CANTON – Jeff Goodwin, director of the state auditor’s compliance division, was congenial while describing to Canton officials how the office has taken $352,000 of the city’s revenue to pay for past-due audits – the first time Auditor Shad White has exercised this authority.

“I didn’t write the law. Auditor White didn’t write the law, but we’re charged with enforcing it,” Goodwin said at the Canton Board of Aldermen meeting Tuesday.

Canton is one of 68 local governments across Mississippi that received an auditor’s letter in March, putting officials on notice of their delinquent audits. 

The notices went as far north as Farmington near the Tennessee line and as far south as Moss Point on the Gulf Coast. They spanned from mid-sized cities like McComb, to rural towns like Coffeeville, to tiny villages like Beauregard – a signal of widespread municipal finance concerns.

This is especially true in the aftermath of the coronavirus pandemic, during which Congress dolled out billions to local governments nationwide, necessitating more accounting, and city and town halls dealt with the fallout of a reduced labor force. 

Incomplete audits create a host of problems, including reducing a city’s ability to borrow money and prohibiting it from drawing down federal grants.

Audits are important, despite not appearing urgent, said Billy Morehead, Mississippi College accounting professor and member of the Mississippi Public Procurement Review Board.

“All of a sudden, the can’s been kicked down the road and the municipality is at risk of losing a variety of funding, a lot of their federal funds, but also their credit ratings,” Morehead said. “It could be catastrophic to some of these places.”

The March letters required compliance within 30 days or the auditor would request the Mississippi Department of Revenue to divert sales tax dollars from the municipality – the estimated price of bringing the audits up to date, plus 50% of that amount the auditor is allowed to retain for its administrative cost of hiring the accounting firm and acting as a third party on the reports.

Jackson has faced scrutiny for falling behind on its audits, including one for 2023 which has yet to be complete, but the capital city did not receive a noncompliance letter. The auditor’s office said it focused on municipalities that are as far behind as 2022.

Only Canton, a city of about 11,000 in Madison County, and Maben, a town of fewer than 1,000 in Oktibbeha County, have seen their funds diverted under this process so far. Maben’s transfer totaled more than $68,000. Holly Springs, Indianola and Tchula are not far behind.

The planned diversions total $1.6 million, with Indianola facing the largest threatened seizure of $675,000. That’s more than half of the city’s total annual sales tax revenue of about $1.1 million. Holly Springs, which has been under investigation for its management of the local electric utility, faces a sales tax diversion of $450,000, also roughly half of its annual sales tax revenue of $900,000.

The auditor’s office has chosen so far not divert an additional total of $900,000 from four other towns – Itta Bena, Okolona, Winona and McComb – which it said demonstrated a good faith effort to rectify their incomplete reports. WLBT reported that McComb hadn’t completed an audit since 2020, and that residents “think someone is stealing from the city,” according to a local official.

Annual audit requirements were relaxed during the pandemic, Goodwin said, “But COVID has since passed.”

“And so we’re finding municipalities in circumstances where they can’t borrow funds, they can’t get grants, which is a jeopardy to the health, safety and welfare of the constituents,” he said.

In the case of Indianola, the audit delinquency caused the city to lose federal grants, such as a half-million dollar sidewalk project from the Mississippi Department of Transportation, according to reporting by The Enterprise-Tocsin, though it found a workaround by routing the money through the school district.

The auditor’s office has the power to direct these diversions under a law passed in 2009. But this is the first time it has deployed this authority, assuming control of a city’s funds and engaging a firm to conduct the audits.

“It’s brand new, uncharted territory,” Goodwin said, “The way the code reads, we have to estimate the fee and we have to put a 50% penalty on it. We don’t want your money.”

White, a Republican, has jokingly referred to his office as “MOGE,” the Mississippi version of President Donald Trump former adviser Elon Musk’s DOGE, or Department of Government Efficiency. The auditor was more rigid in his comments on the municipalities’ overdue work.

“We’ve given cities plenty of chances to catch up on their audits,” White said in a statement to Mississippi Today. “For the ones who have refused to get audited, their citizens deserve better, and my office will use the full extent of its legal authority to make sure the taxpayers get the transparency they deserve.”

The auditor’s office notably does not have the authority to audit municipalities itself, and legislators killed a 2024 proposal to permit the auditor to review and examine them.

The Mississippi Department of Revenue declined multiple requests for an interview about the diversions, directing all questions to the auditor’s office.

Under the law, the auditor’s office has the power to choose the CPA firm to complete the past-due audits, enter the contract as a third party, and pay the invoices with the diverted revenue. Canton recently retained Tann, Brown and Russ in an effort to comply. The same firm has been working on the 2019 audit for Indianola since 2024. An accountant there declined to comment about their engagement or about the challenges surrounding municipal auditing.

It’s difficult to find CPA firms that will conduct municipal audits, let alone one that will do it for a price some small towns are willing or able to pay. The number of students majoring in accounting has dwindled, despite an uptick in more recent years, Morehead said, and firms are still struggling to keep up with the demand.

“I know folks who are just exhausted,” Morehead said.

In Tchula, one of the poorest towns in the nation on the edge of the Mississippi Delta in Holmes County, Mayor General Vann served 2017-21 and oversaw the last annual audit the town completed. He was elected again this year and took office July 1. Within a few weeks, Tchula had retained Watkins, Ward and Stafford, headquartered in West Point. 

“The town finances are meager,” Vann said. “But this is a priority and a necessity and it’s something that you have to get done. And the price, you just have to bear it and come up with it. You don’t have any choice.”

The audits become even more difficult to complete when municipalities haven’t maintained proper recordkeeping – every transaction, deposit and debit – in part because they’re losing institutional knowledge inside their clerks’ offices due to retirement and population loss.

“I think there’s a brain drain,” Vann said. “You have to have someone that knows how to keep a good set of books.”

The auditor’s office said it would be returning any unused money to the municipalities, but since the estimated cost of the audit assumes financial statements will be in a good enough shape to audit and that may not be the case, it could be unlikely there are any leftover funds.

“I do have concerns for you, each one of you,” Goodwin told the Canton officials. “You’re basing your decisions off of financial statements that will not be complete.”

Alderwoman Shannon Whitehead, who was just elected in April, smiled, nodded and repeated “right” and “absolutely” during the presentation Tuesday. 

Jason Camp, a Mississippi State University extension specialist who specializes in municipal government, said in some cases, current municipal officials were not in charge when the audits fell behind, but someone has to hold them accountable for following the law.

“It does sound like the actions taken by the state auditor’s office has made some urgency come into play with some of the cities who maybe didn’t think it was such a big deal to be behind,” Camp said in an interview with Mississippi Today. “They’re now saying, ‘Hey this is a serious issue and we have to put resources towards getting us caught up.’”