Notice of Noncompliance & Appeals
Timeline
North Carolina Session Law 2023-59(G.S. 159-34(e) – (h)), An Act to Increase Compliance by Counties and Municipalities That Fail to Timely Submit an Annual Audit Report, was enacted in June 2023 and applies to audits for counties and municipalities for fiscal years ending on or after June 30, 2023. The following sections provide information on the law and its implementation. Please see the law in its entirety here – SL 2023-59
| Date | Description |
|---|---|
| March 31 | Date by which counties and municipalities must submit their prior fiscal year audit to avoid issuance of a Notice of Noncompliance. |
| April 1 | Units that have not submitted the required audit as of April 1 will be issued a Notice of Noncompliance. |
| By April 30 | LGC staff will issue a Notice of Noncompliance to all counties and municipalities that have not submitted an audit as of April 1. The law requires mailing notifications to the unit’s primary mailing address within 30 days; LGC staff will also make other efforts to ensure delivery and receipt of notices, including emailing the notifications to units. |
| After Notification | Counties and municipalities receiving a notice may file an appeal prior to action being taken to withhold a portion of sales tax distributions. See the “Appealing a Notice of Noncompliance” section below for details. Late Audit Notifications – Responses and Appeals Form |
| June 30 | Date after which counties and municipalities that have not submitted a prior fiscal year audit may be subject to withholding of a portion of sales tax distributions. Withholding of sales tax is not automatic; action must be taken to initiate a withholding and units have the option to appeal the action both before and after a withholding is initiated. |
| July 1 | On and after July 1, counties and municipalities are deemed to have consented to the withholding of a portion of sales tax distribution unless the audit report at issue is filed or the unit files an appeal that is considered and granted by the LGC. |
| August & September | Unit appeals will be considered by the LGC at a public meeting. Units will be scheduled to appear at the LGC meeting to be available to answer questions. In person or remote attendance will be permitted. |
NOTE:
- There is no automatic withholding of sales tax distributions.
- Action must be taken by the secretary to initiate withholding.
- Units will be able to appeal the action before and after it is initiated.
- Please see SL 2023-59 and the LGC’s Resolution Establishing Revised Guidelines for Successful Appeal of Sales Tax Withholding Pursuant To Session Law 2023-59 for more information.
Questions on notices, appeals, and other topics related to SL 2023-59 should be directed to LGCNotifications@nctreasurer.com
Resources and Information
A summary of the law follows; please be sure to read the law in its entirety here – SL 2023-59.
- Requires the Secretary to provide a Notice of Noncompliance to all counties and municipalities that have not submitted an audit report within 9 months of fiscal year end. (G.S. 159-34(e))
- Allows counties and municipalities to appeal the LGC action to withhold a portion of sales tax distribution if the audit is not submitted within 12 months of fiscal year end. (G.S. 159-34(f))
- Allows the Secretary to provide notice to the Department of Revenue to withhold a portion of a county or municipality’s sales tax distribution if the entity has not submitted an audit report within 12 months of fiscal year end and either the action was not appealed by the local government, or the appeal was not successful. (G.S. 159-34(f) and (g))
- Requires the LGC to establish and make available guidelines outlining specific criteria and circumstances that would warrant a successful appeal. (G.S. 159-34(f)) (see the “Appealing a Notice of Noncompliance” section below)
- The LGC must delay withholding if it determines the county or municipality has provided sufficient evidence that the failure to submit an audit report is due to circumstances within the established guidelines. (G.S. 159-34(f))
Session Law 2023-59 modified G.S. 159-34 to require the LGC to establish and make available guidelines outlining specific criteria and circumstances that would warrant a successful appeal. (G.S. 159-34(f)). At its November 12, 2024 meeting the LGC adopted revised guidelines for successful appeals, applicable to appeals filed in 2025 (for FY 2024) and later. A summary of the November 12, 2024 resolution follows; please be sure to read the November 12, 2024 in its entirety here – 2024 Resolution Establishing Revised Guidelines for Successful Appeal of Sales Tax Withholding Pursuant to Session Law 2023-59.
- The Commission shall deem an appeal successful under Paragraph 1 of the guidelines if the audit for which the Notice of Noncompliance was issued to the county or municipality is the only audit not submitted as required pursuant to G.S. 159-34(a). In addition, a written appeal submitted on this basis should also include (a) an explanation by the unit for the delay in audit submission and (b) a plan and timeline for submission of the outstanding audit.
