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Investigative audit reveals extent of disarray in embattled Rural Hall

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The results of a newly-released investigative audit by state auditor Beth Wood– following the abrupt resignations of Rural Hall town manager Megan Garner and three town councilmen on October 21, 2021 – reveals that the tiny town of about 3,400 residents in Forsyth County has remained in disarray since November 2021.

Graham’s city council voted unanimously to hire Garner as city manager on October 22, 2021.

Graham city manager Megan Garner confers with mayor Jennifer Talley and councilman Bobby Chin at June 14, 2022 Graham city council meeting.

Released Wednesday, Wood’s 39-page report reveals her findings in response to an investigation into 13 allegations about Rural Hall’s town government. Her findings state that the town’s interim attorney had improperly denied access to certain public records, citing pending litigation; the town council violated the state’s Open Meeting Law; the interim town attorney’s contract was not pre-audited to ensure the town had sufficient funds to pay his fees; bank reconciliations had not been properly completed since November 2021; and that the method by which a town clerk (and later town manager) had been appointed failed to comply with state law.

North Carolina Treasurer Dale Folwell had asked Wood in November 2021 to conduct an investigative audit into the town of Rural Hall’s finances due to widespread rumors that $1.5 million had disappeared from the town’s accounts during Garner’s tenure as town manager.

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The rumor about missing town funds had been unsubstantiated, interim town attorney Randy James later said in a November 2021 interview with The Alamance News. He said that an external auditor for the town, Eddie Carrick, a Certified Public Accountant based in Lexington, had confirmed for a newly-constituted council at its November 8, 2021 meeting that there was no missing money, James elaborated in the interview.

The town of Rural Hall subsequently filed a lawsuit against Garner to void the payment of a $150,000 “settlement” she was to receive following her resignation in October 2021.

Forsyth County superior court judge Richard L. Doughton struck down that six-figure settlement – which Garner had characterized in her countersuit as compensation for a hostile work environment, as well as for damage to her professional and personal reputation – when he granted a motion on behalf of the town in October 2022. Most of Garner’s counterclaims had been dismissed in earlier rounds of litigation.

Wood: Town officials’ explanations misleading, not true, or irrelevant
Wood’s investigative audit found that the town failed to produce public records that had been requested between November 2021 and June 2022 – the six months immediately following Garner’s departure.

The audit’s findings state that 50 public records request had been filed during that period, all of which were routed through the interim town attorney. Nineteen public records were withheld, including: copies of resignation letters from five former town employees; employment histories for two employees; an employment contract for the former town manager; and various other records including security footage from town facilities, which interim town attorney James later said he had withheld because of the volume of the footage the town had retained.

Wood recommended that the town produce public records in compliance with the North Carolina Public Records Law.

Wood’s report outlines multiple instances between January 2021 – while Garner was still town manager – and July 2022 in which Rural Hall’s town council had violated the state’s Open Meetings Law by failing to properly convene closed sessions and discussing topics in closed sessions that were statutorily required to be discussed in open session.

For 20 out of 24 closed sessions held between January 2021 and July 2022, the town council had failed to properly cite statutory exemptions to the Open Meetings Law under which the council was permitted to enter into closed session, according to Wood’s report.

The investigative audit further revealed that, after Garner’s departure, the town council illegally discussed matters such as: the cost for a new interim town attorney (October 25, 2021); discussed bidding for lettering on the fire chief’s vehicle (November 1, 2021); discussed candidates for a vacancy on the town council (November 8, 2021); staffing needs at the town hall (December 1, 2021); and in December 2021 and January 2022, discussed a contract for a law firm developing a strategic plan for the town – the same firm implicated in a subsequent, unsuccessful motion the town had filed seeking to disqualify Garner’s attorney for an alleged conflict of interest.

Wood’s investigative audit notes that any action taken in an open meeting as a result of improper closed-session discussions could be declared null and void if challenged. She also faults the interim town attorney for failing to ensure that closed-session discussions complied with state law.

