Gates County Audit: Revenue down; fund balance up

Published 11:03 am Monday, January 10, 2011

GATESVILLE – In a time of economic distress where local government entities are raiding their fund balance to meet budget, no alarm sirens are being heard in Gates County.

Last week, the Gates County Board of Commissioners heard the results of the county’s annual audit, one that came with the news that not only did the local government entity manage to meet all expenditures despite declining revenues, they were able to do so while adding to the fund balance.

“Your fund balance percentage went up, which is almost unheard of in the current federal and state economy,” said J.P. Jones of Martin-Starnes & Associates CPA who presented the commissioners with Gates County’s annual audit for fiscal year ending June 30, 2010.  “Ya’ll were able to cut your expenditures without dipping into your fund balance.”

He added, “You were able to hold the line on your expenses; you’re to be commended for that. If you had failed to plan for declining revenues and spent at levels seen prior to the recession, then you would have used a lot of fund balance. But your expenses are under last year, meaning you were able to meet your revenues for the current year.”

Jones reported that the total fund balance went down by $14,000; however the unreserved portion went up by $62,000. That brought the total fund balance to $2.9 million to start the new fiscal year (beginning July 1, 2010); $2.4 million of which is unreserved/undesignated.

It also increased the fund balance percentage, now at 24 percent of the county’s General Fund. That marks a one percent increase over the previous audit.

Another highlight of the audit was that the county’s assets exceeded its liabilities by $4.5 million.

General Fund revenues declined by $450,000, of which Jones noted was due to the local option sales tax. However, due to the recent property tax evaluation in the county, $500,000 was generated, but coupled with a $200,000 decline in grants, the overall General Fund revenue was lower than the previous year’s audit.

Jones said it’s not unusual to see a decline in the local option sales tax due to the current economy.

As expected, the audit revealed the top three sources of revenue as Ad Valorum taxes ($5.98 million); restricted intergovernmental revenues ($2 million) and local option sales tax ($1.57 million). On the other side of that financial spreadsheet, the top three entities receiving those revenues were education ($2.63 million), Human Services ($1.76 million) and Public Safety ($1.56 million).

The audit showed the Enterprise Fund with $1.9 million cash on hand and unrestrictive net assets of $2 million.

“Your debt service is about half of your cash flow, roughly leaving you with $200,000 to perform repairs to your water system,” Jones noted of the Enterprise Fund.

Jones detailed the budget conditions of other counties across the state, noting that 16 had increased their tax rate by an average of 3.3 cents; 49 cut budgets; 43 cut positions (a combined 1,000 fewer positions on top of downsizing during 2009-10); 14 laid off existing employees; and seven instituted mandatory furloughs.

“We’ve also seen counties use salary cuts; have fewer paid holidays and either decrease or stop their share of 401K plans for employees in an effort to save money,” Jones said. “Ya’ll are a lot better off than other counties.”

The audit report gave Gates County’s finances an “unqualified opinion.” He said there were some internal control findings, but none that would require the county to return money to the state.

“We encountered a very cooperative staff here while performing the audit,” Jones noted. “We were given what we wanted in a timely fashion by all departments.”

At the state level, Jones said the planning process is underway for a new budget, one that will face a $3.7 billion deficit right off the bat. What will that mean for Gates County?

“Everything is on the table,” Jones said, referencing possible state budget cuts. “They could cut the local contributions made to education; they could cut lottery fund proceeds; they could cut the Powell Bill (used for street projects); we just don’t know.”

Jones said the “gut feeling” of his firm is that the state will look to cut education funds.

“What that means for ya’ll is that your local board of education may come to you for funds to offset the positions that may be cut,” he noted. “A lot of folks look at education as the sacred cow; that the state will never cut those funds, but when you’re looking at a $3.7 billion deficit, you’ve got to cut somewhere.”

He added other state revenue cuts could come in tax reform… taxes; as well as reducing the number of state jobs by consolidating departments.

“What our citizens want to know is are we in good financial shape,” inquired Board Chairman Graham Twine.

“I would say that since your fund balance went up, you’re in a lot better shape than other places,” Jones answered. “You were able to meet your expenditures with revenues and not use a lot of fund balance.”

“I’d like to congratulate Sandy (Pittman, the county’s Finance Officer) for a job well done,” Twine remarked.

“It’s a whole county thing…I know all your department heads here made sacrifices,” Jones said.

Commissioner John Hora asked several questions of Jones in regards to the financial record-keeping practices used by the county. He inquired of how an integrated system could better track revenues/expenditures. He also addressed budget amendments, saying that he didn’t like moving money around from one account to another, instead using variances to perform that financial transfer of funds.

“Is there a general state statute that says that you must move money,” Hora asked.

“There is a little freedom in how you do budget amendments,” Jones replied. “It’s all based on how you adopt your budget ordinance.”

Jones said there are two ways to adopt such an ordinance; one at the line item level and the other at the departmental level. He added that either way, if his audit found a line item or a department that was over budget, he would have to report it as it would be in violation of state statutes.

“It’s up to ya’ll on how much detail you want to know; a line item budget gives you more detail,” Jones noted.

“It does give you a lot more insight into what your financial activity is over time,” Hora stressed in regards to a line item budget.

Gates County’s budget ordinance is at the departmental level.

“We ask the department heads to make sacrifices during the year, they made them and this audit reflects that,” said Gates County Manager Toby Chappell. “We are in a strong financial condition due largely in part to our employees making those sacrifices and the financial oversight of the board of commissioners.”

Commissioner Henry Jordan asked of the internal findings of the audit, especially those of a repeat nature. Jones said there were the typical internal findings, all based on Gates County having a limited staff to handle finances.

“For the size of your county, it is to be expected, but we are still bound by law to report those findings,” Jones said. “To be perfectly honest, the (finance office) position does not pay enough to attract a CPA (Certified Public Accountant). That’s the case in a lot of smaller counties where I perform audits as well as in some of the medium size counties.”

The audit report was approved unanimously by the board.

About Cal Bryant

Cal Bryant, a 40-year veteran of the newspaper industry, serves as the Editor at Roanoke-Chowan Publications, publishers of the Roanoke-Chowan News-Herald, Gates County Index, and Front Porch Living magazine.

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