New Mexico Register / Volume XXXV,
Issue 8 / April 23, 2024
AMENDED
NOTICE OF PROPOSED RULEMAKING AND PUBLIC HEARING
The Office of the State Auditor
is in the process of amending 2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies ("Audit Rule"). The Audit Rule establishes policies,
procedures, rules, and requirements for contracting and conducting financial
audits, special audits, attestation engagements, performance audits, and
forensic engagements of governmental agencies and local public bodies of the
state of New Mexico and is governed by Sections 12-6-1 to 12-6-14 NMSA 1978
("Audit Act"). The amendments
to the Audit Rule are proposed pursuant to the Audit Act, at Section 12-6-12
NMSA 1978, which states “[t]he state auditor shall promulgate reasonable
regulations necessary to carry out the duties of his office, including
regulations required for conducting audits in accordance with generally
accepted auditing standards.”
A copy of the full text of
the proposed amendments to the Audit Rule is available on the Office of the
State Auditor's website at https://www.osa.nm.gov/auditing/financial-audits/audit-rule/.
The Office of the State
Auditor will consider adopting the amended Audit Rule at a public hearing on
May 29, 2024, at 11 a.m. at the New Mexico Society of Certified Professional
Accountants at 3400 Menaul Blvd. NE, Albuquerque, NM
87107. The hearing will be a
hybrid-virtual meeting and members of the public may attend, listen, and
participate via live streaming or telephone as well as by attending in person. Please see the prior link for additional
information on attending the virtual public hearing. Public comment is allowed prior to and at the
public hearing on May 29, 2024. Please
e-mail written comments on the proposed Audit Rule to Christopher Hall, at christopher.hall@osa.nm.gov
from April 23, 2024, through May 30, 2024.
If you are unable to e-mail comments, you may deliver written comments
to the Office of the State Auditor, 2540 Camino Edward Ortiz, Suite A, Santa
Fe, New Mexico 87507, as soon as possible and no later than May 30, 2024. All written comments will be posted on the
Office of the State Auditor’s website as soon as practicable after receipt. All
comments already made on the record for this rulemaking prior to the issuance
of this amended notice *will* be included in the record and are not required to
be re-submitted.
Proposed amendments to the
Audit Rule are listed below and include the following: (i) amending the
rule’s scope and objective; (ii) updating, adding, removing, or clarifying
certain definitions; (ii) clarifying peer review requirements for certain audit
firms; (iii) amends and shortens the auditor rotation rule from eight years to
six; (iv) amends the auditor subcontractor requirements; (v) amends the audit
report due date for the Department of Homeland Security and Emergency
Management; (vi) adds the New Mexico Opioid Allocation Agreement to the state
law compliance audit requirements; (vii) amends the reporting requirements for possible
violations of criminal statutes in connection with
financial affairs; (viii) adds SOC audit definitions and qualification;
(ix) changes a “shall” to a “may” at Subsection C of 2.2.2.8 NMAC; (x) updates
and clarifies rules for agency-initiated special audits and special
investigations confidentiality requirements; (xi) clarifies reporting
requirements for component units of component units; and (xii) changes
reporting requirements for pensions. To the
extent applicable, the full text for relevant technical information that served
as a basis for proposed changes is available at gasb.org, and gao.gov.
If you are an individual
with a disability who requires auxiliary aid or service to attend or
participate in the public hearing, please contact the Office of the State
Auditor at least one week prior to the public hearing. Please contact Christopher Hall at
505-476-3800 or Christopher.Hall@osa.state.nm.us if any such assistance
is needed.
At the start of the meeting,
the Office of the State Auditor shall announce the names of those members of
the public body participating remotely.
All members of the Office of the State Auditor participating remotely
shall identify themselves whenever they speak and be clearly audible to the
other members of the public body and to the public. The Office of the State Auditor shall suspend
discussion if the audio or video is interrupted until restored.
Proposed Amendments:
2.2.2.2 SCOPE:
All agencies [Agencies] and local public bodies as defined
by the Audit Act and designated independent public accountants,
including auditors of the OSA, [interested in contracting to perform]
performing professional services related to the examination of
financial affairs and transactions of those agencies and local public bodies.
[2.2.2.2 NMAC -
Rp, 2.2.2.2 NMAC, 3/28/2023; A, xx/xx/2024]
2.2.2.3 STATUTORY AUTHORITY:
Audit Act, [Sections 12-6-1 to 12-6-14] Section 12-6-12 NMSA
1978.
[2.2.2.3 NMAC - Rp, 2.2.2.3 NMAC, 3/28/2023]
2.2.2.6 OBJECTIVE: The objective is to establish [policies,
procedures, rules, and requirements] regulations for all agencies
and local public bodies, as well as the New Mexico state auditor’s designated
independent public accountants, including auditors of the OSA, performing [contracting
and conducting] financial audits, special audits, attestation engagements,
performance audits, and forensic accounting engagements [of or] for the
examination of the financial affairs of all governmental agencies and
local public bodies of the state of New Mexico.
[2.2.2.6 NMAC -
Rp, 2.2.2.6 NMAC, 3/28/2023; A, xx/xx/2024]
2.2.2.7 DEFINITIONS: In addition to the definitions in the
Audit Act, NMSA 1978, Section 12-6-2, the following definitions will apply to
all financial examinations performed under this rule: [This section
describes certain terms used in 2.2.2 NMAC.
When terminology differs from that used at a particular organization or
under particular standards, auditors should use
professional judgment to determine if there is an equivalent term:]
A. Definitions beginning with the letter “A”:
(1) “AAG GAS” means AICPA Audit
and Accounting Guide - Government auditing standards and Single Audits (latest
edition).
(2) “AAG
SLV” means AICPA Audit and
Accounting Guide - State and Local Governments (latest edition).
(3) “Abuse” includes, but is not limited
to, behavior that is deficient or improper when compared with behavior that a
prudent person would consider reasonable and necessary business practice given
the facts and circumstances but excludes fraud and noncompliance with
provisions of laws, regulations, contracts, and grant agreements. Abuse also
includes misuse of authority or position for personal interests or for the
benefit of another or those of an immediate or close family member or business
associate. [(GAGAS latest revision.)
Abuse does not necessarily involve fraud or illegal acts. However, abuse
may be an indication of potential fraud or illegal acts and may still impact
the achievement of defined objectives. (GAO-14-704G federal internal control
standards paragraph 8.03.)]
(4) “ACFR” means the State
of New Mexico’s annual comprehensive financial report.
(5) “[Attest]
Attestation engagement” means an
engagement to issue, or where an IPA issues, an examination, a review, AUP
report, or report on subject matter, or an assertion about subject matter that
is the responsibility of an agency or local public body, including engagements
performed pursuant to AICPA and GAGAS attestation standards and all engagements
pursuant to Subsection A of Section 12-6-3 NMSA 1978.
(6) “Audit”
[may refer to or include annual financial and compliance audit, or
attestation engagement, unless otherwise specified] means an examination
of the financial affairs or performance of an agency or local public body
pursuant to the authority of the Audit Act, 12-6-1, et seq., NMSA 1978.
(7) “Audit documentation” means
the record of procedures performed, relevant evidence obtained, and conclusions
reached (terms such as working papers or workpapers are also sometimes used).
(8) “Auditor” means designated
independent public [accountant] accountants, including auditors of
the OSA, performing audit or [attest] attestation work as
defined in the Audit Act and the Public Accountancy Act.
(9) “AICPA”
means American institute of certified public accountants.
(10) “AU-C” means U.S. auditing standards-AICPA (Clarified).
(11) “AUP”
means agreed upon procedures.
B. Definitions beginning with the
letter “B”: [RESERVED]
C. Definitions beginning with the
letter “C”:
(1) “Component Unit” means a legally separate entity required to be reported in the financial
statements of an agency or LPB due to the entity’s close financial relationship
with the primary agency or LPB.
[(1) “CPA” means
certified public accountant.]
(2) “CPE” means continuing professional
education.
[(3) “CUSIP” means committee for
uniform securities identification procedures, the unique identification number
assigned to all stocks and registered bonds in the United States and Canada by
the committee on uniform securities identification procedures.
(4) “CYFD”
means the New Mexico children youth and families department.]
D. Definitions beginning with the
letter “D”:
[(1)]“DFA” means the New Mexico department of finance and
administration.
[(2) “DOH” means the New
Mexico department of health.
(3) “DOT” means the New
Mexico department of transportation.
(4) “DWS” means New Mexico
Department of Workforce Solutions.]
E. Definitions beginning with the
letter “E”:
[(1) “ECECD” means the New Mexico early childhood education and care department.
(2)] “ERB” means the New
Mexico education retirement board.
F. Definitions beginning with the
letter “F”:
(1) “FCD” means financial control division
of [the department of finance and administration] DFA.
(2) [“FDIC” means federal deposit
insurance corporation.
(3)] “FDS”
means financial data schedule.
[(4)] (3) “Fraud” means obtaining something of
value through willful misrepresentations. This includes, but is not limited
to, fraudulent financial reporting, misappropriation of assets, corruption, and
use of public funds for activities prohibited by the constitution or laws of
the state of New Mexico. Fraudulent financial reporting means intentional
misstatements or omissions of amounts or disclosures in the financial
statements to deceive financial statement users, which may include intentional
alteration of accounting records, misrepresentation of transactions, or
intentional misapplication of accounting principles. Misappropriation of assets
means theft of an agency’s or LPB’s assets, including theft of property,
embezzlement of receipts, or fraudulent payments. Corruption means bribery and
other illegal acts. [(GAO-14-704G federal internal control standards
paragraph 8.02).]
G. Definitions beginning with the
letter “G”:
(1) “GAAP” means generally
accepted accounting principles [generally] that are accepted
in the United States of America.
(2) “GAAS” means generally accepted
auditing standards, which are systematic guidelines used by auditors when
conducting audits of an entity’s financial records in the United States of
America.
[(2)]
(3) “GAGAS” means generally
accepted government auditing standards, or the most recent revision of [government
auditing standards] the yellow book issued by the comptroller
general of the United States [yellow book].
[ (3) “GAO”
means the government accountability office, a division of the OSA.]
(4) “GASB”
means governmental accounting standards board.
[ (5) “GAAS”
means auditing standards generally accepted in the United States of America.]
[(6)] (5) “GSD”
means the New Mexico general services department.
[ (7) “GRT” means gross receipts tax.]
H. Definitions beginning with the
letter “H”:
(1) “HED” means the New Mexico higher
education department.
(2) “HSD” means the New
Mexico human services department.
(3) “HUD” means the United States
[(US)] department of housing and urban development.
I. Definitions beginning with the
letter “I”:
(1) “Independence” means
both:
(a) Independence of mind: The state of mind
that permits the conduct of an engagement without being affected by influences
that compromise professional judgment, thereby allowing an individual to act
with integrity and exercise objectivity and professional skepticism; and
(b) Independence in appearance: The
absence of circumstances that would cause a reasonable and informed third party
to reasonably conclude that the integrity, objectivity, or professional
skepticism of an audit organization or member of the engagement team had been
compromised.
(2) “IPA” means [the] an
independent public accountant designated by the State Auditor to perform
[performing professional services] financial audits, special
audits, attestation engagements, performance audits, and forensic accounting
engagements for the examination of the financial affairs of [for]
agencies and local public bodies.
[(2) “IRC” means
internal revenue code.]
J. Definitions beginning with the
letter “J”: [RESERVED]
K. Definitions beginning with the letter “K”: [RESERVED]
L. Definitions beginning with the letter “L”:
(1) “LGD” means the local
government division of [the department of finance and administration (DFA)]
DFA.
(2) “LPB” means local public body
as defined in the Audit Act, Section 12-6-2 NMSA 1978.
M. Definitions beginning with the letter
“M”: [RESERVED]
N. Definitions beginning with the
letter “N”:
[ (1) “NCUSIF” means national credit union
shares insurance fund.
(2) “NMAC” means New Mexico administrative
code.
(3) “NMCD” means the New Mexico
corrections department.
(4) “NMSA” means New Mexico statutes
annotated.
(5) “Non-attest engagement” means any
engagement that is not an attest engagement, including, but not limited to,
services performed in accordance with the statement on standards for consulting
services or the statement on standards for forensic services, or any other
engagement that is not under Section 12-6-3 NMSA 1978, including certain
agency-initiated or other engagements in which the IPA’s role is to perform an
engagement, assist the client or testify as an expert witness in accounting,
auditing, taxation, or other matters, given certain stipulated facts.]
(1) “NMAC” means New Mexico
administrative code.
(2) “NMSA” means New Mexico
statutes annotated.
(3) “Non-attestation engagement”
means any engagement that is not an attestation engagement, including, but not
limited to, services performed in accordance with the statement on standards
for consulting services or the statement on standards for forensic services, or
any other engagement that is not under Section 12-6-3 NMSA 1978, including
certain agency-initiated or other engagements in which the IPA’s role is to
perform an engagement, assist the client or testify as an expert witness in
accounting, auditing, taxation, or other matters, given certain stipulated
facts.
O. Definitions beginning with the
letter “O”:
[(1)] “Office” or “OSA” means the Office of the
State Auditor of New Mexico [New Mexico office of the state auditor.
(2) “OMB” means the United States office of
management and budget.]
P. Definitions beginning with the
letter “P”:
(1) “PED” means the New Mexico public
education department.
(2) “PERA” means the New Mexico public
employee retirement association.
(3) [“PHA” means public housing
authority.] “Primary government” means the primary agency
or primary local public body that a component unit is attached to due to their
financial relationship.
Q. Definitions beginning with the
letter “Q”: [RESERVED]
R. Definitions beginning with the
letter “R”:
(1) [“REAC” means real estate
assessment center.
(2) ] “REC” means regional education
cooperative.
[(3)] (2) “Report” means a
document issued as a result of an annual financial and
compliance audit, special audit, attestation engagement, performance audit,
forensic accounting engagement, or AUP engagement regardless of whether the
document is on the contractor’s letterhead or signed by the contractor.
[(4)] (3) “RSI” means required
supplementary information.
S. Definitions beginning with the
letter “S”:
(1) [“SAS” means the AICPA’s
statement on auditing standards.
(2) ]“SHARE” means statewide human resources
accounting and management reporting system.
(3) “SI”
means supplementary information.
