The town of Zebulon lacked internal controls to effectively manage its finances and overspent from its general fund, according to an audit released on Monday by the State Auditor's Office.

The report from the State Auditor's Office said that the town spent more money from its unrestricted funds that what was initially budgeted. According to the auditor's office, the town's unrestricted fund balance was $13,672,910 for fiscal year 2025, which they said represented 48% of the town's total budget expenses.

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The state said the town is supposed to keep the percentage of unrestricted funds at 50% or higher of the town's total expenses for the fiscal year, and that it had dropped by more than 30% in four years.

"Because this ratio was below the 50%  threshold, the Town’s fund balance policy dictates that the Town should not have appropriated General Fund balance in its FY 2026 budget," the state auditor's office wrote. "However, the Town appropriated $4,638,409 fund balance in its FY 2026 adopted Budget Ordinance."

In the audit, the state auditor's office said the town "lacked effective internal controls and governance" related to oversight and documentation for executive level compensation and reimbursement.

The audit pointed to a service period in 2025 to highlight oversight issues. In that period, the town overpayed an interim town manager by $6,100. The audit said that while the issues of overpaying reimbursments were promptly corrected, they highlighted a problem for the town's finances.

"While some errors were ultimately corrected, better controls would have prevented these problems from occurring in the first place," the auditor's office said.

The audit also found that:

  • Zebulon could not provide an executed contract supporting the town's payments to the former interim Town Manager at a rate of $250 per hour for consulting services in January 2025.
    • Zebulon did not maintain adequate documentation to support its payments to consultants for budget preparation activities for the 2026 fiscal year.
      • Zebulon did not promptly investigate outstanding checks for more than a year on the outstanding check lists for appropriate resolution, which is required by the North Carolina Unclaimed Property Act.
        • Zebulon did not maintain adequate invoice-controls or effective accounts payable reconciliation, which resulted in invalid and duplicate payments.
          • The controls in place did not prevent an accidental payment to the town's credit card balance using a town employee's personal funds.

            The State Auditor's Office said they began looking into the town after receiving a referral from its tipline.

            The town is currently facing a $2.4 million budget deficit. Town staff say the deficit is a result of rising personnel costs, healthcare expenses, infrastructure obligations, and continued growth-related service demands.

            In June, the town approved a new budget. Several residents spoke out against the budget becaused it had pay raises for the town's board of commissioners. The budget doubled the salary for town commissioners from $8,000 a year to $16,000.

            The Town of Zebulon sent WRAL News a statement in response to the findings of the audit, which read in part:

            "The $2.4 million figure is separate from the audit and does not represent missing funds. It reflects an operating gap identified during the annual budget process. Through the recently adopted budget, approximately $2.25 million in remaining balances from completed capital projects or projects that were no longer moving forward was returned to the General Fund and reallocated to help address the gap. The remaining amount was addressed through reductions to operating line items.

            The Board of Commissioners is scheduled to begin discussing financial priorities for the next fiscal year in September. The Town will continue closely monitoring revenues and expenditures and remains committed to transparency, responsible stewardship and serving our community well."

            In a statement to WRAL News, the State Auditor's Office said the town is being cooperative throughout the audit process, and "recognized the importantce 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.”