The annual town audit report is not traditionally a very exciting event for the Highlands Board of Commissioners, but thanks to some chatter in the North Carolina General Assembly, the audit review in December came with more pointed discussion than usual.
Travis Keever with Gould Killian CPA Group covered the town’s audit report and noted that Highlands received an “unmodified opinion,” otherwise known as a clean audit.
“We found no issues of noncompliance in the town’s finances and we were pleased with the town’s finance department and overall accounting practices,” Keever said. “We did discover one weakness and one deficiency, but they were both considered minor, and in talking with (finance director) Rebecca Shuler before this meeting we were informed both issues have already been resolved.”
Keever noted that the “weakness” discovered was related to the Duke Energy Coal Ash Settlement and the “deficiency” was caused by one employee handling multiple duties within the town’s payroll system.
Highlands has a $4.6 million fund balance total, with $3.9 million of that being undesignated fund balance. Mayor Patrick Taylor asked Keever how those numbers compare to similar sized municipalities around the region.
“Highlands fund balance is 70 percent of budgeted expenditures, or approximately nine months worth of operating expenses, in case of emergency,” Keever said. “The state average is 59 percent and the (Local Government Commission) recommends a minimum of 40 percent, so you all are ahead of most comparable municipalities.”
Keever did inform the board of one common town practice that may need to be adjusted in coming years.
“Your electric fund, which is an enterprise fund, brings in a surplus each year and you all have traditionally used some of that to cover a deficit in the water/sewer fund via a budget amendment,” Keever said. “There is some discussion going on in Raleigh that the legislature may outlaw those types of transactions within a municipality’s budget.”
Taylor asked what the town should do to make sure it remains in compliance if such budget amendments are no longer allowed.
“Since both electric and water/sewer are enterprise funds they both need to be solvent and bring in enough money to cover the operating costs,” Keever said. “The easiest way to make that happen would be by decreasing the electric rates, and thus reduce the surplus, but increase the water/sewer rates so that fund stays above a zero balance.”
“If a customer had both utilities, they would theoretically pay a little less each month for electricity and a little more each month for water/sewer,” Keever said. “The net result would be the same, but the money would be brought in differently.”
Commissioner Buz Dotson asked Keever why the NC Legislature would take an interest in mandating how municipalities handle their budgets related to enterprise funds.
“Not in Highlands, but some other municipalities have had some issues with funds being misappropriated from their enterprise funds to cover expenses in other departments,” Keever said. “I am not in Raleigh every day, so I don’t know what the lobbyists are pushing, or if there is a specific group behind the scenes trying to change these rules, I just know they are being looked at very closely right now.”
Taylor asked if sanitation (an enterprise fund) could be moved into the town’s general operating budget under public works. Thus eliminating the need for potential budget amendments from the electric fund to cover shortfalls in that department.
“You can do that, your board will just need to sit down when you start your budget discussions for next year and see what those numbers look like,” Keever said. “The good news for Highlands, is you are in really strong financial position so these changes shouldn’t be overwhelming.”