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Chapter 1: Intro to Local Government Budget and Fiscal Control Act

Last Revised on October 31, 2025

1.0 Introduction

The authority to raise money and to expend it for purposes varies among the different types of local entities. Almost all local entities are subject to a uniform set of rules governing fiscal management, though. Most of these rules are contained in a series of statutory provisions known as the Local Government Budget and Fiscal Control Act (LGBFCA). The act comprises Article 3 of Chapter 159 of the North Carolina General Statutes (hereinafter G.S.). It prescribes for North Carolina local governments and public authorities “a uniform system of budget adoption and administration and fiscal control,” detailing the proper procedures for budgeting, managing, disbursing, and accounting for public funds. [G.S. 159-7(c)]. There are other statutes that apply to specific finance processes, such as competitive procurement, disposal of property, and borrowing money, but the LGBFCA is the main set of financial management provisions.

The LGBFCA covers five main topic areas, including Finance Personnel and Local Government Commission (LGC), Budgeting Public Funds, Managing Public Funds, Disbursing Public Funds, and Accounting for Public Funds. This chapter focuses on the first category; it discusses which local entities are subject to the LGBFCA and introduces the various actors involved in ensuring compliance with the act’s provisions. Other chapters cover the requirements of the LGBFCA in the remaining topic areas.

Finance Personnel and Local Government Commission
G.S. 159-9Budget officer.
G.S. 159-24Finance officer.
G.S. 159-25Duties of finance officer and internal control procedures subject to Commission regulation.
G.S. 159-26Accounting system (including Commission regulations).
G.S. 159-29Fidelity bonds.
G.S. 159-35Secretary of Commission to notify units of debt service obligations.
G.S. 159-36Failure of local government to levy debt service taxes or provide for payment of debt.
G.S. 159-181Enforcement of chapter.
G.S. 159-182Offending officers and employees removed from office.
Budgeting Public Funds
G.S. 159-8Annual balanced budget ordinance.
G.S. 159-10Budget requests.
G.S. 159-11Preparation and submission of budget and budget message.
G.S. 159-12Filing and publication of the budget; budget hearings.
G.S. 159-13The budget ordinance; form, adoption, limitations, tax levy, filing.
G.S. 159-13.1Financial plan for intragovernmental service funds.
G.S. 159-13.2Project ordinances.
G.S. 159-14Trust and agency funds; budgets of special districts.
G.S. 159-15Amendments to the budget ordinance.
G.S. 159-16Interim budget.
G.S. 159-17Ordinance procedures not applicable to budget or project ordinance adoption.
G.S. 159-17.1Vending facilities.
G.S. 159-35Secretary of Local Government Commission to notify units of debt service obligations.
G.S. 159-36Failure of local government to levy debt service taxes or provide for payment of debt.
Managing Public Funds
G.S. 159-27Distribution of tax collections among funds according to levy.
G.S. 159-27.1Use of revenue bond project reimbursements; restrictions.
G.S. 159-30Investment of idle funds.
G.S. 159-31Selection of depository; deposits to be secured.
G.S. 159-32Daily deposits.
Dispersing Public Funds
G.S. 159-25Dual signatures on checks.
G.S. 159-28Budgetary accounting for appropriations.
G.S. 159-28.1Facsimile signatures.
G.S. 159-32.1Electronic payment.
Accounting for Public Funds
G.S. 159-18Capital reserve funds.
G.S. 159-19Amendments.
G.S. 159-20Funding capital reserve funds.
G.S. 159-21Investment.
G.S. 159-22Withdrawals.
G.S. 159-26Accounting system.
G.S. 159-33Semiannual reports on status of deposits and investments.
G.S. 159-33.1Semiannual reports of financial information.
G.S. 159-33.2Interim event reporting.
G.S. 159-34Annual independent audit; rules and regulations.
G.S. 159-37Reports on status of sinking funds.
G.S. 159-40Special regulations pertaining to nonprofit corporations receiving public funds.

1.1 Entities Subject to the Local Government Budget and Fiscal Control Act

Before delving into the requirements of the Local Government Budget and Fiscal Control Act (LGBFCA), it is important first to determine if a particular local entity is covered by the act. There are two types of entities that are subject to the act— “units of local government” and “public authorities.” (G.S. 159-7). Most local entities can be characterized as one of these two types. Almost all the act’s requirements and limitations apply equally to both, but occasionally units of local government are treated differently from public authorities. It is therefore important to know if a local entity is a unit of local government or a public authority to determine if the entity is subject to the LGBFCA and, if so, to determine which of the act’s provisions apply.

1.1.1 Unit of Local Government

A unit of local government is defined as “a municipal corporation that is not subject to the State Budget Act . . . and that has the power to levy taxes . . . and all boards, agencies, commissions, authorities, and institutions thereof that are not municipal corporations.” [G.S. 159-7(b)(15)]. There are three important components to this definition. First, the entity must be a municipal corporation. A municipal corporation is a public agency with corporate status. Despite the term “municipal,” it refers to all local government entities, not just municipalities. If the enabling legislation for a local entity specifically states that it is a municipal corporation or otherwise indicates that the entity is a “body corporate and politic” or a “public corporation,” then the entity is a municipal corporation. [See generally Carolina-Va. Coastal Highway v. Coastal Tpk. Auth., 237 N.C. 52, 61 (1953) (“[A] corporation formed for purely governmental purposes is a municipal corporation.”); Wells v. Hous. Auth. of City of Wilmington, 213 N.C. 744, 750, 197 S.E. 693, 697 (1938) (“[W]hen applied to corporations the words ‘political,’ ‘municipal,’ and ‘public’ are used interchangeably.”)].

Second, the entity may not be part of the state’s budgeting system. G.S. Chapter 143C, known as the State Budget Act, governs the budgeting and expenditure of state money by state agencies. Although local entities are subject to several provisions of the State Budget Act with respect to the receipt of state funds, they are not required to comply with the actual budgeting requirements of the act. Note that before Fiscal Year 2007–2008, the terms “unit of local government” and “public authority” in G.S. 159-7 were defined as not being subject to the provisions in G.S. Chapter 143, Article 1, and G.S. Chapter 143, Article 1, did not define the entities subject to its provisions to include units of local government and public authorities. However, G.S. Chapter 143 was repealed as of July 1, 2007, and replaced with G.S. Chapter 143C. Somewhat confusingly, G.S. Chapter 143C does include units of local government and public authorities in its definition of entities subject to its provisions. This appears to be a drafting oversight. It is commonly understood that units of local government and public authorities are subject to the budgeting requirements of the LGBFCA and not the State Budget Act.

Third, the local entity must have the power to levy taxes. Based on this definition, the following local entities constitute units of local government:

*Unless a statute specifically provides otherwise, there is no legal difference among a city, town, or village in North Carolina. Therefore, the term “municipality” is synonymous in this chapter with “city,” “town,” and “village.”

For purposes of the LGBFCA, a unit of local government also includes all boards, agencies, commissions, authorities, and institutions that are established or created by the unit’s governing board or that are not themselves municipal corporations. Governing boards often appoint citizen advisory boards for the administration of libraries and parks and recreation. Counties and municipalities also are served by functional boards and commissions in the areas of health, social services, elections, and planning. If these entities are not municipal corporations (and many are not) then their fiscal affairs are the responsibility of the county, municipality, or other unit of government with which they are associated. There are some boards and commissions established by local act that are invested with corporate status.

Occasionally, the LGBFCA refers to a “special district.” A special district is a unit of local government “created for the performance of limited governmental functions or for the operation of a particular utility or public service enterprises.” [G.S. 159-7(b)(13)]. Any local entity that meets the definition of a unit of local government set forth above that is not a county, municipality, or consolidated municipal-county government is a special district for purposes of the LGBFCA (see the last seven items in the above list).

