Switching outside auditors and updating financial software are a certified public accounting firm’s recommendations for fixing Elizabeth City’s financial accounting problems over the past 19 months.
Greg Isley of the Raleigh-based Greg Isley CPA firm told City Council earlier this week that the city needs to make those two changes if it wants to straighten out the city’s financial statements.
Interim City Manager Ralph Clark also told councilors the city may need to explore different options if it can’t find a qualified finance director. That position has been vacant for almost six months.
There is some urgency to getting the financial problems fixed. The Local Government Commission placed Elizabeth City on its Unit Assistance last September after the city filed its 2019-20 financial statements over six months past the Jan. 31, 2021 deadline.
The city also has not been able to have its books audited for the 2020-21 fiscal year, missing a Nov. 1 deadline, because of its internal accounting problems. That deficiency was noted late last year in a review by the N.C. League of Municipalities of the city’s financial practices.
City Council agreed in October to hire Isley to help straighten out its financial statements. The city is paying the firm $100 an hour for its help and Isley said Monday he has billed the city around $60,000 since being hired.
Hiring 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 through June 2021, Isley said.
Isley said the city needs to upgrade its computer software to help with its future financial statements.
“Your accounting department is still operating like a 1984 mode,” Isley said. “The past leadership hasn’t come to you (City Council) to get to a more efficient operation from the accounting perspective.’’
Isley said an affordable option could be integrating finance into the Tyler system the city currently utilizes in the utilities department.
“You just have to get the rest of the package,” Isley said. “Right now, you are doing a lot of manual transactions (in finance department).”
Turnover in the manager’s office and the finance director’s position has compounded the problem.
Since former manager Rich Olson left 18 months ago, the city has had one permanent manager and three different interim managers — former city Public Safety director Eddie Buffaloe twice and now Clark.
Former Finance Director Suzanne Tungate resigned in October 2020 after being director since 2017. She was replaced by assistant director Evelyn Benton, who retired this past fall. The position has been vacant since.
Isley said smaller communities also are finding it difficult to hire higher quality audit firms.
The current firm of Thompson, Price, Scott, Adams and Company billed the city $18,000 for the last city audit, which he said was low. He said an audit should take around 450 hours. Given the city paid only $18,000 for the audit, it was charged only $40 an hour, which he also said was low.
“My recommendation based on my experience with the firm you have engaged right now is not good,” Isley said. “In fact, the state auditor (Beth Wood) is now going to take a look at audits of towns of similar size. When she sees a price of $18,000 on a town your size there is going to be a conversation.”
“A CPA is not going to work for that low rate (of $40 an hour),” Clark added.
Isley also suggested that some audit firms may “not help or assist you” from Jan. 1 to May 1 because that is tax season and they’re busy with other clients.
“I see my job is to tell you what you need to hear, which may not always what you want to hear,” Isley said.
Clark said Tuesday that he is recommending that City Council hire Newport News-based PBMares to conduct the city’s next audit at a cost of around $50,000.
“We need a firm in here that can get on the audit,” Clark said. “It’s a more expensive audit, but we are trying to look at quality and delivery. Apparently, we were not getting either one. An audit is a requirement by law but it also shows we are fiscally responsible.”
The LGC must approve the city borrowing money for periods longer than 59 months and Clark said that is why the city needs to get its financial practices in order quickly. The city is facing several major sewer capital projects that may require financing.
“We are trying to get our house in order so the auditors can come in and do their job and get (the audit) to the Local Government Commission,” Clark said. “City government is just like anybody else, we can’t live on a cash basis. We have to borrow and (LGC) controls all the borrowing that we do that exceeds 59 months.”
The city needs a finance director with a high-level of accounting experience and Clark said those people are “scarce.” Clark said his interpretation of a state law requiring the city to have a financial officer is that the person doesn’t necessarily have to be a city employee.
“It has to be someone that is responsible for the finances,” Clark said. “It makes no stipulation that it has to be an employee of the city. You could actually contract that out.”
Clark said the city may look at having Isley continue its work through the end of the year.
Isley said the firm has 19 CPAs on his staff and the firm has built a model to help serve rural communities.
“Rural areas are having a hard time finding qualified (finance directors) they can keep,” Isley said.