Local Government Commission FAQS

Audits for most local government units are currently due six months after the end of the fiscal year.  Housing authority audits are due ten months after fiscal year end. 

Annual audits are one of the LGC's primary tools for monitoring the fiscal health of local governments. Staff review audits for:

• The auditor's opinion about whether the financial statements are presented fairly, in all material respects, in accordance with Generally Accepted Accounting Principles (GAAP).
• Material weaknesses or significant deficiencies in internal controls
• Findings related to noncompliance with state or federal laws
• Financial performance indicators such as fund balance and changes in fund balance, operating results, and debt levels
• Whether prior audit findings have been corrected
• Whether the audit was submitted on time as required by G.S. 159-34

The LGC does not require that local governments have any specific percentage of fund balance available equal to a specific percentage of expenditures. A common misconception is that the LGC requires local governments to have 8% fund balance available in the general fund, meaning they must have a fund balance equal to an amount that is at least 8% of expenditures. 

LGC staff recommend that local governments develop a fund balance policy to maintain a fund balance that is consistent with their peers that provide similar services. Memorandums on the “Management of Cash and Taxes and Fund Balance Available,” are published by LGC staff annually for both counties and municipalities that list the fund balance available for those units, with units grouped by those with and without electric systems, and further by peer groups. Additional information is available in the blog post The Myth of 8%.

SLGFD staff consider various factors and information when making a determination whether to place a county, municipality or utility authority on the Unit Assistance List (UAL) including: 

• Information within the annual audited financial statements submitted under G.S. 159-34
• Financial performance indicators, including fund balance and changes in fund balance, cash flow, and debt burden
• Internal control deficiencies or compliance findings identified during audits
• Late or missing audit submissions
• Other financial reporting or operational concerns identified through staff monitoring

A unit may be removed from the list when SLGFD staff determine that the conditions leading to inclusion on the list have been resolved. This may include sustained audit compliance, improved financial condition, corrected internal control deficiencies, and resolution of reporting issues.

The current Unit Assistance List is available on our website and can be accessed via the Information for the Public page.  Counties, municipalities, and utilities authorities can be placed on the UAL. 

Local governments on the Unit Assistance List receive increased guidance and resources from SLGFD staff in addition to enhanced fiscal monitoring.  Units on the UAL also have additional statutory obligations. An explanation of those obligations is available on our website on the Unit Assistance List page.

The LGC's approach is designed to escalate intervention only when necessary. Most financially stressed units receive enhanced monitoring, technical assistance, and guidance from SLGFD staff before more significant action is considered.

Under G.S. 159-181, the Commission may assume financial control of any unit of local government or a public authority, only under specific circumstances. Those include:

• The unit defaults on payment of principal or interest on its debt, or the Commission determines the unit is in danger of default if its financial practices are not improved;
• After notice and warning, the unit willfully or negligently continues to violate The Local Government Budget and Fiscal Control Act (Chapter 159, Article 3); or
• The General Assembly suspends the charter of a municipality.

If the Commission assumes financial control, it is vested with the financial powers of the governing board, including authority over budgeting, expenditures, taxation, and other financial operations necessary to restore fiscal stability.

The Local Government Commission does not conduct audits of local government units. Our office reviews the annual financial audit reports of each unit of local government to assess the fiscal health of each unit and compliance with applicable law and requires corrective action plans from those units with audit findings.  A unit is required to address any significant deficiency, material weakness, or other audit finding documented in the annual financial audit and to develop an action plan with measurable results for each finding identified. 

In addition to filing an annual audit report at the end of each fiscal year, units are required to complete a Data Input Report. This report contains self-reported information from each unit’s audit report that is used to calculate Financial Performance Indicators. If a Financial Performance Indicator data type falls outside of acceptable ranges, that data type is flagged as a Financial Performance Indicator of Concern (FPIC). If an FPIC is flagged, the unit is required to provide a response to our office that includes a corrective action plan for addressing and rectifying the FPIC.  

Units that are found to need enhanced fiscal monitoring are placed on the Unit Assistance List.

The staff of the LGC do not investigate individual units for financial discrepancies. Our office reviews the annual audit reports of each unit of local government that are completed at the close of each fiscal year. One purpose of the audit is to review the financial management of the units as being in compliance or not with The Local Government Budget and Fiscal Control Act (LGBFCA) (Article 3 of Chapter 159 of N.C. General Statutes). If an audit report indicates a need to provide a particular unit with additional staff resources and enhanced fiscal monitoring, that unit may be placed on the Unit Assistance List (UAL). Information about the UAL is available on the Information for the Public page. 

The LGC does not lend money. When the Commission approves a financing, the funds come from investors in the municipal bond market or, in some cases, from banks providing direct financing. Investors purchase the bonds or notes issued on behalf of the local government, providing the proceeds used to finance the project. The local government then repays those investors over the life of the debt.

LGC staff do track the balances of local government debt that was approved by the Local Government Commission. That tracking information can be accessed on our website by visiting the Data and Reports page, opening the “State and Local Government Debt Reports” dropdown, and clicking “Bond Link Information.” Note that this information only includes debt approved by the LGC and does not necessarily include all debt owed by a unit of local government. 

The LGC is not a grant-making body and is not charged with monitoring grants that local governments receive.  Questions about grant funds should be directed to the agency or entity that made the grant.  The Office of State Budget and Management maintains a grants management page about state grant funds that may be find useful. In addition, the North Carolina OpenBudget platform offers the ability to search for information on awarded grants, contracts, and state-administered grant programs.