Changing external auditors and updating financial software are recommendations from a certified public accounting firm to address Elizabeth City’s financial accounting issues over the past 19 months.
Greg Isley of Raleigh-based firm Greg Isley CPA told city council earlier this week that the city needed to make both of these changes if it was to turn around the city’s financials.
Acting City Manager Ralph Clark also told councilors the city may have to explore different options if it cannot find a qualified chief financial officer. This position has been vacant for almost six months.
There is an urgent need to solve the financial problems. The Local Government Commission placed Elizabeth City on its assistance unit last September after the city filed its 2019-20 financial statements more than six months after the January 31, 2021 deadline.
The city was also unable to have its books audited for the 2020-21 fiscal year, missing the Nov. 1 deadline, due to its internal accounting issues. This shortcoming was noted late last year during a review by the League of North Carolina Municipalities of the city’s financial practices.
The city council agreed in October to hire Isley to help fix its financial statements. The city pays the company $100 an hour for its help, and Isley said Monday he’s billed the city about $60,000 since he was hired.
The hiring of the Isley firm is part of the corrective action plan the city filed with the LGC after being placed on the unit assistance list.
When Isley was hired last October, the city had not reconciled its bank accounts since June 30, 2020. Those accounts have now been reconciled until June 2021, Isley said.
Isley said the city needs to upgrade its computer software to facilitate its future financial statements.
“Your accounting department is still operating like a 1984 mode,” Isley said. “The former leaders did not come to you (the city council) to achieve a more efficient operation from an accounting point of view.”
Isley said an affordable option could integrate funding into the Tyler system the city currently uses in the Utilities Department.
“You just have to get the rest of the package,” Isley said. “Right now, you’re doing a lot of manual transactions (in the finance department).”
Staff turnover in the director’s office and in the CFO position has compounded the problem.
Since the departure of former director Rich Olson 18 months ago, the city has had one permanent director and three different acting directors — former city public safety director Eddie Buffaloe twice and now Clark.
Former finance director Suzanne Tungate stepped down in October 2020 after serving as director since 2017. She was replaced by deputy director Evelyn Benton, who retired last fall. The post has since been vacant.
Isley said smaller communities also struggle to hire higher quality auditing firms.
The current firm of Thompson, Price, Scott, Adams and Company charged the city $18,000 for the city’s last audit, which it said was low. He said an audit should take about 450 hours. Since the city only paid $18,000 for the audit, she was only charged $40 an hour, which he said was low.
“My recommendation based on my experience with the company you’ve hired right now is not good,” Isley said. “In fact, the state auditor (Beth Wood) is now going to look at audits from cities of a similar size. When she sees an award of $18,000 in a city your size, there will be a conversation.
“A CPA won’t work for that low rate (of $40 an hour),” Clark added.
Isley also suggested that some auditing firms might “not help or assist you” from Jan. 1 to May 1 because it’s tax season and they’re busy with other clients.
“I see my job is to tell you what you need to hear, which isn’t always what you want to hear,” Isley said.
Clark said Tuesday he recommends the city council hire Newport News-based PPBMares to conduct the city’s next audit at a cost of about $50,000.
“We need a company here that can help with the audit,” Clark said. “It’s a more expensive audit, but we try to look at quality and delivery. Apparently we weren’t getting either. An audit is a legal requirement, but it also shows that we are fiscally responsible.
The LGC must approve the city’s borrowing of money for periods longer than 59 months, and Clark said that’s why the city needs to get its financial practices in order quickly. The city faces several major sewer capital projects that may require funding.
“We’re trying to get our house in order so the auditors can come and do their job and hand over (the audit) to the Local Government Commission,” Clark said. “City government is like anyone else, we can’t live on cash. We must borrow and (LGC) monitors all borrowings we make that exceed 59 months.
The city needs a chief financial officer with senior accounting experience, and Clark said those people are “scarce.” Clark said his interpretation of a state law requiring the city to have a financial agent is that the person need not be a city employee.
“It has to be someone who is in charge of the finances,” Clark said. “It is not stipulated that it must be a city employee. You could actually outsource it.
Clark said the city may consider having Isley continue work through the end of the year.
Isley said the company has 19 CPAs on staff and the company has built a model to help serve rural communities.
“Rural areas struggle to find qualified (financial managers) they can keep,” Isley said.