All major private sector companies have to follow generally accepted accounting principles (GAAP), and they are subject to all sorts of financial regulations, like the Sarbanes-Oxley Act. But local governments often have huge hidden unfunded obligations (which add up to trillions of dollars nationally), and don’t comply with GAAP. A few have gone bankrupt as a result, sometimes with little advance warning.
Local governments often would flunk a real audit, and even when they are required by law to undergo an audit, they sometimes just ignore the law.
North Carolina’s GOP-controlled legislature is trying to improve financial transparency and accountability for local governments, over the Democratic governor’s resistance. The Cato Institute describes a recently passed law designed to improve auditing in mismanaged places like Spring Lake, a liberal suburb of Fayetteville:
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