The Local Government Commission should have no problem with Moore County's financial picture.

An audit of the 2005-2006 fiscal year shows "a clean opinion with no exceptions" and a 13.58 percent fund balance, exceeding the 8 percent minimum recommended by the commission.

It was the county's tradition of dipping into the fund balance to balance the budget without tax hikes that attracted the attention of Interim County Manager Cary McSwain.

"Fund balance is not operating revenue," McSwain cautioned at the Jan. 16 meeting of the Moore County Board of Commissioners.

That was the meeting at which the annual audit report was presented. Scott Berwer, a certified public accountant, made the presentation on behalf of the Dixon Hughes CPA firm of Southern Pines.

With budget preparation season looming for the 2006-07 fiscal year, McSwain is interested in reining in the inclination to use the undesignated, unreserved fund balance to balance the budget without raising taxes and without reducing appropriations too sharply.

McSwain told the commissioners that an effort should be exerted to avoid this. He said it would benefit the taxpayers by reducing dependence on the fund balance.

"To me, it's like a snake in the grass," McSwain said. "I would very much like for us not to appropriate from the fund balance."

Nevertheless, McSwain emphasized that the county is in good financial condition.

County Finance Officer Lisa L. Hughes echoed his opinion.

"We're in very good shape," Hughes said.

Their views are backed up by the audit report, which notes that Moore County ended the 2005-2006 fiscal year with an unreserved fund balance of $9,439,529, or 13.6 percent of total General Fund expenditures. That would place the 5.6 percent over the minimum recommended by the Local Government Commission at $3.8 million.

Hughes said the term fund balance can be defined in more than one way.

For example, the audit report cites three types of balance, totaling in excess of $24.1 million for the 2005-2006 year. Included are balances exceeding $7.5 million, mostly funds reserved as required by state statute, funds for financing agreement compliance and inventories. The county has little control over these funds.

Best known of the fund balance figures is the unreserved, undesignated fund balance of $7,192,461 set aside for subsequent year's expenditures from the General Fund.

That leaves the $9.4 million-plus as unreserved and undesignated. That money languishes in an interest-bearing savings account that has no purpose for spending. It's earning interest for the county.

The general public doesn't always understand the fund balance place in county government. The Local Government Commission, the state watchdog for local government spending practices, has power to take over financial administration of a county, municipality or school system that cannot maintain a fund balance sufficient to cover monthly expenses.

The Local Government Commission recommends a minimum balance of 8 percent for counties to operate smoothly. That percentage assures that each county has enough money to pay its bills every month -- to meet the payroll, to keep the schools operating and to pay for utilities and other basic obligations.

Hughes said the county often appropriates fund balance as part of a new budget's revenues, then does not need to withdraw any of the money.

An audit of county fund balances, dating back to the 1997 fiscal year, shows that for five years the county did not use any fund balance money to meet its budget obligations. That includes the past three fiscal years and the 1997 and 1998 years.

For five years in the middle, the county did indeed take fund balance to meet the budget, but not even close to half the amounts appropriated.

The percentage dipped as low as 2.96 percent in 2002, when the county appropriated $6.7 million from the fund balance but used only $1.9 million. That was the year that the state decided on a permanent repeal of major reimbursements paid to counties annually by the state. Most counties faced the same problem that year, and the commission did not lower the boom.

A year later, Moore County's fund balance was back up to 8.8 percent. The county appropriated $3.9 million from the fund balance and used $1.7 million. Nothing was appropriated from the fund balance for the next three years. The percentage climbed to 14.24 percent in 2004, dropped to 12.47 percent in 2005, then went back up to 13.58 percent in 2006.

Despite loss of state reimbursements, actual revenues continued to climb during the 10-year audit history of the fund balance.

For about half of those years, actual expenditures exceeded actual revenues, although the fund balance was not raided in all of those years.

In the past three years, revenues have exceeded expenditures.

Florence Gilkeson can be reached at 947-4962 or by e-mail at florence@thepilot.com.