(4) “SLO” means the state land
office.
(5) “Special
audit” means a limited-scope examination of financial records and other
information designed to investigate allegations of waste, fraud, abuse, theft,
non-compliance, or misappropriation of funds, or to quantify the extent of such
losses, including both attest engagements and non-attest engagements,
performance audits, forensic accounting engagements, and any other engagement
that is not part of the annual financial statement and compliance audit,
depending on designation or scope.
(6) “State auditor” may refer to either the
elected state auditor of the state of New Mexico, or personnel of the office
designated by the state auditor.
(7) “STO” means state treasurer’s office.]
(2) “SOC”
means system organization controls, which is an audit review in connection with
system-level controls of a service organization or entity-level controls of
other organizations.
(3) “SOC-1” means an audit that
provides an opinion regarding the controls as the service organization that are
likely to be relevant to user entities’ internal control over financial
reporting.
(4) “SOC-2” means an audit that
provides an opinion about controls at the service organization related to
security, availability, processing integrity, confidentiality, or privacy to
support users’ evaluations of their own system of internal control.
(5) “SOC-3” means an audit to
provide an opinion about the effectiveness of controls at the service
organization relevant to security, availability, processing integrity,
confidentiality, or privacy.
(6) “Special audit” means a
limited-scope audit of an agency’s or local public body’s financial affairs and
transactions, in whole or in part, including both attest engagements and
non-attest engagements, performance audits, forensic accounting engagements,
and any other engagement that is not part of the annual financial statement and
compliance audit, depending on designation or scope.
(7) “Special investigation” or “special
examination” means a limited-scope investigation into
or examination of an agency’s or local public body’s financial records and
other information designed to investigate allegations of waste, fraud, abuse,
theft, non-compliance, or misappropriation of funds, or to quantify the extent
of such losses.
(8) “State auditor” may refer to either the
elected state auditor of the state of New Mexico, or personnel of the office
designated by the state auditor.
T. Definitions beginning with the
letter “T”: [RESERVED]
[(1) “Tier” is established
based on the amount of each LPB’s local public body’s annual
revenue, pursuant to Section 12-6-3 NMSA 1978. [ and 2.2.2.16 NMAC.]
(2) “TRD”
means the New Mexico taxation and revenue department.]
U. Definitions beginning with the
letter “U”:
(1) [“UFRS” means uniform
financial reporting standards.
(2) ] “Uniform guidance” means Title 2
U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for Federal Awards.
[(3)]
(2) “U.S. GAO” means the
United States government accountability office.
V. Definitions beginning with the
letter “V”: [RESERVED]
W. Definitions beginning with the letter
“W”: “Waste” includes, but is not limited to, the act of using or expending
resources carelessly, extravagantly, or to no purpose. Importantly, waste can include activities
that do not include abuse. Rather waste
relates primarily to mismanagement, inappropriate actions, and inadequate
oversight. Waste does not necessarily
involve fraud or illegal acts. However,
waste may be an indication of [potential] internal control weakness,
non-compliance, fraud, or illegal acts[and may still impact the
achievement of defined objectives. (GAO-14-704G federal internal control standards
paragraph 8.03.)].
X. Definitions beginning with the
letter “X”: [RESERVED]
Y. Definitions beginning with the
letter “Y”: [RESERVED]
Z. Definitions beginning with the
letter “Z”: [RESERVED]
[2.2.2.7 NMAC -
Rp, 2.2.2.7 NMAC, 3/28/2023; A, xx/xx/2024]
2.2.2.8 THE
PROCUREMENT AND AUDIT PROCESS:
A. Firm profiles: For an IPA to be included on the state
auditor’s list of approved firms to perform audits, AUPs, and other attest
engagements, an IPA shall submit a firm profile online annually on the fifth
business day in January, in accordance with the guidelines set forth
herein. The OSA shall review each firm
profile for compliance with the requirements set forth in this rule. IPAs shall notify the state auditor of
changes to the firm profile as information becomes available. The state auditor shall approve contracts for
audit, AUPs, and other attest engagements only with IPAs who have submitted a complete and correct firm
profile that has been approved by the OSA, and who have complied with all the
requirements of this rule, including but not limited to:
(1) Subsection
A of 2.2.2.14 NMAC, continuing professional education requirements for all
staff that the firm will use on any New Mexico governmental engagements;
(2) for
IPAs who have audited agencies under this rule in the past, they shall have
previously complied with: 2.2.2.9 NMAC, report due dates, including notifying
the state auditor regarding late audit reports and 2.2.2.13 NMAC, review of
audit reports and audit documentation.
B. List
of approved firms: The state auditor shall maintain a list of
independent public accounting (IPA) firms that are approved and eligible to
compete for audit contracts, AUPs, and other attest engagements with agencies. The state auditor’s list of approved firms
shall be reviewed and updated on an annual basis. An IPA on the list of approved firms is
approved to perform government audits, AUPs, and other attest engagements for
agencies and local public bodies until the list of approved firms is published
for the following year; provided that the OSA may restrict firms at any time
for failure to submit firm profile updates timely. An IPA that is included on the state
auditor’s list of approved firms for the first time may be subject to an OSA
quality control review of the IPA’s working papers for audits, AUPs and other
attest engagements. This review shall be
conducted as soon as the documentation completion date, as defined by AU-C
Section 230, has passed (60 days after the report release date, as posted on
the OSA’s audit reports website). The state auditor shall approve contracts for
audits, AUPs and other attest engagements only with IPA firms that have
submitted a complete and correct firm profile complying with all the
requirements set forth in this rule and that has been approved by the OSA. The OSA shall inform all IPAs whose firm
profiles were submitted by the due date whether they are on the list of
approved firms for audits, AUPs and other attest engagements and shall publish
the list of approved firms concurrent with notification to government agencies
to begin the procurement process to obtain an IPA to conduct the agency’s
annual financial audit.
Firms that only perform non-attest engagements, or otherwise do not meet
applicable requirements, shall not be included on the list of approved firms.
C. Disqualified firms: An IPA firm [shall] may
not be included on the list of approved firms for audits, AUPs, and other attest
engagements if any of the following applies to that IPA:
(1) the
firm received a peer review rating of “failed”;
(2) the
firm does not have a current New Mexico firm permit to practice, if applicable;
(3) the
firm profile does not include at least one certified public accountant with a
current CPA certificate who has met the GAGAS CPE requirements described at
Subsection A of 2.2.2.14 NMAC, to perform GAGAS audits (however, firms
seeking to contract only for agreed-upon-procedures engagements will not be
disqualified if GAGAS CPE requirements have not been met);
(4) the
IPA has been restricted in the past and has not demonstrated improvement (this
includes submitting excessively deficient audit reports or having excessively
deficient workpapers);
(5) the
IPA made false statements in their firm profile or any other official
communication with the OSA that were misleading enough to merit
disqualification; or
(6) any
other reason determined by the state auditor to serve the interest of the state
of New Mexico.
D. Restriction:
(1) IPAs may be placed on restriction
based on the OSA’s review of the firm profile and deficiency considerations as
described below. Restriction may take
the form of limiting either the type of engagements or the number of audit
contracts, or both, that the IPA may hold.
The OSA may impose a corrective action plan associated with the
restriction. The restriction remains in
place until the OSA notifies the IPA that the restriction has been modified or
removed. The deficiency considerations
include, but are not necessarily limited to:
(a) failure to submit reports in
accordance with report due dates provided in Subsection A of 2.2.2.9 NMAC, or
the terms of their individual agency contract(s);
(b) failure
to submit late report notification letters in accordance with Subsection A of
2.2.2.9 NMAC;
(c) failure to comply
with this rule;
(d) poor quality
reports as determined by the OSA;
(e) poor quality
working papers as determined by the OSA;
(f) a peer review
rating of “pass with deficiencies” with the deficiencies being related to
governmental audits;
(g) failure to
contract through the OSA for New Mexico governmental audits or AUP engagements;
(h) failure to inform agency
in prior years that the IPA is restricted;
(i) failure
to comply with the confidentiality requirements of this rule;
(j) failure to invite
the state auditor or the auditor's designee to engagement entrance conferences,
progress meetings or exit conferences after receipt of related notification
from the OSA;
(k) failure to comply
with OSA referrals or requests in a timely manner;
(l) suspension or debarment by the U.S.
general services administration;
(m) false statements in the IPA’s firm
profile or any other official communication with the OSA;
(n) failure to cooperate timely with
requests from successor IPAs, such as reviewing workpapers;
(o) failure to have required contracts approved by the OSA; or
(p) any other reason
determined by the state auditor to serve the interest of the state of New
Mexico.
(2) The
OSA shall notify any IPA that it proposes to place under restriction. If the proposed restriction includes a limitation
on the number of engagements that an IPA is eligible to hold, the IPA shall not
submit proposals or bids to new agencies if the number of multi-year proposals
the IPA possesses at the time of restriction is equal to or exceeds the
limitation on the number of engagements for which the IPA is restricted.
(3) An IPA under
restriction is responsible for informing the agency whether the restricted IPA
is eligible to engage in a proposed contract.
(4) If an agency or
local public body submits an unsigned contract to the OSA for an IPA that was
ineligible to perform that contract due to its restriction, the OSA shall
reject the unsigned contract.
E. Procedures
for imposition of restrictions:
(1) The
state auditor may place an IPA under restriction in accordance with Subsection
D of 2.2.2.8 NMAC.
(a) The state auditor or the auditor’s
designee shall cause written notice of the restriction to be sent by email and
certified mail, return receipt requested, to the IPA, which shall take effect
as of the date of the letter of restriction.
The letter shall contain the following information:
(i) the nature of the restriction;
(ii) the
conditions of the restriction;
(iii) the
reasons for the restriction;
(iv) the
action to place the IPA on restriction is brought pursuant to Subsection A of
Section 12-6-3 NMSA 1978 and these regulations;
(v) the
IPA may request, in writing, reconsideration of the proposed contract
restriction which shall be received by the OSA within 15 calendar days from the
date of the letter of restriction; and
(vi) the
e-mail or street address where the IPA’s written request for reconsideration
shall be delivered, and the name of the person to whom the request shall be
sent.
(b) The IPA’s written request for
reconsideration shall include sufficient facts to rebut on a point for point
basis each deficiency noted in the OSA’s letter of restriction. The IPA may request an opportunity to present
in person its written request for reconsideration and provide supplemental
argument as to why the OSA’s determination should be modified or
withdrawn. The IPA may be represented by
an attorney licensed to practice law in the state of New Mexico.
(c) The IPA shall have forfeited its
opportunity to request reconsideration of the restriction(s) if the OSA does
not receive a written request for reconsideration within 15 calendar days of
the date of the letter of restriction.
The state auditor may grant, for good cause shown, an extension of the
time an IPA has to submit a request for
reconsideration.
(2) The
OSA shall review an IPA’s request for reconsideration and shall make a determination on reconsideration within 15 calendar
days of the IPA response letter unless the IPA has asked to present its request
for reconsideration in person, in which case the OSA shall make a determination
within 15 calendar days from the date of the personal meeting. The OSA may uphold, modify
or withdraw its restriction pursuant to its review of the IPA’s request for
reconsideration, and shall notify the IPA of its final decision in writing
which shall be sent to the IPA via email and certified mail, return receipt
requested.
F. Procedures
to obtain professional services from an IPA: Concurrent
with publication of the list of approved firms, the OSA shall authorize
agencies to select an IPA to perform their annual audit or AUP engagement. Agencies are prohibited from beginning the
process of procuring IPA services for annual audits or AUPs pursuant to Section
12-6-3 NMSA 1978 until they receive the OSA authorization. Agencies that wish to begin the IPA
procurement process for their annual audit or AUP pursuant to Section 12-6-3
NMSA 1978 prior to receiving OSA authorization may request an exception,
however any such exceptions granted by OSA are subject to changes in the final
audit rule applicable to the annual audit or AUP pursuant to Section 12-6-3
NMSA 1978 and changes in restrictions to, or disqualifications of, IPAs. The notification shall inform the agency that
it shall consult its prospective IPA to determine whether the prospective IPA
has been restricted by the OSA as to the type of engagement or number of
contracts it is eligible to perform.
Agencies that may be eligible for the tiered system shall complete the
evaluation to determine the level of financial reporting described in
Subsection B of 2.2.2.16 NMAC. Agencies
that receive and expend federal awards shall follow the uniform guidance
procurement requirements from 2 CFR 200.317 to 200.326 and 200.509,
and shall also incorporate applicable guidance from the following
requirements. Agencies shall comply with
the following procedures to obtain professional services from an IPA for an
audit or AUP engagement.
(1) Upon
receipt of written authorization from the OSA to proceed, and at no time before
then unless OSA has granted an exception, the agency shall identify all
elements or services to be solicited pursuant to this rule and conduct a
procurement that includes each applicable element of the annual financial and
compliance audit, special audit, attestation engagement, performance audit,
forensic audit or AUP engagement.
(2) Quotations
or proposals for annual financial audits shall contain each of the following
elements:
(a) financial
statement audit;
(b) federal
single audit (if applicable);
(c) financial
statement preparation so long as the IPA has considered any threat to
independence and mitigated it;
(d) other
non-audit services (if applicable and allowed by current government auditing
standards); and
(e) other
(i.e., audits of component units such as housing authorities, charter schools, foundations and other types of component units).
(3) Auditor
Rotation Rule: An IPA may not provide services to an agency or LPB
for longer than six years. Upon the six-year mark, the agency or LPB must
obtain a proposal for another IPA for at least two years before returning to
the prior IPA.
(a) Timeframes:
These timeframes for auditor rotation do not correlate with procurement
timeframes, so the agency and LPB must ensure that the contract follows both
this rule and the procurement rules applicable.
(b) Transition:
This change will take effect immediately upon adoption of this rule, but will
not apply for any Agency, LPB, or component unit until the next auditor
procurement cycle after this change goes into effect. The next auditor
procurement cycle starts when the current four-year cycle ends. Entities
already in either a first or second four-year auditor procurement cycle
pursuant to an earlier rule may complete their current four-year cycle.
[(3)](4) The agency is encouraged to request multiple
year proposals for audit and AUP services, however the term of the contract
shall be for one year only. The parties
shall enter a new audit contract each year.
