NORTH CAROLINA GENERAL ASSEMBLY

1975 SESSION

 

 

CHAPTER 514

SENATE BILL 274

 

 

AN ACT TO AMEND THE LOCAL GOVERNMENT BUDGET AND FISCAL CONTROL ACT, IN ORDER TO CONFORM NORTH CAROLINA REQUIREMENTS AND PRACTICE TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND TO IMPROVE FINANCIAL ADMINISTRATION IN NORTH CAROLINA LOCAL GOVERNMENTS.

 

The General Assembly of North Carolina enacts:

 

Section 1.  Each time G.S. Chapter 159 is amended in this act, the amendment is to Chapter 159 as enacted by Section 1 of Chapter 780 of the 1971 Session Laws and amended by Chapter 474 of the 1973 Session Laws, and as Chapter 159 appears in those two Session Laws.

Sec. 2.  G.S. 159-7(b) is amended by deleting the following definitions: (6) (fund balance), (7) (encumbrances), (8) (reserve), and (9) (deferred revenues). The remaining definitions are renumbered accordingly.

Sec. 3.  G.S. 159-8(a) is amended by striking the last two sentences and inserting in lieu thereof the following: "Appropriated fund balance in any fund shall not exceed the sum of cash and investments minus the sum of liabilities, encumbrances, and deferred revenues, as those figures stand at the close of the fiscal year next preceding the budget year. It is the intent of this Article that, except for moneys expended pursuant to a project ordinance or accounted for in an intragovernmental service fund or a trust and agency fund excluded from the budget ordinance under G.S. 159-13(a), all moneys received and expended by a local government or public authority should be included in the budget ordinance. Therefore, notwithstanding any other provision of law, no local government or public authority may expend any moneys, regardless of their source (including moneys derived from bond proceeds, federal, state, or private grants or loans, or special assessments), except in accordance with a budget ordinance or project ordinance adopted under this Article or through an intragovernmental service fund or trust and agency fund properly excluded from the budget ordinance."

Sec. 4.  G.S. 159-11 is amended by adding a new subsection (d) to read as follows:

"(d)      The budget officer shall include in the budget a proposed financial plan for each intragovernmental service fund, as required by G.S. 159-13.1, and information concerning capital projects authorized or to be authorized by project ordinances, as required by G.S. 159-13.2."

Sec. 5.  G.S. 159-13(a) is rewritten to read as follows:

"§ 159.13…

"(a)       Not earlier than 10 days after the day the budget is presented to the board and not later than July 1, the governing board shall adopt a budget ordinance making appropriations and levying taxes for the budget year in such sums as the board may consider sufficient and proper, whether greater or less than the sums recommended in the budget. The budget ordinance shall authorize all financial transactions of the local government or public authority except (1) those authorized by a project ordinance, (2) those accounted for in an intragovernmental service fund for which a financial plan is prepared and approved, and (3) those accounted for in a trust or agency fund established to account for moneys held by the local government or public authority as an agent or common law trustee or to account for a retirement, pension, or similar employee benefit system. The budget ordinance may be in any form that the board considers most efficient in enabling it to make the fiscal policy decisions embodied therein, but it shall make appropriations by department, function, or project and show revenues by major source."

Sec. 6.  G.S. 159-13(b) is amended as follows:

(a)        Paragraph (4), requiring each fund to balance, is amended by adding a new sentence at the end thereof, to read as follows:

"Appropriated fund balance in a fund shall not exceed the sum of cash and investments minus the sum of liabilities, encumbrances, and deferred revenues, as those figures stand at the close of the fiscal year next preceding the budget year."

(b)        The first sentence of Paragraph (5) is rewritten to read as follows:

"A contingency appropriation shall not exceed five percent (5%) of the total of all other appropriations in the same fund, except there is no limit on contingency appropriations for public assistance programs required by G.S. Chapter 108."