1.1.2 Public Authority

A local entity also is subject to the LGBFCA if it is a public authority. This is an umbrella term that covers a variety of special-purpose local government entities. G.S. 159-7(b)(10) defines two different categories of public authorities. The first has three distinguishing characteristics, two of which are analogous to a unit of local government. First, the local entity is a municipal corporation, and second, it is not part of the state’s budgeting system. The third and differentiating characteristic, however, is that the entity does not have the power to levy taxes. Under this definition, the following local entities are public authorities:

There are four categories that need further consideration. A county’s or municipality’s governing board may adopt a resolution assuming responsibility for the fiscal affairs of a housing authority. If a unit adopts such a resolution, the housing authority is not a public authority for purposes of G.S. 159-7(b); rather, it is a department or agency of the county or municipality (G.S. 157-4.2). A county’s or municipality’s governing board also may adopt a resolution assuming responsibility for the fiscal affairs of a redevelopment commission. If a unit adopts such a resolution, the redevelopment commission is not a public authority for purposes of G.S. 159-7(b); rather, it is a department or agency of the county or municipality (G.S. 160A-505.1). Several soil and water conservation districts are treated as departments of the counties in which they are located. Although technically still public authorities and thus independently subject to the LGBFCA, these districts often rely on county governments to manage most if not all their fiscal affairs. Finally, many local governments are authorized to levy occupancy taxes pursuant to local act. The local acts establishing this authority often require a local unit to establish a tourism development authority (TDA) to manage the expenditure of occupancy tax proceeds. TDAs typically are municipal corporations that are not subject to the state’s budgeting system and not authorized to levy taxes.

The second type of public authority has five distinguishing characteristics. First, it is not a municipal corporation. Second, it is not part of the state’s budgeting system. Third, it has no power to levy taxes. Fourth, it operates on an area, regional, or multi-unit basis. Fifth, it is not part of the budgeting and accounting system of a unit of local government. The last two characteristics are particularly important. As mentioned above, there are many local entities that are not municipal corporations, are not part of the state budgeting system, and lack the power to levy taxes. In fact, most of the boards, agencies, commissions, authorities, and institutions of a unit of local government satisfy these criteria. Very few are not part of the budgeting and accounting system of a unit of local government, though. Local entities that satisfy this second definition of public authority include the following:

Sometimes a public authority that is independently subject to the LGBFCA chooses to contract with another local entity to perform many or even all its duties under the act. For example, many tourism development authorities (TDAs) contract with the county or municipality with which they are associated to manage, disperse, and properly account for their funds. And, though technically independent public authorities, several soil and water conservation districts rely on the county governments with which they are associated to adopt their budgets and perform some or all other financial management duties. In these cases, the governing board of the public authority still is responsible for ensuring full compliance with the LGBFCA.

There are a few special-purpose local governments that are not public authorities, including local school administrative units and Alcoholic Beverage Control (ABC) boards. These entities are subject to separate budgeting and fiscal control provisions, although many of the requirements are parallel to those in the LGBFCA. Local school administrative units are governed by the School Fiscal Control Act, located in G.S. Chapter 115C, Article 31. The budgeting and fiscal management requirements for ABC Boards are found in G.S. 18B-702.

1.1.3 Private Entities Not Subject to LGBFCA

If an entity is not a unit of local government or a public authority, or a department, agency, board, commission, or institution of one of these entities, it is not subject to the LGBFCA. This may seem obvious, but some private entities, such as nonprofits, are closely aligned with, and even created by, government entities. G.S. 159-42.1 explicitly authorizes a public authority to create a nonprofit corporation. Many counties and municipalities also have established nonprofit corporations, pursuant to their general administrative authority, to aid in fundraising or other support efforts. A local government or public authority must notify the state Local Government Commission if it creates a nonprofit. [G.S. 159-7(e)].

A nonprofit may receive most, if not all, of its funding from the government. It may be treated as a component unit of a local government under applicable accounting rules. And, at times, it may even effectively be controlled by a local entity through board appointments or budget-approval requirements. Because of its close ties to a public agency, a nonprofit may be treated as a public agency for some purposes. For example, a nonprofit agency that has close enough ties to a government entity may be subject to public records laws and open meetings laws that typically apply only to public agencies. Such a nonprofit likely would not be subject to the LGBFCA, though, because it does not satisfy the definition of a covered entity.

1.1.4 Contractual and Statutory Fiscal Management Requirements for Nonprofits and Other Private Entities Contracting with Local Governments

A local government or public authority may contract with a nonprofit or other private organization to carry out a function, service, or activity that the local government has statutory authority to undertake itself. And, a local unit may, require a nonprofit or other private organization to comply with some or all the LGBFCA’s provisions as a condition of contracting with the local entity and receiving public funds. In fact, the LGBFCA specifies that if a county or municipality appropriates $1,000 or more to a nonprofit corporation in any fiscal year, the local unit may require that the nonprofit have an independent audit performed for the fiscal year in which the funds were received and provide a copy of that audit to the local government. (G.S. 159-40). The statute exempts certain entities from this requirement—most significantly, nonprofits that “provide hospital services or operate as a volunteer fire department, rescue squad, or ambulance squad. . ..” (G.S. 159-40). The statute also exempts nonprofits that operate as junior colleges, colleges, or universities duly accredited by the southern regional accrediting association, as well as those that provide sheltered workshops, adult development activity programs, private residential facilities for the intellectually or developmentally disabled, and developmental day care centers.

While a local entity may require these exempt nonprofits to provide an accounting of how any public funds were expended during a fiscal year, the entity is prohibited from requiring that exempt nonprofits undergo independent audits. A local entity also is free to require any nonprofits (including those exempt from the independent audit requirement) or other private entities to comply with any of the other LGBFCA provisions as a condition of doing business with the government or receiving public funds.

State law also requires a nonprofit that receives more than $5,000 of public funds (from a local government, the state, or the federal government) within a fiscal year, in grants, loans, or in-kind contributions, to provide the following information upon written request from any member of the public:

  1. The nonprofit’s latest financial statements. The financial statements must include a balance sheet as of the end of the fiscal year and a statement of operations for that year. They also must contain “details about the amount of public funds received and how those funds were used.” [G.S. 55A-16-24(a); G.S. 55A-16-20].
  2. The nonprofit’s most recently filed Internal Revenue Service (IRS) Form 990, Form 990-EZ, or a copy of its Form 990-N submittal confirmation. A nonprofit may redact information not required for public disclosure pursuant to 26 U.S.C. § 6104(d)(3). Alternatively, a nonprofit may satisfy this requirement if it posts this information on its website or if another entity posts the information as part of a database of similar documents. The information must be accessible by the general public without charge. Also, if another entity maintains the information, the nonprofit must include a link to the other entity’s website on its own website. [G.S. 55A-16-24(a)].

The act exempts a few entities from disclosing this information because they already are required to report it to a state agency: (1) nonprofits required to report to the N.C. Medical Care Commission, (2) nonprofits required to report to the state Local Government Commission, and (3) certain private colleges required to report to the state. These entities must provide information on their public websites about how to access the information, though. [G.S. 55A-16-24(b)].

Finally, if a local government or public authority is using federal grant monies to fund a contract with a nonprofit or other private entity, additional federal compliance requirements will apply to both the local unit and the private entity.

1.2 Ensuring Compliance with the LGBFCA

For those local entities that are subject to the Local Government Budget and Fiscal Control Act (LGBFCA), who within the entity is responsible for ensuring compliance with the act’s provisions? A local entity’s governing board ultimately is responsible for directing and overseeing the financial management of the entity and for ensuring the integrity of the unit’s fiscal internal controls. The LGBFCA assigns some functions to specific finance personnel, though. In addition, the state Local Government Commission (LGC) is legally responsible for monitoring and ensuring the fiscal health of all local entities subject to the LGBFCA. Other state entities exercise additional oversight. The State Auditor has statutory audit and investigative authority, and the Joint Legislative Commission on Governmental Operations (Gov Ops) has broad authority to examine local government operations, including studying their efficiency and effectiveness, evaluating their implementation of public policies, and investigating possible mismanagement, waste, abuse, or illegal conduct by local government officers and employees.

