OCEAN ISLE BEACH, NC (WWAY) — A state audit into the sale of the Town of Ocean Isle Beach’s police department building and land to a real estate company co-owned by the mayor reveals numerous instances of alleged wrongdoing by Mayor Debbie Smith and the Board of Commissioners.
The NC Office of the State Auditor launched the investigation after receiving five allegations through its hotline concerning the town.
The investigative report, released on Thursday morning, laid out the events leading up to the investigation.
In February of 2018, a resident expressed interest in purchasing the police department building and land. An appraisal valued the property at $460,000.
At board meeting in May of 2018, the board told the Town Administrator to offer to sell the property to the resident for the appraised price, but a month later the Town Administrator said the resident did not respond. (That resident later told an investigator he never received a response from the town.) The board then decided not to put the property on the market for sale until the fall.
But in August of that same year, the Town Administrator received an offer to purchase the property for $460,670 from a Brunswick County real estate company which is owned by Mayor Smith and her brother.
The following month, during a board meeting, the board approved the publication of the notice of the $460,670 offer and advertised for upset bids of at least $483,753.50. After receiving no upset bids, the Board accepted the offer from the Mayor’s real estate company.
KEY FINDINGS
- MAYOR DERIVED A DIRECT BENEFIT BY MAKING AND ADMINISTERING A CONTRACT FOR PROPERTY SHE ACQUIRED FROM THE TOWN
The Mayor of the Town of Ocean Isle Beach derived a direct benefit by acquiring Town property in a transaction where she was involved in making and administering the
contract. As a result, other members of the public lost the opportunity to purchase the property for an equivalent price. 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 Mayor’s Offer to Purchase prompted the Board of Commissioners (Board) to vote to proceed with the upset bid process, which would require any other interested parties to bid at least $23,083.50 more than the Mayor’s offer. Therefore, the public never had the opportunity to acquire the Property for the same price as the Mayor.
2. MAYOR ACQUIRED TOWN PROPERTY USING NONPUBLIC INFORMATION
The Mayor acquired the Town’s police department building and land using confidential information that was not available to the public. The Mayor, who is a licensed real estate agent, prepared the terms of her real estate company’s Offer to Purchase and Contract based on information obtained from closed session board meetings. The information from these meetings was not available to the public. The discussion in the closed sessions included the Board of Commissioners’ intended sale price ($460,000) and intended time frame to sell the Property (Fall 2018).
The Mayor did not follow state law prohibiting public officials from using confidential information to acquire a financial interest in any property. Instead, she used information obtained in her official capacity as Mayor to create the terms of the contract in which her real estate company acquired the Property. When asked if the Mayor was aware of North Carolina General Statutes §14-234.1, she stated, “No, I can not say that I was.” Further, the Mayor stated that she did not recall any statutes being brought to her attention by Legal Counsel.
3. BOARD OF COMMISSIONERS INAPPROPRIATELY DISCUSSED DETAILS OF THE SALE OF TOWN PROPERTY AND FAILED TO DISCLOSE THOSE DISCUSSIONS TO THE PUBLIC
The Board of Commissioners of the Town of Ocean Isle Beach held two closed session meetings without fully disclosing the purpose of going into closed session. Further, the Board discussed unallowed topics in these closed sessions. As a result, the Board’s unlawful discussions of the sale of the Town’s police department building and land could damage the public trust. The Board did not disclose the purpose of the closed
session because of inaccurate advice from the Town’s Legal Counsel. State law requires the purpose of going into closed session to be disclosed during the open portion of the meeting and only allows for certain topics to be discussed in closed session.
4. TOWN ADMINISTRATOR EXECUTED THREE CONTRACT AMENDMENTS ON BEHALF OF THE TOWN WITHOUT THE PROPER AUTHORITY
The Town Administrator of the Town of Ocean Isle Beach executed three contract amendments related to the sale of the police department building and land on behalf of the Town without proper authority or approval by the Board of Commissioners. These unapproved amendments created a risk of the Town being bound to legal agreements without the Board’s knowledge or approval. The Town Administrator believed she had the authority to execute the contract amendments on behalf of the Town. She told investigators that the Town’s Legal Counsel (Legal Counsel) advised her she had that authority. While Town ordinances do allow the Board to adopt regulations authorizing a city official to dispose of surplus personal property, it does not allow delegation of authority to dispose of real property.
RECOMMENDATIONS
The State Auditor’s office is recommending the Town should ensure that its Legal Counsel is knowledgeable in legal matters relating to local government, including conflicts of interest, Town ordinances, and the rules regarding closed sessions of Board meetings. The Board, Mayor, Legal Counsel, and Town Administrator should take trainings at the University of North Carolina School of Government to help ensure an appropriate control environment exists throughout Town government.
The state auditor is now referring the case to the district attorney’s office for potential criminal charges after receiving numerous allegations regarding the acquisition of the Town police department building and land by the mayor’s real estate company.
The Town of Ocean Isle Beach issues a response to the report, sent by the Town’s Attorney Mike Isenberg. In it, the town generally agrees with the background of the report, but says there are other facts that provide a fuller context leading up to the sale. The town denies that Sloane Realty’s purchase of the property was unlawful and further denies that Mayor Smith acted unlawfully or unethically in connection with the Town’s sale of the property to Sloane Realty for the full appraised value.
The Town’s full response to the audit can be found here.
The Town of Ocean Isle Beach sent the following response when WWAY reached out to discuss the investigative report.
“The Town maintains that the sale of the former Police Department property complied with all applicable laws and procedures. As noted in the State Auditor’s Report, the Town Staff and Board of Commissioners have fully cooperated with the State Auditor’s Office during the course of their investigation. The Commissioners, the Mayor, and the Town Administrator all voluntarily submitted to interviews and the Town provided all documents and information requested by the State Auditor. Given the ongoing nature of this matter it would be inappropriate to comment further at this time. Copies of the Town’s formal Response to the State Auditor’s Report are available at Town Hall and are also available on the State Auditor’s website.”
The audit was handed over to the District Attorney’s Office for possible criminal charges. In response, DA Jon David said:
“Earlier today, the District Attorney’s Office received a report from the State Auditor’s Office pertaining to the acquisition of the Town of Ocean Isle Beach Police Department building and land by a real estate company owned by its Mayor Debbie Smith. The findings from the Auditor’s investigation were referred to my office to determine if sufficient evidence exist to pursue criminal charges. Because we just received this information, I am without the benefit of knowing the depth and scope of the investigation or important facts which underlie the decision to make this referral. Accordingly, we will scrupulously review the information to date to determine the appropriate path forward.”
We reached out to commissioners and Mayor Debbie Smith. Though Smith declined an on camera interview, she did say she was never aware of any wrongdoing on her part, and does not agree with the state auditor’s findings. She also commented that it was interesting these findings came out just before municipal elections.