The agency is responsible for procuring IPA services in accordance with
all applicable laws and regulations which may include, but are not limited to,
the State Procurement Code (Chapter 13, Article 1 NMSA 1978) or equivalent home
rule procurement provisions; GSD Rule, Section 1.4.1 NMAC, Procurement Code
Regulations, if applicable; DFA Rule, Section 2.40.2 NMAC, Governing the
Approval of Contracts for the Purchase of Professional Services; Uniform
Guidance; and Section 13-1-191.1 NMSA 1978 relating to campaign contribution
disclosure forms. In
the event that either of the parties to the contract elects not to
contract for all of the years contemplated by a multiple year proposal, or the
state auditor disapproves the contract, the agency shall use the procedures
described above to procure services from a different IPA.
[(4)](5) If the agency is a component unit of a primary government,
the agency’s procurement for audit services shall include the AU-C 600 (group
audits) requirements for the IPA to communicate and cooperate with the group
engagement partner and team, and the primary government. This requirement applies to agencies and
universities that are part of the statewide ACFR, other component units of the
statewide ACFR and other component units of any primary government that use a
different audit firm from the primary government’s audit firm. Costs for the IPA to cooperate with the group
engagement partner and team, and the primary government, caused by the
requirements of AU-C 600 (group audit) may not be charged in addition to the
cost of the engagement, as the OSA views this in the same manner as compliance
with any other applicable standard.
[(5)](6) Agencies are encouraged to include
representatives of the offices of separately elected officials such as county
treasurers, and component units such as charter schools and housing
authorities, in the IPA selection process.
As part of their evaluation process, the OSA recommends that agencies
consider the following when selecting an IPA for their annual audit or AUP
pursuant to Section 12-6-3 NMSA 1978:
(a) responsiveness
to the request for proposal (the firm’s integrity, record of past performance,
financial and technical resources);
(b) relevant
experience, availability of staff with professional qualifications and
technical abilities;
(c) results
of the firm’s peer and external quality control reviews; and
(d) weighting
the price criteria less than fifteen percent of the total criteria taken into
consideration by the evaluation process or selection committee.
Upon the OSA’s
request, the agency shall make accessible to the OSA all of
the IPA procurement and selection documentation.
[(6)](7) After selecting an IPA for their annual
audit or AUP pursuant to Section 12-6-3 NMSA 1978, each agency shall enter the
appropriate requested information online on the OSA-connect website (www.osa-app.org). In order to do this,
the agency shall register on OSA-Connect and obtain a user-specified
password. The agency’s user shall then
use OSA-Connect to enter information necessary for the contract and for the
OSA’s evaluation of the IPA selection.
After the agency enters the information, the OSA-Connect system
generates a draft contract containing the information entered. The agency shall submit to the OSA for
approval a copy of the unsigned draft contract by following the instructions on
OSA-Connect.
[(7)](8) The OSA shall notify the agency as to the
OSA’s approval or rejection of the selected IPA and contract. The OSA’s review of audit contracts does not
include evaluation of compliance with any state or local procurement laws or
regulations; each agency is responsible for its own compliance with applicable
procurement laws, regulations or policies. After the agency receives notification of
approval of the selected IPA and contract from the OSA, the agency is
responsible for getting the contract signed and sent to any oversight agencies
for approval (if applicable). The OSA
shall not physically sign the contract.
After the agency obtains all the required signatures and approvals of
the contract, the agency shall, within three weeks of OSA’s approval of the
contract, submit a copy of the fully executed contract in an electronic
portable document format (PDF) by
uploading it in OSA-Connect.
[(8)](9) The agency shall
submit the unsigned contract generated by OSA-Connect to the OSA by the due date shown below; submission prior
to the due date shown below is permissible.
In the event that the due date falls on a
weekend or holiday, the due date shall be the next business day. If the unsigned contract is not submitted to
the state auditor by these due dates, the IPA may, according to professional
judgment, include a finding of non-compliance with Subsection F of 2.2.2.8 NMAC
in the audit report or AUP report.
(a) [Regional
education cooperatives] RECs, cooperative educational services,
independent housing authorities, hospitals and special
hospital districts: April 15;
(b) school
districts, counties, and higher education: May 1;
(c) incorporated
counties (of which Los Alamos is the only one), local workforce investment
boards and local public bodies with a June 30 year end that do not qualify for
the tiered system: May 15;
(d) councils
of governments, district courts, district attorneys, state agencies: June 1 and
the state of New Mexico ACFR: July 31;
(e) local
public bodies that qualify for the tiered system pursuant to Subsections A and
B of 2.2.2.16 NMAC with a June 30 fiscal year end: July 30;
(f) local
public bodies that qualify for the tiered system pursuant to Subsections A and
B of 2.2.2.16 NMAC with a fiscal year end other than June 30 shall use a due
date 30 days after the end of the fiscal year;
(g) agencies
and local public bodies that do not qualify for the tiered system with a fiscal
year end other than June 30 shall use a due date 30 days before the end of the
fiscal year;
(h) component
units that are being separately audited: on the primary government’s due date;
(i) Charter schools that are chartered
by the PED and agencies that are subject to oversight by the HED have the
additional requirement of submitting their audit contract to PED or HED for
approval (Section 12-6-14 NMSA 1978); and
(j) In
the event the agency’s unsigned contract is submitted to the OSA, but is not
approved by the state auditor, the state auditor shall promptly communicate the
decision, including the reason(s) for disapproval, to the agency, at which time
the agency shall promptly submit a contract with a different IPA using
OSA-Connect. This process shall continue
until the state auditor approves an unsigned contract. During this process, whenever an unsigned
contract is not approved by the state auditor, the agency may submit a written
request to the state auditor for reconsideration of the disapproval. The agency shall submit its request no later
than 15 calendar days after the date of the disapproval and shall include
documentation in support of its IPA selection.
If warranted, after review of the request, the state auditor may hold an
informal meeting to discuss the request.
The state auditor shall set the meeting in a timely manner with
consideration given to the agency’s circumstances.
[(9)](10) The agency shall retain all
procurement documentation, including completed evaluation forms, for five years
and in accordance with applicable public records laws.
[(10)](11) If
the agency fails to submit an unsigned contract by the due date set forth in
this rule, or, if no due date is applicable, within 60 days of notification
from the state auditor to engage an IPA, the state auditor may conduct the
audit or select the IPA for that agency.
The reasonable costs of such an audit shall be borne by the agency
audited unless otherwise exempted pursuant to Section 12-6-4 NMSA 1978.
[(11)](12) In
selecting an IPA for an agency pursuant to Subsection F of 2.2.2.8 NMAC the
state auditor shall at a minimum consider the following factors, but may
consider other factors in the state auditor’s discretion that serve the best
interest of the state of New Mexico and the agency:
(a) the
IPA shall be drawn from the list of approved IPAs maintained by the state
auditor;
(b) an
IPA subject to restriction pursuant to Subsection D of 2.2.2.8 NMAC, is
ineligible to be selected under this paragraph;
(c) whether
the IPA has conducted one or more audits of similar government agencies;
(d) the
physical proximity of the IPA to the government agency to be audited;
(e) whether
the resources and expertise of the IPA are consistent with the audit
requirements of the government agency to be audited;
(f) the
IPA’s cost profile, including examination of the IPA’s fee schedule and blended
rates;
(g) the
state auditor shall not select an IPA in which a conflict of interest exists
with the agency or that may be otherwise impaired, or that is not in the best
interest of the state of New Mexico.
[(12)](13) The
state auditor shall consider, at a minimum, the following factors when
considering which agencies shall be subject to the state auditor’s selection of
an IPA:
(a) whether
the agency is demonstrating progress in its own efforts to select an IPA;
(b) whether
the agency has funds to pay for the audit;
(c) whether the agency is on the state
auditor’s “at risk” list;
(d) whether
the agency is complying with the requirements imposed on it by virtue of being
on the state auditor’s “at risk” list;
(e) whether
the agency has failed to timely submit its e-mailed draft unsigned contract
copy in accordance with the audit rule on one or more occasions;
(f) whether
the agency has failed to timely submit its annual financial audit report in
accordance with the audit rule due dates on one or more occasions.
[(13)](14) The
state auditor may appoint a committee of the state auditor’s staff to make
recommendations for the state auditor’s final determination as to which IPAs
shall be selected for each government agency subject to the discretion of the
state auditor.
[(14)](15) Upon selection of an IPA to audit
a government agency subject to the discretion of the state auditor, the state
auditor shall notify the agency in writing regarding the selection of an IPA to
conduct its audit. The notification
letter shall include, at a minimum, the following statements:
(a) the
agency was notified by the state auditor to select an IPA to perform its audit
or AUP engagement;
(b) 60
days or more have passed since such notification, or the applicable due date in
this rule has passed, and the agency failed to deliver its draft contract in
accordance with this subsection;
(c) pursuant
to Subsection A of Section 12-6-14 NMSA 1978, the state auditor is selecting
the IPA for the agency;
(d) delay
in completion of the agency’s audit is contrary to the best interest of the
state and the agency, and threatens the functioning of government and the
preservation or protection of property;
(e) in
accordance with Section 12-6-4 NMSA 1978, the reasonable costs of such an audit
shall be borne by the agency unless otherwise exempted; and
(f) selection
of the IPA is final, and the agency shall immediately take appropriate measures
to procure the services of the selected IPA.
G. State auditor approval/rejection of unsigned
contract: The state auditor shall use discretion and may reject unsigned
contracts as follows:
(1) An
unsigned audit contract, special audit contract, attestation engagement
contract, performance audit contract, forensic accounting engagement contract
or AUP professional services contract under 2.2.2.16 NMAC that does not serve
the best interests of the public or the agency or local public body because of
one or more of the following reasons:
(a) lack
of experience of the IPA;
(b) failure
to meet the auditor rotation requirements as follows: the IPA is prohibited
from conducting the agency audit for a period of two years because the IPA
already conducted those services for that agency for a period of [eight]
six consecutive years;
(c) lack of competence or staff
availability;
(d) circumstances
that may cause untimely delivery of the audit report or AUP report;
(e) unreasonably
high or low cost to the agency or local public body;
(f) terms
in the proposed contract that the state auditor considers to be unfavorable,
unfair, unreasonable, or unnecessary;
(g) lack
of compliance with the procurement code, the audit act, or this rule;
(h) the
agency giving too much consideration to the price of the IPA’s response to the
request for bids or request for proposals in relation to other evaluation
criteria;
(i) newness
of the IPA to the state auditor’s list of approved firms;
(j) noncompliance with the requirements
of Section 12-6-3 NMSA 1978 the audit act by the agency for previous fiscal
years; or
(k) any
other reason determined by the state auditor to be in the best interest of the
state of New Mexico.
(2) An audit contract, special audit
contract, attestation engagement contract, performance audit contract, or
forensic accounting engagement contract or AUP contract of an IPA that has:
(a) breached
a prior-year contract;
(b) failed
to deliver an audit or AUP report on time;
(c) failed to comply with state laws or
regulations of the state auditor;
(d) performed non-audit services
(including services related to fraud) for an agency or local public body it is
performing an audit, special audit, attestation engagement, performance audit,
forensic accounting engagement or an AUP for, without prior approval of the
state auditor;
(e) performed
non-audit services under a separate contract for services that may be
disallowed by GAGAS independence standards;
(f) failed to respond, in a timely and
acceptable manner, to an OSA audit, special audit contract, attestation
engagement contract, performance audit contract, forensic accounting engagement
contract, AUP report review or working paper review;
(g) impaired
independence during an engagement;
(h) failed
to cooperate in providing prior-year working papers to successor IPAs;
(i) not
adhered to external quality control review standards as defined by GAGAS and
2.2.2.14 NMAC;
(j) has a history of excessive errors or
omissions in reports or working papers;
(k) released
the audit report or AUP report to the agency, local public body
or the public before the audit release letter or the OSA letter releasing the
AUP report was received from the OSA;
(l) failed
to submit a completed signed contingency subcontractor form, if required;
(m) failed
to submit a completed firm profile as required by Subsection A of 2.2.2.8 NMAC
or failed to include all staff in the firm profile who would be working on the
firm’s engagements;
(n) reached
the limit of contracts to which the state auditor restricted the IPA;
(o) failed to respond to communications
from the OSA or engagement clients within a reasonable amount of time; or
(p) otherwise,
in the opinion of the state auditor, the IPA was unfit to be awarded a
contract.
(3) An
audit contract, special audit contract, attestation engagement contract,
performance audit contract, forensic accounting engagement contract or AUP
contract for an IPA received by the OSA, which the state auditor decides to
perform himself with or without the assistance of an IPA, and pursuant to
Section 12-6-3 NMSA 1978, even if the agency or local public body was
previously designated for audit or AUP to be performed by an IPA.
H. Audit contract requirements: The agency
shall use OSA-Connect at www.osa-app.org to submit the appropriate audit or AUP
engagement contract. The OSA may provide
audit or AUP engagement contract forms to the agency via facsimile, e-mail, or
U.S. mail if specifically requested by the agency. Only contract templates generated through
OSA-Connect shall be accepted and shall:
(1) be
completed and submitted in its unsigned form by the due date indicated at
Subsection F of 2.2.2.8 NMAC;
(2) for all agencies whose contracts are
approved through the DFA’s contracts review bureau, have the IPA’s combined
reporting system [(CRS)] number verified by the New Mexico
taxation and revenue department [(TRD)] after approval by the state
auditor; and
(3) in
the compensation section of the contract, include the dollar amount that
applies to each element of the contracted procedures that shall be performed;
I. Professional liability insurance: The IPA shall
maintain professional liability insurance covering any error or omission
committed during the term of the contract.
The IPA shall provide proof of such insurance to the state auditor with
the firm profile. The amount maintained
should be commensurate with the risk assumed.
The IPA shall provide to the state auditor, prior to expiration, updated
insurance information.
J. Breach of contract: A breach of
any terms of the contract shall be grounds for immediate termination of the
contract. The injured party may seek
damages for such breach from the offending party. Any IPA who knowingly makes false statements,
assurances, or disclosures may be disqualified from conducting audits or AUP
engagements of New Mexico governmental agencies.
