As Spring Lake faces the possibility of having its finances taken over by the state, questions remain about where the town’s missing money went and how the town managed to get itself into the situation.
Former alderwoman Jami McLaughlin said her realization that something was wrong with the town’s finances “came like bullets.” She remembers a lack of transparency, such as town officials not responding to public record requests.
Rita Perry, a longtime Spring Lake resident who brought to light the town’s past credit card misuse,said the “obvious” issue is poor decisions with spending tax dollars and not having experienced people in top town positions.
James O’Garra, alderman of 20 years, pins the start of the issue on former alderman and town manager Richard Higgins’ death in 2015: Higgins was the one who dealt with all the finances on the board, O’Garra said.
Alderwomen Sona Cooper and Fredricka Sutherland each said, “Follow the money.”
State Auditor Beth Wood has said her office is investigating “missing money.” A spokeswoman for her office declined to provide further clarity on what missing money means, citing office policy against commenting on active investigations.
But two takeover threats later, how much is missing and where it has gone remains largely a mystery to the residents and officials in the small town at the northern edge of Fort Bragg.
Sharon Edmundson, secretary of the Local Government Commission, has said there’s no reason for the town to be in the trouble it’s in or spending as much as it has, especially given its location and the growth happening in Cumberland and neighboring Moore County, State Treasurer Dale Folwell said.
“It’s been an evolution, not a revolution … this has been evolving over the last 10 to 15 years,” Folwell said.
To Marvin Lackman, a Spring Lake resident running for an alderman seat, one fact is abundantly clear:
“You could say in seven years that we haven’t learned our lesson.”
Sutherland said she’s always been an advocate for taxpayer dollars and transparency.
The alderwoman said she was meditating in her bedroom in December 2018 when the realization hit: The town hadn’t done an audit yet.
And so Sutherland called the town clerk, who called the audit firm, which said it was waiting on documentation from the town.
At that point, Spring Lake’s history was already rife with trouble. In 2007, the Cumberland County Sheriff’s Office assumed control of the town’s police department after a corruption scandal. In 2015, it was revealed town employees had made questionable purchases using town credit cards.
All local governments in North Carolina are required to have their accounts audited, and the report must be submitted to the state-run Local Government Commission, according to the N.C. Treasurer’s website. Every year since 2016, Spring Lake has missed its deadline to submit its audit reports to the commission, according to a spokesman from the state treasurer’s office.
In fiscal years 2016 and 2017, the paperwork was turned in four months late. Financial documents for audits in fiscal years 2018 and 2019, due Oct. 31 of each year, weren’t submitted until March and August 2020, respectively.
The documents to complete the 2021 audit were submitted more than two months after a new Jan. 31 deadline. As the investigation into the town’s missing money continues, a state official told the board at its Aug. 9 meeting the audit would be delayed because it was unclear how much money the town has.
Without balanced books, Folwell said, an audit can’t be completed.
Overspending shouldn’t be standard for a town of Spring Lake’s size, or any town for that matter, state treasury officials said. Spring Lake’s audits paint a picture of overspending over the course of five fiscal years.
Hundreds of pages of audits covering those years show that Spring Lake has consistently spent more money than it made in its governmental funds, with 2020 being the worst year by far.
When auditor Lee Grissom with S. Preston Douglas & Associates LLP’s Lumberton office presented the most recent audit results at a town board meeting April 26, he said it was “pretty much the worst case for the town of Spring Lake” and called it the worst Spring Lake audit in six years.
Grissom told the board the findings of the audit occurred between July 1, 2019 to June 30, 2020. He said most people that were in management, like former town manager Daniel Gerald and former finance director Claiburn Watson — who Grissom said was there for three-quarters of that year — are now gone.
In 2020, the audit reads, the town exceeded its liabilities and deferred inflows by nearly $8 million and overspent in most budgeted departments by $2 million in total.
The town also overspent its revenues in governmental funds by more than $5 million, and its general fund by $1.6 million, according to the audit. In 2020, the town brought in more than $7.1 million in revenue in its general fund, according to the audit.
Spring Lake’s general fund was originally budgeted at more than $7.5 million, according to budget documents on the town’s website.
At the end of the audit, there is a list of mistakes made by town officials. In 2020, the audit found there wasn’t a separation of duties after the town’s finance director left in March 2020, which auditors say let mistakes go unnoticed. Instead of filling the position, a clerk was made interim finance director without hiring a new clerk, the audit reads. Also eliminated was an accounting assistant position, according to the audit.