(c)        Paragraph (7) is rewritten as follows:

"(7)      The total of all appropriations for purposes which require voter approval for expenditure of property tax funds under Article V, G.S. 2(5), of the Constitution shall not exceed the total of all estimated revenues other than the property tax (not including such revenues required by law to be spent for specific purposes) and property taxes levied for such purposes pursuant to a vote of the people."

(d)        Paragraph (10), dealing with estimates of revenues other than the property tax, and Paragraph (13), restricting appropriations from funds established to account for taxes collected on behalf of special districts, are deleted, and the intervening and succeeding paragraphs are renumbered accordingly.

(e)        The final unnumbered paragraph is amended by striking the word and figures "(11), (12), (13), (14), (16), (17), or (18)" and inserting in lieu thereof the following: "(10), (11), (12), (14), (15), or (16)."

Sec. 7.  A new G.S. 159-13.1 is enacted, to read as follows:

"§ 159-13.1.  Financial plan for intragovernmental service funds. — (a) If a local government or public authority establishes and operates one or more intragovernmental service funds, it need not include such a fund in its budget ordinance. However, at the same time it adopts the budget ordinance, the governing board shall approve a balanced financial plan for each intragovernmental service fund. A financial plan is balanced when estimated expenditures do not exceed estimated revenues.

(b)        The budget officer shall include in the budget he submits to the board, pursuant to G.S. 159-11, a proposed financial plan for each intragovernmental 532 service fund to be operated during the budget year by the local government or public authority. The proposed financial plan shall be in such form and detail as prescribed by the budget officer or governing board.

(c)        The approved financial plan shall be entered in the minutes of the governing board, as shall each amendment to the plan approved by the board.

Within five days after approval, copies of the plan and copies of each amendment thereto shall be filed with the finance officer, the budget officer, and the clerk to the governing board.

(d)        Any change in a financial plan must be approved by the governing board."

Sec. 8.  A new G.S. 159-13.2 is enacted, to read as follows:

"§ 159-13.2.  Capital project ordinances. — (a) Capital project defined. In this section 'capital project' means a project financed in whole or in part by the proceeds of bonds or notes or a project involving the construction or acquisition of a capital asset.

(b)        Alternative budget methods. A local government or public authority may, in its discretion, authorize and budget for a capital project either in its annual budget ordinance or in a project ordinance adopted pursuant to this section. A project ordinance authorizes all appropriations necessary for the completion of the project and neither it nor any part of it need be readopted in any subsequent fiscal year. A bond order does not constitute a project ordinance.

(c)        Adoption of project ordinances. If a local government or public authority intends to authorize a capital project by a project ordinance, it shall not commence the project until it has adopted a balanced project ordinance. A project ordinance is balanced when revenues available for the project equal appropriations for the project. Such an ordinance shall identify and authorize the capital project to be undertaken, identify the revenues that will finance the project, and make the appropriations necessary for the project. The governing board may amend a project ordinance at any time subsequent to the ordinance's adoption, as long as it remains balanced.

(d)        Ordinance filed. Each project ordinance shall be entered in the minutes of the governing board. Within five days after adoption, copies of the ordinance shall be filed with the finance officer, the budget officer, and the clerk to the governing board.

(e)        Inclusion of project information in budget. Each year the budget officer shall include in the budget information in such detail as he or the governing board may require concerning capital projects (1) expected to be authorized by project ordinances during the budget year and (2) authorized by previously adopted project ordinances, under which expenditures are expected to be made during the budget year."

Sec. 9.  G.S. 159-14 is amended as follows:

(a)        The catchline of the section is rewritten to read:

"Trust and agency funds; budgets of special districts."

(b)        The present section is designated subsection (a), and the following catchline for the subsection inserted:

"Budgets of special districts."

(c)        A new subsection (b) is added, to read as follows:

"(b)      Transfers from certain trust and agency funds. Except for transfers to the appropriate special district or public authority, a unit of local government may not transfer moneys from a fund established to account for taxes collected on behalf of a special district or from a fund established to account for special assessments collected on behalf of a public authority unless the special district or public authority has ceased to function."

