The LGC speaks

The following is the text of the two-page letter sent from the state Local Government Commission to the Henderson city government in response to the fund balance problem documented by the audit for the fiscal year that ended June 30, 2004. The letter was sent on the official stationery of State and Local Government Finance Division and the Local Government Commission of the Department of State Treasurer, a Council of State post held by Kittrell-area resident Richard Moore.

February 21, 2005

The Honorable Clem Seifert, Mayor
City of Henderson
PO Box 1434
Henderson, NC 27536

Dear Mayor Seifert:

The staff of the Local Government Commission has analyzed the audited financial statements of the City of Henderson for the fiscal year ended June 30, 2004. We noted the following matters which warrant your attention.

As of June 30, 2004, the amount of fund balance available for appropriation in the General Fund was $788,417 or 5.36% of total General Fund expenditures. Included in that calculation are Powell Bill funds of $324,254, which are legally restricted for street maintenance and construction. Without Powell Bill moneys, which are legally restricted to street repair and maintenance, the General Fund would have had only $464,163, or 3.16% of expenditures, of fund balance available to appropriate for other unforeseen emergencies or opportunities. We also noted that fund balance available decreased from 14.72% at June 20, 2003, to its current level. Fund balance is an important reserve that provides cash flow for the General Fund during periods of declining revenues. For that purposes fund balance available for appropriation should not be allowed to drop below 8% of General Fund expenditures. In addition, fund balance available for appropriation may be appropriated if emergencies or unexpected opportunities arise. The average fund balance available for cities with a population comparable to Henderson is 35.09% of total expenditures in the General Fund.

Contributing to the decline in the fund balance available for appropriation in the city’s General Fund, transfers were made to the General Capital Projects Fund in excess of the appropriations authorized by the budget ordinance in several areas. From conversations with City officials, we have learned that the decrease in General Fund reserves and the excess transfer to the General Capital Project Fund resulted from fund being advanced for a library project. It is our understanding that the City anticipates being reimbursed for these costs at a future date that may be a few years away.

The governing body should work to increase fund balance to at least 8% of total expenditures in the General Fund as quickly as possible. The current year’s budget should be closely reviewed to determine if expenditures can be reduced or delayed and/or if any revenues can be increased. We recommend that the City establish a contingency appropriation in this year’s and future years’ budgets. This will give the General Fund a resource to be budgeted if an emergency or unexpected opportunity should arise. If not appropriated during the fiscal year, the contingency appropriation will serve to increase fund balance at year end.

For the 2003-04 fiscal year, the City collected only 92.31% of the ad valorem taxes that it levied, significantly less than the statewide average of approximately 97%. Your Board should review the tax collection procedures utilized for the current year’s tax levy as well as the prior years’ delinquent taxes and decide if more effective means of collection are possible. The North Carolina Department of State Treasurer Policies Manual contains a section on property tax billing and collection that may assist you in this area. A copy of this section can be downloaded from our website at Select “State and Local Government” followed by “Auditing and Reporting Resources” and “Policies Manual.” Also, the Institute of Government at UNC-Chapel Hill, (919) 966-4119, offers courses in tax collection that may be of interest to your tax collector.

Please write to us about your plans to resolve these matters. We request that the response be signed by all members of the governing board. With your response, please send us a copy of your most recent interim financial statements, including a budget to actual comparison and the current assets and liabilities of your major funds. Please continue to send these interim statements each time they are prepared for review by your Board. If you have any questions please contact me at (919) 807-2380.


T. Vance Holloman,
Director, Fiscal Management Section

cc: Eric M. Williams, City Manager
Mr. Traig Neal, Finance Officer
William L. Stark And Company CPAs
Mary Emma Evans, Councilmember
D. Bernard Alston, Councilmember
D. Michael Rainey, Councilmember
Harriette H. Butler, Councilmember
Elissa P. Yount, Councilmember
John P. Wester, Councilmember
Lonnie Davis Jr., Councilmember
Ranger Wilkerson, Councilmember