Four Goldsboro City Council members told the Local Government Commission in a recent email they raised property taxes 3 cents to build the city’s fund balance and hired seven additional finance staff to prevent future accounting and compliance issues.
The Local Government Commission is housed within the Department of State Treasurer and acts as a municipal watchdog while also providing resources, guidance and oversight to more than 1,300 units of local government on a variety of topics including annual budgets, internal controls and debt management.
In a May 20 letter to former Mayor Chuck Allen, which was also provided to members of the City Council, Susan McCullen, director of the fiscal management section of the Local Government Commission, noted several areas of internal control weaknesses involving budget balances and federal audit and bond debt reporting.
“The results of the analysis revealed some areas of concern regarding the city’s financial position and operations,” McCullen said in the letter. “Various external groups such as the North Carolina General Assembly, federal and state agencies that provide funding, and other public associations need current financial information about your city as well.”
Internal control weaknesses noted in the letter include multiple errors from prior years requiring the restatement of beginning balances for many of the city’s funds; a failure to file financial and statistical data with the Electronic Municipal Market Access system, the official source for municipal securities disclosures, in relation to the city’s outstanding general obligation bonds; and failure to file financial and compliance audits to the Federal Audit Clearinghouse.
McCullen wrote that Goldsboro’s finance department experienced turnover that “significantly impaired the city’s internal controls over financial reporting.”
Also of concern is the city’s fund balance that has declined during the past three years to 11.3% as of 2019, a budget presentation from Catherine Gwynn, the city’s finance director shows.
In 2016, the city’s fund balance reserve was 19.3%. In 2017, the fund balance was at 27%, and in 2018, it was 20%. The city has not completed its 2020 and 2021 audits that would include more current fund balance figures.
The City Council’s letter, which was sent to the LGC Friday, was signed by Mayor Pro Tem David Ham, Councilman Bill Broadaway, Councilman Taj Polack and Councilman Gene Aycock. The LGC required a city response to its May 20 letter within 45 days.
Councilwoman Hiawatha Jones and Councilwoman Brandi Matthews did not sign the letter.
“The following councilmembers, for one reason or other are not agreeable executing the response letter,” Ham said in his email to the LGC.
Jones and Matthews declined to comment.
In June, the City Council voted 4-2 to pass a $68.4 million budget that included a property tax increase of 3 cents per $100 valuation. Jones and Matthews voted against the budget.
The increase in property taxes is expected add an estimated $759,000 to the city’s general fund balance, Tim Salmon, Goldsboro city manager, wrote in his proposed fiscal 2021-22 budget message. “We expect this additional tax to be in place until the fund balance available meets or exceeds the Council established goal of 15%,” the City Council members wrote in their letter to the LGC.
The LGC recommends local governments maintain an unrestricted fund balance of 8% to cover at least a month’s worth of expenses.
In the May letter, McCullen expressed concern about the city’s declining fund balance.
“We are concerned that the current level of fund balance available may be too low to provide your government the necessary amount of savings needed to provide cash flow during periods of declining revenues or ebbing cash inflows,” McCullen wrote. “Fund balance also can be used to fund emergencies or as a reserve that can fund unexpected opportunities.”
Fund balance isn’t the only concern. The city was 19 months late on its 2019 fiscal audit and has yet to complete its 2020 and 2021 audits.
The City Council told the LGC that it added staff in the finance department.
“Staffing was a critical issue and council addressed this by adding three full-time and four part-time positions to the finance staff,” the council said in its letter to the LGC. “Staff will provide updates to council on the progress of the FY20 audit on a monthly basis.”
Dan Way, communications manager for the Office of the State Treasurer, said that LGC staff are waiting for the city to submit its 2020 audit report that was due on Jan. 31.
The 2020 audit is expected to be completed in October, according to the city’s corrective action plan established in its fiscal year 2019 audit.
With audits outstanding, the city’s ability to take on new debt could be hindered.
“LGC staff likely would not recommend the city for consideration of approval of debt until all audit reports due under statute are submitted and reviewed,” Way said.
The City Council told the LGC in response to the May 20 letter that it expects revenue growth to fund city operations, capital improvement and personnel costs while preserving available fund balance. The City Council also wrote that as debt service on current obligations declines beyond fiscal year 2022, there will be more opportunity to add to available fund balance.
“As stated in our letter dated November 24, 2020, the council and staff are committed to ensuring the timeliness of financial information and the financial health of the city,” the council wrote. “Great strides have been made in the past 24 months in strengthening financial staffing, policies, processes and procedures.”
Way said the LGC wants to help Goldsboro right its finances.
“LGC staff will continue to work with Goldsboro, and all local governments, to encourage timely submission of audit reports and to fulfill all financial and fiscal management requirements under the Local Government Budget and Fiscal Control Act,” Way said.