Sec. 10.  G.S. 159-25 is amended as follows:

(a)        Paragraph (2) of subsection (a) is rewritten to read as follows:

"(2)      He shall disburse all funds of the local government or public authority in strict compliance with this Chapter, the budget ordinance, and each project ordinance and shall preaudit obligations and disbursements as required by this Chapter."

(b)  Subsection (b) is amended by inserting, in the first sentence, after the words "finance officer" and before the word "and" the words "or a properly designated deputy finance officer".

Sec. 11.  G.S. 159-26 is rewritten, to read as follows:

"§ 159-26.  Accounting system. — (a) System required. Each local government or public authority shall establish and maintain an accounting system designed to show in detail its assets, liabilities, equities, revenues, and expenditures. The system shall also be designed to show appropriations and estimated revenues as established in the budget ordinance and each project ordinance as originally adopted and subsequently amended.

(b)        Funds required. Each local government or public authority shall establish and maintain in its accounting system such of the following funds and ledgers as are applicable to it. The generic meaning of each type of fund or ledger listed below is that fixed by generally accepted accounting principles.

1.         General Fund.

2.         Special revenue funds. Such funds shall be established for each function or activity financed in whole or in part by property taxes voted by the people, for each service district established pursuant to the Municipal or County Service District Acts, and as required by G.S. Chapter 115.

3.         Debt service funds. A unit may combine the school debt service fund required by G.S. Chapter 115 with the unit's general debt service fund.

4.         A fund for each utility or enterprise owned or operated by the unit or public authority. If a water system and a sanitary sewerage system are operated as a consolidated system, one fund may be established and maintained for the consolidated system.

5.         Intragovernmental service funds.

6.         Capital project funds. Such a fund shall be established to account for the proceeds of each bond order and for all other resources used for the capital projects financed by the bond proceeds. A unit or public authority may account for two or more bond orders in one capital projects fund, but the proceeds of each such bond order and the other revenues associated with that bond order shall be separately accounted for in the fund.

7.         Trust and agency funds, including a fund for each special district or public authority whose taxes or special assessments are collected by the unit.

8.         A ledger or group of accounts in which to record the details relating to the general fixed assets of the unit or public authority.

9.         A ledger or group of accounts in which to record the details relating to the general obligation bonds and notes and other long-term obligations of the unit.

In addition, each unit or public authority may establish and maintain any other funds it considers advisable and shall establish and maintain any other funds required by other statutes or by State or federal regulations.

(c)        Basis of accounting. Except as otherwise provided by regulation of the Commission, local governments and public authorities shall use the modified accrual basis of accounting in recording transactions.

(d)        Encumbrance systems. Except as otherwise provided in this subsection, no local government or public authority is required to record or show encumbrances in its accounting system. Each city or town with a population over 10,000 and each county with a population over 50,000 shall maintain an accounting system that records and shows the encumbrances outstanding against each category of expenditure appropriated in its budget ordinance. Any other local government or any public authority may record and show encumbrances in its accounting system. In determining a unit's population, the most recent federal decennial census shall be used.

(e)        Commission regulations. The Commission may prescribe rules and regulations having the force of law as to:

1.         Features of accounting systems to be maintained by local governments and public authorities.

2.         Bases of accounting, including identifying in detail the characteristics of a modified accrual basis, identifying what revenues are susceptible to accrual, and permitting or requiring use of a basis other than modified accrual in a fund that does not account for the receipt of a tax.

3.         Definitions of terms not clearly defined in this act.

The Commission may vary these rules and regulations according to the size of the local government or public authority, or according to any other criteria reasonably related to the purpose or complexity of the financial operations involved."

