Amends GS 159-34 to add new subsection (e) requiring the Local Government Commission (LGC) to provide a warning to every local governmental unit that does not submit an audit within nine months of unit’s fiscal year end. Sets out additional requirements for the warning notice. Establishes that a unit will be deemed to consent to the sales and use tax withholding penalty in GS 159-34(f) if the unit does not comply with the warning and fails to submit an audit within 12 months of fiscal year end. Allows a local government to notify LGS of its plan to appeal the action, with notice of appeal due within 45 days of receiving notice of the warning. 

Adds new subsection (f) establishing a sales and use tax withholding penalty for failure to comply with the warning provided under subsection (e). Permits the LGC to request the Secretary of Revenue withhold 150% of the cost of the required annual audit for the local governmental unit from the unit’s quarterly sales and use tax distributions, and allows the withholding to occur in subparts if the amount to be withheld exceeds 5% of the unit’s monthly general fund budget. Establishes a procedure for the Secretary of Revenue to release the funds to the governmental unit after the LGC receives the required annual audit report, or two years have passed since the notice from the LGC to begin withholding funds. 

Effective January 1, 2024, and applies to audits for fiscal years ending on or after June 30, 2023.