Montgomery County receives clean audit but must address bonding and reporting weaknesses

Montgomery County officials heard on Feb. 2025 that the county received an unmodified (clean) audit opinion for fiscal year 2023–24, but auditors identified material weaknesses in financial reporting and a statutory bonding shortfall for the finance director.

The finding came during a presentation by Leanne Vargasala, audit director with Malden & Jenkins, the county’s external auditors. Vargasala told the board the audit was performed in accordance with generally accepted auditing standards and government auditing standards and produced a clean opinion on the basic financial statements: “you receive an unmodified or a clean audit opinion,” she said.

The clean opinion covers the county’s financial statements for the year ending June 30, 2024. Vargasala highlighted the county’s strong general fund position: a general fund balance of $48,000,000 against about $37,000,000 in expenditures and an unassigned (available) general fund balance of approximately $34,000,000.

Why it matters: the county’s fund balance and available cash levels are a key measure of near-term fiscal health. The auditors also said the Local Government Commission (LGC) had produced several financial performance indicators that require responses from the county within 60 days.

Auditors reported three material weaknesses and other findings. The first material weakness is noncompliance with North Carolina General Statute 159, which requires the county finance officer to be individually bonded for 10% of total expenditures (up to $1,000,000 for this county). Vargasala said the finance director had been bonded for $100,000; the interim finance director now has the required bonding in place. The audit report characterizes that as a statutory noncompliance requiring disclosure.

The second material weakness was in the county’s books and records: auditors required multiple material adjustments during the audit across funds, including inventory and asset additions in the public utilities fund, an adjustment to the conservation district board fund, an accrual in the emergency telephone fund, and a reversing entry in the school maintenance project fund. Vargasala said those adjustments, when aggregated, were material to the county’s financial statements.

The third material weakness involved prior‑period restatements connected to new guidance for recording opioid settlement revenue. Vargasala explained that new guidance from statewide organizations and the LGC requires counties to recognize opioid settlement receipts differently for financial‑statement presentation; the adjustment reflects that guidance and is not described as an error in the county’s original bookkeeping.

Auditors also tested federal and state grant programs selected for single‑audit review—Medicaid, ARPA, a community facility loan program, and the North Carolina lottery—and issued clean compliance reports for the audited programs.

GASB and other upcoming changes: Vargasala reviewed forthcoming accounting pronouncements that will affect county financial reporting, including new guidance on accounting for compensated absences (GASB 101) and other standards (GASB 102, GASB 104). She said the county will need to update policies and gather HR/payroll history to implement the compensated‑absences change.

Board discussion included concerns about timing and predictability of specific long‑term revenues. Commissioner John Shaw (first referenced earlier in the meeting) noted that estimated opioid settlement payments could not be relied on for multiyear planning: “I would like to be able to plan the next 18 years but to date it's been wait, wait for a disbursement,” he said, adding that the annual disbursements and amounts can change.

Leanne Vargasala concluded by noting corrective action plans are included in the audit to address the material weaknesses and by offering additional services and training to county staff.

Looking ahead: the county must respond to the LGC indicators of concern and implement the corrective action plan items disclosed in the audit report. The board was given the audit and related materials as part of the meeting packet and was told the LGC requires a formal response to certain flags.