1.3 Governing Board’s Financial Management Duties

A local entity’s governing board is responsible for the entity’s financial management. [See generally G.S. 153A-12 (counties) and G.S. 160A-12 (municipalities)]. In this vein, the board’s most important job is to set the tone at the top. The board must establish an expectation that all officials and employees will comply with financial policies and other internal controls. To hold others accountable, board members need to abide by strict internal controls and statutory compliance. The board also needs to develop sufficient knowledge and understanding of the unit’s finances. Board members, however, do not generally perform specific financial management tasks. These are assigned or delegated to staff members. There are certain, non-delegable duties that the LGBFCA assigns specifically to the governing board:

Budget Amendments. The governing board must adopt (and make any amendments to) the entity’s annual budget ordinance. (G.S. 159-13, -15). The board may delegate to the entity’s budget officer the authority to move moneys among appropriations within a fund in the annual budget ordinance. The budget officer must report any such changes to the board at its next meeting. If a unit adopts or amends one or more project ordinances, these actions also must be taken by the governing board. (G.S. 159-13.2). There is no authority to delegate any movement of moneys within a project ordinance to the entity’s budget officer.

Select Official Depositories. The board must select the entity’s official depositories (bank accounts). (G.S. 159-31).

Select Auditor, Receive Audit, and Respond to Audit. The board also must select the entity’s auditor, execute the audit contract, receive the yearly audit report, and respond in writing to the LGC about any material deficiencies or financial performance indicators of concern. (G.S. 159-34).

Appoint Finance Positions. Finally, the board must designate one or more individuals to serve certain statutory roles related to financial management—specifically, the budget officer (G.S. 159-9), tax collector (G.S. 105-349), deputy finance officers (G.S. 159-28), and the finance officer (G.S. 159-24). Under the council-manager form of government, the finance officer typically is appointed by, and serves at the pleasure of, the local unit’s manager. (See G.S. 153A-82 for counties and G.S. 160A-148 for municipalities). If the budget officer, tax collector, or finance officer is fired, resigns, or is otherwise unable to carry out the position’s assigned duties, the governing board must ensure that a successor is appointed as soon as possible. As discussed below, there are several statutory duties that may be carried out only by individuals officially appointed to one of these positions.

1.4 Budget Officer

The LGBFCA requires each local government and public authority to appoint a budget officer. (G.S. 159-9).

1.4.1 Duties of Budget Officer

The budget officer has two main duties: (1) to prepare the entity’s annual budget for submittal to the governing board and (2) to execute the local entity’s annual budget ordinance and any project ordinances. These are fairly substantial duties. The individual who serves in this role often is a conduit between the unit’s or authority’s departments and staff members and its governing board. The budget officer provides a technical review of departmental requests and estimates to ensure accuracy and completeness. More importantly, he or she is in a position to critically evaluate departmental needs and recommend funding levels for various services and projects that are consistent with the unit’s overall priorities and goals.

1.4.2 Who Can Serve as Budget Officer?

The budget officer is appointed by, and serves at the pleasure of, the governing board. State law limits who may serve in that role depending on the type of unit and its form of government.  (G.S. 159-9).

Counties and municipalities with the manager form of government.
If a county or municipality has the manager form of government, the manager must serve as the budget officer. All North Carolina counties have the manager form. In a municipality with the manager form, the governing board may not appoint the mayor or any council member as manager, even on an acting or interim basis. (G.S. 160A-151). Because only the manager may serve as the budget officer under G.S. 159-9, the mayor and council members also are ineligible to serve as the budget officer in a manager-form municipality.

Municipalities without the manager form.
A municipality that does not have the manager form has more flexibility. Under G.S. 159-9, the governing board may assign the duties of budget officer to any municipal officer or employee. This includes the mayor, but only if the mayor agrees to undertake the duties.

Public authorities.
A public authority may assign the duties of the budget officer to its chair, any member of the governing board, or any officer or employee. (G.S. 159-9).

Counties with a vacant manager position.
Although counties must have the manager form, state law allows the board of commissioners to confer the duties of county manager on its chair or another commissioner on an acting or interim basis during a vacancy. (G.S. 153A-81). A board member temporarily serving as manager also serves as the county budget officer and may receive reasonable compensation for that service.

1.4.3 Delegating Budget Officer Duties in Units with Manager Form of Government

In some units in which the manager is the statutory budget officer, a budget director, who reports to the manager (or occasionally to the finance officer), actually performs most of the duties of the budget officer. The manager remains legally responsible for the budget officer’s statutory duties, though, and should establish policies and procedures to ensure proper oversight.

1.5 Finance Officer

The LGBFCA also requires the governing board of each local government and public authority to designate a finance officer: “each local government and public authority shall, at all times, have a finance officer appointed by the local government, public authority, or designated official to hold office at the pleasure of the appointing board or official.” (G.S. 159-24).

1.5.1 Duties of Finance Officer

Sometimes referred to as accountant, treasurer, finance director, or chief financial officer, or any other responsibly descriptive title (G.S. 159-24), the individual in this position is legally responsible for performing the following duties:

  • establishing and maintaining the unit’s accounting system, in accordance with G.S. 159-26;
  • controlling expenditures and disbursing moneys;
  • preparing and presenting financial reports;
  • managing the receipt and deposit of moneys, including routinely auditing accounts of other officials and employees;
  • managing the unit’s debt service obligations;
  • supervising investments, in accordance with G.S. 159-34. (G.S. 159-25).

The finance officer is not limited to executing just these statutory duties. At the behest of the governing board, he or she may perform or supervise other functions for the unit. [G.S. 159-25(a)(7)]. It is not uncommon, for example, for a finance officer to be involved with budgeting, purchasing and contracting, utilities, information technology, risk management, and even general administration of the unit. (The annual School of Government publication, Finance Calendar of Duties for City and County Officials (2026–2027), identifies the timeline throughout the fiscal year for the principal accounting, financial reporting, and budgeting duties.)

1.5.2 Who Can Serve as Finance Officer?

The duties of the finance officer “may be imposed on the budget officer or any other officer or employee on whom the duties of budget officer may be imposed.” (G.S. 159-24). (See section above on who can serve as budget officer, pursuant to G.S. 159-9.) Reading 159-24 and 159-9 together, it is clear that the finance officer must be an officer or employee of the local government or public authority. A local unit may not contract with an outside individual or firm to serve in this role.

Under the Machinery Act (Subchapter II of G.S. Chapter 105), which governs the assessment and collection of property taxes, the duties of tax collector and finance officer may not be conferred on the same person except with the written permission of the secretary of the Local Government Commission (LGC). [G.S. 105-349(e)].

For municipalities, the person serving as finance officer must meet the eligibility limits in G.S. 160A-158 and G.S. 159-9. In cities with a population of less than 5,000, the council may appoint the mayor or a councilmember to serve as finance officer (or in any other employee role), and the finance officer and budget officer roles may be combined. In cities with a population of 5,000 or more, the mayor and council members may serve as budget officer if the city does not have the manager form of government and the mayor agrees to undertake the duties, but they may not serve as finance officer, because that position most likely functions as the head of a department.

For counties, the sheriff may not be appointed finance officer, and in counties with a population greater than 7,500, the register of deeds may not be appointed finance officer. Otherwise, any other person or official who may serve as budget officer also may serve as finance officer, and the two positions may be combined. (See G.S. 159-24,-9).

The individual serving as finance officer need not be a certified public accountant (CPA) or hold any specific degrees or certifications, but he or she should be well versed in the legal and financial rules, regulations, and best practices governing public finance. There are two threshold legal requirements that must be satisfied before the finance officer may assume the duties of the position: (1) the individual must be bonded (see Section 1.5.5) and (2) the individual must take the oath of office (see Section 1.5.6). The LGC may impose additional minimum qualifications for finance officers. [G.S. 159-25(c)].