K. Subcontractor requirements:
(1) Audit firms that have only one
individual qualified to supervise a GAGAS audit and issue the related audit
report pursuant to Section 61-28B-17 NMSA 1978, and GAGAS Paragraph 4.16 shall
submit with the firm profile, a completed contingency subcontractor form that
is dated to be effective until the date the next firm profile shall be
submitted. The form shall indicate which
IPA on the state auditor’s current list of approved IPA’s shall complete the
IPA’s audits in the event the one individual with the qualifications described
above becomes incapacitated and unable to complete the audit. See the related contingency subcontractor
form available at www.osanm.org.
The OSA shall not approve audit contracts for such a firm without the
required contingency subcontractor form.
(2) In the event an IPA chooses to use
a subcontractor to assist the IPA in working on a specific audit, then the IPA
shall [obtain the prior written approval of the state auditor to] submit
a subcontract with the reason for subcontracting a portion of the
audit work to the OSA for approval.
The IPA may subcontract only with IPAs [who have submitted a completed
and approved firm profile to the state auditor as required in Subsection A of
2.2.2.8 NMAC] on the approved IPA list. Subcontractors are subject to an independence
analysis, which may include the [IPA rotation] Auditor Rotation Rule
requirements of [Subsection G] Subsection F of 2.2.2.8 NMAC. [“Technical review contracts” are
considered subcontracting and are subject to the requirements of this
Section. The audit contract shall
specify subcontractor responsibility, who shall sign the report(s), and how the
subcontractor shall be paid. For
additional information see the subcontract work section of the OSA website.]
(3) “Technical review contracts” are
considered subcontracting and are subject to the requirements of this
Section. The audit contract shall
specify subcontractor responsibility, who shall sign the report(s), and how the
subcontractor shall be paid. For
additional information see the subcontract work section of the OSA website.
L. IPA
independence: IPAs shall maintain independence with respect
to their client agencies in accordance with the requirements of the current government auditing standards.
M. Progress Payments: The state
auditor shall approve progress and final payments for the annual audit contract
as follows:
(1) Subsection
A of Section 12-6-14 NMSA 1978 (contract audits) provides that “payment of
public funds may not be made to an independent auditor unless a contract is
entered into and approved as provided in this section.”
(2) Subsection
B of Section 12-6-14 NMSA 1978 (contract audits) provides that the state
auditor may authorize progress payments on the basis of
evidence of the percentage of audit work completed as of the date of the
request for partial payment.
(3) Progress
payments up to seventy percent do not require state auditor approval provided
that the agency certifies the receipt of services before any payments are made
to the IPA. If the report has been
submitted, progress payments up to eighty-five percent do not require state
auditor approval. The agency shall
monitor audit progress and make progress payments only up to the percentage
that the audit is completed. If
requested by the state auditor, the agency or the IPA shall provide a copy of
the approved invoices and progress billing(s).
Progress payments between seventy percent and ninety-five percent if no
report has been submitted, or eighty-five and ninety-five percent if a report
has been submitted, require state auditor approval after being approved by the
agency. When component unit audits are
part of a primary government’s audit contract, requests for progress payments
on the component unit audit(s) shall be included within the primary
government’s request for progress payment approval. In this situation, the OSA shall not process
separate progress payment approvals submitted by the component unit.
(4) The
state auditor may limit progress payments allowed to be made without state
auditor approval for an IPA whose previous audits were submitted after the due
date specified in Subsection A of 2.2.2.9 NMAC to only the first fifty percent
of the total fee.
(5) Section
12-6-14 NMSA 1978 (contract audits) provides that final payment under an audit
contract may be made by the agency to the IPA only after the state auditor has
determined, in writing, that the audit has been made in a competent manner in
accordance with contract provisions and this rule. The state auditor's determination with
respect to final payment shall be communicated as follows:
(a) stated in the letter accompanying
the release of the report to the agency; or
(b) in the case of ongoing law
enforcement investigations, stated in a letter prior to the release of the
report to the agency.
In
no circumstance may the total billed by the IPA under the audit contract exceed
the total contract amount, as amended if applicable. Further, as the compensation section of the
contract shall include the dollar amount that applies to each element of the
contracted procedures that shall be performed, if certain procedures, such as a
single audit, are determined to be unnecessary and are not performed, the IPA
may not bill the agency for these services.
Final payment to the IPA by the agency prior to review and release of
the audit report by the state auditor is considered a violation of Section
12-6-14 NMSA 1978 and this rule and shall be reported as an audit finding in
the audit report of the agency. If this
statute is violated, the IPA may be removed from the state auditor’s list of
approved auditors.
N. Contract amendment requirements:
(1) Contract
amendments to contracts for audit services, AUP services, or non-attest
services shall be submitted to the OSA regarding executed contracts. Contracts may not be amended after they
expire. The contract should be amended
prior to the additional work being performed or as soon as practicable
thereafter. The agency shall use
OSA-Connect at www.osa-app.org to submit the appropriate draft audit or AUP
engagement contract amendment. The OSA’s
review of audit contracts and amendments does not include an evaluation of
compliance with the state procurement code or other applicable
requirements. Although the parties may
amend the delivery dates in a contract, audit report regulatory due dates
cannot be modified by amendment. The
OSA’s review of audit contract amendments does not include evaluation of
compliance with any state or local procurement laws or regulations; each agency
is responsible for its own compliance with applicable procurement laws,
regulations, or policies.
(2) Contract amendments submitted for
state auditor approval shall include a detailed explanation of:
(a) the
work to be performed and the estimated hours and fees required for completion
of each separate professional service contemplated by the amendment; and
(b) how
the work to be performed relates to the scope of work outlined in the original
contract.
(3) Since
annual financial audit contracts are fixed-price contracts, contract amendments
for fee increases shall only be approved for extraordinary circumstances,
reasons determined by the state auditor to be in the best interest of the state
of New Mexico, or a significant change in the scope of an audit. For example, if an audit contract did not
include a federal single audit, a contract amendment shall be approved if a
single audit is required. Other examples
of significant changes in the scope of an audit include: the addition of a new
program, function or individual fund that is material to the government-wide
financial statements; the addition of a component unit; and the addition of
special procedures required by this rule, a regulatory body or a local, state,
or federal grantor. Contract amendments
shall not be approved to perform additional procedures to achieve an unmodified
opinion. The state auditor shall also
consider the auditor independence requirements of Subsection L of 2.2.2.8 NMAC
when reviewing contract amendments for approval. The OSA shall review amendment requests and
respond to the agency and the IPA within 30 calendar days of receipt.
(4) If
a proposed contract amendment is rejected for lack of adequate information, the
IPA and agency may submit a corrected version for reconsideration.
O. Termination of audit contract requirements:
(1) The state auditor may terminate an
audit contract to be performed by an IPA after determining that the audit has
been unduly delayed, or for any other reason, and perform the audit entirely or
partially with IPAs contracted by the OSA (consistent with the October 6, 1993,
stipulated order, Vigil v. King, No.
SF 92-1487(C). The notice of termination
of the contract shall be in writing.
(2) If the agency or IPA terminates the
audit or AUP engagement contract pursuant to the termination paragraph of the
contract, the OSA shall be notified of the termination immediately. The party sending out the termination
notification letter shall simultaneously send a copy of the termination
notification letter to the OSA with an appropriate cover letter, addressed to
the state auditor.
(a) The
agency is responsible for procuring the services of a new IPA in accordance
with all applicable laws and regulations, and this rule.
(b) The unsigned contract for the newly
procured IPA shall be submitted to the OSA within 30 calendar days of the date
of the termination notification letter.
(c) As
indicated in Subsection A of 2.2.2.9 NMAC, the state auditor shall not grant
extensions of time to the established regulatory due dates.
(d) If
the IPA does not expect to deliver the engagement report by the regulatory due
date, the IPA shall submit a written notification letter to the state auditor
and oversight agency as required by Subsection A of 2.2.2.9 NMAC or Subsection
G of 2.2.2.16 NMAC.
[2.2.2.8 NMAC - Rp, 2.2.2.8 NMAC, 3/28/2023; A,
xx/xx/2024]
2.2.2.9 REPORT
DUE DATES:
A. Report due dates: The IPA shall
deliver the electronic draft annual financial audit report to the state auditor
by [5:00] 11:59 p.m. on the date specified in the audit contract
and send it electronically by the due date. IPAs and agencies are encouraged to
perform interim work as necessary and appropriate to meet the following due
dates.
(1) The
audit report due dates are as follows:
(a) [regional
education cooperatives] RECs, cooperative educational services and independent housing authorities: September 30;
(b) hospitals
and special hospital districts: October
15;
(c) higher
education, state agencies not specifically named elsewhere in this Subsection,
district courts, district attorneys, the New Mexico finance authority, the New
Mexico lottery authority, and other agencies with June 30 fiscal year-ends that
are reported as component units in the state of New Mexico ACFR: November 1;
(e) [the]
PED, New Mexico department of homeland security and emergency management,
the state investment council, and the three post-employment benefit agencies
(PERA, ERB, and the retiree health care authority): the Wednesday before Thanksgiving day;
(f) counties, incorporated counties (of
which Los Alamos is the only one), workforce investment boards, councils of
governments, and the New Mexico mortgage finance authority, and the state of
New Mexico component appropriation funds (state general fund): December 1;
(g) local public bodies and
municipalities: December 15;
(h) the state of New Mexico ACFR: December 31;
(i) the ERB, PERA and retiree health
care authority schedules of employer allocations reports
and related employer guides required by Subsections Z of 2.2.2.10 NMAC: June 15;
(j) agencies
with a fiscal year-end other than June 30 shall submit the audit report no
later than five months after the fiscal year-end;
(k) regarding
component unit reports (e.g., housing authorities, charter schools, hospitals,
foundations, etc.), all separate audit reports prepared by an auditor that is
different from the primary government’s auditor, are due fifteen days before the primary government’s audit report is due,
unless some other applicable due date requires the report to be submitted
earlier;
(l) any
agency that requires its report to be released by December 31st for any reason
(bonding, GFOA, etc.): the earlier of its agency due date or December 1;
(m) any agency that requires its report to
be released by any specific date (e.g., due to board meeting, federal
reporting, etc.): the earlier of its agency due date or one month prior to the
requested release date; and
(n) late
audit or AUP reports of any agency (not performed in the current reporting
period): not more than six months after the date the contract was executed.
(2) If an audit report is not delivered
on time to the state auditor, the auditor shall include this instance of
non-compliance with Subsection A of 2.2.2.9 NMAC as an audit finding in the
audit report. This requirement is not
negotiable. If appropriate, the finding
may also be reported as a significant deficiency or material weakness in the
operation the agency’s internal controls over financial reporting pursuant to
AU-C 265.
(3) An
electronic copy of the report shall be submitted for review by the OSA with the
following: copy of the signed management
representation letter and a copy of the completed state auditor report review
guide (available at www.saonm.org). A
report shall not be considered submitted to the OSA for the purpose of meeting
the due date until a copy of the signed management representation letter and
the completed report review guide are also submitted to the OSA. All separate reports prepared for component units
shall also be submitted to the OSA for review, along with a copy of the
management representation letter, and a completed report review guide for each
separate audit report. A separate
component unit report shall not be considered submitted to the OSA for the
purpose of meeting the due date until a copy of the signed management
representation letter and the completed report review guide are also submitted
to the OSA. If a due date falls on a
weekend or holiday, or if the OSA is closed due to inclement weather, the audit
report is due the following business day by [5:00] 11:59 p.m.
(4) AU-C 700.41 requires the auditor’s
report to be dated after audit evidence supporting the opinion has been
obtained and reviewed, the financial statements have been prepared and the
management representation letter has been signed. AU-C 580.20 requires the management
representation letter to be dated the same date as the independent auditor’s
report.
(5) As
soon as the auditor becomes aware that circumstances exist that will make an
agency’s audit report be submitted after the applicable due date provided in
Subsection A of 2.2.2.9 NMAC, the auditor shall notify the state auditor in
writing. This notification shall consist
of a letter, not an email. However, a
scanned version of the official letter sent via email is acceptable. The late audit notification letter is subject
to the confidentiality requirements detailed at Subsection M of 2.2.2.10 NMAC. This does not prevent the state auditor from
notifying the legislative finance committee or applicable oversight agency
pursuant to Subsections F and G of Section 12-6-3 NMSA 1978. There shall be a separate notification for
each late audit report. The notification
shall include a specific explanation regarding why the report will be late,
when the IPA expects to submit the report and a concurring signature by a duly
authorized representative of the agency.
If the IPA is going to miss the expected report submission date, then
the IPA shall send a revised notification letter. In the event the contract was signed after
the report due date, the notification letter shall still be submitted to the
OSA explaining the reason the audit report will be submitted after the report
due date. The late report notification
letter is not required if the report was submitted to the OSA for review by the
due date, and then rejected by the OSA, making the report late when
resubmitted. Reports resubmitted to the
OSA with changes of the IPA’s opinion after the report due date shall be
considered late and a late audit finding shall be included in the audit report.
(6) The due date of any report not listed
in Subsection A of 2.2.2.9 NMAC shall be the date specified in the contract.
B. Delivery
and release of the audit report:
(1) The
IPA shall deliver to the state auditor an editable electronic copy of the audit
report for review by [5:00] 11:59 p.m. on the day the report is
due. Unfinished or excessively deficient
reports shall not satisfy this requirement; such reports shall be rejected and
returned to the IPA and the OSA may take action in
accordance with Subsection C of 2.2.2.13 NMAC.
When the OSA rejects and returns a substandard audit report to the IPA,
the OSA shall consider the audit report late if the corrected report is not
resubmitted by the due date. The IPA
shall also report a finding for the late audit report in the audit report. The firm shall submit an electronic version
of the corrected rejected report for OSA review. The name of the electronic file shall be
“corrected rejected report” followed by the agency name and fiscal year.
(2) Before
initial submission, the IPA shall review the report using the appropriate
report review guide available on the OSA’s website. The report review guide shall reference
applicable page numbers in the audit report.
The audit manager or person responsible for the IPA’s quality control
system shall either complete the report review guide or sign off as having
reviewed it. All questions in the guide
shall be answered, and the reviewer shall sign and date the last page of the
guide. If the review guide is not
accurately completed or incomplete, the report shall not be accepted.
