Five years behind on financial audits, the town of Littleton faces a potential takeover by the North Carolina Local Government Commission if the town fails to complete its fiscal year 2021 audit by Monday.
Littleton town officials attended the Local Government Commission’s meeting on April 1 to discuss the town’s current financial situation and their plan to submit the missing audits. The town, located in Halifax County with a population of roughly 550 residents, has missing audits that date back to fiscal year 2021. The audit for that fiscal year was due on Oct. 31, 2021, but is still in progress, according to a press release from the State Treasurer.
Denise Canada, secretary of the LGC, told Carolina Public Press that while Littleton is not the only town behind on audits, they are further behind than any other town in the state.
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Further action from the LGC could be prevented if the town hires a full-time finance officer, or at least provides evidence they’re making progress in hiring one. Until one is hired, the town has employed Clyde Johnston to serve in the position short-term. Additionally, the town has until the end of business on Monday, May 4, to submit its fiscal year 2020-2021 audit to the commission. Failure to complete these tasks risks a potential takeover by the LGC, according to the notice and warning.
Heidi Hogan, mayor of Littleton, told CPP that town officials are currently working on the 2021 audit and hope to finish it by the May 4 deadline, but have no other comment at this time.
Littleton ‘downward spiral’
Littleton is a town of about 560 residents located about 80 miles northeast of Raleigh in western Halifax County, a short distance from the Virginia state line.
The town’s troubles began in 2020, when it started a “downward spiral of communication” with its bookkeeper, accountant and auditor, trying and failing multiple times to contact them, Hogan said in the meeting.
“We were only able to contact our auditor by going to the other members of the firm,” Hogan said in the meeting. “We received no calls back as much as we tried over the years.”
In their efforts to contact the auditors and bookkeepers, Hogan said in the meeting they were trying not to be “disruptive” or “annoy” them.
The town faced other challenges too, as discussed in the meeting. Littleton lost its longtime finance officer and had to find a new auditor following submission of the 2020 audit. The firm that the town ended up bringing in told town officials that the firm “would not be as able to be involved in the preparation of financial statements.” As a result, the town had to bring in a third-party accountant as well.
Canada sent a letter to Littleton outlining the town’s financial duties that were going unfulfilled, the most important one being completion of the annual audit. Despite staffing and communication issues, Canada told CPP that the responsibility ultimately lies with the elected officials of the town.
She asked officials in the letter to attend the LGC meeting on April 1 and to contact her at the email address provided at the end. The letter was sent to several email addresses and then certified mail, yet the commission never received a response from the town, Canada said.
Hogan said in the meeting that town officials weren’t aware they had to respond to the LGC’s letter, they believed they simply needed to show up to the April 1 meeting.
Why so many NC towns face financial woes
Littleton is not the only town in North Carolina struggling with similar issues. Other towns have fallen behind on financial audits, with 87 towns currently behind, said Dan Way, senior communications manager for the State Treasurer. Typically, the commission notifies towns when they’ve fallen behind at a certain point, and they submit appeal letters explaining the circumstances surrounding their lateness and why they shouldn’t be penalized, Canada said.
Sifting through more than 100 appeal letters from towns in her first year on the job, Canada said it was apparent that a lot of towns were facing the same issue: high turnover in finance positions. Other factors that play a role include a lack of audit firms in North Carolina that perform local government audits and changing standards for government auditing and accounting. But the staff turnover is very problematic, Canada said.
“It’s a large factor,” Canada said. “It’s not the only factor, but it’s a real problem, and I don’t see signs that it’s going to get better in the short term.”
When towns like Littleton have high turnover in these finance positions, it’s easy to get behind, she said.
“It’s very hard to keep the day to day business going when you bring someone in that’s having to be trained,” Canada said.
“We’re not talking generally about very large counties that have a lot of institutional knowledge around finance. In a lot of these units that are behind, if the finance officer leaves, they take almost all of the institutional knowledge about finance with them.”
Potential reasons for high turnover include less competitive salaries offered by smaller towns compared to larger ones, Canada said. Mayor Gil Wheeler of Elm City described the struggle to hire and retain qualified finance personnel as a widespread problem when discussing the financial woes of his own town, which were the subject of a state audit earlier this month.
Turnover in financial professionals
Not as many people are working in local government finance anymore, Canada said. The Government Finance Officers Association, a group representing public finance officials in the United States and Canada since 1906, released a report in September 2022 that touched on this issue.
“The supply-demand gap for state and local public finance workers is widening faster than the same gap for the finance sector overall, the public sector overall, and the economy overall,” the report said. “The gap is growing because, while state and local public finance is experiencing very strong demand for workers, it has seen net employment loss each year since 2019.”
Regarding standards for government auditing and accounting, the Governmental Accounting Standards Board sets these standards nationwide, and they have become “more complicated” over the past 15 years and harder to follow. Because of this, annual audits have increasingly required more time to complete, Canada said.
Given the increasing challenges towns like Littleton are facing in acquiring and keeping qualified finance personnel, Canada said she and Treasurer Brad Briner are interested in having the LGC support efforts to bring more people into the finance field.
“We can explain to people how satisfying this work can be and how much meaning you can find in serving your community,” Canada said. “I don’t think that it is hopeless, and I’m very interested in my time in this role of doing a few things that are broader initiatives, and one is trying to figure out how to bring more people into this work.”
While Canada said she’s only been in her current role for less than a year, she’s already made some efforts, including talking to the master’s of accounting students at UNC-Chapel Hill about their career options in the finance and accounting field. The programs emphasize becoming a certified public accountant, but Canada said she wants students to realize other certifications are just as valuable.
She also wants to provide the same support for undergraduate accounting students and those attending community colleges, she said.
“People seem to fall into government by happenstance, and it doesn’t have to be that way,” Canada said. “We can communicate much more clearly how many opportunities there are.”
While she doesn’t know whether Littleton will meet the May 4 deadline to submit the 2021 audit, Canada said she has definitely seen “significant progress” from them and can see they’re working “extremely hard” to complete it.
Littleton doesn’t have a plan yet for submitting the remaining audits after 2021, Canada said. The next LGC meeting is scheduled for May 5, and the preliminary meeting agenda shows Littleton town officials will be returning to give updates.
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