1.5.3 Who Appoints the Finance Officer?

Who appoints a finance officer varies by jurisdiction. For a county or municipality without the manager form of government, as well as for public authorities, the governing board normally makes the appointment. For a county or municipality with the manager form of government, the manager is empowered to designate the finance officer. (See G.S. 153A-82 for counties and G.S. 160A-148 for municipalities). Occasionally, a municipal charter will specify that the finance officer be appointed by the board. In those cases, the charter provisions control. The finance officer serves at the pleasure of whomever makes the appointment.

1.5.4 Interim or Acting Finance Officer

What happens if a finance officer leaves without a successor in place? There are certain functions, such as control and management of the bank accounts, that can only be done by the finance officer. The law does not allow for the position of interim or acting finance officer. Because of that, the governing board must ensure that there is always someone designated as the “statutory” finance officer. The board must temporarily designate an employee or board member as the finance officer until a permanent replacement is hired or appointed. (The board may delegate the authority to make this designation to the manager.) Whoever is serving as the finance officer, even if on a temporary basis, must meet the bonding and oath requirements below.

1.5.5 Bonding Requirement

The finance officer must “give a true accounting and faithful performance bond with sufficient sureties in an amount to be [set] by the governing board.” (G.S. 159-29). At a minimum, the amount of the bond must be the greater of the following: (1) $50,000 or (2) an amount equal to 10 percent of the local unit’s annually budgeted funds, up to a maximum coverage of $1,000,000. (That is the maximum bond amount of $1,000,000.) (G.S. 159-29).

A finance officer “is bound to perform the duties of his office faithfully, and to use reasonable skill and diligence, and to act primarily for the benefit of the public.” [See Avery County v. Braswell, 215 N.C. 270, 275 (1939) (quoting 22 R.C.L. 461, Public Officers, Section 124)]. A true accounting and faithful performance bond typically insures for loss sustained by the failure of an employee to properly account for all moneys and property received by virtue of his or her position or the failure to otherwise faithfully perform his or her other duties. The bond inures to the benefit of the unit, and it typically covers acts or omissions due to the finance officer’s negligence, carelessness, or incompetence. “Where a public officer is required to give a bond for the faithful performance of the duties pertaining to his office, the engagement of the surety executing the bond rests on the same legal obligation as is imposed by law upon the officer himself.” Braswell, 215 N.C. at 275. The bond does not protect the bonded finance officer. In fact, if a bonding company makes good any loss to the protected unit, the right to recover the loss directly from the defaulting employee succeeds to the unit. The unit’s governing board pays the premium for the bond.

Position bond not allowed

May a unit procure a bond for the position of finance officer (sometimes referred to as a position bond) that would offer coverage no matter who occupies the position at any given time? The answer is no. The statute states that a “person who is unable to secure the bond required by this section cannot assume the duties for which a bond is required under this section.” [G.S. 159-29(b)]. The purpose of the bonding requirement is to protect the unit from actions or inactions of the specific employee. In order to be fully protected, a unit needs to ensure that the individual who serves as finance officer actually is covered by the bond. If a unit procures a position bond, that bond may not cover certain individuals—for example, persons with criminal records or those who have committed other dishonest acts. Some units run background checks on potential employees. Others do not; thus, a unit may not realize that a particular employee does not qualify for bond coverage until it seeks to apply for the bond. Once hired, the finance officer also must remain bondable during his or her full tenure. The bonds normally are continuous, renewed each year by payment of an annual premium.

Bonding requirement when individual serves as finance officer for more than one unit

How is the bonding requirement satisfied if an individual serves as the finance officer for more than one unit or public authority? For example, what is the bonding requirement for an individual who serves as the finance officer for a county (a unit of local government for purposes of the LGBFCA) and as the finance officer for the local tourism development authority (a tourism development authority for purposes of the LGBFCA is a public authority that is created by local act of the General Assembly to promote travel, tourism, and general development of a unit or region)? An individual who serves as a finance officer for more than one unit of government or public authority must satisfy the bonding requirement for each separate unit. The provisions of the LGBFCA apply to each “unit of local government” and “public authority” in the state. (G.S. 159-7). As reflected in the different definitions, a unit of local government is a separate and distinct legal entity from a public authority. Each of these entities is independently required to comply with the provisions of the act. The act requires each unit of local government and each public authority to appoint a finance officer to perform certain duties for that unit. And the finance officer for each unit of local government and each public authority must be bonded. It may be possible to include coverage for multiple units in the same bond, but the bond must clearly delineate the different beneficiaries as if there were separate bonds. The bond also must provide at least the minimum coverage for each unit.

Additional Bond Processing Requirements for Counties

G.S. Chapter 58, Article 72 imposes some additional process requirements for accepting and registering a county finance officer’s official bond. Many of these requirements date back to the late 1800s. The county commissioners must examine the finance officer bond on the first Monday in December of every year to ensure it is sufficient and meets the legal requirements. (G.S. 58-72-20). If a finance officer fails to properly secure or renew the bond, the board of commissioners must declare the office vacant. (G.S. 58-72-25). The approval of the bond is recorded by the clerk to the board. Each bond must be acknowledged by the parties or proved by subscribing witnesses before the chairman of the board of county commissioners or before the clerk of superior court. The bond must then be filed with the clerk of the superior court. (G.S. 58-72-50).

1.5.6 Oath of Office

Article VI, Section 7, of the North Carolina Constitution requires that elected and appointed public officers take an oath of office. (See also G.S. 153A-26 for counties and G.S. 160A-61 for municipalities). The position of finance officer likely qualifies as “public officer” and is thus subject to the oath requirement. The text of the oath is as follows:

I, [finance officer’s name], do solemnly swear (or affirm) that I will support and maintain the Constitution and laws of the United States, and the Constitution and laws of North Carolina not inconsistent therewith, and that I will faithfully discharge the duties of my office as finance officer, so help me God.

A finance officer must take the oath before assuming the duties of the office. The oath typically is administered by the mayor, chairman of the board, or clerk to the board, though it also may be administered by a few other officials (see G.S. 11-7.1 for a list of officials authorized to administer the oath). For counties and municipalities, the oath must then be filed with the clerk to the board.

1.5.7 Delegating Finance Officer Duties

The finance officer has many responsibilities. Even in a small unit, these could prove difficult for a single person to handle. In many units, the finance officer delegates the performance of some of his or her duties to other employees or officials. For example, one or more staff members might be assigned to track accounts payable/receivable, run payroll, make deposits, monitor investments, prepare reports, and even affix the finance officer’s signature to certain documents. The finance officer remains legally obligated to perform these functions, and he or she may be held legally liable for failing to comply with certain LGBFCA provisions. It is imperative, then, that a finance officer establish policies and procedures that allow for sufficient oversight. Note that duties related to accounting or treasury management may not be delegated to the unit’s tax collector without prior approval of the LGC. (G.S. 105-349).

There are some finance duties that only may be performed by the finance officer or a deputy finance officer that is appointed by the governing board. Specifically, the preaudit and disbursement processes, G.S. 159-28, and signing disbursements, G.S. 159-25.

1.6 Deputy Finance Officers

A unit’s governing board may assign certain finance officer functions to one or more other employees or officials by designating them deputy finance officers.

1.6.1 Duties of Deputy Finance Officers

Deputy finance officers legally may perform duties mandated by the LGBFCA related to the obligation and disbursement of public funds. (G.S. 159-28). The governing board must adopt a resolution or ordinance to make the deputy finance officer appointments. It may not delegate this task to the manager or finance officer. Once the appointment is made, a deputy finance officer legally is obligated to perform assigned functions in accordance with the LGBFCA. Like the finance officer, a deputy finance officer may be held legally liable for failing to comply with applicable law. A deputy finance officer may perform duties beyond obligating and disbursing public funds; however, the legal liability for these duties remains with the unit’s finance officer.

