Auditor singles out fiscal mismanagement by local governments

State Auditor Beth Wood renewed her call to punish municipal officials who can’t keep their books straight. Lawmakers returning to Raleigh for the 2019 legislative long session might be asked to toughen enforcement measures.

“If you want to be an incorporated town, then you’ve got to take responsibility,” Wood told Edenton Town Manager Anne-Marie Knighton in a withering rebuke during a state Local Government Commission meeting Tuesday, Jan. 8. “How can you run a town if you don’t know how much money you have?”

Edenton is seeking approval from the Local Government Commission to issue $2.64 million in bonds to renovate and upgrade the town’s Beaver Hill and Freemason water treatment plants. Local governments must obtain commission approval to add to their debt financing. The commission, which is staffed by the N.C. Treasurer’s Department, arranges sale of the bonds.

But Wood zeroed in on Edenton’s checkered fiscal management in initially recommending denial of its request. Its fund balance plummeted from 36 percent in 2017 to 15.4 percent, or $972,301, in 2018. A serious lack of internal financial controls, and failure to reconcile a number of budget areas were cited, among other trouble spots.

“It’s against the law to overspend your budget,” an obviously agitated Wood told Knighton, later apologizing for venting her frustration on Edenton for recurring problems with many municipalities.

“How about rejecting every request that has statutory violations,” and not just Edenton’s, she asked fellow commission members. Word would spread quickly to the N.C. League of Municipalities and its members that violations of statutory financial requirements would no longer be tolerated.

She said there are more than 1,000 units of local government in North Carolina, and 200 of them are in bad fiscal shape. More than 150 are on a watch list for risk of insolvency. It is the same alarm she sounded at a commission meeting in July 2018.

“I don’t know what our options are” if the bonds are not approved, Knighton said. The town certainly would face civil penalties if it can’t perform the projects.

Knighton said she’s been town manager for 30 years, and never experienced such bookkeeping infractions. She said corrective action was taken, including disciplinary measures, and the town council has stated it does not want any repeat violations. She said the town and Chowan County are preparing to roll out a shared financial system that will give them an automated purchasing system for the first time.

The town had rapid turnover with three finance directors in a short period of time that led to the disarray, Knighton said.

Wood suggested the violations might be due to Edenton replacing a longtime auditor with a new auditor who uncovered longstanding problems that went undetected.

“I’m from rural North Carolina, Route 1, Cove City,” and understand challenges plaguing small towns in finding qualified professionals, Wood said.

“Even if I lost my finance director … I need to know what kind of cash I’ve got in the bank,” Wood said. Edenton relied too heavily on department level oversight, and the town manager and governing council shunned their ultimate obligation to ensure financial stability.

“I am about tired of begging people to do their job,” Wood said. It makes no sense to require municipal audits if there are no consequences for violations.

Commission member Joshua Bass said Edenton’s statutory violations were disturbing. He criticized the constant stream of municipalities that come before the commission consistently blaming their problems on the revolving door of finance directors that are hard to recruit and harder to retain.

Deputy Treasurer Greg Gaskins, who serves as commission secretary, agreed with the criticisms. But he said Edenton residents still need clean drinking water, and to upgrade their system to meet heightened federal regulations placed on their water system for removal of organic materials that react with chlorine.

Gaskins said Edenton isn’t the only municipality struggling with chronic problems that cannot be solved overnight, and isn’t among the worst at-risk governments. The survival of some is in doubt, and any downturn in the economy could seal their doom. He said commission staff is implementing training programs, and has a coaching team to help small towns hurdle obstacles.

Wood’s expressed concern that staff isn’t large enough, and doesn’t have sufficient time or resources to meet the enormous need around the state.

In the end, Wood voted with the majority to approve Edenton’s request. State Treasurer Dale Folwell cast the lone no vote, citing the many concerns raised during the meeting.

After the vote Wood lamented the state laws have insufficient enforcement teeth to deal with the violations.

“The General Assembly is coming back, and I know that you are currently looking at, and reviewing the department’s request for potential legislative items,” Gaskins said to Folwell. “If you wanted staff to make some recommendations on that for consideration we can do it.”

“I would like to have a big goal and a short deadline of the five things that repeatedly come in front of this commission and chaps everybody,” Folwell said. “We’ve got to start the process of getting where we need to go.”