(3) [IPAs
are encouraged to deliver completed audit reports before the due date.] All reports prepared by IPAs [, except for reports
prepared by the OSA,] shall be addressed to the state auditor, the agency
executive and governing body (if applicable).
Reports prepared by the OSA [shall] will be addressed to
the agency executive and governing body (if applicable). The OSA [shall] will review all
audit reports submitted by the report due date before reviewing reports that
are submitted after the report due date.
Once the review of the report is completed pursuant to Subsection A of
2.2.2.13 NMAC, the OSA will issue an “OSA Review Notes” communication that
lists any comments, corrections, or issues that are required to be addressed by
the IPA prior to final submission to the OSA. [and any OSA comments have
been addressed by the IPA, the OSA shall indicate to the IPA that the report is
ready to print. After the OSA issues the
“OK to print” communication for
the audit report, the OSA shall authorize] Within five days of receipt
of the “OSA Review Notes” communication, the IPA [to] shall
submit the corrected report with the following items to the OSA [within five
business days;] : an electronic searchable version of the audit
report labeled “final” [,] in PDF format, a written response to any
OSA comments, corrections, and issues, and an electronic Excel version of
the summary of findings report and any other required electronic schedule [(electronic
schedules may not apply to engagements pursuant to 2.2.2.15 or 2.2.2.16 NMAC)]
if applicable, and an electronic excel version of the schedule of asset
management costs for investing agencies, if applicable (all available at [www.saonm.org]
www.osa.nm.gov). The OSA [shall]
will not release the report until all comments, corrections, and
issues have been addressed and the searchable electronic PDF version of the
report and all required electronic Excel schedules [are]
have been received [by the OSA]. The
electronic file containing the final audit report shall:
(a) be created and saved as a PDF
document in a single PDF file format (simply naming the file using a PDF
extension .pdf does not by itself create a PDF file);
(b) be
version 5.0 or newer;
(c) not
exceed 10 megabytes (MB) per file submitted (contact the OSA to request an
exception if necessary);
(d) have
all security settings like self-sign security, user passwords, or permissions
removed or deactivated so the OSA is not prevented
from opening, viewing, or printing the file;
(e) not
contain any embedded scripts or executables, including sound or movie
(multimedia) objects;
(f) have a file name that ends with
.pdf;
(g) be free of worms, viruses or other malicious content (a file with such content
shall be deleted by the OSA);
(h) be
“flattened” into a single layer file prior to submission;
(i) not contain any active hypertext
links, or any internal/external links (although it is permissible for the file
to textually reference a URL as a disabled link);
(j) be saved at 300 dots per inch (DPI)
(lower DPI makes the file hard to read and higher DPI makes the file too
large);
(k) have a name that starts with the OSA
agency number, followed by the agency name, the fiscal year, and “final”; and
(l) be
searchable.
(4) The
IPA shall deliver to the agency the number of copies of the audit report
indicated in the audit contract only after the state auditor has officially
released the audit report with a “release letter [”].”
(a) The audited agency may waive the
5-day waiting period required by Section 12-6-5 NMSA 1978. To do so, the agency’s governing authority or
the governing authority’s designee must provide written notification to the OSA
of the waiver. The notification must be
signed by the agency’s governing authority or the governing authority’s designee and be sent via letter, e-mail
or fax to the attention of the state auditor.
The OSA encourages agencies wishing to waive the five-day waiting period
to provide the written notification prior
to the submission of the final report to the OSA.
(b) The IPA shall deliver to the agency
the number of copies of the audit report indicated in the audit contract only
after the state auditor has officially released the audit report with a
“release letter”. Release of the audit
report to the agency or the public prior to it being officially released by the
state auditor shall result in an audit finding.
(5) After the release of a report, the
OSA shall provide DFA and the legislative finance committee with notification
that the report is available on the OSA website.
(6) If
an audit report is reissued pursuant to AU-C 560, subsequent events and subsequently
discovered facts, or AAG GAS 13.29-.30 for uniform guidance compliance reports,
the reissued audit report shall be submitted to the OSA with a cover letter
addressed to the state auditor. The
cover letter shall explain that:
(a) the
attached report is a “reissued” report;
(b) the
circumstances that caused the reissuance; and
(c) a
summary of the changes that appear in the reissued report. The OSA shall subject the reissued report to
the report review process and upon completion of that report review process,
shall issue a “release letter.” The
contents of the reissued audit report are subject to the confidentiality
requirements described in Subsection M of 2.2.2.10 NMAC. Agency management and the IPA are responsible
for ensuring that the latest version of the report is provided to each
recipient of the prior version of the report.
The OSA shall notify the appropriate oversight agencies regarding the
updated report on the OSA website.
(7) If
changes to a released audit report are submitted to the OSA, and the changes do
not rise to the level of requiring a reissued report, the IPA shall submit a
cover letter addressed to the agency, with a copy to the state auditor, which
includes the following minimum elements:
(a) a
statement that the changes did not rise to the level of requiring a reissued
report;
(b) a
description of the circumstances that caused the resubmitted updated report;
and
(c) a
summary of the changes that appear in the resubmitted updated report compared
to the prior released report. Agency
management and the IPA are responsible for ensuring that the latest version of
the resubmitted report is provided to each recipient of the prior version of
the report. The OSA shall notify the
appropriate oversight agencies regarding the updated report on the OSA website.
C. Required status reports: For an agency
that has failed to submit audit [or agreed-upon procedures] reports as
required by this rule, and has therefore been designated as [“at risk” due
to] late [reports], the state auditor requires the agency to submit
written status reports to the OSA on each March 15, June 15, September 15, and
December 15 [that the agency is not in compliance with this rule. Status reports are not required for agencies
that are included on the “at risk” list solely due to an adverse or disclaimed
independent auditor’s opinion] unless and until the late audit report
has been submitted. Status
reports [The status report] shall be signed by a member of the
agency’s governing authority, a designee of the governing authority or a member
of the agency’s top management. If the
agency has a contract with an IPA to conduct the audit [or perform the AUP
engagement], the agency must send the IPA a copy of the quarterly status
report. IPAs engaged to audit [or perform AUP engagements for] agencies
with late reports are responsible for assisting these agencies in complying
with the reporting requirements of this section. Failure to do so shall be noted by the OSA
and taken into account during the IPA Firm Profile
evaluation process. At a minimum, the
quarterly written status report shall include:
(1) a
detailed explanation of the agency’s efforts to complete and submit its audit [or
agreed-upon procedures];
(2) the
current status of any ongoing audit [or agreed-upon
procedures] work;
(3) any
obstacles encountered by the agency in completing its audit [or agreed-upon
procedures]; and
(4) a projected completion date for the
financial audit [or agreed-upon procedures] report.
[2.2.2.9 NMAC - Rp, 2 2.2.9 NMAC,
3/28/2023; A, xx/xx/2024]
2.2.2.10 GENERAL CRITERIA:
A. Annual
financial and compliance audits:
(1) The
financial audit shall cover the entire financial reporting entity including the
primary government and the component units of the primary government, if
any. For any financial and compliance
audit the agency should produce all documents necessary to conduct the
engagement.
(a) The
primary government shall determine whether an agency that is a separate legal
entity from the primary government is a component unit of the primary
government as defined by GASBS 14, 39, 61, and 80 (as amended). The flowchart at GASBS 61.68 may be useful in
making this determination. The primary
government shall notify all other agencies determined to be component units by
September 15 of the subsequent fiscal year.
Failure to meet this due date results in a compliance finding. IPAs shall use GASB guidelines as found in
relevant GASBS to determine the correct presentation of the component
unit. All agencies that meet the
criteria to be a component unit of the primary government shall be included
with the audited financial statements of the primary government by discrete
presentation or blended, as appropriate.
Component units are reported using the government financial reporting
format [if they have one or more of the characteristics described at AAG SLV
1.01]. Component units of component units are also subject to OSA review, and must be reported using the government financial
reporting format. If a component
unit does not qualify to be reported using the governmental format and is not
statutorily required to be reported using the governmental format, that fact
shall be explained in the notes to the financial statements (summary of
significant accounting policies: financial reporting entity). If there was a change from the prior year’s
method of presenting a component unit or change in component units reported,
the notes to the financial statements shall disclose the reason(s) for the
change.
(b) If
a primary government has no component units, that fact shall be disclosed in
the notes to the financial statements (summary of significant accounting
policies: financial reporting entity).
If the primary government has component units that are not included in
the financial statements due to materiality, that fact shall also be disclosed
in the notes.
(c) The
state auditor requires component unit(s) to be audited by the same audit firm
that audits the primary government (except for public housing authority
component units that are statutorily exempt from this requirement, and the
statewide ACFR). For clarification,
housing departments of a local government or a regional housing authority are
not exempt from this requirement. Requests for exemption from this requirement
shall be submitted in writing by the primary government to the state
auditor. If the request to use a
different auditor for the component unit is approved in writing by the state
auditor, the following requirements shall be met:
(i) the IPAs of the primary government
and all component units shall consider and comply with the requirements of AU-C
600;
(ii) the group engagement partner shall
agree that the group engagement team will be able to obtain sufficient
appropriate audit evidence through the use of the
group engagement team’s work or use of the work of the component auditors (AU-C
600.15);
(iii) the
component unit auditor selected shall appear on the OSA list of approved IPAs;
(iv) all
bid and auditor selection processes shall comply with the requirements of this
rule;
(v) the OSA standard contract template
shall be used by both the primary government and the component unit;
(vi) the primary government, the primary
engagement partner, management of the component unit, and the component unit
auditor shall all coordinate their efforts to ensure that the audit reports of
the component unit and the primary government are submitted by the applicable
due dates;
(vii) all component unit findings shall be
disclosed in the primary government’s audit report (except the statewide ACFR,
which shall include only component unit findings that are significant to the
state as a whole); and
(viii) any separately issued component unit
financial statements and associated auditors’ reports shall be submitted to the
state auditor by the due date in Subsection A of 2.2.2.9 NMAC for the review
process described in Subsection A of 2.2.2.13 NMAC.
(d) With
the exception of the statewide ACFR, the following SI pertaining to component
units for which separately issued financial statements are not available shall
be audited and opined on as illustrated in AAG SLV 16.103 example A-15: financial statements for each of the
component unit’s major funds, combining and individual fund financial
statements for all of the component unit’s non-major funds, and budgetary
comparison statements for the component unit’s general fund and major special
revenue funds that have legally adopted annual budgets (AAG SLV 3.22).
(2) Audits
of agencies shall be comprised of a financial and compliance audit of the
financial statements and schedules as follows:
(a) The
level of planning materiality described at AAG SLV 4.72-4.73 and exhibit 4-1
shall be used. Planning materiality for
component units is at the individual component unit level.
(b) The
scope of the audit includes the following statements and disclosures which the
auditor shall audit and give an opinion on.
The basic financial statements (as defined by GASB and displayed in AAG
SLV exhibit 4-1) consisting of:
(i) the governmental activities, the
business-type activities, and the aggregate discretely presented component
units;
(ii) each
major fund and the aggregate remaining fund
information;
(iii) budgetary
comparison statements for the general fund and major special revenue funds that
have legally adopted annual budgets (when budget information is available on
the same fund structure basis as the GAAP fund structure, the state auditor
requires that the budgetary comparison statements be included as part of the
basic financial statements consistent with GASBS 34 fn. 53, as amended, and AAG
SLV 11.12 and 11.13); and
(iv) the
related notes to the financial
statements.
(c) Budgetary
comparison statements for the general fund and major special revenue funds
presented on a fund, organization, or program structure basis because the
budgetary information is not available on the GAAP fund structure basis for
those funds shall be presented as RSI pursuant to GASBS 41.
(d) The
auditor shall apply procedures and report in the auditor’s report on the
following RSI (if applicable) pursuant to AU-C 730:
(i) management’s discussion and
analysis (GASBS 34.8-.11);
(ii) RSI
data required by GASBS 67 and 68 for defined benefit pension plans;
(iii) RSI
schedules required by GASBS 43 and 74 for postemployment benefit plans other
than pension plans;
(iv) RSI
schedules required by GASBS 45 and 75 regarding employer accounting and
financial reporting for postemployment benefits other than pensions; and
(v) infrastructure
modified approach schedules derived from asset management systems (GASBS
34.132-133).
(e) The
audit engagement and audit contract compensation include an AU-C 725 opinion on
the SI schedules presented in the audit report.
The auditor shall subject the information on the SI schedules to the
procedures required by AU-C 725. The
auditor shall report on the remaining SI in an other-matter paragraph following
the opinion paragraph in the auditor’s report on the financial statements
pursuant to AU-C 725. With the exception of the
statewide ACFR, the following SI schedules are required to be included in the
AU-C 725 opinion if the schedules are applicable to the agency:
(i) primary
government combining and individual fund financial statements for all non-major
funds (GASBS 34.383);
(ii) the
schedule of expenditures of federal awards required by uniform guidance;
(iii) the schedule of pledged collateral
required by Subsection P of 2.2.2.10 NMAC;
(iv) the FDS of housing authorities
pursuant to Subsection B of 2.2.2.12 NMAC;
(v) the school district schedule of
cash reconciliation required by Subsection C of 2.2.2.12 NMAC. In addition, the school district schedule of
cash reconciliation SI shall be subjected to audit procedures that ensure the
cash per the schedule reconciles to the PED reports as required by Subsection C
of 2.2.2.12 NMAC;
(vi) any other SI schedule required by this
rule.
B. Governmental auditing, accounting
and financial reporting standards: The audits shall be conducted in accordance
with:
(1) the most recent revision of GAGAS
issued by the United States government accountability office;
(2) U.S. auditing standards-AICPA
(clarified);
(3) uniform administrative
requirements, cost principles, and audit requirements for federal awards
(uniform guidance);
(4) AICPA audit and accounting guide,
government auditing standards and single audits, (AAG GAS) latest edition;
(5) AICPA audit and accounting guide, state and local governments (AAG SLV) latest edition; and
(6) 2.2.2 NMAC, requirements for contracting
and conducting audits of agencies, latest edition.
C. Financial statements and notes to the
financial statements: The financial statements and notes to the financial
statements shall be prepared in accordance with accounting principles generally
accepted in the United States of America.
