City of Lexington Responds to Audit Findings Highlighting General Fund and Utility Concerns
The City of Lexington is scheduled to present its formal response tonight to financial concerns raised in a recent audit covering the fiscal year ending June 30, 2025.
City Council
Regular Meeting
Monday, February 9, 2026 6:00 PM
200 North State Street, Lexington, NC 27292
According to the city’s response to the auditor’s findings, two Financial Performance Indicators of Concern were identified based on information in the City’s Annual Comprehensive Financial Statements: the General Fund and the Water and Wastewater Fund.
General Fund Expenditures Exceeded Revenues
The audit found that the City’s General Fund recorded more expenditures than revenues during the fiscal year. City officials attributed the variance primarily to internal financing decisions and a one-time appropriation made at the beginning of the fiscal year to cover purchase order carryovers from fiscal year 2023–2024.
City management stated that the carryovers were unusually large but necessary due to the timing of expenditures and contractual obligations that could not be completed before the prior fiscal year closed. The city characterized the situation as a one-time occurrence and acknowledged that this approach should not become a recurring practice.
Water and Wastewater Assets Flagged for Long-Term Risk
The second concern involved the City’s Water and Wastewater Fund, where the Condition of Assets ratio was calculated at 0.39. A ratio below 0.50 can indicate that infrastructure assets may need replacement in the near future.
In its response, the city acknowledged the long-term need to replenish capital assets and emphasized the importance of maintaining a rate structure capable of supporting those investments.
City Council adopted an initial 10-Year Water and Wastewater Capital Improvement Plan in September 2022 and later endorsed an updated version in April 2025 covering fiscal years 2025–26 through 2034–35. The plan is intended to guide future capital replacements and system upgrades.
In addition, City Council received the results of a Water and Wastewater Study conducted by Raftelis in October 2022, which incorporated the 10-year capital plan. City officials stated that these documents continue to serve as planning tools for infrastructure investment.
The city reported that it has received bids and is moving forward with construction of a new Wastewater Solids Handling Facility, along with sewer and water extensions at the NCI85 Center.
Ongoing Monitoring and Phased Improvements
City staff reported that they continue to monitor the condition of water and wastewater systems in coordination with department directors and engineering professionals. Improvements are implemented in phases, and officials stated that as planned investments are completed, the Condition of Assets ratio is expected to improve.
The city noted that ongoing system reviews indicate current repair and replacement efforts are sufficient to maintain overall system functionality and reliability. While individual capital projects are not included in the ratio calculation, their estimated values are considered as part of long-term financial and infrastructure planning.
The city’s written response acknowledges that the Condition of Assets ratio may not be viewed as reasonable by all stakeholders and states that management continues to balance long-term capital reinvestment needs with maintaining appropriate fund balances.
City Council is expected to review the audit and discuss the annual budget during tonight’s meeting.