The town also overspent in excess of $2 million from water and sewer and stormwater funds, public safety grants, recreation capital projects and Spring Lake Property Acquisitions, a nonprofit created by the town in July 2019. The audit says the expenses had not been budgeted.
The nonprofit was reportedly created to acquire certain property and promote economic development, and Gerald said Tuesday it was created as a result of legal advice from the town’s attorney.
Auditors found bank reconciliations for fiscal year 2019-2020 were not performed on a timely basis as a result of the clerk becoming the interim finance director when the finance director left. The audit reads the duties were too much for a single position.
The audits also found that land was purchased in May 2020 without proper pre-audit documentation and without approval signatures from the interim finance director or town manager, and the cause is also listed as the town’s delegation of finance duties to a clerk. The item mentions the year’s overspending in categories that include Spring Lake Property Acquisitions. None of the 25 properties listed as being owned by the nonprofit in online Cumberland County tax records were purchased in May 2020.
In another portion of the audit, it reads the nonprofit spent more than $3.4 million in capital outlay. According to the audit, the nonprofit had received a loan of $3.5 million to allow it to buy property.
Perry sent an email to the Local Government Commission in January 2020 asking if Spring Lake Property Acquisitions got approval from the commission despite not submitting audits for 2018 and 2019.
“It appears the Town may have created the nonprofit as an attempt to skirt around the debt approval requirements,” she wrote.
The commission wrote back and said the agreement didn’t require its approval.
“The loan was structured to be less than 5 years, and given that it is only real property being financed (no construction or repairs), the loan would be exempt from any statutory approval by the LGC,” Timothy Romocki, the commission’s debt management director wrote back.
Cumberland County tax records show Spring Lake Property Acquisitions currently owes $7,756 in delinquent taxes on 19 of its properties.
Also found by the auditor were credit card receipts in excess of $15,000 for economic development activities that weren’t turned in. The issue was blamed on insufficient oversight of credit card purchases.
The audit shows there was also a typing error made when keying in a monthly cellphone allowance for an unnamed employee. Instead of $100 being keyed in for an employee’s phone allowance, the audit shows $10,000 was accidentally input for one employee. The document doesn’t say which employee received the money, nor was The Fayetteville Observer able to independently confirm who it went to, but the audit states the person in question never said anything about the mistake to the town and the error wasn’t caught by the technician.
The audit states the mistake came as a result of the town’s finance director “not reviewing payroll registers for errors before processing.” If the money isn’t paid back, the audit said, it will cost the town $9,900. At the board’s April 26 meeting, Grissom said the money needed to be “recouped.”
As of Wednesday afternoon, Wullenwaber said the employee had not paid the town the money back yet but that town officials and the auditor’s office were working with the person in question. Wullenwaber could not say which employee received the money.
The auditor also found invoices hadn’t been turned in, and material journal entries didn’t accurately account for transactions and weren’t submitted on a timely basis. Entries were needed for spending in Spring Lake Property Acquisitions, the general fund, public safety grants and the water and sewer fund.
Jackie Jackson, an alderwoman who has served the last four years for the town, said that the board is given information in order to do its job, and that they’re trusting the people hired to bring the information to tell the truth.
But did the aldermen find at any point that they couldn’t trust the people supplying the information?
Sutherland believes the answer is, yes.
“Based on the facts that are unveiling now … that’s your answer there,” Jackson said. She wouldn’t name anyone specific who the board no longer trusts.
Contention arose among the town’s board for at least one employee: former town manager Gerald. His time working for Spring Lake was marked by a board that was divided in its support of him, meeting minutes show.
When Gerald was brought on at Spring Lake in early 2018, he’d been fired from two other town manager positions: one in Green Level, another in Princeville.
In his first few meetings, according to minutes from the meetings, Gerald focused on employees conducting themselves professionally in Town Hall, and department heads needing to provide the board updates.
“Mr. Gerald stated employees are working on addressing each other by using Mr. or Ms.,” minutes, paraphrasing Gerald from the Feb. 5, 2018, Board of Alderman meeting, state. “There does not need to be too much visiting in people’s offices. The image we portray to visitors can set the tone for the entire visit.”
At the Aug. 12, 2019, meeting, the board came out of a closed session to ask Gerald to resign. According to the minutes, Gerald refused and asked the board to hear his side of the story, and Sutherland said she had concerns with the budget being “unethical” and with Gerald continuing to put Chamber of Commerce funding in the budget.
