By John Crowder
Local News Review
NAVASSA, NC (LNR) -- For a number of months, Navassa has faced the issue of not having a complete financial audit approved by the Local Government Commission of the North Carolina Department of Treasury.
Per state statute, each unit of local government and public authority must have its accounts audited as soon as possible after the close of each fiscal year by a certified public accountant or by a Commission-certified accountant.
The required report must include, at minimum, financial statements prepared in accordance with generally accepted accounting principles, all disclosures in the public interest required by law, and the auditor's opinion and comments relating to financial statements.
The local government finance officer is required to file a copy of the audit report with the secretary, and shall submit all bills or claims for audit fees and costs to the secretary for approval. Before granting approval, the secretary must determine that the audit and audit report substantially conform to state requirements.
It is unlawful for any unit of local government or public authority to pay or permit the payment of such bills or claims without this approval.
Each officer and employee of the local government or local public authority having custody of public money or responsibility for keeping records of public financial or fiscal affairs must produce all books and records requested by the auditor and must divulge such information relating to fiscal affairs, as requested. If any member of a governing board or any other public officer or employee conceals, falsifies, or refuses to deliver or divulge any books, records, or information, in an attempt to mislead the auditor or impede or interfere with the audit, that person is guilty of a Class one misdemeanor.
The Local News Review received a preliminary report on September 21 from the CPA firm of Thompson, Price, Scott, Adams and Co. The document stated a number of concerns the firm has encountered while attempting to complete the June 30, 2010 audit report for the Town of Navassa.
Town Administrator Claudia Bray did verify issues with the audit, but noted she has addressed them and has responded to the audit firm. Mayor Eulis Willis stated on October 3 via email stating that Bray had taken care of the issues in question.
LNR requested a copy of the correspondence concerning this response from Bray, but it had not been received it at press time.
Here are the items identified in the letter from the auditing firm in the September 12 audit report:
Retirement Payments -- "Retirement payments were made for a 401K plan and a 457 plan through Prudential. No payment confirmations were retained for any payments, however, a spreadsheet was provided by Terry Smith indicating the payments that he made. The spreadsheet indicates 401K payments made by the town of $7,116.82 for the year. It shows that 457 plan payments were made from funds withheld from employee checks, but that
no contributions were paid by the Town. Therefore, total retirement expense appears to be $7,116.82; however, the retirement expense accounts indicate $38,856.78 in retirement expense to the town. There is no explanation for this variance. Furthermore, according to the spreadsheet provided by Mr. Smith, no payments towards the 457 or 401K plans (included contributions and loan payments withheld from employees' paychecks) have been made since April 2010. There were only 3 payments made throughout the entire FY 2010 - one payment in late September, 2009, one in late December, 2009, and on in early April, 2010. This represents a violation of
Vacation Payable -- "It appears that vacation time was not kept track of or else that information was not able to be provided to us by Mr. Smith (the payroll accountant). The Town officers explained that they do not keep track of any vacation amounts since Mr. Smith is supposed to be completely in charge of all aspects of payroll accounting. Mr. Smith refused to provide us with any information regarding vacation hours used or earned during FY 2010."
Payroll Tax Payments -- "Several 941 tax deposits and State Withholding payments were made late. Several confirmations for State Withholding payments were missing and could not be verified."
Payroll -- "An issue was uncovered in the employee/board fraud questionnaires as well as during several Board meeting (uncovered via reading the minutes) regarding the validity of the timesheets provided by the police chief. This auditor questioned the staff regarding the chief's payroll circumstances - they stated he was paid according to a fixed contract; however, when asked to view the employment contract, it could/would not be provided. Employees, board members, and the general public, all appear to be under the impression that the chief is not working the required number of hours according to his contract, but is still being paid the full amount." (Note: LNR left a telephone message for Police Chief Taylor, but, as of press time, had not returned our call.)
Insurance -- "While total insurance expense appears to be in line with prior years, invoices could not be provided for the expenses booked. There is $24,314.60 in non-employee insurance expenses (ie. workers' comp, building insurance, officer bonds, etc) booked, however, only $13,630.32 in invoices was provided upon repeated requests. Furthermore, most of the debits to the various insurance accounts were from journal entries. When Town staff was asked about these entries, they stated that Mr. Smith made all journal entries and that they did not have copies of them. No explanation was provided as to where the additional invoices were or what made up the $10,684.28 in un-accounted for insurance expense."
Cash Disbursements -- "Hard copies of many checks written do no match the check numbers in the check register. Charlena Alston's (Town Clerk) explanation was that sometimes the printer pulls through more than one check at a time. Checks #11000-#11499 were skipped. The preceding and following check numbers were written in January, 2010, therefore we would expect these checks to be written around the same time frame. When asked about these missing checks, originally Ms. Alston stated that they were lost and they never found them. Subsequently, when this issue was brought to the attention of the board, Ms. Alston stated that these check numbers were written in August, 2010. No explanation was provided as to why the checks were written out of order. Several checks inspected from the sample had inadequate backup documentation or were missing invoices completely. Many checks were written for amounts different that the amounts stated on the invoices."
Access Denied -- "It was not possible to verify signatures on the checks as the Town of Navassa refused to provide copies of signature cards after repeated request. They stated that their bank (BB&T) policy was not to provide signature cards. However, this auditor has received copies of signature for dozens of other accounts at BB&T. This is concern because there have been questions regarding the validity of checks written and both oral and written communication from other Town employees regarding possible fraud by the town clerk and mayor." (LNR contacted BB&T and asked the about this policy. The bank's response was that a copy of the signature card could be released, but, if anyone on the card refuses to approve the release, none of the information on the card can be released.)
Trial Balance -- "Although the overall trial balance is in balance each fund does not balance between the balance sheet and the income statement. For example the general fund balance adjustment (net income) is $132,225 on the balance sheet while the net income from the income statement is $124,093. This happens in several funds. Also, the 'due to/from' between funds does not tie. This includes amounts shown as assets and liabilities as well as transfers. Julia Vail, media spokesperson for the North Carolina Department for Treasury stated in an email that "Units that are not current with their audits are generally not permitted to issue debt that requires LGC approval, although each situation is evaluated on a case-by-case basis. When a unit of government falls behind on its audits, the Department works with the unit and the independent auditor to try to resolve whatever issues are impeding completion."
Regarding the question of the status of Navassa, Vail noted, "The LGC is currently working with the Town of Navassa and its auditor to resolve the outstanding issues on the 2010 audit. The 2011 audit is not due until October 31."
Upon being contacted by LNR, Navassa's legal counsel, Norwood Blanchard, stated he knew very little about this issue, except that Bray had "taken care of this matter."