy supplied the email correspondence after publication. The response read:

“Unfortunately, we do not have the personnel in our office to complete the Town of Navassa audit this year. I am down to one auditor and one staff accountant. I am afraid we couldn’t do an adequate job for the town this year. As of right now, we think it would be best for y’all to reach out to another firm.” 

S. Preston Douglas & Associates’ partner-in-charge at the Whiteville office, Matt McLean, said a contract with Navassa was never finalized. McLean did confirm staffing problems were to blame for the deal’s dissolution. 

Folwell said the dilemma has more to do with Navassa’s lack of transparency and governance.

“This is not the first layer of this onion,” he told Port City Daily. “I think it just puts more sunshine on the problems in Navassa.” 

The firm’s withdrawal sent Hardy scrambling to find a reputable auditor with three months until the LGC’s deadline. Hardy said finding one the town could afford and whose slate was not already filled with limited options. 

McLean said an audit typically can take between a week and a month depending on a firm’s staffing numbers. According to Hardy, the auditors he talked to all projected completion dates beyond Oct. 31.

“Anytime you have a scarcity of a product, the people that offer that product can kind of pick and choose who their customers are,” Folwell said. “When a potential auditor reads Port City Daily and reads the headlines, [they might say] there’s other things we can do with our resources than getting involved with this.”

Folwell was referring to headlines Navassa has made in the news this year and over the last three years for its utility debts that caused the town to merge its system with Brunswick County in 2020 and removing Mayor Eulis Willis’ ability to conduct town business in 2021. 

“There was nothing wrong with the town of Navassa,” McLean verified. “We lost a staff member and are training a new one, so it would have been too much to take on. But Navassa, they were great to work with, we had no problems.” 

According to Hardy, the LGC told him multiple municipalities were experiencing problems finding an auditor and many firms, especially smaller ones, were shutting down or joining bigger companies. 

McLean said that he is seeing many people in the auditing profession seek out different accounting jobs. 

“There’s a lot less auditors out there,” McLean said. “I don’t know if it’s because of all the requirements at the LGC, but each year they seem to add something else to our plate.”

Folwell said the state “could use more auditors” but did not provide information on a potential shortage. He also didn’t answer if other municipalities were experiencing the same problems Navassa reported. 

“This has been an issue from time-to-time, across the state, for nearly a decade,” Folwall said. “This is what the state auditor has been very concerned about.”

At Navassa’s Aug. 18 council meeting, Hardy said he found an auditing firm out of Goldsboro, North Carolina, willing to do the job, but the audit wouldn’t be complete until January or February 2023. He brought forth a motion and council approved a $13,000 contract with the auditor.

Hardy said the auditor also wanted to enter into a three-year agreement to provide services to the town. Because council cannot add the financial line item to a future fiscal year’s budget, Hardy said he told the firm the deal would have to be verbal. According to Hardy, the auditor agreed.

If Navassa is having trouble finding or keeping an auditor, Folwell added, it’s not the LGC’s responsibility. He said the LGC sent the town a list of auditors within the last week, but Folwell answered he did not know how much those auditors cost, if the auditors were available for more clients or if they could complete the audit by Oct. 31. 

“They have to keep trying,” Folwell said. “That’s what we all have to do when we dig ourselves out of a hole versus stop digging and try to get out.” 

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