Auditor: Chowan County's cash drain was clear

By Connie Sage

EDENTON, N.C.

Chowan County's longtime outside auditor said Tuesday he "expressed concerns" to former County Manager Cliff Copeland over a decade as he watched two reserve funds totaling $29 million dwindle by 90 percent.

The annual audits show "the bank accounts were continuing to drop each year," J.P. Timberlake III said in an interview.

Copeland "reassured me that things would work out," Timberlake said. "That was his responsibility. I really felt the commissioners were in line with him and understood and actually knew what was going on."

In his 30 years as the county's auditor, the Edenton certified public accountant said he'd never made a presentation to the Chowan County Board of Commissioners, nor was he ever asked to.

"There's no specific requirements in the contracts," he said. "If they ask me to be present, I do." Timberlake said that most years he met with Copeland.

"A governmental audit report is not the easiest way" to see a big financial picture, he said, "because there's too much information in that. I assumed that Cliff was making a presentation to the board on an annual basis."

Commissioners claim they don't recall ever being briefed by Copeland, who said Tuesday he had no comment.

The state's Local Government Commission told the county in a letter last week that its cash reserves are all but gone and that the county was in violation of state law because its revenue estimates for the new fiscal year had been overstated by about $4 million.

Over the past five years, the county "has expended more than it has received in revenues by large amounts," according to the commission. "The expenditures were funded by tapping the fund balance in the General Fund, including what remained of the funds received by the County from the sale of the (Chowan) hospital in 1998."

Peter Rascoe, who took over as county manager at Copeland's retirement in June, was informed on his first day on the job that the county had a serious cash-flow problem and depleted reserves.

He said he immediately contacted the board and the Local Government Commission, the state's fiscal watchdog group. It directed Rascoe to draw up a new 2008-09 budget and recommended that the county raise its property tax rate. The state could step in to oversee day-to-day operations if officials fail to balance its budget.

County commissioners on Tuesday released a statement in response to questions from The Virginian-Pilot asking if Copeland was still on the payroll following his retirement on June 16.

In an April 7 closed session, commissioners said they had agreed to continue Copeland's employment as a "special consultant" for an unspecified period after what they then believed would be his July 1 retirement.

"Mr. Copeland had offered to perform work on several special projects... including encouraging the development of natural gas distribution lines in the airport area and seeking funding for the possible purchase of a potential industrial development site in northern Chowan County.

"Since his actual departure, Mr. Copeland has not indicated to the Board whether he has in fact performed any such work on behalf of the Board as a special consultant."

He reportedly was to be paid about $10,000 a month based on his annual $122,400 base salary.

Copeland had been county manager for 29 years, and throughout his tenure Timberlake prepared annual audits for the county.

There was approximately $29 million in reserves from the transfer of Chowan Hospital to University Health Systems in 1998, Timberlake said. "Part of it came from dissolving the corporation and part of it came from the lease of the facilities."

Copeland presented a proposal to place the proceeds from the lease in a reserve fund, according to commissioners' meeting minutes from Sept. 18, 1998.

"He stated that this is a unique opportunity that will not be available again, that can forever improve the quality of life in Chowan County - that should be seen as an endowment to the citizens of Chowan County," according to the minutes. "He recommended to the Board that the proceeds be placed in a restricted fund not to be spent.

Resolutions were adopted that day by commissioners, including one recommended by Copeland stipulating that no more than 75 percent of the interest generated by the fund could be spent, "thus allowing the Healthcare Reserve Fund to grow."

Timberlake, who is paid $30,000 to prepare the county's annual audit, said he thought Copeland "was doing what he thought was right for the county." He said some of the reserve draw-down was used for the operating budget but that other money was used for construction projects because it would be more economically feasible to borrow internally.

"The theory is you borrow now and pay it back later. That's not an unusual thing in the business world," he said. "It's really a risk game."