The Chamber of Commerce funding had come up at least two times before. At the June 4, 2018, meeting, the board agreed to fund the chamber for $10,000. That following October, Gerald suggested chamber funding be raised to $15,000, which passed unanimously.
A motion to allow Gerald to tell his side was defeated, with aldermen Cooper, Sutherland and James Christian voting in opposition. The same three voted for Gerald’s immediate termination.
Looking back on Gerald’s firing, Christian said he was fired for lack of confidence and trust. Sutherland said this month she had lost confidence in his leadership after a technician without finance experience was promoted to finance director.
“It was no longer my feeling that the town was going forward,” Sutherland said.
Sutherland and Christian both recounted there being a lack of information during their time on the board. Sutherland said budget amendments weren’t added to meeting agendas. Christian said he remembers asking for updates on economic development, credit card receipts and department expenditures that would be blocked by either O’Garra or the mayor, or Gerald would tell him the reports were coming soon.
At a board meeting earlier this month, Susan McCullen, director of the Local Government Commission’s fiscal management section, asked the board if they had received monthly financial reports. Sutherland replied they did when the town’s former finance director Watson worked there.
When reached for comment this month at his office in Aberdeen where he is the finance director, Watson said he didn’t knowhow the financial pitfall happened because he left Spring Lake 18 months ago.
Watson is still listed as the registered agent for the town’s nonprofit, Spring Lake Property Acquisitions, according to N.C. Secretary of State records.
Christian lost re-election in November 2019 and Mayor Pro Tem Taimoor Aziz joined the existing board.
Almost four months after Gerald’s termination, when the new board members were sworn in, the town board immediately went into closed session. Upon the board’s return to open session, Gerald was hired back. Aziz, Jackson and O’Garra voted in Gerald’s favor. Cooper and Sutherland voted against Gerald’s rehiring.
In November 2020, Gerald’s work performance came into question again, though the meeting minutes don’t list a cause. Gerald said Tuesday he was terminated after he fired an employee that operated outside their duties. After the Board of Aldermen came out of the closed session, Cooper made a motion asking Gerald to resign. Gerald refused, and Cooper made another motion for Gerald to be fired immediately, according to meeting minutes.
The firing went through, with Cooper, Sutherland and Aziz voting for Gerald’s termination. As they had in the past, Jackson and O’Garra voted against Gerald’s firing.
Aziz declined to comment on Gerald’s termination, saying by text message Tuesday it “would touch on confidential HR issues.”
Jackson said she couldn’t speak on Gerald’s hirings and firings, but said he was a “good manager” to her.
“I didn’t see any wrongdoing that he was doing,” Jackson said. “His style may not have impressed everybody, but I didn’t see any wrong thing that he was doing.”
She said she believes Gerald was doing what he was supposed to be doing, and she won’t change her opinion until someone proves otherwise.
O’Garra said that Gerald was consistently “being attacked” by one or two aldermen, but that he worked around it.
“We asked him to get things done, he got ’em done,” O’Garra said. “And he got ’em done pretty good too, and he kept us informed. He’s already been in there two times. He’s still in the neighborhood. But after two times, I don’t think I would try to put him back in.”
In regard to the financial downfalls in 2020, when reached Tuesday, Gerald said budgets before 2021 were produced by the finance director. He also said he came in midway through 2019-20, but that once he came back he put a spending freeze in place.
“A lot can happen in three to four months … I don’t know anything about five million,” he said.
Gerald also said his 2021 budget addressed an $850,000 shortfall and that the town needed to focus on economic development.
In regards to his first termination, he said he was not given a reason for being let go and said the town manager doesn’t have anything to do with Chamber of Commerce funding. He also said he gave the board weekly reports on town operations, and that economic development functions were given by the department’s director in closed session. He maintained that the group was provided adequate information.
“My leadership was the reason why I was brought back there three times,” Gerald said. Gerald was formerly the director of the town’s Water Resources Department.
In terms of the town’s missing money, he said he didn’t know anything about it and said he wondered why Spring Lake was being looked at when COVID-19 adversely impacted finances for all towns. He said he didn’t know about the unknown cash balances at Spring Lake that are prohibiting an audit from being completed. Gerald said the finance director and auditor would need to be asked about that.
Effects of a takeover
Currently, 132 municipalities, 17 counties and nine utility districts in North Carolina are on the Local Government Commission’s unit assistance list for commission aid, according to a spokesman for the treasurer’s office. Five places — Kingstown, Cliffside Sanitary District, Robersonville, Pikeville and Eureka — are under the commission’s full financial control.