Wood also found that, because no pre-audit had been conducted, there was no way for the town finance auditor to ensure there were sufficient funds to pay the interim town attorney’s fees. The total paid to James during the fiscal year that ended on June 30, 2022 was $147,793, but just $10,000 was originally budgeted for legal fees for that fiscal year, though that discrepancy was later rectified by an amendment to the town budget in April 2022.

The town of Rural Hall also failed to complete monthly bank reconciliations between November 2021 and June 2022, potentially exposing the town to theft or misuse of public funds that could go undetected. During this period, the average balance in the town’s general fund was $1.1 million, and approximately 100 transactions were posted each month, according to Wood’s audit.

The North Carolina Local Government Commission requires all bank statements to be reconciled promptly in order to identify errors or discrepancies, Wood notes in her findings, adding that some of these issues had been caused by increased responsibilities for the town’s finance director and lack of oversight by the now-former town manager, Misty Meadows, who replaced Garner in that role in December 2021 and resigned last month.

Wood’s report also includes the town’s responses to each of the 13 alleged misdeeds.

Specifically, the town contends that the requested resignation letters from five former employees had been attached to Garner’s answer and counterclaims filed in response to the town’s November 2021 suit, and that the employment histories for two town employees also had been produced.

Town refutes audit’s findings
The town also contends that the failure to turn over video footage captured by security cameras at town facilities had been inaccurately portrayed. “There are 10 Terabytes of data with no software to view the data as the prior Town Manager, Megan Garner, left her employment without providing the operating system for the data,” the town states in its response, adding, “a review of the…data would take hours by a digital forensic specialist at significant cost.”

As to the alleged violations of the state’s Open Meetings Law, the town states in its eight-page response: “Respectfully, this entire section has a false premise by the Investigators who were not provided with any closed session minutes in which attorney client privileged communications occurred between [the] Interim Town Attorney and the Council…Such criticism, as evidenced by this section, is founded upon an apparent dissatisfaction with [the] Interim Town Attorney’s zealous representation of the Town of Rural Hall in litigation characterized by at least one Superior Court Judge as ‘ugly’ during an unprecedented period in [town’s] history.”

Moreover, the town counters in its response that the investigative audit fails to acknowledge the subsequent difficulties encountered by the attorney, town manager, clerk, and city hall during this period. Current town of Rural Hall officials note that an interim town manager (Frank James) had executed an engagement letter with the law firm of Randolph James and did not require a retainer payment “or any payment” – making it unnecessary to perform a pre-audit certification.

“The Engagement Letter explicitly states that no advanced payment will be necessary by the Town of Rural Hall,” the town states in its response. “Once a payment became due by the Town of Rural Hall, [the council adopted a budget amendment], which permitted the payment of attorney fees to the interim town attorney…The pre-audit statute is triggered only when a unit orders goods or enters into a contract (or other agreement) which obliges the unit to pay money.”

The town acknowledges in its response that former finance director Wade Gilley had previously expressed “feeling overwhelmed” with his duties prior to giving his two weeks’ notice, effective December 28, 2022, though the then-town manager Meadows had hired a part-time assistant to help Gilley “catch up.”

The town also refutes that the claim that the previous appointment of Meadows as the interim town clerk, and later as town manager, had violated state law.

For his part, James counters, “The absence of a statutory authorization does not prohibit action by a municipality. In this particular instance, there is no question that Misty Meadows was properly appointed as Interim Town Clerk and properly appointed as Town Manager. [Since the statute governing the powers and duties of town or city manager] and the Town of Rural Hall’s Town Charter were silent on who can appoint a Town Clerk in the absence of a Town Manager, the Town Council did not violate state law.”

The response for the town of Hall was signed by the interim attorney, James, as well as Rural Hall mayor Tim Flinchum and the four town council members.

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