1.6.2 Who May Serve as Deputy Finance Officer?

Generally, any employee or official of a unit may serve as a deputy finance officer. Note that duties related to accounting or treasury management may not be delegated to a unit’s tax collector without prior approval of the LGC. (G.S. 105-349). The governing boards in larger units often designate one or more department heads as deputy finance officers to allow for more flexibility in ordering goods, entering into contracts, and disbursing funds at the department level.

1.6.3 Bonding Requirements for Deputy Finance Officers (and Other Officials and Employees)

Each officer or employee of a unit who handles or has in his or her possession more than $100 or who has access to any of the unit’s inventories must “give a faithful performance bond with sufficient sureties payable to the local government or public authority.” [G.S. 159-29(b)]. This requirement applies to deputy finance officers. In fact, it applies to most, if not all, employees and officials of a unit. There is no statutorily prescribed amount for the bond; it is to be set by the governing board. The unit may pay the premium on the bond each year, though it is not required to do so. The bond must be filed with the clerk to the board. [G.S. 159-29(b)].

Instead of requiring individual bonds for each deputy finance officer (and for each employee and official), a unit may adopt a system of blanket faithful performance bonding. [G.S. 159-29(c)]. Most units utilize this option and cover all of their employees and officials, up to a specified amount, with one bond. Note that a blanket bond does not satisfy the individual bond requirement for the finance officer (G.S. 159-29), tax collector (G.S. 105-349), sheriff (G.S. 162-8), or register of deeds (G.S. 161-4). These employees may also be covered by a blanket bond, however, if the blanket bond protects against risks not protected against by the employees’ individual bonds. [G.S. 159-29(c)].

1.6.4 No Oath of Office Requirement

In contrast to the finance officer, the deputy finance officer likely does not meet the definition of a “public officer” under Article VI, Section 7, of the North Carolina Constitution. Therefore, a deputy finance officer is not required to take an oath of office.

1.7 Tax Collector

In addition to the budget officer and the finance officer, the governing board of each local government and public authority that levies property taxes must appoint a tax collector. (G.S. 105-349). The position of tax collector is not mandated by the LGBFCA but rather by the Machinery Act (Subchapter II of G.S. Chapter 105), which governs the procedures for assessing and collecting taxes. Note that the provisions governing the office of tax collector outlined below are those authorized under general law. Several jurisdictions have local acts that create the office of tax collector. Units should look to those local acts to determine eligibility, duties, appointment, and removal requirements for the office of tax collector.

1.7.1 Who May Serve as the Tax Collector?

Under general law, the tax collector can be an employee of the taxing government or an employee of another government with whom the taxing government contracts for tax collection services. The Machinery Act creates only a few limitations on who can be appointed as tax collector. Members of the governing board are ineligible to serve as tax collector, as are local government finance officers absent special approval from the Local Government Commission. [G.S. 105-349(b)]. In terms of education and experience, the only requirement is that the appointee be “a person of character and integrity whose experience in business and collection work is satisfactory to the governing body.” [G.S. 105-349(b)]. The appointee’s criminal and financial history must not be so bad as to prevent the local government from being able to purchase the required bond to cover losses caused by the tax collector’s misconduct or neglect. The bottom line is that the governing body has great discretion when deciding whom to appoint as tax collector.

Unlike assessors, tax collectors are not subject to mandatory state certification. However, the North Carolina Tax Collectors Association (NCTCA) operates a voluntary certification process for tax collectors. Many local governments now expect their collectors to obtain NCTCA certification as part of their required duties.

1.7.2 Appointment, Removal, and Term of Office

The governing board appoints the tax collector and sets the term of office. Most commonly these terms are two or four years in length. Once fixed by the governing board upon the tax collector’s appointment, the length of the collector’s term may not be changed until the term ends or the collector is removed from office. No term limits exist for collectors, meaning the governing board may reappoint a particular tax collector repeatedly. After appointment, the tax collector can be removed from office only “for good cause,” the same standard that is applied to the removal of the assessor. [G.S. 105-349(a)].

1.7.3 Bond Requirement

A tax collector must attain a bond conditioned upon his or her honesty and faithful performance. The governing board sets the amount, but a tax collector is prohibited from collecting any taxes not covered by the bond and cannot continue collecting taxes if the bond is expired without renewal. [G.S. 105-349(c)].

1.7.4 Oath of Office

Every tax collector and deputy tax collector, as the holder of an office, must take the oath required by Article VI, § 7 of the North Carolina Constitution with the following phrase added to it: “that I will not allow my actions as tax collector to be influenced by personal or political friendships or obligations.” The oath must be filed with the clerk of the governing body of the taxing unit. [G.S. 105-349(e)].

1.8 Reviewing Compliance with Core Financial Requirements

Responsibility for complying with the LGBFCA is shared among the governing board, finance officer, budget officer, and other officials, depending on the particular requirement. Local governments and public authorities therefore need processes for periodically assessing whether their financial practices comply with these statutory requirements.

The School of Government, in collaboration with local government finance professionals and at the request of LGC staff, has developed a Statutory Compliance Checklist to assist with that review. The checklist focuses on core financial compliance requirements under the LGBFCA and related statutes and LGC rules. It covers several foundational areas of financial administration, including cash management, budgeting, tax administration, obligation and disbursement controls, and certain personnel requirements.

For each item, the checklist asks whether the statutory requirement was met throughout the fiscal year. The accompanying guidance explains the actions necessary to satisfy the requirement and identifies records that may document compliance. The resource also includes suggested audit procedures for selected requirements.

The checklist may be used in several ways. A local government or public authority may use it as part of an annual internal compliance review, in preparation for the annual audit, as a training tool for new finance and management staff, during transitions in key financial positions, or to identify gaps in documentation and internal processes. It also may serve as a governing board education tool. Because responsibility for many LGBFCA requirements is divided or shared among officials, the review often will be most useful when conducted collaboratively by the finance officer, budget officer, manager or administrator, and appropriate governing board representatives.

The checklist is a review tool, not a comprehensive statement of every legal requirement applicable to a local government or public authority. It does not encompass every accounting requirement, audit standard, grant condition, procurement requirement, or program-specific obligation. And a negative response to a checklist item does not necessarily indicate a significant statutory violation or audit finding. It may instead identify missing documentation, inconsistent implementation, or an internal process that warrants attention.

1.9 Local Government Commission (LGC)

The Local Government Commission (LGC) is a nine-member state body situated in the Department of State Treasurer (G.S. 159-3). The commission approves most local government borrowing transactions and other capital contracts and issues bonds on behalf of local units. It also monitors the fiscal health of local units in the state.

1.9.1 LGC Fiscal Management Powers and Authorities

To aid the LGC in its oversight role, commission staff members review the yearly financial audits of each local government and public authority in the state. Staff members often work with local officials to remedy any financial issues or potential financial issues. The LGC requires a local governing board to respond in writing to any “significant deficiencies, material weaknesses, or other findings” identified in the annual audit. (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code). The board must also respond “if the auditor determine[s] that Financial Performance Indicators of Concern were identified based on information present in the audited financial statements . . . .” (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code). The governing body must submit to the LGC a “Response to the Auditor’s Findings, Recommendations, and Fiscal Matters[,]” signed by a majority of the governing board members, within 60 days of the auditor’s presentation. (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code).

State law allows the LGC to take more drastic action if a unit willfully or negligently fails to take corrective action or otherwise comply with the LGBFCA’s provisions in response to the Commission’s notices or warnings. Specifically, G.S. 159-181(c) allows the Commission to “impound the books and records [of the unit] and assume full control of all its financial affairs . . .. ” The Commission becomes “vested with all of the powers of the governing board as to the levy of taxes, expenditure of money, adoption of budgets, and all other financial powers conferred upon the governing board by law.” [G.S. 159-181(c)]. The Commission may assume full control of a unit’s water or sewer system and assume all powers of the governing board as to the operation of the public enterprise if the system, for three consecutive fiscal years, experiences negative working capital, has a quick ratio of less than 1.0, or experiences a net loss of revenue. [G.S. 159-181(d)]. “Working capital” is defined as “current assets, such as cash, inventory, and accounts receivable, less current liabilities, determined in accordance with generally accepted accounting principles.” [G.S. 159-181(d)]. A quick ratio of less than 1.0 “means that the ratio of liquid assets, cash and receivables, to current liabilities is less than 1.0. [G.S. 159-181(d)].