Sec. 12.  G.S. 159-28 is rewritten to read as follows:

"§ 159-28.  Budgetary accounting for appropriations. — (a) Incurring obligations. No obligation may be incurred in a program, function, or activity accounted for in a fund included in the budget ordinance unless the budget ordinance includes an appropriation authorizing the obligation and an unencumbered balance remains in the appropriation sufficient to pay in the current fiscal year the sums obligated by the transaction for the current fiscal year. No obligation may be incurred for a capital project authorized by a project ordinance unless that project ordinance includes an appropriation authorizing the obligation and an unencumbered balance remains in the appropriation sufficient to pay the sums obligated by the transaction. If an obligation is evidenced by a contract or agreement requiring the payment of money or by a purchase order for supplies and materials, the contract, agreement, or purchase order shall include on its face a certificate stating that the instrument has been preaudited to assure compliance with this subsection. The certificate, which shall be signed by the finance officer or any deputy finance officer approved for this purpose by the governing board, shall take substantially the following form:

'This instrument has been preaudited in the manner required by the Local Government Budget and Fiscal Control Act.

(Signature of finance officer)           .'

Certificates in the form prescribed by G.S. 153-130 or G.S. 160-411 as those sections read on June 30, 1973, or by G.S. 159-28(b) as that section read on June 30, 1975, are sufficient until supplies of forms in existence on June 30, 1975, are exhausted.

An obligation incurred in violation of this subsection is invalid and may not be enforced. The finance officer shall establish procedures to assure compliance with this subsection.

(b)        Disbursements. When a bill, invoice, or other claim against a local government or public authority is presented, the finance officer shall either approve or disapprove the necessary disbursement. If the claim involves a program, function, or activity accounted for in a fund included in the budget ordinance or a capital project authorized by a project ordinance, the finance officer may approve the claim only if (1) he determines the amount to be payable and (2) the budget ordinance or a project ordinance includes an appropriation authorizing the expenditure and either (i) an encumbrance has been previously created for the transaction or (ii) an unencumbered balance remains in the appropriation sufficient to pay the amount to be disbursed. The finance officer may approve a bill, invoice, or other claim requiring disbursement from an intragovernmental service fund or trust or agency fund not included in the budget ordinance, only if the amount claimed is determined to be payable. A bill, invoice, or other claim may not be paid unless it has been approved by the finance officer or, under subsection (c) of this section, by the governing board. The finance officer shall establish procedures to assure compliance with this subsection.

(c)        Governing board approval of bills, invoices, or claims. The governing board may, as permitted by this subsection, approve a bill, invoice, or other claim against the local government or public authority that has been disapproved by the finance officer. It may not approve a claim for which no appropriation appears in the budget ordinance or in a project ordinance, or for which the appropriation contains no encumbrance and the unencumbered balance is less than the amount to be paid. The governing board shall approve payment by formal resolution stating the board's reasons for allowing the bill, invoice, or other claim. The resolution shall be entered in the minutes together with the names of those voting in the affirmative. The chairman of the board or some other member designated for this purpose shall sign the certificate on the check or draft given in payment of the bill, invoice, or other claim. If payment results in a violation of law, each member of the board voting to allow payment is jointly and severally liable for the full amount of the check or draft given in payment.

(d)        Payment. A local government or public authority may not pay a bill, invoice, salary, or other claim except by a check or draft on an official despository or by a bank wire transfer from an official depository. Except as provided in this subsection each check or draft on an official depository shall bear on its face a certificate signed by the finance officer or a deputy finance officer approved for this purpose by the governing board (or signed by the chairman or some other member of the board pursuant to subsection (c) of this section). The certificate shall take substantially the following form:

'This disbursement has been approved as required by the Local Government Budget and Fiscal Control Act.

(Signature of finance officer)          .'

Certificates in the form prescribed by G.S. 153-131 or G.S. 160-411.1 as those sections read on June 30, 1973, or by G.S. 159-28(a) as that section read on June 30, 1975, are sufficient until supplies in existence on June 30, 1975, are exhausted.

No certificate is required on payroll checks or drafts on an imprest account in an official depository, if the check or draft depositing the funds in the imprest account carried a signed certificate.

