HB 593 — Local Government Audits.

GENERAL ASSEMBLY OF NORTH CAROLINA H.B.SESSION 2025 H 1 HOUSE BILL 593 Short Title:

593 Mar 31, 2025 SESSION 2025 HOUSE PRINCIPAL CLERK H D HOUSE BILL DRH10268-ST-8 Short Title:

RepresentativeRepresentatives Winslow.Winslow, Warren, Balkcom, and Ross (Primary Sponsors).

For a complete list of sponsors, refer to the North Carolina General Assembly web site.

Appropriations, if favorable, Rules, Calendar, and Operations of the House April 1, 2025 A BILL TO BE ENTITLED AN ACT TO MODIFY THE PROCESS BY WHICH UNITS OF LOCAL GOVERNMENT, PUBLIC AUTHORITIES, AND LOCAL SCHOOL ADMINISTRATIVE UNITS SELECT AN ACCOUNTANT TO CONDUCT ANNUAL AUDITS;

When specified by the secretary, the audit shall evaluate the performance of a unit of local government or public authority with regard to compliancewith all applicablefederal andState agencyagencyregulations. regulations.

(a1) Theauditorshall beselectedbyandshall reportdirectlyreportdirectlyto tothe thegoverninggoverningboard.board, board.board, but in no instance may the governing board select an auditor not certified by the State Auditor as qualified to audit the accounts of units of local government or public authorities.

*DRH10268-ST-8**H593-v-1* General Assembly Of North Carolina Session 2025 (v)(5) Be submitted to the secretary for his approval as to form, terms, conditions, and compliance with the rules of the Commission.

If any member of a governing boardor anyanyotherpublic otherpublic officer or employeeshall conceal, falsify,orrefuse to deliveror divulge any books, records, or information, with an attempt thereby to mislead the auditor or impede or interfere with the audit, he that individual is guilty of a Class 1 misdemeanor.

The rules and regulations may consider the needs of the public for adequate information and the performance that the auditor has demonstrated in the past, and maymaybe be varied accordingaccordingto to the size, purpose or function of the unit, or any other criteria reasonably related to the purpose or substance of the rules or regulation.

(c) Notwithstanding any other provision of law, except for Article 5A of Chapter 147 of the General Statutes pertaining to the State Auditor, all State departments and agencies shall rely upon thesingleaudit acceptedbyacceptedbythesecretaryas thesecretaryas thebasis forcompliancewithforcompliance with applicablefederal and State regulations.

provided that, the secretary may subsequently revoke such the acceptance for cause, whereupon affected State departments and agencies Page 2 DRH10268-ST-8House Bill 593-First Edition General Assembly Of North Carolina Session 2025 shall no longer rely upon such the audit as the basis for compliance with applicable federal and State regulations.

(e) The secretary shall provide a notice of noncompliance to each county or municipality unit of local government or public authorityauthoritythat that fails to submit an annual audit report as required under subsection (a) of this section within nine months of the county or municipality's fiscal year end.

The notice shall be sent to the governing board by first-class mail at the county or municipality'stotheprimarymailingaddress.addressonrecordwiththeCommission.municipality'stotheprimarymailingaddress.addressonrecordwiththeCommission.Thenotice shall be issued within 30 days following nine months after the county or municipality's fiscal year end.

Thenotice shall be issued within 30 days following nine months after the county or municipality's fiscal year end.

If the countycountyor ormunicipalityappeals municipality appeals after the secretarysecretarytakes takes action to withhold under subsection (g) of this section, the secretary must notify the Secretary of Revenue to release any funds withheld under subsection (g) of this section if the Commission determines that the county or municipalitymunicipalityhas has provided sufficient evidence that thefailureto providea copyof theirthe annual audit report required by subsection (a) of this section is due to circumstances within the guidelines established by the Commission.

The total cumulative amount that may be withheldisanamountequaltoonehundredfiftypercent (150%)ofthecost oftherequiredannual audit as indicated in theaudit contract between the countycountyor ormunicipalityand municipality and its external auditor for the audit report, if such a contract has been executed, or one hundred fifty percent (150%) of the actual fee for the most recently filed audit report if a contract has not been executed for the current year audit.

The SecretarySecretaryof of Revenue must withhold from thecountythecountyor or municipality's distribution under G.S.

105-501 if DRH10268-ST-8House Bill 593-First Edition Page 3 General Assembly Of North Carolina Session 2025 necessary, the amount required to be withheld upon written notification to do so from the secretary.

(h) When the annual audit report required under bybysubsection subsection (a) of this section has been filed with the secretary, reviewed to ensure compliance with the requirements of this section, and accepted by the secretary or an appeal was successful under subsection (f) of this section, the secretary must notify the Secretary of Revenue within 30 days to release the funds.

(2) ThedatetheSecretaryof RevenuereceivesnotificationfromRevenuereceivesnotification from thesecretarythat either (i) a report complying with the requirements of this section was filed and accepted by the secretary or (ii) the county or municipality has successfully appealed action taken under subsection (g) of this section.

The board of education shall solicit bids for conductingconductingtheaudit theauditbysealedbid, bywhichmaybedoneannuallybut sealedbid, whichmaybedoneannually but at least onceeveryfiveyears.onceeveryfive years.

If upon opening that sealed bid, the board of education determines that the auditor cannot meet the audit schedule of the board of education or has performed inadequately on a prior audit of the board of education, the board of education maymayreject reject that sealed bid and solicit sealed bids again in accordance with this subsection.

The auditor shall file a copy of the audit report with the Secretary secretary of the Local Government Commission, the State Board Page 4 DRH10268-ST-8House Bill 593-First Edition General Assembly Of North Carolina Session 2025 of Education, the board of education and the board of county commissioners, and shall submit all bills or claims for audit fees and costs to the Secretary secretary of the Local Government Commission for his approval.

(c) If the incidents were not discovered bybythe the firm performing the audit under subsection (a) of this section, the State Board of Education and the Local Government Commission shall employ an audit firm to review the internal control procedures of that local school administrative unit.

IftheStateBoardofEducationdeterminesIftheStateBoardof thatEducationdeterminesthat significant changes areneededinareneeded in theinternal control procedures of the local school administrative unit, the local board shall submit a plan of corrective actions to the State Board of Education and the Local Government Commission for approval and shall implement the approved changes prior to the next annual audit.

(d) The Commission has authority to issue rules and regulations for the purpose of improving the quality of auditing and the quality and comparability of reporting pursuant to this section or anyanysimilar similar section of the General Statutes.

The rules and regulations may consider the needs of the public for adequate information and the performance that the auditor has demonstrated in the past and maymaybe be varied according to the size, purpose, or function of the unit, or any other criteria reasonably related to the purpose or substance of the rules or regulations.

"(3m) "Commission" is the Local Government Commission." DRH10268-ST-8House Bill 593-First Edition Page 5 General Assembly Of North Carolina Session 2025 SECTION 3.

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