1.9.2 LGC Audit Review

To aid the LGC in its oversight role, commission staff members review the yearly financial audits of each local government and public authority in the state. Staff members often work with local officials to remedy any financial issues or potential financial issues. The LGC requires a local governing board to respond in writing to any “significant deficiencies [or] material weaknesses” identified in the annual audit or to “other findings or if the auditor determined that Financial Performance Indicators of Concern were identified based on information presented in the audited financial statements. . ..” (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code). The governing body must submit to the LGC a “Response to the Auditor’s Findings, Recommendations, and Fiscal Matters[,]” signed by a majority of the governing board members, within 60 days of the auditor’s presentation. (Title 20, Chapter 03, Section .0508 of the N.C. Administrative Code).

The LGC also may mandate that the unit’s finance officer and/or one or more of its deputy finance officers participate in training sponsored by the LGC under several circumstances, including where the employing local government or public authority has an internal control material weakness or significant deficiency in the most recently completed financial audit. [G.S. 159-25(d)]. The LGC also may require a unit to contract with outside entities to assist in its financial management. [G.S. 159-25(e)].

1.9.3 Unit Assistance List

In recent years, the LGC has established a more robust support process for units that are in financial distress or are demonstrating other financial indicators of concern. The LGC may place a unit on its Unit Assistance List (UAL) if, based on audited financial statements and associated data submitted to the LGC as required under G.S. 159-34(a), it identifies concerns related to the unit’s general fund, water/sewer quick ratio, income, cash flow, or internal controls. A unit also may be placed on the UAL if it fails to submit its annual audit to the LGC in a timely manner. Placement on the UAL triggers additional assistance for the unit. It also imposes additional statutory obligations and limitations on the unit, including the following:

  • City and county managers of units on the UAL must complete a minimum of six clock hours of education, including fiscal management and the requirements of the LGBFCA. (See G.S. 153A-82 for counties and G.S. 160A-148 for municipalities). This is in addition to training requirements that may be imposed on finance staff. (G.S. 159-25).
  • Units on the UAL must obtain LGC approval of contracts relating to the lease, acquisition, or construction of capital assets with terms that exceed three years and $50,000 (and meet the other criteria set out in G.S. 159-148, as applicable) and must obtain LGC approval for installment financings or other agreements involving the lease of, or the lease of with the option to purchase, motor vehicles where the contract amount equals or exceeds $50,000. (G.S. 159-148).

1.9.4 Financially Unsustainable Cities

State law provides an additional process for municipalities experiencing serious financial distress. Article 32 of Chapter 160A, titled “Transitions for Unsustainable Cities,” establishes a process through which a city may attempt to rehabilitate its financial affairs, either on its own initiative or with assistance from or under the direction of the LGC. (G.S. 160A-825).

The LGC must establish criteria for evaluating whether a city requires financial rehabilitation. It must apply those criteria to any city for which the LGC has exercised its financial control authority under G.S. 159-181(c) and to any city referred to the LGC by the State Auditor, the Department of Environmental Quality, or the city’s auditor. (G.S. 160A-831). If the LGC determines that a city is subject to the statutory rehabilitation process, the city must assess its financial condition and work with the LGC to address identified deficiencies.

The LGC’s authority under this process can be extensive. It may impound the city’s books and records and assume full control of its financial affairs, including exercising the city council’s powers to levy taxes, expend money, and adopt budgets. The city council retains its nonfinancial powers, but it may not implement a new service or amenity without LGC approval. The city also must cooperate with the LGC to identify ways to address its financial deficiencies, identify potential local government partners to assist in providing services, and educate the council and residents about possible merger with other local governments. (G.S. 160A-841).

The process ultimately may result either in the city regaining financial stability or moving toward merger or dissolution. The city must reassess its financial affairs annually with the LGC’s assistance. If the LGC finds the city’s finances sufficiently stable for three consecutive fiscal years, the LGC must relinquish the additional authority it has exercised over the city. If, instead, the LGC determines that the city’s financial affairs are not sufficiently stable for continued operations, it may begin identifying local government partners for the merger or dissolution of the city. (G.S. 160A-845).

1.10 Other State Oversight Entities

The LGC is the state entity with primary responsibility for monitoring the fiscal health of local governments and public authorities subject to the LGBFCA, but it is not the only state entity with authority to examine local government financial operations. The State Auditor has broad statutory authority to audit and investigate local governments and public authorities. The Joint Legislative Commission on Governmental Operations (Gov Ops) also has broad authority to examine, evaluate, and investigate local governments and public authorities, as well as certain private entities that receive public funds. Potential criminal wrongdoing by local government officials and employees also may be investigated by the State Bureau of Investigation or other law enforcement agencies.

These entities have different roles and powers. The State Auditor provides independent audit and investigative oversight. Gov Ops exercises legislative examination, evaluation, and investigative authority. And the LGC administers the LGBFCA and has specific statutory powers to monitor and, under certain circumstances, intervene in the financial affairs of local governments and public authorities subject to the Act.

1.10.1 State Auditor

The North Carolina State Auditor has broad statutory authority to audit and investigate local governments and public authorities. Article 5A of Chapter 147 defines a “State agency” for purposes of the State Auditor’s audit and investigative authority to include any “political subdivision” and any other entity for which the State has oversight responsibility. [G.S. 147-64.4]. Thus, local governments and public authorities that qualify as political subdivisions fall within the State Auditor’s general audit and investigative jurisdiction.

The scope of the State Auditor’s authority is broad. The Auditor independently examines and makes findings about whether entities within the Auditor’s jurisdiction have adequate operating and administrative procedures and internal controls; maintain appropriate accounting, reporting, and auditing systems; properly collect, deposit, and account for revenues; expend funds faithfully, efficiently, economically, and in compliance with applicable law; effectively carry out authorized programs and activities; comply with statutory requirements; and refrain from improper governmental activity. [G.S. 147-64.6(a)-(b)].

The State Auditor’s authority is not limited to routine financial audits. The statutory definition of an “audit” includes financial and compliance audits, economy and efficiency audits, and program-results audits. [G.S. 147-64.4]. Financial and compliance audits may be initiated at the Auditor’s discretion and without advance notice to the entity being audited. [G.S. 147-64.6(c)].

The State Auditor also receives and investigates reports of alleged improper governmental activity. These investigations may involve allegations of misappropriation, mismanagement or waste of public resources, fraud, violations of state or federal law, and substantial and specific dangers to public health and safety. [G.S. 147-64.6B]. If the Auditor believes that information obtained during an audit or investigation may be evidence of criminal misconduct, the Auditor must report that information to either the State Bureau of Investigation or the district attorney for the county where the alleged misconduct occurred. [G.S. 147-64.6(c)(20)].

The Auditor has extensive access to information necessary to carry out these functions. The Auditor and authorized representatives have access to persons and may examine and copy records, reports, files, books, accounts, databases, datasets, digital records, and other documentation within the scope of the Auditor’s authority. Upon demand, this access extends to databases, datasets, and digital records necessary for audits, assessments of government efficiency, risk assessments, fraud detection, audit planning, and evidence gathering. [G.S. 147-64.7].

The State Auditor’s role is distinct from the annual independent audit required of local governments and public authorities under G.S. 159-34 and from the LGC’s ongoing fiscal oversight and enforcement responsibilities under the LGBFCA. The statutes nevertheless connect these oversight functions. If the State Auditor publishes an investigative report concerning a unit of local government subject to the LGBFCA, the Auditor must notify the LGC that the report has been published. [G.S. 147-64.6(c)(14)]. As discussed above, a referral from the State Auditor also triggers the LGC’s obligation to apply the statutory financial-rehabilitation criteria to a potentially financially unsustainable city. [G.S. 160A-831].

