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Auditors: Rocky Mount's final audit shows material weaknesses and a $16.7 million restatement; council must respond to state
Summary
Auditors told the Rocky Mount City Council Committee the city received an unmodified opinion but faces multiple material weaknesses, including a $16.7 million prior-period restatement tied to the Rocky Mount Public Facilities Corporation; the Local Government Commission flagged financial-performance indicators that require a council response.
Leanne Bagasala, an audit partner with Malding and Jenkins, told the Rocky Mount City Council Committee that the city's final audit carries an unmodified opinion but includes an "emphasis of matter" about significant financial stress and several material weaknesses.
Bagasala said auditors added a fourth material weakness and recorded a prior-period restatement of $16.7 million related to activity between the city and the Rocky Mount Public Facilities Corporation tied to the Rock Mount Event Center. "There is a restatement of $16.7 million," she said, explaining that a receivable originally recorded would not be paid in cash and was instead satisfied through capital assets, requiring a prior-period adjustment under government accounting rules.
Why it matters: the Local Government Commission (LGC) requires the city to submit a written response explaining how it will address the flagged indicators. Bagasala reviewed 10 performance indicators of concern from the LGC's data-input form, including a general fund balance below the LGC's 25% guideline and repeated negative operating net income in enterprise funds: the water and sewer fund showed a negative operating net income (about -$2.6 million) and the electric fund about -$6.4 million. Unrestricted cash ratios for the water and electric funds were also below LGC thresholds (water ~10.5%; electric ~5.7%).
Council reaction included requests for clearer disclosure and more accessible summaries. Council member Tom said the $16.7 million figure "was completely new to me" and pressed why that dollar amount had not been explicit in earlier footnotes. Bagasala and staff explained the restatement arose when the New Markets Tax Credit-related transaction was unwound in 2024 and the resulting settlement required a prior-period adjustment to remove a receivable that would not result in cash collection.
City staff said they had already taken steps that should improve the city's financial position, citing recent rate adjustments adopted in April and ongoing year-end closeout tasks. Staff confirmed the audit has been submitted to the LGC and that management is preparing the corrective-action response the council must review and sign; council signatures are required within the statutory response window.
The audit also called out long-standing internal-control weaknesses (capital asset accounting, payables and payroll disclosures, and financial oversight). Council members asked for clearer executive summaries and an explicit note that bank reconciliations had been out of balance for extended periods in recent years; auditors said those issues were encompassed within the finding on financial condition.
Next steps: management is drafting the LGC response for council signature, and city leadership said they will present the response to the Local Government Commission. No formal council action was recorded in the transcript during the session.
