Auditor warns of 'deteriorating financial condition' at Rocky Mount, issues three material weaknesses

Tim Lyons, the lead auditor presenting the draft fiscal-year 2025 audit, told the Rocky Mount City Council that the auditor—irm will report the city "exhibits multiple indicators of a deteriorating financial condition," citing operating deficits in the general and enterprise funds and insufficient financial oversight. "The city exhibits multiple indicators of a deteriorating financial condition," Lyons said.

Why it matters: the auditor said the report will include three items classified as material weaknesses and that the findings are likely to trigger financial-performance indicators from the state gency that oversees municipal finances. Those indicators can prompt additional oversight and require the city to provide corrective plans.

The audit package the auditor reviewed includes a finding labeled in the report as finding 2025-1 for financial condition, plus two additional findings related to capital-asset accounting and accounting-estimate processes. Lyons said the capital-asset work required roughly $32,000,000 in corrections to ensure that equipment and vehicle purchases were capitalized rather than expensed. "The numbers that you see in the final financial statements are reflective of these adjustments," he said.

Council members pressed for specifics about what "inadequate financial oversight" meant in practice. The auditor said untimely bank reconciliations and delays in closing the year-end accounting were among the issues that often lead to findings, and acknowledged a prior state finding tied to year-end close procedures. A council member noted bank reconciliations had been 13 months behind when the new finance director started; staff told the council they are now fully within a 30-day reconciliation cycle.

The auditor also highlighted a timing adjustment of roughly $6,900,000 in accounts payable that primarily reflected accrued payroll spanning the June 30 year end and items written as checks in July. Lyons said the adjustment "does not affect cash flows" and largely reflects period-of-recording differences.

Next steps: Lyons said the audit team will complete a final quality-control review and issue the audit in March, after which the city will submit the final ACFR to the Local Government Commission. "Our expectation is that the items we've covered today are gonna be the things that show up" in the commission's financial-performance indicators, Lyons said. He offered to return with a final presentation when the report is complete.

What remains open: council requested more detail on certain footnotes (planning loans, delinquent loan balances, allowance-for-doubtful-accounts by fund) and asked staff to provide historical write-off schedules to inform budgeting and cash planning. The auditor said some items would require follow-up with city staff and the finance office will supply that detail.

The meeting recessed for lunch with the auditor available to return for a final presentation once the ACFR is finalized.