1.10.2 Joint Legislative Commission on Governmental Operations

First established in 1975, the Joint Legislative Commission on Governmental Operations historically focused primarily on reviewing State government implementation of public policies and expenditure of State funds. A provision in the 2023 State Budget, Section 27.10(b) of S.L. 2023-134, significantly expanded both the scope of the Commission’s investigative powers and the entities subject to them.

The Commission is now charged with the ongoing “examination, evaluation, and investigation of State agencies, public authorities, units of local government, and non-State entities receiving public funds, and of their actual effectiveness in implementing public policy or providing public services.” [G.S. 120-71(b)]. Its authority therefore extends directly to local governments and public authorities, as well as to many private entities that contract with them and receive public funds.

Entities Subject to Commission’s Examination, Evaluation, and Investigation Authority

The Commission’s examination, evaluation, and investigation authority extends to four categories of entities:

State agencies. A state agency is “[a] unit of the executive, legislative, or judicial branch of State government, such as a department, institution, division, commission, board, council, community college, or The University of North Carolina.” [G.S. 120-72(11)].

Units of local government. A unit of local government is defined in G.S. 120-72(13), by reference to G.S. 143C-1-1(d)(29), as “[a] municipal corporation that has the power to levy taxes . . . and all boards, agencies, commissions, authorities, and institutions thereof.” A municipal corporation is a public agency with corporate status. If the enabling legislation for a local entity specifically states that it is a municipal corporation or otherwise indicates that the entity is a “body corporate and politic” or a “public corporation,” then the entity is a municipal corporation. This category includes:

Public authorities. A public authority is defined in G.S. 120-72(9), by reference to G.S. 143C-1-1(d)(22), as “[a]municipal corporation [as defined above] that is not a unit of local government or a local governmental authority, board, commission, council, or agency that (i) is not a municipal corporation and (ii) operates on an area, regional, or multiunit basis, and the budgeting and accounting systems of which are not fully a part of the budgeting and accounting systems of a unit of local government.” This category includes:

Local school administrative units and ABC boards are likely public authorities for purposes of the Gov Ops statutes even though they are not public authorities for purposes of the LGBFCA.

Non-State entities. The term non-State entity is defined in relevant part as “an individual, firm, partnership, association, or corporation, or any other private organization or group acting as a unit” that receives public funds “to (i) conduct a program or (ii) provide a service to a State agency, a unit of local government, or a public authority.” [G.S. 120-72(7) & (10)]. Public funds include state and local funds. [G.S. 120-72(10)]. Local funds include monies generated by a local unit or received as grants, appropriations, donations, or other means from the state government, federal government, or private individuals and entities. Local funds do not include monies held by a local unit in a trust capacity. [G.S. 120-72(6)].

Local units contract with and disburse local funds to a wide variety of private entities—from engaging an architecture firm for design work, to hiring a contractor to construct a building, procuring an auditor to conduct the annual audit, paying a private provider to administer services, or contracting with a nonprofit to carry out a community program. Many of these private entities potentially fall within the definition of a non-State entity.

The term program is defined as “[a] specific activity or set of activities established or described by law, administrative rule, executive order, policy, or local ordinance.” [G.S. 120-72(8)]. Thus, the definition of non-State entity likely includes a private entity or individual that carries out a legally authorized activity on behalf of a local unit in exchange for public funds. That includes a private party to which a local government has outsourced administrative functions, as well as a private party that receives public funds to undertake a community program or activity that the local unit has statutory authority to engage in.

The definition also encompasses a private individual or entity that provides a service to a local unit. The statute does not define service, creating some interpretive uncertainty about the outer boundaries of the definition. Private entities that merely sell goods or property to a local unit, for example, may be distinguishable from entities providing services. Other arrangements, such as construction contracts or economic development incentive agreements, present closer questions.

One category is expressly excluded. A person or entity that receives public funds solely as a beneficiary, without conducting a program or providing a service in return, is not a non-State entity. [G.S. 120-72(10)]. For example, an individual who receives rental assistance as the beneficiary of a local government program is not a non-State entity for purposes of these statutes. A nonprofit paid by the local government to administer the rental assistance program, however, may qualify.

Ultimately, Gov Ops will determine the reach of its statutory authority within these definitions. Local units need to be aware that the Commission’s authority may extend not only to the unit itself but also to many of its private contractors and service providers.

Scope of the Commission’s Examination, Evaluation, and Investigation Authority

The scope of the Commission’s examination, evaluation, and investigation authority is expansive. The Commission, or a subcommittee of the Commission, may “study the efficiency, economy, and effectiveness” of any local unit and “evaluate the implementation of public policies” by the unit. [G.S. 120-75.1]. It also may investigate “possible instances of misfeasance, malfeasance, nonfeasance, mismanagement, waste, abuse, or illegal conduct” by officers or employees of a local government or public authority in the performance of their public duties. [G.S. 120-75.1].

These provisions potentially reach almost every aspect of a local government’s or public authority’s operations, including general government and public enterprise functions; regulatory actions and service delivery; state-mandated and discretionary activities; actions of the governing board and individual officials and employees; internal administrative matters and external contracts; and policy-making and ministerial functions.

The Commission has similarly broad authority over non-State entities that conduct programs or provide services in exchange for public funds. It may examine the agreement between the local unit and the private party and the private party’s implementation of the publicly funded program or service. It also may investigate officers and employees of the non-State entity for possible “misfeasance, malfeasance, nonfeasance, mismanagement, waste, abuse, or illegal conduct” relating to their responsibilities regarding the receipt of public funds. [G.S. 120-75.1(3)(b)].

The Commission may carry out its work through several significant statutory tools:

  1. Testimony. The Commission may require an official or employee of a local government or public authority to appear before it and testify about matters within the Commission’s authority. It also may compel testimony from certain officers and employees of non-State entities responsible for implementing a program or providing a service paid for with public funds. [G.S. 120-77(a)(2)]. Hearings must be conducted in accordance with G.S. 120-19.1 through 120-19.4. During a hearing, a witness may be examined under oath and may be accompanied by an attorney. (G.S. 120-19.1).
  2. Access to buildings and facilities. Unless prohibited by federal law, a local government or public authority must give the Commission and Commission staff access to buildings and facilities it owns or leases. [G.S. 120-77(b)(2)]. The statute does not require advance notice. A non-State entity receiving public funds to conduct a program or provide a service also must provide access to buildings or facilities used to implement that program or service when the access is reasonably related to the receipt, purpose, or implementation of the program or service. [G.S. 120-77(b)(3)].
  3. Access to documents and records. The Commission may compel access to any document or system of record held by a local government or public authority. [G.S. 120-77(a)(1)]. It also may compel access to documents or systems of record held by a non-State entity receiving public funds, to the extent those materials relate to the receipt, purpose, or implementation of a program or service paid for with public funds. [G.S. 120-77(a)(1)].

Most documents held by a local unit already are subject to public access under the public records laws. Some records and information, however, are protected from public disclosure. Whether the Commission may compel disclosure of protected information depends on the nature of the statutory or other legal protection.

State law protections of records and information. State-law protections fall along a continuum. Some information is not automatically public but may be disclosed in the local unit’s discretion. Public enterprise billing information is one example. [G.S. 132-1.1(c)]. The Commission likely may compel access to information that the local unit itself has discretion to disclose.

Other information must be kept confidential but may be disclosed when disclosure is required by law. Certain taxpayer income and receipts information falls into this category. See, e.g., G.S. 105-259; G.S. 153A-148.1; G.S. 160A-208.1. G.S. 120-77(a)(1) requires disclosure of documents to the Commission, and the statute provides that “[a]ny confidential information obtained by the Commission shall remain confidential and is not a public record as defined in G.S. 132-1.” [G.S. 120-77(d)].