Governmental accounting principles are identified in the government
accounting standards board (GASB) codification, latest edition. IPAs shall follow interpretations, technical
bulletins, and concept statements issued by GASB, other applicable
pronouncements, and GASB illustrations and trends for financial
statements. In addition to the revenue
classifications required by NCGAS 1.110, the OSA requires that the statement of
revenues, expenditures, and changes in fund balance - governmental funds
include classifications for intergovernmental revenue from federal sources and
intergovernmental revenue from state sources, as applicable.
D. Requirements for preparation of financial statements:
(1) The
financial statements presented in audit reports shall be prepared from the
agency's books of record and contain amounts rounded to the nearest dollar.
(2) The
financial statements are the responsibility of the agency. The agency shall maintain adequate accounting
records, prepare financial statements in accordance with accounting principles
generally accepted in the United States of America, and provide complete,
accurate, and timely information to the IPA as requested to meet the audit
report due date imposed in Subsection A of 2.2.2.9 NMAC.
(3) If
there are differences between the financial statements and the books, the IPA
shall provide to the agency the adjusting journal entries and the supporting
documentation that reconciles the financial statements in the audit report to
the books.
(4) If
the IPA prepared the financial statements in their entirety from the
client-provided trial balance or underlying accounting records the IPA should
conclude significant threats to independence exist and shall document the
threats and safeguards applied to mitigate the threats to an acceptable
level. If the threats cannot be
documented as mitigated the IPA may appropriately decide to decline to provide
the service. IPAs should refer to the
GAGAS conceptual framework to evaluate independence. The fact that the auditor prepared the
financial statements from the client-provided trial balance or underlying
records shall be disclosed on the exit conference page of the audit report.
E. Audit documentation requirements:
(1) The
IPA’s audit documentation shall be retained for a minimum of five-years from
the date shown on the opinion letter of the audit report or longer if requested
by the federal oversight agency, cognizant agency, or the state auditor. Audit documentation, including working
papers, are the property of the IPA or responsible certificate holder per
Subsection A of Section 61-28B-25 NMSA 1978.
Audit documentation includes all documents used to support any opinions
or findings included in the report. The
state auditor shall have access to the audit documentation at the discretion of
the state auditor.
(2) When
requested by the state auditor, all of the audit
documentation shall be delivered to the state auditor by the due date indicated
in the request. State auditor review of
audit documentation does not transfer the ownership of the documents. Ownership of the audit documentation is
maintained by the IPA or responsible certificate holder.
(3) The
audit documentation of a predecessor IPA shall be made available to a successor
IPA in accordance with AU-C 510.07 and 510.A3 to 510.A11, and the predecessor
auditor’s contract. Any photocopy costs
incurred shall be borne by the requestor.
If the successor IPA finds that the predecessor IPA’s audit
documentation does not comply with applicable auditing standards and this rule, or does not support the financial data presented in
the audit report, the successor IPA shall notify the state auditor in writing
specifying all deficiencies. If the
state auditor determines that the nature of deficiencies indicate that the
audit was not performed in accordance with auditing or accounting standards
generally accepted in the United States of America and related laws, rules and
regulations, and this rule, any or all of the
following actions may be taken:
(a) the state auditor may require the
predecessor IPA firm to correct its working papers and reissue the audit report
to the agency, federal oversight or cognizant agency and any others receiving
copies;
(b) the
state auditor may deny or limit the issuance of future audit contracts; or
(c) the
state auditor may refer the predecessor IPA to the New Mexico public
accountancy board for possible licensure action.
F. Auditor communication requirements:
(1) The IPA shall comply with the
requirements for auditor communication with those charged with governance as
set forth in AU-C 260 and GAGAS 6.06 and 6.07.
(2) After
the agency and IPA have an approved audit contract in place, the IPA shall
prepare a written and dated engagement letter during the planning stage of a
financial audit, addressed to the appropriate officials of the agency, keeping
a copy of the signed letter as part of the audit documentation. In addition to meeting the requirements of
the AICPA professional standards and the GAGAS requirements, the engagement
letter shall state that the engagement shall be performed in accordance with
2.2.2 NMAC.
(3) The audit engagement letter shall not
include any fee contingencies. The
engagement letter shall not be interpreted as amending the contract. Nothing in the engagement letter can impact
or change the amount of compensation for the audit services. Only a contract amendment submitted pursuant
to Subsection N of 2.2.2.8 NMAC may amend the amount of compensation for the
audit services set forth in the contract.
(4) A separate engagement letter and list
of client prepared documents is required for each fiscal year audited. The IPA shall provide a copy of the
engagement letter and list of client prepared documents immediately upon
request from the state auditor.
(5) The
IPA shall conduct an audit entrance conference with the agency with
representatives of the agency’s governing authority and top management, which
may include representatives of any component units (housing authorities,
charter schools, hospitals, foundations, etc.), if applicable. The OSA has the authority to notify the
agency or IPA that the state auditor shall be informed of the date of the
entrance conference and any progress meetings.
If such notification is received, the IPA and agency shall invite the
state auditor or the auditor’s designee to attend all such conferences no later
than 72 hours before the proposed conference or meeting.
(6) All
communications with management and the agency’s oversight officials during the
audit, regarding any instances of non-compliance or internal control
weaknesses, shall be made in writing.
The auditor shall obtain and report the views of responsible officials
of the audited agency concerning the audit findings, pursuant to GAGAS
6.57-6.60. Any violation of law or good
accounting practice, including instances of non-compliance or internal control
weaknesses, shall be reported as audit findings per Section 12-6-5 NMSA
1978. Separate management letter
comments shall not be issued as a substitute for such findings.
G. Reverting
or non-reverting funds: Legislation can designate a fund as reverting
or non-reverting. The IPA shall review
the state law that appropriated funds to the agency to confirm whether any
unexpended, unencumbered balance of a specific appropriation shall be reverted
and to whom. The law may also indicate
the due date for the required reversion.
Appropriate audit procedures shall be performed to evaluate compliance
with the law and accuracy of the related liability account balances due to
other funds, governmental agencies, or both.
The financial statements and the accompanying notes shall fully disclose
the reverting or non-reverting status of a fund or appropriation. The financial statements shall disclose the
specific legislation that makes a fund or appropriation non-reverting and any
minimum balance required. If
non-reverting funds are commingled with reverting appropriations, the notes to
the financial statements shall disclose the methods and amounts used to
calculate reversions. For more information
regarding state agency reversions, see Subsection A of 2.2.2.12 NMAC and the
department of finance and administration (DFA) white papers “calculating
reversions to the state general fund,” and “basis of accounting-modified
accrual and the budgetary basis.” The
statewide ACFR is exempt from this requirement.
H. Referrals and risk
advisories:
The Audit Act (Section 12-6-1 et
seq. NMSA 1978) states that “the financial affairs of every agency shall be
thoroughly examined and audited each year by the state auditor, personnel of
the state auditor’s office designated by the state auditor or independent
auditors approved by the state auditor.” (Section 12-6-3 NMSA 1978). Further, audits of New Mexico governmental
agencies “shall be conducted in accordance with generally accepted auditing
standards and rules issued by the state auditor.” (Section 12-6-3 NMSA 1978).
(1) In an effort to
ensure that the finances of state and local governments are thoroughly
examined, OSA may provide IPAs with written communications to inform the IPA
that OSA received information that may suggest elevated risk in specific areas
relevant to a particular agency’s annual financial and compliance audit. These communications shall be referred to as
“referrals.” Referrals are considered
confidential audit documentation.
Referrals may relate to any topic, including the scope of the annual financial
and compliance audit. IPAs shall take
the circumstances described in OSA referral communications into account in
their risk assessment and perform such procedures as, in the IPA’s professional
judgment, are necessary to determine what further actions, if any, in the form
of additional disclosures, findings, and recommendations are appropriate in
connection with the annual audit of the agency.
After the conclusion of fieldwork but at least 14 days prior to
submitting the draft annual audit report to the OSA for review, IPAs shall
provide written confirmation to the OSA that the IPA took appropriate action in
response to the referral. This written
confirmation shall
be submitted separately from any draft report and addressed to the attention of
the OSA’s special investigations division.
The written confirmation shall be submitted electronically to
SIDreferrals@osa.state.nm.us and shall
respond to all aspects of the referral and list any findings associated with
the subject matter of the referral. IPAs
shall retain adequate documentation in the audit workpapers to support the
written confirmation to OSA that the IPA took appropriate action in response to
the referral. As outlined in 2.2.2.13
NMAC the OSA may review IPA workpapers associated with the annual audit of any
agency. OSA workpaper review procedures
shall include examining the IPA documentation associated with referrals. Insufficient or inadequate documentation may
result in deficiencies noted in the workpaper review letter and may negatively
impact the IPA during the subsequent firm profile review process. In accordance with Subsection D of 2.2.2.8
NMAC, an IPA may be placed on restriction if an IPA refuses to comply with OSA
referrals in a timely manner.
(2) OSA
may issue written communications to inform agencies and IPAs that OSA received
information that suggests elevated risk in specific areas relevant to the
annual financial and compliance audits of some agencies. These communications shall be referred to as
“risk advisories.” Risk advisories shall
be posted on the OSA website in the following location:
https://www.saonm.org/risk_advisories.
Risk advisories may relate to any topic relevant to annual financial and
compliance audits of New Mexico agencies.
IPAs shall take the circumstances described in OSA risk advisories into
account in their risk assessment and perform such procedures and testwork as, in the IPA’s professional judgment, are
necessary to determine what further action, if any, in the form of disclosure,
findings and recommendations are appropriate in connection with the annual
audit of the agency.
I. State auditor workpaper requirement: The state auditor requires that audit
workpapers include a written audit program for fund balance and net position
that includes tests for proper classification of fund balance pursuant to GASBS
54 and proper classification of net position pursuant to GASBS 34.34-.37 (as
amended) and GASBS 46.4-.5 (as amended).
J. State
compliance audit requirements: An IPA shall
identify significant state statutes, rules, and regulations applicable to the
agency under audit and perform tests of compliance. In designing tests of compliance, IPAs may
reference AU-C 250 relating to consideration of laws and regulations in an
audit of financial statements and AU-C 620 relating to using the work of an
auditor’s specialist. As discussed in
AU-C 250.A23, in situations where management or those charged with governance
of the agency, or the agency’s in-house or external legal counsel, do not
provide sufficient information to satisfy the IPA that the agency is in compliance with an applicable requirement, the IPA may
consider it appropriate to consult the IPA’s own legal counsel. AU-C 620.06 and 620.A1 discuss the use of an
auditor’s specialist in situations where expertise in a field other than
accounting or auditing is necessary to obtain sufficient, appropriate audit
evidence, such as the interpretation of contracts, laws
and regulations. In addition to the
significant state statutes, rules and regulations identified by the IPA,
compliance with the following shall be tested if applicable (with
the exception of the statewide ACFR):
(1) Procurement Code, Sections 13-1-1
to 13-1-199 NMSA 1978 including providing the state purchasing agent with the
name of the agency’s chief procurement officer, pursuant to Section 13-1-95.2
NMSA 1978, and Procurement Code Regulations, Section 1.4.1 NMAC, or home rule
equivalent. All agencies must retain
support for procurement until the contract expires or the minimum time required
for record retention is met, whichever is longer.
(2) Per Diem and Mileage Act, Sections
10-8-1 to 10-8-8 NMSA 1978, and Regulations Governing the Per Diem and Mileage
Act, Section 2.42.2 NMAC.
(3) Public
Money Act, Sections 6-10-1 to 6-10-63 NMSA 1978, including the requirements
that county and municipal treasurers deposit money in their respective
counties, and that the agency receive a joint safe keeping receipt for pledged
collateral. (In instances when another
statute provides for a different timeline applicable to the agency, that
statute shall control.)
(4) Public
School Finance Act, Sections 22-8-1 to 22-8-48 NMSA 1978.
(5) Investment
of Public Money Act, Sections 6-8-1 to 6-8-25 NMSA 1978.
(6) Public
Employees Retirement Act, Sections 10-11-1 to 10-11-142 NMSA 1978. IPAs shall
test to ensure eligible contributions are remitted to PERA. The IPA shall evaluate and test internal
controls regarding employee eligibility for PERA and other benefits. IPAs shall evaluate risk associated with
employees excluded from PERA and test that employees are properly excluded.
(7) Educational
Retirement Act, Sections 22-11-1 to 22-11-55 NMSA 1978. IPAs shall test to ensure eligible
contributions are remitted to ERA. The
IPA shall evaluate and test internal controls regarding employee eligibility
for ERA and other benefits. IPAs shall
evaluate risk associated with employees excluded from ERA and test that
employees are properly excluded.
(8) Sale
of Public Property Act, Sections 13-6-1 to 13-6-8 NMSA 1978.
(9) Anti-Donation
Clause, Article IX, Section 14, New Mexico Constitution.
(10) Special,
deficiency, and supplemental appropriations (appropriation laws applicable for
the year under audit).
(11) State agency budget compliance with
Sections 6-3-1 to 6-3-25 NMSA 1978, and local government compliance with
Sections 6-6-1 to 6-6-19 NMSA 1978.
(12) Lease
purchase agreements, Article IX, Sections 8 and 11, New Mexico Constitution;
Sections 6-6-11 to 6-6-12 NMSA 1978; Montano
v. Gabaldon, 108 NM 94, 766 P.2d 1328 (1989).
(13) Accounting
and control of fixed assets of state government, Sections 2.20.1.1 to 2.20.1.18
NMAC, (updated for GASBS 34 as applicable).
(14) Requirements
for contracting and conducting audits of agencies, 2.2.2 NMAC.
(15) Article
IX of the state constitution limits on indebtedness.
(16) Any
law, regulation, directive or policy relating to an
agency’s use of gasoline credit cards, telephone credit cards, procurement
cards, and other agency-issued credit cards.
(17) Retiree Health Care Act, Sections 10-7C-1
to 10-7C-19 NMSA 1978. IPAs shall test
to ensure eligible contributions are reported to NMRHCA. NMRHCA employer and employee contributions
are set forth in Section 10-7C-15 NMSA 1978.
The IPA shall evaluate and test internal controls regarding employee
eligibility for NMRHCA and other benefits.
IPAs shall evaluate risk associated with employees excluded from NMRHCA
and test that employees are properly excluded.
(18) Governmental
Conduct Act, Sections 10-16-1 to 10-16-18 NMSA 1978.
