Rural Hall officials violated state law, audit finds. State finds issues with public records, open meetings and handling of contract for lawyer

In addition, auditors found the Rural Hall Town Council also improperly handled closed sessions and mishandled the contract for its interim town attorney, Randolph James, by not having it vetted by town staff before it was signed. The town also spent more than $147,000 on attorney fees after initially budgeting $10,000 for such expenses.

At several points, the audit references the interim town attorney specifically, saying at one point that the issues were caused by the “town attorney’s disregard for state law” and at another point noting that Rural Hall should ensure that its attorney is “knowledgeable in legal matters relating to local government …”

In the town’s response to the audit, James said that Rural Hall “made some mistakes, however none were intentional and have been remedied by the adoption of new procedures and strict adherence” to state law.

In November 2021, State Treasurer Dale Folwell asked State Auditor Beth Wood to investigate allegations of financial impropriety in Rural Hall. Folwell said at the time he wanted Wood to investigate claims that $1.5 million had disappeared from the town’s coffers.

Wood’s investigators determined there is no missing or misspent town money, but identified areas where the town could improve in its governance and financial processes.

“This audit demonstrates that there’s more work to do in Rural Hall,” Folwell said. “It all has to be built on the chassis of transparency and good government, which focuses on taxpayers.”

Wood sent copies of the audit to Gov. Roy Cooper, N.C. Attorney General Josh Stein, Rural Hall Mayor Tim Flinchum and the Rural Hall Town Council.

For the past 16 months, Rural Hall has been entangled in legal disputes, accusations of mismanagement and the resignations of town council members and high-ranking staff.

Just last month, Rural Hall Town Manager Misty Meadows resigned after a five-hour closed-door town council session.

Meadows, who was previously the town’s clerk and administrative assistant, took over the manager’s position in December 2021, about two months after Megan Garner abruptly resigned as town manager on Oct. 21, 2021. Garner had held the position for four years.

Three council members resigned at the same time, after approving a nearly $150,000 severance package for Garner, who had been accused, among other things, of having an affair with the town’s fire chief. The town, led by a new board, later filed a lawsuit over the severance package.

Garner, who is now city manager of Graham, never got the money because the amount exceeded the town’s transaction limits.

When asked about Wood’s audit, Homer Dearmin, the town’s interim finance director, pointed to a statement on the town’s website.

The statement said that on Nov. 30, 2022, the town’s council, James and some town employees met with Wood and her staff about the audit report. Wood rejected exhibits which James wanted to include in the town’s response “for context and completeness,” the town said.

The exhibits consisted of legal papers about lawsuits the town faces.

Wood’s office determined that the town failed to follow state law in the release of public records.

Under state law, if someone is denied access to public records, that person could ask for a court order to compel the town to disclose the records, and the town could be responsible for attorneys’ fees of the requester, Wood’s office said.

“The failure of produce public records improperly limited public transparency and accountability,” Wood’s office said.

An audit’s investigator determined that Rural Hall didn’t produce public records when requested by the public because of James’ “disregard for the North Carolina public records law,” the audit report said.

James “did not identify any legitimate statutory exception of the North Carolina public records law as grounds to deny the requests,” the report said.

As an example, the Journal submitted a public-records request through the town’s website last month for information about a wreck involving Meadows.

Meadows was driving a town-owned vehicle on Oct. 17, 2022, when that vehicle was involved in a crash. Meadows, who didn’t report the crash to local law enforcement, said in an incident report for the N.C. Department of Motor Vehicles that she was stopped at the intersection of Forum Parkway and N.C. 65 when her 17-year-old daughter, who was behind her in a separate vehicle, received a call that a classmate had been murdered. Her daughter then bumped into Meadows’ car, causing Meadows to bump the car in front of her.

The combined damage to the three vehicles was $13,784. The damage to the town’s vehicle was $9,323. Meadows’ private insurance company paid for the repairs. Neither the town nor its insurance company paid for any of the damage, according to the records.

Under state law, if a wreck involves more than $1,000 in damages, a law enforcement agency must be called.

When the Journal submitted its request, Lynette Hendrick, the town clerk, sent back the form, indicating that the town had no records about the wreck.

Later, James provided documents to the Journal and said that Hendrick had made a mistake and only meant that there were no records inside Rural Hall Town Hall.

The audit says the town didn’t produce when asked numerous public records, including employment histories for two town employees, the contract for a town manager, video footage from town security cameras and copies of letters of resignation from five former town staffers.

Wood’s investigators say that the town violated the state’s open meeting law from January 2021 through July 2022 because the town council didn’t properly enter closed sessions. Town officials also discussed topics in closed sessions that the council should have discussed in open sessions, the investigators said.

Under state law, panels of local elected officials are allowed to enter into closed sessions for several reasons, including to consult with their attorneys and to discuss personnel matters. If those reasons are not met, the session must be public.

“The town council’s failure to properly enter into closed session and the discussion of unallowed topics in closed session limited the public’s ability to be informed about the operations and performance of their government and to hold town officials accountable,” the report said.

The audit criticized James for failing to provide guidance to the town council on how to properly enter a closed session and what the panel could discuss in closed session.

James told investigators that he served at the pleasure of the town council, and it would be “awkward” if he “fusses at them” about discussing things in closed sessions that should be in open sessions, according to the audit.

In his response to Wood’s audit, James said the audit’s assertion that the town violated the state’s open meetings law “has a false premise by the investigators who were not provided with any closed-session minutes in which attorney-client privileged communications occurred between (James) and the council during a closed session.”

The audit says the town discussed in closed session the cost of the interim attorney, security cameras at the town hall and fire department, plans to change keys and the fire chief getting bids for lettering on his town vehicle. Such discussions, the audit said, should have been done in open session.

By not holding those discussions in open session “limited the public’s ability to be informed about the operations and performance of their government and to hold town officials accountable.”

Investigators also determined that the town didn’t properly handle its contract with James. The town didn’t conduct a pre-audit of the contract to determine if the town had adequate money in its budget to pay James’ fees, the audit said.

“As a result, the town signed a contract without ensuring that there were sufficient funds to pay the amounts that would come due,” the audit said. “Also, since the contract was not pre-audited, the contract is invalid and may not be enforced.”

In his response to the audit, James said his contract with the town is legally valid.

The audit also accused the town of not completing its monthly bank reconciliations from November 2021 through April 2022.

Bank reconciliations are used to examine variances by comparing the cash balance in the town’s accounting system to the balance reported by the bank.

The process helps the town prevent or detect possible errors, theft or misuse of cash, the audit said.

James said in his response that Meadows did not know that the town’s then finance director, Wade Gilley, had failed to complete the reconciliations.

Gilley resigned on Dec. 28, James said. The town council hired Council Member Terry Bennett as its finance officer.

Gilley told auditors that he was unable to complete the reconciliations because of “increased responsibilities.”

Gilley said he was the only person with budget experience, so “that is currently on my plate as well.” He also said he had been interviewing and training new staffers.

The audit also revealed that the town council appointed a town clerk without having the legal authority to do so. The town manager is responsible for appointing the town clerk, the report said.

“As a result, the town clerk was not legally employed in that position,” the audit said. “The town clerk is not elected by the people, and the appointment of the town clerk is not provided for in state law.”