LGC: EC Draft Audit Finds 12 ‘Material Weaknesses’

LGC: EC draft audit finds 12 ‘material weaknesses’
By Paul Nielsen The Daily Advance Staff Writer Mar 10, 2023

Preliminary findings from one of Elizabeth City’s two past-due audits found a dozen “material weaknesses” in the city’s financial operations, a state official said this week.

Deputy state Treasurer Sharon Edmundson told the nine-member Local Government Commission board at its meeting on Tuesday in Raleigh that a draft audit sent to the state by the city’s outside auditing firm for the fiscal year 2020-21 found 12 material weaknesses.

The state Auditor’s Office website describes a material weakness as an “significant deficiency or a combination of significant deficiencies.”

In an email to The Daily Advance Thursday afternoon, the LGC staff said 12 material weaknesses is a significant number and a “higher number than we normally see.” A material weakness may result in an adjustment to a local government’s financial records, the LGC staff said in the email.

“These were not all accounting errors,” the LGC staff also wrote.

The LGC staff said the 12 material weaknesses in the draft audit can be described as breakdowns in business processes, management oversight and other internal control practices due to the lack of proper training and the lack of a finance staff with sufficient skills, knowledge and experience in governmental accounting, Governmental Accounting Standards Board requirements and state laws.

“Several findings did result in adjustments to the (city’s) accounting records but the report has not yet been finalized,” the LGC staff wrote.

Elizabeth City is on the LGC’s Unit Assistance List mainly because the city still has not filed with the state its required audits for the fiscal years 2020-21 and 2021-22. The city and the LGC entered into a financial accountability agreement last October that has the agency providing assistance to help the city improve its finances.

Edmundson, who is also the director of the LGC staff, revealed the draft audit’s findings during a discussion by the LGC board about the city’s finances. She did not provide details about the dozen material weaknesses found in the audit to the LGC board.

Mayor Kirk Rivers said Thursday he has seen a copy of the draft audit and it details “no misplaced money, no missing police cars.”

“We are not in trouble,” Rivers said.

Rivers vowed that City Council will take corrective action once the final audit is received and that future audits will be submitted to the state on time. He said the draft audit notes that the city has not submitted its audit on time since the 2016-17 fiscal year.

“We will address all findings, improve our ways of doing things,” Rivers said. “Once you get a copy of the 12 findings you will see it’s because of high (employee) turnover in the Finance Department. The finance director that is there now (Alicia Steward) did not take over until October.’’

Edmundson did say in Tuesday’s meeting, however, that LGC staff is still “extremely concerned” about Elizabeth City. She indicated that suggestions made to city leaders by LGC staff since the financial accountability agreement was signed have largely been ignored.

“A lot of the material weaknesses were the same things we had been telling the town’s administration and elected leaders for the last five or six months in open and closed sessions,” Edmundson said. “They have taken very little to what we have suggested to them to heart. They keep insisting that everything is fine.”

State Treasurer Dale Folwell again also expressed disappointment with the city’s cooperation, telling the LGC board the state has spent considerable resources trying to help the city.

“There is no movement forward from our perspective,” Folwell added.

Rivers disputed those interpretations of the city’s cooperation.

“We are working in a spirit of cooperation with the LGC and we will continue to work with our state treasurer,” Rivers said. “We are all on the same team to make Elizabeth City better. We will continue to work with everyone because our city is on the move and we have great things happening. This council is committed to making sure our foundation is solid.”

A retired certified public accountant with past experience in auditing governmental entities, who asked to remain anonymous, said an audit with a material weakness is a “very serious thing.”

“One is a lot,” the person said. “One material weakness is a very serious thing.”