Local government finances are subject to annual audit and to state oversight mechanisms that escalate with financial distress.
Annual audit by an independent accountant under governmental accounting standards, filed with the state within a statutory deadline, with a management letter identifying deficiencies.
Findings. Material weaknesses and significant deficiencies in internal control, and instances of non-compliance. Repeat findings attract escalating attention.
Single audit requirements where federal awards exceed a threshold, with compliance testing of major programmes.
Deficit elimination plans. Where a fund ends the year in deficit, statutes commonly require a plan filed with the state showing how it will be eliminated, with approval and monitoring.
Escalation. Preliminary review, a review team, a determination of financial stress, consent agreements, and in the most serious cases the appointment of an emergency manager or a receiver with authority displacing elected officials. The specific mechanisms vary by state and are politically consequential.
Board responsibilities. Adopting a balanced budget, monitoring against it, amending it before overspending, and acting on audit findings. Overspending an appropriation is unlawful in many states and can carry personal consequences.
Bond disclosure. Financial distress must be disclosed under continuing disclosure undertakings.