NC state audit identifies weaknesses in Zebulon’s financial oversight, internal controls

ZEBULON, N.C. (WNCN) — A North Carolina state auditor investigation launched after an anonymous tip found the Town of Zebulon had significant weaknesses in financial oversight, internal controls and contract administration, identifying issues ranging from missing contracts and undocumented consultant payments to duplicate payments and budgeting practices that fell short of the town’s own financial policies, a new report shows.

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The report, released Monday by the North Carolina Office of the State Auditor, examined the town’s management and disbursement of public funds during fiscal years 2023 through 2025. Auditors said the review began after receiving allegations of insufficient internal controls over the town’s finances, excessive travel spending by town commissioners and administrators, as well as unsupported consultant payments related to the preparation of the town’s budget.

The audit identified eight findings involving contract administration, consultant payments, executive oversight, budgeting practices and internal financial controls.

“The Rapid Response Division found significant weaknesses in internal controls, contract administration, and financial management,” State Auditor Dave Boliek said in a statement on Monday. “While some errors were ultimately corrected, better controls would have prevented these problems from occurring in the first place.”

Missing contracts, undocumented payments

Among the findings, auditors said the town could not provide a fully executed contract supporting payments to a former interim town manager, whose consulting firm billed Zebulon $4,500 for transition assistance, budget development and other consulting work performed in January 2025.

Although the former interim town manager signed a proposal for professional services, town officials did not, and Zebulon’s chief financial officer told auditors the town could not locate a fully executed agreement supporting the $250 hourly consulting rate.

Auditors also found the town lacked documentation supporting more than $22,600 in payments made to an outside consultant hired to assist with development of the fiscal year 2026 budget.

According to the report, the consultant’s contract required invoices detailing completed work before payment could be approved. However, the town was unable to provide invoices, work product or other documentation showing the consultant completed the required deliverables before receiving payment.

Internal control weaknesses

The audit identified multiple weaknesses in the town’s financial controls.

Auditors found inadequate invoice-entry controls and insufficient accounts payable reconciliation, which allowed duplicate and invalid payments to be processed without being detected. The report cited five invalid payments totaling $130 related to unsuccessful cemetery lot purchases, along with an $844.92 duplicate payment to a vendor that remained outstanding until auditors questioned the transaction.

In another finding, auditors said a town accountant accidentally used personal funds to pay a Town credit card balance totaling $16,668.87 after an online payment system defaulted to the employee’s personal bank account. Although the town reimbursed the employee the following day, auditors said the incident exposed weaknesses in internal controls governing disbursements.

The report also concluded the town lacked sufficient oversight of executive compensation and reimbursements.

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Auditors cited one instance in which the former interim town manager received an overpayment of $6,100 because of inadequate payment review procedures. The money was returned several days later, but auditors said the incident demonstrated weaknesses in the town’s pre-payment verification process.

Budgeting concerns

Beyond the payment controls, auditors found the town’s unrestricted General Fund balance fell below the minimum level required under its own financial policy.

According to the report, Zebulon’s unrestricted General Fund balance totaled approximately $13.7 million at the end of fiscal year 2025, representing 48.58% of final budgeted expenditures. The town’s financial policy calls for maintaining an unrestricted fund balance equal to at least 50% of projected expenditures.

Despite falling below that threshold, auditors said the town appropriated more than $4.6 million from its General Fund balance in its adopted fiscal year 2026 budget.

The audit also found the town experienced significant and recurring differences between its budgeted and actual revenues and expenditures from fiscal years 2022 through 2025. According to auditors, those recurring variances reduced the reliability of the town’s General Fund budgeting.

Recommendations, town response

The State Auditor’s Office issued numerous recommendations aimed at strengthening Zebulon’s financial controls, improving contract administration, increasing oversight of executive compensation and reimbursements, enhancing invoice review procedures and ensuring the town maintains fund balance levels required under its own financial policies.

Boliek said the Town of Zebulon cooperated throughout the review and recognized “the importance of sound government practices.”

“As the taxpayers’ watchdog, the State Auditor’s Office will continue to engage with local governments when needed, providing transparency and accountability to all corners of North Carolina,” Boliek said.

In a written response included in the audit, Town Manager Katy Crosby said Zebulon has already begun implementing many of the report’s recommendations and remains committed to strengthening its governance, financial management and internal controls. Crosby said the town plans to establish a committee to review financial procedures, provide quarterly financial reports to the Board of Commissioners and continue improving accountability.

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