The answer is less clear for records or information that state law makes confidential without a general exception for disclosures required by law. G.S. 120-77 does not expressly address every potentially applicable confidentiality statute. A local unit receiving a request for such information will need to evaluate the specific confidentiality provision together with the Commission’s statutory access authority.

Finally, some records may be released only pursuant to a court order or to specifically identified governmental entities or officials. See, e.g., G.S. 132-1.4A (certain law enforcement recordings). These more specific statutory restrictions may limit the Commission’s general access authority. The statutory interaction is not clear in every circumstance.

Federal law protections of records and information. Local governments, public authorities, and non-State entities also may possess records protected by federal law. Federal and state confidentiality protections apply to various social services, public health, public education, election, and other records. Whether information may be provided to the Commission will depend on the applicable federal provision. State law cannot override a federal restriction on disclosure.

Confidentiality of Commission Inquiries and Work Product

A significant feature of the Gov Ops statutes is the confidentiality imposed on Commission inquiries and communications. “[A]ny request made to an agency employee by Commission staff and any communication between Commission staff and an agency employee” is confidential. [G.S. 120-77(f)].

For this purpose, the term “agency employee” encompasses officers and employees of state and local government, including local elected and appointed officials. An officer or employee of a local unit generally may not disclose to another person the nature or existence of a Commission request or related communications, except to the extent necessary to fulfill a document request or gather additional information requested by Commission staff. [G.S. 120-77(f)]. A violation of this confidentiality requirement is grounds for disciplinary action, including dismissal.

This restriction can present practical difficulties for local officials and employees who receive a request and believe they need assistance from the unit’s attorney or other officials to respond. The statute allows disclosure to the extent necessary to fulfill a request for document production or gather information requested by Commission staff, but it does not expressly address consultation with the unit’s attorney in every circumstance. An individual who believes consultation with others is necessary to respond appropriately to a Commission request may need to address that issue with Commission staff before disclosing the request.

The statute also protects the Commission’s own work product. Documents or information obtained or produced by Commission staff in furtherance of their duties to the Commission are confidential and are not public records under G.S. 132-1. [G.S. 120-77(e)]. Confidential information obtained by the Commission remains confidential. [G.S. 120-77(d)].

Penalty for Noncompliance

The Commission’s information-gathering authority is backed by a criminal penalty. It is a Class 2 misdemeanor for a person to conceal, falsify, or refuse to provide the Commission with any document, information, or access to a building or facility with the intent to mislead, impede, or interfere with the Commission’s work. [G.S. 120-77(g)].

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Implementation Tools

The Local Government Budget and Fiscal Control Act

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Finance Calendar of Duties

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Financial Strategies to Avoid the Unit Assistance List

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Local Government Finance 101

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Bonding Requirements for Finance Officers Bulletin

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Revised Fidelity Bond Requirements and Other Modifications to G.S. 159-29

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Blog Posts

Total Posts: 12

Statutory Internal Controls

Kara A. Millonzi
December 20, 2017 4:52 pm
Recent high-profile examples of alleged misappropriation and embezzlement of public funds, and other fraudulent activity, by local government officials across the state should prompt all local governments to examine their internal control systems. Internal controls are processes designed to safeguard the assets of the unit. Although the exact nature of internal controls will vary significantly from government to government, due to differences in size, resources, and organizational structure, all local government entities need to take steps to ensure the proper safeguard of public funds.
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Finance Officer Fidelity Bonds: When Are Multiple Bonds Required?

Kara A. Millonzi
January 12, 2012 12:52 pm
Prudence serves as a finance officer for a North Carolina county. As a condition of her initial (and continued) employment Prudence is required to obtain and maintain a “true accounting and faithful performance bond” with coverage of up to $50,000. (The county pays the annual premium on the bond.) Recently, the county agreed to handle the finances for the local tourism development authority (TDA). The TDA is a public authority that was created by resolution of the county’s governing board, as authorized by a local act of the General Assembly.
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Internal Controls: Who Is Authorized to Open a Bank Account and to Deposit and Disburse Public Funds?

Kara A. Millonzi
July 26, 2012 4:17 pm
Sheriff Andy Taylor holds a fundraiser to raise money for, and promote awareness of, his office’s drug abuse resistance education (D.A.R.E.) program. The office raises approximately $5,000 in cash and checks from the fundraiser (selling Aunt Bee’s famous pies) and Sheriff Taylor promptly deposits these funds into a bank account that he has opened at the Bank of Mayberry. The bank account is in the name of the sheriff’s office, and the sheriff and his deputy, Barney Fife, are the only individuals authorized to deposit or withdraw funds from the account.
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Special Purpose Local Governments and Public Authorities

Kara A. Millonzi
February 10, 2015 10:10 am
North Carolina is a non-home rule state, which means that its local government entities are created by, and derive all their authority from, the General Assembly. The General Assembly has created a relatively flat local government structure. Almost all governmental responsibilities have been vested in two general-purpose governments—counties and municipalities (cities, towns, villages).
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Internal Control in Financial Management: Understanding the Basics

Rebecca Badgett
November 1, 2023 3:58 pm
Headline: City finance employee embezzles public money. While the facts may differ, the story underlying this all-too-common headline is usually one in which a trusted employee slowly pockets money by writing checks or electronically transferring funds to a personal bank account until the fraud is eventually uncovered. How did this happen? Citizens want to know. They look to the governing board for answers—we elected you and entrusted you to protect us.
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State and Local Government Financial Data Transparency Law

Kara A. Millonzi
March 17, 2016 9:35 am
A provision in the state budget, Section 7.17 of S.L. 2015-241, set new transparency requirements related to certain financial data of state agencies, counties, municipalities, and local school administrative units. The law mandates full compliance by April 1, 2016. But what does it actually require?
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Impending Changes to Bonding Requirements for Finance Officers: Prepare Now For January 1, 2023 and Beyond

November 23, 2022 8:00 am
Since 2005, the Local Government Budget and Fiscal Control Act (“LGBFCA”) has required finance officers of units of local government and public authorities in North Carolina to provide to their respective entities a “faithful performance bond with sufficient sureties in … Read more
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Local Government Commission Approval of Certain Public Enterprise Agreements

Kara A. Millonzi
March 22, 2024 9:17 am
The Local Government Commission (LGC) is a nine-member state body situated in the Department of State Treasurer. G.S. Ch. 159, Art. 2. The commission monitors the fiscal management and financial condition of local governments and public authorities (providing assistance and … Read more
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Impending Changes to Bonding Requirements for Finance Officers: Prepare Now For January 1, 2023 and Beyond

Connor Crews
November 23, 2022 8:00 am
Since 2005, the Local Government Budget and Fiscal Control Act (“LGBFCA”) has required finance officers of units of local government and public authorities in North Carolina to provide to their respective entities a “faithful performance bond with sufficient sureties in an amount not less than fifty thousand dollars.”  G.S. § 159-29(a); S.L. 2005-238, Sec.
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Local Government Commission (LGC) Approval of Bonds, Installment Financings, Leases, and Other Contracts Involving Capital Assets (Including Recent Changes Related to Local Governments on the Unit Assistance List)

Kara A. Millonzi
October 28, 2022 11:44 am
Which of the following proposed transactions require that the local government or public authority first seek approval from the State’s Local Government Commission (LGC)? 1.
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NC Local Government Finance Officers: Who Can Serve and What is Their Role?

Kara Millonzi
September 8, 2025 12:00 am
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Legislative Commission Empowered to Examine, Evaluate, and Investigate Local Governments, Public Authorities, and Their Private Contracting Parties

Kara A. Millonzi
October 16, 2023 8:32 am
North Carolina local governments and public authorities (collectively “local units”) are subject to oversight by the State in various ways. The Local Government Commission monitors the fiscal health of all local units, sets rules for financial management and audit compliance, and has the authority to impose additional interventions under certain circumstances. Other state agencies set rules and provide compliance and performance oversight of particular local units, often related to State grants or other funding.
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Total Posts: 12

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