Hinds County’s 2009 audit cited weaknesses in the county’s internal control over financial reporting and a lack of understanding by county management officials of the risks associated with the swap transactions.

Hinds County’s 2010 audit also cited the bond swap as a potential risk, one county official did not seem to understand.

“‘Elected officials on these deals are very dependent on their financial advisers. This is something where the Securities and Exchange Commission and others are addressing the role of these advisers to make sure that their allegiance is to the county, and not closing costs of selling these products,’” State Auditor Stacey Pickering said in a July 7, 2011, article in The Clarion-Ledger newspaper

When it comes to monitoring Natchez’s swap transactions, Holloway said the city has no formal procedure or system for monitoring the swaps or verifying the calculations of the money the city receives from Malachi from the swap.

“We keep a close eye on the market, and if something is changing, we will call the financial advisers and ask them what our options are,” Holloway said. “But I would absolutely be interested in a more formal procedure (for monitoring the transactions).”

Holloway said although there are minimal risks associated with the latest modification of the swap, he said if the city starts heavily relying on swap transactions, he foresees trouble for the city’s finances.

“If you’re loaded down with swaps, it will get you in trouble,” Holloway said. “You can see that in Jefferson County, (Ala.), they were heavy in swaps, and that’s what got them in so much trouble.”

Jefferson County borrowed billions to repair and make additions to its sewer system. The county changed that debt from simple interest to swap transactions that eventually blew up during the recent recession, and the debt and other financial woes forced the county into default. Jefferson County filed for the largest municipal bankruptcy in U.S. history in November 2009.

Ward 1 Alderwoman Joyce Arceneaux-Mathis said she believes, though, that Natchez’s swap transactions helped the city make it through the recession.

“Because Malachi came to us (in 2006) before the market breakdown and gave us an opportunity to generate money, they saved us during the breakdown in 2008,” she said. “They saved us because they were very conservative in nature and conservative in the way they handled the swap.”

Mathis said given Malachi’s proven track record with getting results and money through the swaps for the city, she did not even consider shopping the deal around to other firms after Malachi presented the opportunity to modify the swap.