(19) School
Personnel Act, Sections 22-10A-1 to 22-10A-39 NMSA 1978.
(20) School Athletics Equity Act, Sections
22-31-1 to 22-31-6 NMSA 1978. IPAs shall
test whether the district has submitted the required school-district-level
reports, but no auditing of the reports or the data therein is required.
(21) The New Mexico opioid allocation
agreement.
K. Federal
requirements: IPAs shall conduct
their audits in accordance with the requirements of the following government
pronouncements and shall test federal compliance audit requirements as
applicable:
(1) generally accepted government auditing standards (GAGAS) issued by the United States
government accountability office, most recent revision;
(2) uniform
administrative requirements, cost principles, and audit requirements for
federal awards;
(3) compliance
supplement, latest edition; and
(4) internal revenue service (IRS) employee income tax
requirements. IRS Publication 15-B,
employer’s tax guide to fringe benefits, available online, provides detailed
information regarding the taxability of fringe benefits.
L. Audit finding requirements:
(1) Communicating
findings: IPAs shall communicate findings in accordance with generally accepted
auditing standards and the requirements of GAGAS 6.17-6.30. All finding reference numbers shall follow a
standard format with the four-digit audit year, a hyphen, and a three-digit
sequence number (e.g. 20XX-001, 20XX-002 … 20XX-999). All prior year findings shall include the
finding numbers used when the finding was first reported under historical
numbering systems in brackets, following the current year finding reference
number (e.g., 2021-001 (2020-003)) to enable the report user to see what year
the finding originated and how it was identified in previous years. Finding reference numbers for single audit
findings reported on the data collection form shall match those reported in the
schedule of findings and questioned costs and the applicable auditor’s report. Depending on the IPA’s classification of the
finding, the finding reference number shall be followed by one of the following
descriptions: “material weakness”; “significant deficiency”; “material
non-compliance”; “other non-compliance”; or “other matters.”
(a) IPAs shall evaluate deficiencies to
determine whether individually or in combination they are significant
deficiencies or material weaknesses in accordance with AU-C 260.
(b) Findings that meet the requirements
described in AAG GAS 4.12 shall be included in the report on internal control
over financial reporting and on compliance and other matters based on an audit
of financial statements performed in accordance with government auditing
standards. AAG GAS 13.35 table 13-2
provides guidance on whether a finding shall be included in the schedule of
findings and questioned costs.
(c) Section 12-6-5 NMSA 1978 requires
that “each report set out in detail, in a separate section, any violation of
law or good accounting practices found by the audit or examination.”
(i) When auditors detect violations of
law or good accounting practices that shall be reported per Section 12-6-5 NMSA
1978, but that do not rise to the level of significant deficiencies or material
weaknesses, such findings are considered to warrant the attention of those
charged with governance due to the statutory reporting requirement. The auditor shall communicate such violations
in the “compliance and other matters” paragraph in the report on internal
control over financial reporting and on compliance and other matters based on
an audit of financial statements performed in accordance with government
auditing standards.
(ii) Findings
required by Section 12-6-5 NMSA 1978 shall be presented in a separate schedule
of findings labeled “Section 12-6-5 NMSA 1978 findings”. This schedule shall be placed in the back of
the audit report following the financial statement audit and federal award
findings. Per AAG GAS 13.49 there is no
requirement for such findings to be included or referenced in the uniform
guidance compliance report.
(d) Each audit finding (including current
year and unresolved prior-year findings) shall specifically state and describe
the following:
(i) condition (provides a
description of a situation that exists and includes the extent of the condition
and an accurate perspective, the number of instances found, the dollar amounts
involved, if specific amounts were identified, and for repeat findings, management’s progress or
lack of progress towards implementing the prior year planned corrective actions);
(ii) criteria
(identifies the required or desired state or what is expected from the program
or operation; cites the specific section of law, regulation, ordinance,
contract, or grant agreement if applicable);
(iii) effect
(the logical link to establish the impact or potential impact of the difference
between the situation that exists (condition) and the required or desired state
(criteria); demonstrates the need for corrective action in response to
identified problems or relevant risks);
(iv) cause
(identifies the reason or explanation for the condition or the factors
responsible for the difference between what the auditors found and what is
required or expected; the cause serves as a basis for the recommendation);
(v) recommendation
addressing each condition and cause; and
(vi) agency
response (the agency’s comments about the finding, including specific planned
corrective actions with a timeline and designation of what employee position(s)
are responsible for meeting the deadlines in the timeline).
(e) Uniform
guidance regarding single audit findings (uniform guidance 200.511): The
auditee is responsible for follow-up and corrective action on all audit
findings. As a part of this
responsibility, the auditee shall prepare a summary schedule of prior audit
findings and a corrective action plan for current year audit findings in
accordance with the requirements of uniform guidance 200.511. The corrective action plan and summary
schedule of prior audit findings shall include findings relating to the financial
statements which shall be reported in accordance with GAGAS. The summary schedule of prior year findings
and the corrective action plan shall be included in the reporting package
submitted to the federal audit clearinghouse (AAG GAS 13.49 fn
38). In addition to being included in
the agency response to each audit finding, the corrective action plan shall be
provided on the audited agency’s letterhead in a document separate from the
auditor’s findings. (COFAR frequently asked questions on the office of
management and budget’s uniform administrative requirements, cost principles,
and audit requirements for federal awards at 2 CFR 200, Section 511-1).
(f) All
audit reports shall include a summary of audit results preceding the
presentation of audit findings (if any).
The summary of audit results shall include the type of auditor report
issued and whether the following categories of findings for internal control
over financial reporting were identified: material weakness, significant
deficiency, and material noncompliance.
AUP reports completed pursuant to 2.2.2.16 NMAC are not required to
include a summary of audit results.
(2) Prior year findings:
(a) IPAs
shall comply with the requirements of the most recent version of GAGAS relating
to findings and recommendations from previous audits and attestation
engagements. In addition, IPAs shall
report the status of all prior-year
findings and all findings from
special audits performed under the oversight of the state auditor in the
current year audit report in a summary schedule of prior year audit
findings. The summary schedule of prior
year audit findings shall include the prior year finding number, the title, and
whether the finding was resolved, repeated, or repeated and modified in the
current year. No other information shall
be included in the summary schedule of prior year audit findings. All findings from special audits performed
under the oversight of the state auditor shall be included in the findings of
the annual financial and compliance audits of the related fiscal year. IPAs shall consider including findings from
special audits in annual audit reports.
(b) Uniform
guidance regarding single audit prior year findings (uniform guidance
200.511): The auditor shall follow up on
prior audit findings, perform procedures to assess the reasonableness of the
summary schedule of prior audit findings prepared by the auditee in accordance
with the uniform guidance, and report, as a current-year audit finding, when
the auditor concludes that the summary schedule of prior audit findings
materially misrepresents the status of any prior audit finding (AAG GAS 13.53).
(3) Current-year
audit findings: Written audit findings
shall be prepared and submitted to management of the agency as soon as the IPA
becomes aware of the findings so the agency has time
to respond to the findings prior to the exit conference. The agency shall prepare “planned corrective
actions” as required by GAGAS 6.57 and 6.58.
The agency shall respond, in writing, to the IPA’s audit findings within
10 business days. Lack of agency
responses within the 10 business days does not warrant a delay of the audit
report. The agency’s responses to the
audit findings and the “planned corrective actions” shall be included in the
finding after the recommendation. If the
IPA disagrees with the management’s comments in response to a finding, they may
explain in the report their reasons for disagreement, after the agency’s
response (GAGAS 6.59). Pursuant to GAGAS
6.60, “if the audited agency refuses to provide comments or is unable to
provide comments within a reasonable period of time,
the auditors may issue the report without receiving comments from the audited
agency. In such cases, the auditors
should indicate in the report that the audited agency did not provide
comments.”
(4) If
appropriate in the auditor’s professional judgment, failure to submit the
completed audit contract to the OSA by the due date at Subsection F of 2.2.2.8
NMAC may be reported as a current year compliance finding.
(5) If
an agency has entered into any professional services
contract with an IPA with a scope of work that relates to fraud, waste, or
abuse, and the contract was not approved by the state auditor, the IPA shall
report a finding of non-compliance with Paragraph (2) of Subsection C of 2.2.215
NMAC.
(6) If
an agency subject to the procurement code failed to meet the requirement to
have a certified chief procurement officer during the fiscal year, the IPA
shall report a finding of non-compliance with Section 1.4.1.94 NMAC.
(7) Component
unit audit findings shall be reported in the primary government’s financial
audit report. This is not required for the
statewide ACFR unless a finding of a legally separate component unit is
significant to the state as a whole.
(8) Except
as discussed in Subsections A and E of 2.2.2.12 NMAC, release of any portion of
the audit report by the IPA or agency prior to being officially released by the
state auditor is a violation of Section 12-6-5 NMSA 1978 and requires a
compliance finding in the audit report.
(9) In
the event that an agency response to a finding indicates in any way that the
OSA is the cause of the finding, the OSA may require that a written response
from the OSA be included in the report, below the other responses to that
finding.
M. Exit conference and related confidentiality
issues:
(1) The
IPA shall hold an exit conference with representatives of the agency’s
governing authority and top management, which may include representatives of
any component units (housing authorities, charter schools, hospitals,
foundations, etc.), if applicable. The
OSA has the authority to notify the agency or IPA that the state auditor shall
be informed of the date of any progress meetings and the exit conference. If
such notification is received, the IPA and agency shall invite the state
auditor to attend all such conferences.
If component unit representatives cannot attend the combined exit
conference, a separate exit conference shall be held with the component unit's
governing authority and top management.
The exit conference and presentation to governance shall occur in the
forum agreed to by the agency and the IPA, to include virtual or telephonic
options. The OSA reserves the right to
require an in-person exit conference and presentation to the board. The date of the exit conference(s) and the
names and titles of personnel attending shall be stated in the last page of the
audit report.
(2) The
IPA, with the agency’s cooperation, shall provide to the agency for review a
draft of the audit report (stamped “draft”), a list of the “passed audit
adjustments,” and a copy of all the adjusting journal entries at or before the
exit conference. The draft audit report
shall include, at minimum, the following elements: independent auditor’s
report, basic financial statements, audit findings, summary schedule of prior
year audit findings, and the reports on internal control and compliance
required by government auditing standards and uniform guidance.
(3) Agency
personnel and the agency’s IPA shall not release information to the public relating
to the audit until the audit report is released by the OSA,
and has become a public record.
This does not preclude an agency from submitting financial statements
and notes to the financial statements, clearly marked as “draft” or “unaudited”
to federal or state oversight agencies or bond rating agencies. Any draft
financial statements provided to federal or state oversight agencies or to bond
rating agencies shall exclude draft auditor opinions and findings, and any
pages including references to auditor opinions or findings.
(4) Once
the audit report is officially released to the agency by the state auditor (by
a release letter) and the required waiting period of five calendar days has
passed, unless waived by the agency in writing as described in Subparagraph (a)
of Paragraph (4) of Subsection B of 2.2.2.9 NMAC, the audit report shall be
presented by the IPA, to a quorum of the governing authority of the agency at a
meeting held in accordance with the Open Meetings Act, if applicable. This requirement only applies to agencies
with a governing authority, such as a board of directors, board of county
commissioners, or city council, which is subject to the Open Meetings Act. The IPA shall ensure that the required
communications to those charged with governance are made in accordance with
AU-C 260.12 to 260.14.
(5) At
all times during the audit and after the audit report becomes a public record,
the IPA shall follow applicable standards and 2.2.2 NMAC regarding the release
of any information relating to the audit.
Applicable standards include but are not limited to the AICPA Code of
Conduct ET Section 1.700.001 and related interpretations and guidance, and
GAGAS 6.53-6.55 and GAGAS 6.63-6.65. The
OSA and the IPA shall not disclose audit documentation if such disclosure would
undermine the effectiveness or integrity of the audit process. AU-C 230.A29.
N. Possible violations of criminal statutes in
connection with
financial affairs:
(1) IPAs
shall comply with the requirements of GAGAS 6.19-6.24 relating to fraud,
noncompliance with provisions of laws, regulations, contracts and grant
agreements, waste, and abuse. Relating
to contracts and grant agreements, IPAs shall extend the AICPA requirements
pertaining to the auditors’ responsibilities for laws and regulations to also
apply to consideration of compliance with provisions of contracts or grant
agreements. Concerning abuse, if an IPA
becomes aware of abuse that could be quantitatively, or qualitatively material
to the financial statements or other financial data significant to the audit
objectives, the IPA shall apply audit procedures specifically directed to
ascertain the potential effect on the financial statements or other financial
data significant to the audit objectives.
(2) Pursuant
to Section 12-6-6 NMSA 1978 (criminal violations), an agency, LPB, or
IPA shall notify the state auditor immediately[, in writing,] upon
discovery of any [alleged] apparent violation of a criminal
statute in connection with financial affairs.
If an agency or IPA has already made a report to law enforcement that
fact shall be included in the notification.
[The notification shall be sent by e-mail to reports@osa.state.nm.us,
by facsimile, or by US mail.
Notifications shall not be made through the fraud hotline.] If
not immediately known, a follow-up [The] notification shall include
an estimate of the dollar amount involved, if known or estimable, and a
description of the [alleged] apparent violation, including names
of persons involved and any action taken or planned. [The state auditor may
cause the financial affairs and transactions of the agency to be audited in
whole or in part pursuant to Section 12-6-3 NMSA 1978 and 2.2.2.15 NMAC. If the state auditor does not designate an agency
for audit, an agency shall follow the provisions of 2.2.2.15 NMAC when entering into a professional services contract for a special
audit, performance audit, non-attest engagement, or attestation engagement
regarding the financial affairs and transactions of the agency relating to
financial fraud, waste and abuse.]
[ (3) In
accordance with Section 12-6-6 NMSA 1978, the state auditor, immediately upon
discovery of any violation of a criminal statute in connection with financial
affairs, shall report the violation to the proper prosecuting officer and
furnish the officer with all data and information in the auditor’s possession
relative to the violation.]
O. Special revenue funds authority: The authority
for creation of special revenue funds and any minimum balance required shall be
shown in the audit report (i.e., cite the statute number, code of federal
regulation, executive order, resolution number, or other specific authority) on
the divider page before the combining financial statements or in the notes to
the financial statements. This
requirement does not apply to the statewide ACFR.