Folwell said one of the implications of a state takeover of finances is that residents don’t get a transparent and competent government like they deserve.
When a municipality goes on the list, sometimes they don’t make it off. East Laurinburg, a town in Scotland County, was issued a resolution this year suggesting the General Assembly should dissolve the town’s charter after town officials failed to file audits or comply with the commission, according to a news release from the Local Government Commission. The release states this was the first time the commission had ever taken this kind of action.
The Local Government Commission had worked with the town of 281 residents for 10 years, the release states.
A town’s dissolution can lead to the depletion of essential services it provides, Folwell said. In East Laurinburg, he said, the only essential service remaining is garbage pick up.
But just because a town is on the list doesn’t necessarily mean it will lead to its demise, as was the case of Ahoskie, a Hertford County town of 4,659 residents, 167 miles northeast of Spring Lake.
Both Folwell and Ahoskie’s town’s manager, Kerry McDuffy, said the town wasn’t in the best shape at the time. Folwell recalls the town not having audits, spending more money than they were taking in and lacking leadership. McDuffy said that in June 2017, the town was $3 million in the short in its fund balance. Ahoskie had also acquired $21.2 million in debt, he said.
McDuffy said town officials were able to comb through the budget to find small ways to save money, like spending $30,000 instead of $35,000 on new copiers.
But the biggest key, McDuffy said, was having the support of the town’s elected officials, who he said realized there was a problem and were willing to have it fixed.
When it comes to Spring Lake, Folwell said, he’s confident the town can figure out what’s right and keep it that way through discipline. Folwell didn’t have the same confidence in Spring Lake’s elected officials.
The commission has kept a close watch on Spring Lake, even passing its most recent resolution for the terms of a potential takeover ahead of the board heading into closed session in case it took action to reverse progress.
“We are always hoping for the best, but preparing for the worst,” Folwell said at a news conference in early August in regard to Spring Lake’s leadership.
What’s next for Spring Lake?
Jackson has said she thinks the key to getting Spring Lake on track has been putting strong leaders in place.
Two current alderwomen, Sutherland and Jackson, are running for election in the upcoming mayoral race in November.
Jackson said she felt an obligation to do it.
“You can’t love your town and be in your town, and not want to help your town,” she said.
Sutherland said, if elected, she thinks the town will need to implement training for board members and residents, as well as ensuring they have access to public records.
In the aldermen race is Lackman.
“I’ve been asked by a number of people that, ‘Why don’t you run?’ And I’m like, you know, I still work a full-time job,” Lackman said. “But they’re like, ‘But Spring Lake needs you.’”
Lackman has called Spring Lake home since 2012 after retiring from Fort Bragg after 23 years in the Army. He is often one of only a few people who show up to Board of Aldermen meetings, he said.
What’s unfolded in the town has been a series of promises that never solidified, Lackman said.
“It’s obvious that the people that we’ve put into place, they were just saying, ‘Yeah, OK, problem has (been) raised, we’ve been notified, and yeah, we’ve got programs in place so that it’ll never happen again,’” he said. “Well, it happened in ’18 … and now it’s even worse in ’20 and ’21.”
Lackman said what’s happening with the local government makes him “sick to his stomach” watching people make decisions for themselves instead of the town.
Both Spring Lake Mayor Larry Dobbins and Aziz have not filed for re-election in November, according to Cumberland County elections data. Dobbins declined to comment for this story, and Aziz couldn’t be reached for comment on why he didn’t file.
The path to financial stability for Spring Lake could take at least six years, according to 2021-22 budget documents — the amount of time the budget documents show it will take the town to get its $1.8 million negative General Fund balance back to $0.
Under the latest resolution from the Local Government Commission, the Board of Aldermen can’t impede the ongoing investigation, fail to supply the Local Government Commission with information, or breach their fiscal agreement. Not complying with any of the three terms could result in a full takeover of the town’s finances by the state, the resolution reads.
As Christian has watched the events unfold, he took to one town meeting to express his concern about town officials’ silence and lack of leadership. He said later he was particularly concerned about Gerald’s rehiring.
“I tried to warn you guys three years ago,” he told his former colleagues during the public comment section of the July 26 aldermen meeting. “But you wouldn’t listen.
“And now we’re paying the price.”
Abby Church is the government watchdog reporter for The Fayetteville Observer. She can be reached at [email protected] Follow her on Twitter @abbschurch.
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