After analyzing the city of Goldsboro’s 2019 audit and reviewing its findings, staff members in the state treasurer’s office are concerned about the city’s financial position.

In a May 20 letter to Mayor Chuck Allen, which was also provided to members of the Goldsboro 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, according to the letter.

McCullen wrote that Goldsboro’s finance department experienced significant 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 its current level of about 11.3%.

The LGC recommends local governments maintain an unrestricted fund balance of 8% to cover at least a month’s worth of expenses.

“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 said in the letter. “Fund balance also can be used to fund emergencies or as a reserve that can fund unexpected opportunities.”

McCullen attributes shrinking fund balance to the city overestimating revenues.

“It appears that this decline was caused by the city not receiving as much revenue as it estimated in its budget,” McCullen wrote.

Findings of the city of Goldsboro’s 2018-19 audit revealed the fund balance reserve fell from $7.5 million in 2016 to $4.2 million in 2019.

In 2016, the city’s fund balance was 21.6%. The 2018-19 audit reported the fund balance dropped to 11%.

McCullen also noted that the city’s 2019 audit wasn’t received by the LGC until May 13, even though the city was given an extended due date to Dec. 1, 2019. The audit was originally due in October 2019.

“As stewards of the public’s resources, the governing body is responsible for ensuring that the audited financial statements are available to the public in a timely manner,” McCullen said. “Information in the report is needed by you and your board for you to take prompt and effective corrective action on any deficiencies noted.”

The city has 45 days to respond each concern noted in the letter.

The letter from the LGC was of no surprise to Mayor Pro Tem David Ham.

“We are in receipt of the letter from the department of the state treasurer, and a copy was mailed to all the council members and I,” Ham said. “The manager and I spoke last week to the author of the letter or her representatives, I should say, about the matters that were brought forth in the letter. We are in the process of responding to it. Hopefully, we’ll be able to address all these areas and get a response back to her next week sometime.”

Ham said the issues raised in the LGC letter are similar to findings reported to City Council in May by John Frank, an auditor with Dixon Hughes Goodman.

“These items were already brought to our attention by Mr. Frank and, of course, (the Local Government Commission) was provided a copy or a letter of findings by Mr. Frank’s organization, and they basically restated the concerns that he had given to us when he presented his findings at the last council meeting.”

Findings from the 2018-19 audit report, presented to council May 18, revealed that the city experienced sharp declines in the fund balance while spending increased from 2016 to 2019. The city general fund increased from $35 million in 2016 to $42.1 million in 2019, during the same time fund balance reserves declined. The city’s general fund in the upcoming proposed 2021-22 budget is $45.2 million, an increase of $2.8 million from the current general fund budget of $42.5 million.

Frank also reported that the the city’s utility fund, which is designed to be self-sustaining, in 2016 had $16.1 million in revenue and $17 million in expenses. In 2019, the utility fund revenues increased to $17 million while expenses were $19.3 million. Working capital in the utility fund also decreased from $7.9 million in 2016 to $2.6 million in 2019.

The city’s general fund and utility fund were not noted in McCullen’s letter to the council.

Sharon Edmundson, secretary of the LGC and a deputy treasurer for the State and Local Government Finance Division, said the letter is similar to others sent to municipalities that have issues with their audits.

“Well, it’s just part of our standard procedure when an audit comes in that is either significantly late or has significant issues either in the internal control findings or in the financial conditions in the government,” Edmundson said. “That was the purpose of the letter to convey our concerns.”

N.C. State Treasurer Dale Folwell said Goldsboro is moving in the right direction but there are issues that need to be addressed.

“Issues like Goldsboro are not things that we desire,” Folwell said. “We’re just in a situation where we have a responsibility to respond when people are not complying with the law. I think generally the purpose of that letter is a further attempt to partner with Goldsboro to figure out what’s right, get it right, and keep it right for the future.”

Tim Salmon, Goldsboro city manager, and Catherine Gwynn, Goldsboro finance director, were not available for comment.