BELHAVEN — The Local Government Commission released its response March 31 to the Town of Belhaven’s annual audit report for fiscal year 2014-15.

The LGC stated that it was pleased to see progress in the town’s efforts to reduce the amount of delinquent utility accounts, but also revealed there were still problems with the Water and Sewer Fund.

“The fund reported a net loss before capital contributions on both the full accrual and the budgetary basis of reporting. These losses indicate that the amounts being charged to customers are not sufficient to cover the costs of providing water and sewer services,” the response letter stated.

The letter also stated that cash flow from operations was negative, and “certain expenditures exceeded the amounts authorized by the budget ordinance, indicating that the Town’s pre-audit function is not working properly.”

An obligation or expense has to be budgeted before the town enters into the transaction, as required by the Local Government Budget and Fiscal Control Act, according to the Department of the State Treasurer. The unbudgeted spending is a result of the town making commitments, even though there are insufficient funds — an amount for which the finance director is liable.

LGC officials encouraged Belhaven to review its budgetary controls section in the Policy Manual for Local Governments, as well as drawing up formal, written policies and a pre-audit certificate of obligations. The Town of Belhaven has struggled to keep its Water and Sewer Fund sustainable in years past.

The response letter commended town officials for their progress on correcting the delinquent utility accounts, including the enforcement of a written cut-off policy and payment arrangements for customers.

As of the summer of 2015, the Town of Belhaven had 1,294 active accounts, 235 of which were past due but still receiving services, according to the report of the Office of the State Auditor.

In a previous interview, Town Manager Woody Jarvis estimated that about 62.5 percent of the delinquent accounts have been corrected so far.

Jarvis and the LGC response confirmed that customers who were delinquent in their payments must now either meet with the town manager to discuss a payment plan or appeal to the Utility Hardship Committee for review to avoid having services cut off. The town is also employing a debt-setoff program and issuing the bills for county water and sewer together for those who live outside of the town limits, according to the response.

“There appears to be a deliberate effort on the part of town staff to improve utility collections and to maintain the books in accordance with the statues,” the letter reads.

Jarvis said in a previous interview that the town is working hard to correct the problems and hopes to have most of it sorted out before the start of the next fiscal year on July 1.

The Town of Belhaven hires an independent firm to conduct an audit each year, and that report is then sent to the LGC for review.

However, more steps were added to the process this year after the results of a report by the Office of the State Auditor were released in February, revealing a large amount of delinquent utility accounts, the need for an employee travel policy and an inaccurate report of the town’s receivables balance, resulting largely from the number of outstanding, inactive utility account balances that were not written off.

The town’s hired auditor then agreed to revise its report after the LGC questioned its failure to correctly report the financial issues, and sent the revised version back for a response a couple of weeks ago.

Belhaven Finance Director Kelly Brady also told LGC representatives that he would look into software upgrades to give auditors better accounting records.

The Town of Belhaven must respond to the LGC within 45 days.