(e)        Penalties. If an officer or employee of a local government or public- authority incurs an obligation or pays out or causes to be paid out any funds in violation of this section, he and the sureties on his official bond are liable for any sums so committed or disbursed. If the finance officer or any properly designated deputy finance officer gives a false certificate to any contract, agreement, purchase order, check, draft, or other document, he and the sureties on his official bond are liable for any sums illegally committed or disbursed thereby."

Sec. 13.  A new G.S. 159-28.1 is added, to read as follows:

"§ 159-28.1.  Facsimile signatures. — The governing board of a local government or public authority may provide by appropriate resolution or ordinance for the use of facsimile signature machines, signature stamps, or similar devices in signing checks and drafts and in signing the preaudit certificate on contracts or purchase orders. The board shall charge the finance officer or some other bonded officer or employee with the custody of the necessary machines, stamps, plates, or other devices, and that person and the sureties on his official bond are liable for any illegal, improper, or unauthorized use of them."

Sec. 14.  G.S. 159-29 is amended as follows:

(a)        The catchline is rewritten to read:

"Fidelity bonds."

(b)        The existing section is designated subsection (a). In addition, the words and figures "one hundred thousand dollars ($100,000)" appearing at the end of the first sentence of the existing section are deleted and the following are inserted in their place: "two hundred fifty thousand dollars ($250,000)".

(c)        Two new subsections (b) and (c) are added, as follows:

"(b)      Each officer, employee, or agent of a local government or public authority who handles or has in his custody more than one hundred dollars ($100.00) of the unit's or public authority's funds at any time, or who handles or has access to the inventories of the unit or public authority, shall, before being entitled to assume his duties, give a faithful performance bond with sufficient sureties payable to the local government or public authority. The governing board shall determine the amount of the bond, and the unit or public authority may pay the premium on the bond. Each bond, when approved by the governing board, shall be deposited with the clerk to the board.

If another statute requires an officer, employee, or agent to be bonded, this subsection does not require an additional bond for that officer, employee, or agent.

(c)        A local government or public authority may adopt a system of blanket faithful performance bonding as an alternative to individual bonds. If such a system is adopted, statutory requirements of individual bonds, except for elected officials and for finance officers and tax collectors by whatever title known, do not apply to an officer, employee, or agent covered by the blanket bond. However, although an individual bond is required for a tax collector or finance officer, such an officer may also be included within the coverage of a blanket 537 bond if the blanket bond protects against risks not protected against by the individual bond."

Sec. 15.  G.S. 159-34 is amended by adding a new sentence immediately after the present fourth sentence, to read as follows:

"The audit shall be performed and the report prepared in conformity with generally accepted auditing standards."

Sec. 16.  If HB 47, pending in the 1975 General Assembly is enacted, then G.S. 159-26, as rewritten by this bill, is amended as follows:

(a)        G.S. 159-26(b) is amended by rewriting paragraphs 2., 3., and 7. as follows:

"2.        Special revenue funds. Such funds shall be established for each function or activity financed in whole or in part by property taxes voted by the people, and for each service district established pursuant to the Municipal or County Service District Acts.

3.         Debt service funds.

7.         Trust and agency funds, including a fund for each special district, public authority, or school administrative unit whose taxes or special assessments are collected by the unit."

The changes made to G.S. 159-26 by this section are effective at the same time as the amendments made by HB 47 to G.S. Chapter 115.

Sec. 17.  G.S. 153A-29 and G.S. 160A-65 are repealed.

Sec. 18.  Except as provided in this section and Section 16, this act becomes effective July 1, 1975. Units of local government and public authorities shall prepare their budgets for the fiscal year beginning July 1, 1976, in accordance with the Local Government Budget and Fiscal Control Act, as amended by this act. As to budget ordinances for the fiscal year beginning July 1, 1975, units of local government and public authorities may comply with the Local Government Budget and Fiscal Control Act as amended by this act, or, alternatively, may comply with the Local Government Budget and Fiscal Control Act as it existed on January 1, 1975, and to that end the provisions thereof shall remain effective until July 1, 1976.

In the General Assembly read three times and ratified, this the 10th day of June, 1975.