A lack of sufficient internal controls over finances, and excessive expenditures on travel expenses are just some of the issues described in a Rapid Response Special Report released by the North Carolina Office of the State Auditor (NCOSA) on the Town of Zebulon.
The report released on Monday, came about after the office received a tip alleging lack of sufficient internal controls over the town’s finances, excessive expenditures on travel expenses for town commissioners and administrators, and excessive, unsupported payments to consultants in connection with preparation of the town’s budget.
Zebulon, which has a population of 12,237, has had a high turnover of leadership in recent years, according to auditors.
Among the findings:
The town could not provide an executed contract supporting its payments to the former interim town manager at a rate of $250 per hour for consulting services in January 2025. Vendor records indicate the town paid $4,500 to the former interim town manager’s firm. The services were billed for 18 hours of services during January 2025 at $250 per hour.
Auditors recommended that the town should make sure that fully executed contracts or agreements support compensation rates prior to payment, approval of invoices should not be used as a substitute for formal contract authorization, and documentation should be retained to support payments.
The second finding involved not maintaining adequate documentation to support the town’s payments to consultants for budget preparation activities for FY 2026.
On Feb. 17, 2025, the town executed a professional services contract of $39,500, paid in eight equal semi-monthly installments of $4,937.50. Payments were contingent upon the receipt of invoices detailing the consultant’s work product and approval by the town manager and assistant town manager. The town had paid $22,630.22 before terminating the contract on April 24, 2025, following the resignation of the town manager and assistant town manager, stating that the external consultant’s services were no longer needed.
The town was unable to produce invoices or any documentation other than the contract and its termination upon NCOSA’s request.
Recommendations from auditors include retaining invoices for professional services provided to the town that clearly describe the services performed and explain the basis for all charges and ensure that contractors have performed billed services in accordance with contract terms before issuing payment.
NCOSA also found that checks that were outstanding for more than one year were not investigated in a timely manner or reported as required by the North Carolina Unclaimed Property Act.
Auditors found nine checks that had been outstanding for over a year during an investigation of the town’s April 2025 bank reconciliation. Town officials told NCOSA stated that they had voided and reissued all nine checks, but couldn’t produce supporting documentation except for one check.
Recommendations include conducting a monthly stale-check aging review, promptly investigate items which are outstanding for more than 90 days, and assign responsibility for documenting the resolution of each item. Additionally, the town should file any required unclaimed property reports in the future and should remit amounts for checks meeting the one-year dormancy rule.
The fourth finding shows that the town processed duplicate and invalid payments due to insufficient invoice entry controls and the absence of an effective accounts payable reconciliation process.
Auditors gave two examples including the issuing of five checks totaling $130 to the Wake County Register of Deeds for cemetery lot purchases that were later deemed unsuccessful, and a check for $844.92 to pay a vendor invoice that had already been paid.
Auditors recommend strengthening invoice entry controls by configuring its accounting system to require entry of an invoice number or other unique identifier before approving or paying invoices; implement an effective accounts payable reconciliation process that periodically reconciles invoices, accounts payable records, and the check register to ensure that issued checks correspond to valid and unpaid obligations; and document and assign responsibility for accounts payable review procedures, including the investigation and resolution of aged outstanding checks, and provide training to finance staff on invoice processing and reconciliation responsibilities.
Auditors also discovered that the town’s internal controls didn’t detect a finance staff member’s personal bank account was linked to the town’s credit card account, resulting in the inadvertent use of personal funds to pay a town credit card balance and an urgent reimbursement from the town of $16,668.87.
NCOSA recommends that the town develop and enforce written procedures for handling payment errors or exceptions, require independent verification before processing any reimbursement, and prohibit self-reimbursement; ensure that town obligations are paid exclusively from authorized town bank and credit card accounts and prohibit the use of personal funds to satisfy liabilities in routine operations; and implement and document internal controls to prevent personnel from linking personal bank accounts to town bank or credit card accounts, including training finance staff in prohibited payment practices.
The sixth finding involved the lack of effective internal controls and governance related to oversight and documentation for executive-level compensation and reimbursement.
An example is the overpayment of $6,100 to the former interim town manager that was returned, but shows, according to auditors, weaknesses in payment review controls, specifically the lack of adequate verification procedures prior to disbursement of town funds.
Recommendations including strengthening pre-payment review procedures for payroll and contract-related payments to verify accuracy prior to disbursement, including verification of hours worked, pay rates, and supporting documentation to reduce the risk of overpayment; and establishing and documenting procedures requiring independent review of contracted executives’ compensation, timesheets, and expense reimbursements, making sure that no individual reviews or approves their own compensation or reimbursement requests.
Auditors also found that the town’s General Fund unrestricted fund balance didn’t meet the minimum level required by the Fund Balance Policy described in the town’s FY 2025 Annual Comprehensive Financial Report (ACFR) which states that “the town has a fund balance policy that is to maintain an unrestricted fund balance in the General Fund of no less than 50% of total projected expenditures. An unrestricted fund balance in excess of 50% is available for general appropriation during the budget year, as approved by the governing body.”
For FY 2025, the town reported an unrestricted fund balance of $13,672,910, representing 48.48% of the town’s final expenditure budget of $28,144,189, below the 50% threshold required in the town’s fund balance policy.
NCOSA recommended that the town the town maintain its unrestricted fund balance and unassigned fund balance at the thresholds set out in its ACFR and in the town’s Resolution 2023-20, and should refrain from appropriating funds from these balances when the applicable thresholds are not met.
The eighth and final finding is that the town’s budget-to-actual variances were significant and recurring for FY 2022 through FY 2025, reducing budget reliability in the General Fund.
For example, in FY 2025, actual expenditures were $21,328,375 while final budgeted expenditures were $28,144,189, a difference of $6,815,814, or 24.22%.
Auditors recommend that the town monitor budget-to-actual revenue and expenditures throughout the fiscal year and investigate and resolve significant variances in a timely manner; use historical trends, actual operating results, and current-year conditions to endeavor to develop General Fund budgets with smaller variances between budgeted and actual revenue and expenditures; and consider requiring town departments to provide documented explanations of significant budget-to-actual variances, and recommend budget amendments or other corrective actions as needed during the fiscal year.
Town officials agreed with the findings and said either new measures addressing the concerns have already been implemented or will be in the near future.
