SOUTHEASTERN, N.C. – Several areas in the tri-county region of North Carolina have missed audits recently. Now, new state legislation might make life more difficult for those localities.
Senate Bill 299 would give troubled counties or municipalities 30 days notice to comply with Local Government Commission audits nine months or more after the audit is late.
If the entity doesn’t file an audit within three months of the notice, an undisclosed portion of their sales tax revenue will be withheld. The total cumulative amount the state is allowed to withhold is equal to 150% of the cost of the audit. The remaining amount will be released back to the municipality or county once the audit is completed.
“This is not a fine or a penalty,” State Treasurer Dale Folwell told Port City Daily Friday. Rather, it’s a way to hold governments accountable.
For example, it could cost New Hanover County approximately $180,000, should it fall into arrears under the law. This number was discussed between county attorney Jordan Smith and Chief Financial Officer Eric Credle, according to internal emails obtained by Port City Daily. However, New Hanover has never missed an audit deadline and has always been in compliance with its financial reporting.
Currently, if a government misses its audit, it is placed under probation. The municipality or county would be unable to garner assistance from the LGC. Should the missed audits continue, those areas would be placed on a “watch list,” then on the Unit Assistance List, which would assist troubled areas with enhanced fiscal monitoring by the LGC, prioritizing the allocation of staff resources.
Folwell said “a handful to a dozen counties” in the state have consistently missed deadlines. Essentially, counties can lose federal grant funding for a variety of projects from infrastructure to foreign investment to public safety, if an audit is missed.
The main purpose of the bill is to get problem areas under compliance. Folwell told Port City Daily on Friday he supports the legislation. It was crafted with the support of the Treasurer’s Office and State Auditor Beth Wood. Both sit on the Local Government Commission, which oversees the finances of government municipalities, including ensuring audits are turned in on time.
“This bill arose as a result of late audits,” said Folwell, who is also a 2024 Republican gubernatorial candidate. “Citizens are paying money, mostly in the form of property taxes, and the books are not reconciled and the audits are not completed.”
For example, in Brunswick County’s Navassa, the town has missed deadlines on three consecutive audits, including fiscal year 2022. Town officials told Port City Daily in August the delay was due to a switch in auditors because of understaffing at S. Preston Douglas and Associates, the firm the town used previously.
Folwell said Navassa’s issue of finding a qualified auditor is not a unique one but actually quite common, especially in smaller communities.
“There are issues going on in the audit profession right now. Fewer people are graduating with accounting degrees, or getting their CPA licenses,” he said. “It’s not just smaller towns that have been affected but larger towns, like North Wilkesboro and Goldsboro.”
Audits are due Oct. 31, or four months after the end of the town’s fiscal year. Navassa submitted its audit March 13, 2023, five months late.
Folwell said his office has been aware of the issues in Navassa for a long time.
“We have been very concerned about Navassa’s lack of transparency, competency and governance,” Folwell said.
The town’s mayor, Eulis Willis, wrote in an email to Port City Daily on Thursday he had no comments on Senate Bill 299. However, he rejected the notion that Navassa is a town in financial chaos.
“Defending Navassa is not required,” Willis wrote. “The only thing that really needs defense is the erroneous perception that financial mismanagement is a major problem for us here in Navassa – and almost all of us know that is not the case. The ‘perception’ of financial mismanagement is Navassa’s biggest problem.”
The town is currently on the LGC’s Unit Assistance List and has been for the last three years. Town Manager Claudia Bray resigned in June of 2022, leaving a void that placed Navassa in danger of not being able to pay bills and staff if her replacement was not found.
Internal politics within the town had council members refusing to attend meetings, leading to a lack of a quorum for making decisions, almost unable to pass the budget. The LGC was close to intervening, which would have threatened Navassa’s charter, and reassigned services to Brunswick County, or private entities.
The members finally came together to name former council member James Hardy finance officer, in order to pass a budget.
Navassa isn’t the only Brunswick County municipality who submitted late audits. The City of Southport submitted its audit report to the LGC on Feb. 28, about two weeks before Navassa.
In Pender County, the Town of Atkinson didn’t submit its audit report until April 12.
Port City Daily reached out to officials in Southport and Atkinson about their respective audits and thoughts on Senate Bill 299. Neither responded by press.
After press, City of Southport Public Information Officer ChyAnn Ketchum issued the following statement about its late audit:
“Through better communication, team building, updating of job descriptions and training of current employees, retaining the staff we have now, so audit work and financial duties can be shared amongst all Finance staff expediting the audit process. Last year there were 3 vacancies and 3 employees being trained during the time of the preparation of the audit.”
Senate Bill 299, according to lawmakers and LGC members, is expected to be a deterrent.
“We prefer the language of this bill never has to be used — because if the language of this bill never has to be used, there are no late audits,” Folwell said.
The bipartisan bill cleared the state Senate, 43-0, with seven absences, on April 27, before going to the House for a vote. It passed, 84-30, with one dissenting no vote and five absences.
Senate Bill 299 now heads to Gov. Roy Cooper for his signature. According to the governor’s office, he has given no indication whether or not he will sign the legislation, only that he will “review” it.
[UPDATE: Gov. Cooper vetoed the bill on Monday, June 19, but the GOP supermajority overrode the veto on Tuesday, June 27.]
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