- A county or municipality that cannot successfully appeal under Paragraph 1 of the guidelines may submit an appeal "based on other good cause with evidence" to support the basis for the appeal. (See Paragraphs 4 and 5 of the Guidelines).
- The Commission retains the discretion to direct or delay withholding portions of sales tax distributions of counties and municipalities that have failed to submit an appeal or are unable to successfully appeal the action under the guidelines established.
Counties and municipalities that receive a Notice of Noncompliance pursuant to SL 2023-59 may appeal the potential action by using the form below. Appeals should not be emailed.
Late Audit Notifications – Responses and Appeals Form
Appealing a Notice: Missing One Audit Report
Units with one audit report missing may file a written appeal under Paragraph 1 of the November 12, 2024, Revised Guidelines for Successful Appeal. These appeals should also include (a) an explanation by the unit for the delay in audit submission and (b) a plan and timeline for submission of the outstanding audit. The LGC may waive the requirement for the unit to appear before the Commission.
Appealing a Notice: Missing Two or More Audit Reports
Units that are missing two or more audits may file a written appeal “based on other good cause with evidence" under Paragraphs 4 and 5 of the November 12, 2024, Revised Guidelines for Successful Appeal. Units should refer to the Guidance Criteria for Drafting an Appeal Based on “Other Good Cause with Evidence” for more information on the content of these appeals.
Units missing three or more audit reports should review the information under the Guidance Criteria for Drafting an Appeal Based on “Other Good Cause with Evidence” for information on staff review of these appeals.
LGC staff will provide the appeals to the Commission for its review and consideration. Units will be scheduled to appear before the Commission on a schedule established by the Commission and staff.
In filing an appeal based on “other good cause with evidence” for LGC review, consider if your unit experienced any of the following events in the 12 months before the most recently issued Notice of Noncompliance and describe those events with sufficient, ample detail in a written appeal letter to the LGC. Address all events that may be applicable:
Staffing Issues
- Did your unit have two or more finance officers working for the unit?
- Did your unit experience multiple unit vacancies at once? (i.e. Finance Officer & Council Member vacancies))
Auditor Issues
- Did your unit experience a delay in procuring a new auditor that was no fault of the town? (i.e. issuing requests for proposals but no proposals were received?) Describe the issues, including timelines.
- Was the auditor delayed in completing the audit(s)? What was the reason(s)? In citing this criteria in your appeal, please describe the challenges the auditor is facing and what your unit has done to help manage the audit process.
Software/IT Issues
- Did your unit undergo software updates or conversions involving systems that were needed to complete the audit? Provide an explanation and timeline with dates.
- Did your unit experience a ransomware/cybersecurity attack? Provide a timeline and describe the impact of that attack on the unit.
Other Issues
- Did your unit experience a natural or other disaster?
- Did your unit experience suspected fraud or other criminal activity by unit staff?
- Include any other event or incident for the LGC’s consideration which you believe contributed to the unit’s failure to file the annual audit(s) timely. Describe the event(s) or incident(s) in sufficient detail with dates.
In addition, consider if your unit or staff have taken any of the following actions in the 12 months before the most recently issued Notice of Noncompliance to address or mitigate the issues identified above and describe those actions with ample detail and dates in the written appeal letter to the LGC:
- Sought bookkeeping, accounting, auditing or other assistance from the League of Municipalities or Association of County Commissioners, as applicable?
- Sought assistance from other associations or units with performing audits or bookkeeping?
- Contracted for assistance with preparing financial statements?
- Completed any training or education in local government finance, internal control, or other related subjects? If so, describe the training completed and completion dates.
- Taken any other actions to address or improve the management of the unit’s finances in seeking compliance with the annual audit requirement?
3+ Fiscal Years of Missing Audit Reports
Appeals filed by units missing three or more audit reports will receive a staff recommendation for denial unless the unit provides information that it experienced an extraordinary event or circumstance in the 12 months before the most recently issued Notice of Noncompliance that would explain why the unit has not made progress in submitting annual audit reports. An “extraordinary event or circumstance” is a highly unusual or unforeseen situation that could not have been reasonably anticipated or guarded against. Examples include major natural disasters or major disruptions to public health or safety. The Local Government Commission will review all appeals submitted and make the final decision to grant or deny an appeal.
Submit your written appeal through the:
Late Audit Notifications – Responses and Appeals Form