Salisbury’s Comprehensive Annual Financial Report is Out. The Independent Auditor Says that Due to Fibrant, the City is in Violation of N.C. Law

Posted on January 23, 2017

Todd Paris, Staff Writer and Salisbury City Attorney

♦ The City of Salisbury Comprehensive Annual Financial Report is out. Independent auditor says that due to Fibrant, the City in violation of NC law. A great discussion of what a CAFR is and why it is important may be found at:

I tend to think of it as a report of expenditures and savings and money you actually taxed and spent since the last budget. It tells us where our money went, what our income was and what are our debts and savings. A budget is different. It’s a plan for a specific period of time in the future showing where we will spend tax income. The Salisbury CAFR runs 168 pages and a PDF is attached. Of course, the important part is contained in the last two pages. The city budget usually comes out in May. Hopefully staff will not send it out to “un favored” council members the day before or the day of the vote to approve. The budget should be released to the public at least 30 days in advance as well.

1.8 M dollars of Fibrant costs in the general fund – February 2016.

The independent auditor’s report was compiled this year by Elliott Davis Decosemo, PLLC. Their “Schedule of Findings Responses and Questioned Costs” may be found on page 167. (Didn’t the prior auditor call this a negative finding?)

Elliott Davis Decosemo, PLLC is a new auditor hired after RFP broke this story last year.

The independent auditors revealed that:

“At the end of the current year, the Broadband Services Fund was operating in a deficit (deficit net position). Context: While reviewing the client’s draft of the financial statements, we noted the condition described above. Effect: The City was in violation of North Carolina General Statutes. Cause: Revenues and transfers in were not sufficient to cover total expenditures incurred in the Broadband Services Fund on a GAAP (full accrual) basis of accounting, but on the budgetary (modified accrual) basis of accounting revenues and transfers were sufficient to cover total expenditures in the Broadband Services Fund.” See, page 167.

Of course, this is not surprising, since Salisbury has been operating Fibrant in violation of state law since its inception and likely will continue to do so, unless it’s sold or the NC Treasurer and or the Local Government Commission somehow intervene.

As to the statute violated, confidential sources within the City indicate that the auditors cited that N.C. Gen. Stat. 160A-340.1 (a)(7). It reads:

§ 160A-340.1. City-owned communications service provider requirements. (a) A city-owned communications service provider shall meet all of the following requirements: (Skipping sub-parts 1 through 6)

(7) Shall not subsidize the provision of communications service with funds from any other non-communications service, operation, or other revenue source, including any funds or revenue generated from electric, gas, water, sewer, or garbage services.

However under, “§ 160A-340.2. Exemptions.” This was the exemptions part of this “Broadband Bill” that Salisbury fought so hard for states:

(c) The provisions of G.S. 160A-340.1, 160A-340.3, 160A-340.4, 160A-340.5, and 160A-340.6 do not apply to a city or joint agency providing communications service as of January 1, 2011, provided…

Salisbury is the listed with rules and conditions, thus I conclude and “I am unanimous in that” that as long as we follow the rules, 160A-340.1 does not apply to Salisbury and we are exempt. Whew!

Out of the woods? Request the CAFR be amended and declare victory? Nope. It’s the NC Fiscal Control Act that’s causing the problem.

§ 159-8. Annual balanced budget ordinance.
(a) Each local government and public authority shall operate under an annual balanced budget ordinance adopted and administered in accordance with this Article. A budget ordinance is balanced when the sum of estimated net revenues and appropriated fund balances is equal to appropriations. Appropriated fund balance in any fund shall not exceed the sum of cash and investments minus the sum of liabilities, encumbrances, and deferred revenues arising from cash receipts, as those figures stand at the close of the fiscal year next preceding the budget year.

Salisbury’s broadband exemption did not exempt it from the Fiscal Control Act and thus each enterprise fund (including the broadband) must be properly funded and can not run at a deficit or negative position. To cement my position, this was in the last independent auditor’s finding 2014-002 and it is attached for your edification.

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