A North Carolina mayor used her position to unlawfully purchase land from the town, a state audit report revealed Thursday.
Ocean Isle Beach Mayor Debbie Smith was involved in constructing and administrating a contract for a town police building and property and used the information to purchase the land, according to the North Carolina Office of the State Auditor (OSA).
The auditor’s office said Ocean Isle Beach Board of Commissioners also “inappropriately” discussed details of the property sale in a closed session without disclosing the discussions to the public, violating law. The OSA has sent the report to the district’s attorney’s office for an investigation.
“As a result, other members of the public lost the opportunity to purchase the property for an equivalent price,” the report said. “The Mayor failed to observe state law which prohibits officials from being involved in making or administering a contract on behalf of a public agency in which they will derive a direct benefit.”
The OSA launched the audit after receiving five tips through its hotline.
The auditor said a resident first inquired about buying property in the coastal plains area of eastern North Carolina in February 2018. The board commissioned an appraisal, which valued the property at $460,000 on March 15, 2018.
About two months later, the board decided in a closed-session meeting to offer to sell the property to the resident for $460,000. On June 12, 2018, the town administrator informed the board, in another closed meeting, the resident did not respond when she tried to contact him to make the offer. The OSA said the resident told investigators he never received a response from the town.
According to the minutes, the board then decided “not to put this property on the open market for sale until later this fall.”
However, a real estate company that is equally owned by the mayor and her brother made an offer for the property in August 2018 for $460,670.
The board voted in September 2018 to publish a notice calling for bids of at least $483,753.50 with a settlement date of Dec. 30, 2019. Smith’s real estate company gave the town a $25,000 deposit to secure the property. Since they did not receive any higher offers, the board voted to accept the real estate company’s offer in an open session. The town completed the final settlement of the property in November 2020.
Auditors found the town administrator also executed three contract amendments on behalf of Ocean Isle Beach without the proper authority during the process. The OSA has recommended town officials “take trainings at the University of North Carolina School of Government to help ensure an appropriate control environment exists throughout Town government.”
Town Attorney Mike Isenberg refuted the report’s findings.
Isenberg said the September 2018 meeting was open for public comment, and the agenda, which included the resolution to publish the bid, also was sent out to those on the town’s email subscription list. He also argued Smith did not violate state law on public officials benefiting from contracts.
Isenberg said Smith is exempted because of exceptions to the law. She is a public officer of a town with no more than 15,000 residents. The board approved the contract under a specific resolution in an open and public meeting while the mayor recused herself from the vote. He also said real property was excluded from the law.
The law states public officials can’t benefit from contracts for “medical services” worth more than $20,000 or for “other goods and services” worth more than $40,000.
State Auditor Beth Wood rejected the attorney’s claims. She said the transaction was not exempted because at least one of the four provisions did not apply.
“The total amount of the contract is more than $40,000,” Wood wrote. “Additionally, per the University of North Carolina School of Government, ‘there is no indication in the statute that the exception can be used for contracts involving real property transactions.’ “