(1) All
monies coming into all agencies (i.e., vending machines, fees for photocopies, telephone
charges, etc.) shall be considered public monies and be accounted for as
such. For state agencies, all revenues
generated shall be authorized by legislation (MAPS FIN 11.4).
(2) If
the agency has investments in
securities and derivative instruments, the
IPA shall comply with the requirements of AU-C 501.04-.10. If the IPA elects to use the work of an
auditor’s specialist to meet the requirements of AU-C 501, the requirements of
AU-C 620 shall also be met.
(3) Pursuant
to Section 12-6-5 NMSA 1978, each audit report shall include a list of
individual deposit and investment accounts held by the agency. The information presented in the audit report
shall include at a minimum:
(a) name
of depository (i.e., bank, credit union, state treasurer, state investment
council, etc.);
(b) account
name;
(c) type
of deposit or investment account (also required in separate component unit
audit reports):
(i) types of deposit accounts
include non-interest bearing checking, interest bearing checking, savings,
money market accounts, certificates of deposit, etc.; and
(ii) types
of investment accounts include state treasurer general fund investment pool
(SGFIP), state treasurer local government investment pool (LGIP), U.S. treasury
bills, securities of U.S. agencies such as Fannie Mae (FNMA), Freddie Mac
(FHLMC), government national mortgage association (GNMA), Sallie Mae, small
business administration (SBA), federal housing administration (FHA), etc.
(d) account
balance of deposits and investments as of the balance sheet date;
(e) reconciled
balance of deposits and investments as of the balance sheet date as reported in
the financial statements; and
(f) for
state agencies only, statewide human resources accounting and management
reporting system (SHARE) fund number. In auditing the balance of a state
agency’s investment in the SGFIP, the IPA shall review the individual state
agency’s cash reconciliation procedures and determine whether those procedures
would reduce the agency’s risk of misstatement in the investment in SGFIP, and
whether the agency is actually performing those
procedures. The IPA shall also take into
consideration the complexity of the types of cash transactions that the state
agency enters into and whether the agency processes
its deposits and payments through SHARE.
The IPA shall use professional judgment to determine each state agency’s
risk of misstatement in the investment in the SGFIP and write findings and
modify opinions as deemed appropriate by the IPA.
(4) Pledged
collateral:
(a) All
audit reports shall disclose applicable collateral requirements in the notes to
the financial statements. In addition, there shall be a SI schedule or note to
the financial statements that discloses the collateral pledged by each
depository for public funds. The SI
schedule or note shall disclose the type of security (i.e., bond, note,
treasury, bill, etc.), security number, committee on uniform security
identification procedures [(CUSIP)]
number, fair market value and maturity date.
(b) Pursuant
to Section 6-10-17 NMSA 1978, the pledged collateral for deposits in banks and
savings and loan associations shall have an aggregate value equal to one-half
of the amount of public money held by the depository. If this requirement is
not met the audit report shall include a finding. No security is required for the deposit of
public money that is insured by the federal deposit insurance corporation
(FDIC) or the national credit union administration (NCUA) in accordance with
Section 6-10-16 NMSA 1978. Collateral
requirements shall be calculated separately for each bank and disclosed in the
notes.
(c) All applicable GASB 40 disclosure
requirements relating to deposit and investment risk shall be met. In
accordance with GASBS 40.8, relating to custodial credit risk, the notes to the
financial statements shall disclose the dollar amount of deposits subject to
custodial credit risk, and the type of risk the deposits are exposed to. To determine compliance with the fifty
percent pledged collateral requirement of Section 6-10-17 NMSA 1978, the
disclosure shall include the dollar amount of each of the following for each
financial institution: fifty percent pledged collateral requirement per
statute, total pledged collateral, uninsured and uncollateralized.
(d) Repurchase
agreements shall be secured by pledged collateral having a market value of at
least one hundred two percent of the contract per Subsection H of Section
6-10-10 NMSA 1978. To determine
compliance with the one hundred two percent pledged collateral requirement of
Section 6-10-10 NMSA 1978, the disclosure shall include the dollar amount of
the following for each repurchase agreement:
one hundred-two percent pledged collateral requirement per statute, and
total pledged collateral.
(e) Per Subsection A of Section 6-10-16
NMSA 1978, “deposits of public money shall be secured by: securities of the
United States, its agencies or instrumentalities; securities of the state of
New Mexico, its agencies, instrumentalities, counties, municipalities or other
subdivisions; securities, including student loans, that are guaranteed by the
United States or the state of New Mexico; revenue bonds that are underwritten
by a member of the financial industry regulatory authority (known as FINRA),
and are rated “BAA” or above by a nationally recognized bond rating service; or
letters of credit issued by a federal home loan bank.”
(f) Securities shall be accepted as
security at market value pursuant to Subsection C of Section 6-10-16 NMSA 1978.
(g) State
agency investments in the state treasurer’s general fund investment pool do not
require disclosure of specific pledged collateral for amounts held by the state
treasurer. However, the notes to the
financial statements shall refer the reader to the state treasurer’s separately
issued financial statements which disclose the collateral pledged to secure
state treasurer cash and investments.
(h) If an agency has other “authorized”
bank accounts, pledged collateral information shall be obtained from the bank
and disclosed in the notes to the financial statements. The state treasurer monitors pledged
collateral related to most state agency bank accounts. State agencies should not request the pledged
collateral information from the state treasurer. In the event pledged collateral information
specific to the state agency is not available, the following note disclosure
shall be made: detail of pledged collateral specific to this agency is
unavailable because the bank commingles pledged collateral for all state funds
it holds. However, STO’s collateral
bureau monitors pledged collateral for all state funds held by state agencies
in such “authorized” bank accounts.
(5) Agencies
that have investments in the state treasurer’s local government investment pool
shall disclose the information required by GASBS 79 in the notes to their
financial statements. Agencies with
questions about the content of these required note disclosures may contact STO
(http://www.nmsto.gov) for assistance.
(1) Prior year balance included in
budget:
(a) If the agency prepares its budget
on the accrual or modified accrual basis, the statement of revenues and
expenditures (budget and actual) or the budgetary comparisons shall include the
amount of fund balance on the budgetary basis used to balance the budget.
(b) If the agency prepares its budget
on the cash basis, the statement of revenues and expenditures (budget and
actual) or the budgetary comparisons shall include the amount of prior-year
cash balance used to balance the budget (or fund balance on the cash basis).
(2) The
differences between the budgetary basis and GAAP basis revenues and
expenditures shall be reconciled. If the
required budgetary comparison information is included in the basic financial
statements, the reconciliation shall be included on the statement itself or in
the notes to the financial statements.
If the required budgetary comparison is presented as RSI, the
reconciliation to GAAP basis shall appear in either a separate schedule or in
the notes to the RSI (AAG SLV 11.14).
The notes to the financial statements shall disclose the legal level of
budgetary control for the entity and any excess of expenditures over
appropriations at the legal level of budgetary control. The legal level of budgetary control for
local governments is at the fund level.
The legal level of budgetary control for school districts is at the
function level. The legal level of
budgetary control for state agencies is explained at
Subsection A of 2.2.2.12 NMAC. For
additional information regarding the legal level of budgetary control the IPA
may contact the applicable oversight agency (DFA, HED, or PED).
(3) Budgetary
comparisons shall show the original and final appropriated budget (same as
final budget approved by DFA, HED, or PED), the actual amounts on the budgetary
basis, and a column with the variance between the final budget and actual
amounts.
(a) If the budget structure for the
general fund and major special revenue funds is similar enough to the GAAP fund
structure to provide the necessary information, the basic financial statements
shall include budgetary comparison statements for those funds.
(b) Budgetary comparisons for the
general fund and major special revenue funds shall be presented as RSI if the
agency budget structure differs from the GAAP fund structure enough that the
budget information is unavailable for the general fund and major special
revenue funds. An example of this
“perspective difference” would occur if an agency budgets by program with
portions of the general fund and major special revenue funds appearing across
various program budgets. In a case like
that the budgetary comparison would be presented for program budgets and
include information in addition to the general fund and major special revenue
funds budgetary comparison data (GASBS 41.03 and .10).
R. Appropriations:
(1) Budget
related findings:
(a) If
actual expenditures exceed budgeted expenditures at the legal level of
budgetary control, that fact shall be reported in a finding and disclosed in
the notes to the financial statements.
(b) If
budgeted expenditures exceed budgeted revenues (after prior-year cash balance
and any applicable federal receivables used to balance the budget), that fact
shall be reported in a finding. This type of finding shall be confirmed with
the agency’s budget oversight entity (if applicable).
(2) Special,
deficiency, specific, and capital outlay appropriations:
(a) Special,
deficiency, specific, and capital outlay appropriations shall be disclosed in
the notes to the financial statements.
The original appropriation, the appropriation period, expenditures to
date, outstanding encumbrances, unencumbered balances, and amounts reverted
shall be shown in a SI schedule or in a note to the financial statements. The accounting treatment of any unexpended
balances shall be fully explained in the SI schedule or in a note to the
financial statements. This is a special
requirement of the state auditor, and it does not apply to the statewide ACFR
audit.
(b) The
accounting treatment of any unexpended balances shall be fully explained in the
SI schedule or in a note to the financial statements regarding the special
appropriations.
S. Consideration of internal control and risk
assessment in a financial statement audit:
(1) Audits performed under this rule
shall include tests of internal controls (manual or automated) over assertions
about the financial statements and about compliance related to laws,
regulations, and contract and grant provisions. IPAs and agencies are encouraged
to reference the U.S. GAOs’ Standards for
Internal Control in the Federal Government, known as the “Green Book”, which may be adopted by
state, local, and quasi-governmental Agencies as a framework for an internal
control system.
(2) The department of information
technology is to engage in an SOC-2 compliance audit of the SHARE system
annually, starting in 2024.
(3) The
OSA may select additional agencies’ application systems of record for SOC
Audit.
T. Required auditor’s reports:
(1) The
AICPA provides examples of independent auditor’s reports in the appendix to
chapter 4 of AAG GAS and appendix A to chapter 16 of AAG SLV. Guidance is provided in footnote 4 to
appendix A to chapter 16 of AAG SLV regarding wording used when opining on
budgetary statements on the GAAP basis.
IPAs conducting audits under this rule shall follow the AICPA report
examples. All independent auditor’s
reports shall include a statement that the audit was performed in accordance
with auditing standards generally accepted in the United States of America and with applicable government auditing
standards per GAGAS 6.36. This
statement shall be modified in accordance with GAGAS 2.17b if some GAGAS
requirements were not followed. Reports
for single audits of fiscal years beginning on or after December 26, 2014 shall have references to OMB Circular A-133 replaced
with references to Title 2 U.S. Code of Federal Regulations (CFR) Part 200,
Uniform Administrative Requirements, Cost Principles, and Audit Requirements
for Federal Awards (Uniform Guidance 200.110(b), AAG GAS 4.89, Example 4-1).
(2) The
AICPA provides examples of the report on internal control over financial
reporting and on compliance and other matters based on an audit of financial
statements performed in accordance with government auditing standards in the
appendix to chapter 4 of AAG GAS. IPAs conducting audits under this rule shall
follow the AICPA report examples.
(a) The
state auditor requires the report on internal control over financial reporting
and on compliance and other matters based on an audit of financial statements
performed in accordance with government auditing standards be dated the same
date as the independent auditor’s report.
(b) No
separate management letters shall be issued to the agency by the auditor. Issuance of a separate management letter to
an agency shall be considered a violation of the terms of the audit contract
and may result in further action by the state auditor. See also Subsection F of 2.2.2.10 NMAC
regarding this issue.
(3) The AICPA provides examples of the report on compliance for each
major federal program and on internal control over compliance required by the
uniform guidance in the appendix to chapter 13 of AAG GAS. IPAs conducting
audits under this rule shall follow the AICPA report examples.
(4) The state auditor requires the financial
statements, RSI, SI, and other information required by this rule, and the
following reports to be included under
one report cover: the independent auditor’s report; the report on
internal control over financial reporting and on compliance and other matters
based on an audit of financial statements performed in accordance with
government auditing standards; and the report on compliance for each major
federal program and on internal control over compliance required by the uniform
guidance. If applicable, the independent
auditor’s report shall include the AU-C 725 opinion on SI, the schedule of
expenditures of federal awards and the HUD FDS (required by HUD guidelines on
reporting and attestation requirements of uniform financial reporting standards). The report shall also contain a table of
contents and an official roster. The IPA
may submit a written request for an exemption from the “one report cover” requirement, but shall receive prior written approval from
the state auditor in order to present any of the above information under a
separate cover.
U. Disposition
of property: Sections 13-6-1 and 13-6-2 NMSA 1978 govern the
disposition of tangible personal property owned by state agencies, local public
bodies, school districts, and state educational institutions. At least 30 days prior to any disposition of
property included on the agency inventory list, written notification of the
official finding and proposed disposition duly sworn and subscribed under oath
by each member of the authority approving the action shall be sent to the state
auditor. The disposition list shall
include worn out, unusable or obsolete items, and may include trade-ins, and
lost, stolen, or destroyed items, as applicable.
(1) Any
joint powers agreement (JPA) shall be listed in a SI schedule in the audit
report. The statewide ACFR schedule
shall include JPAs that are significant to the state as a
whole. The schedule shall include
the following information for each JPA: participants; party responsible for operations; description; beginning
and ending dates of the JPA; total estimated amount of project and portion
applicable to the agency; amount the agency contributed in
the current fiscal year; audit responsibility; fiscal agent if applicable; and
name of the government agency where revenues and expenditures are reported.
(2) For self-insurance obtained under a
JPA, see the GASB Codification Section J50.113.
W. Inventory
certification:
(1) All agencies shall comply with the requirements of Section
12-6-10 NMSA 1978 and
also maintain a
capitalization policy that complies with the law. All agencies shall maintain an inventory
listing of chattels and equipment that cost over five thousand dollars
($5,000).
X. Tax increment development districts: Pursuant to
Subsection C of Section 5-15-9 NMSA 1978, tax increment development districts
(TIDDs) are political subdivisions of the state, and they are separate and
apart from the municipality or county in which they are located. Section
5-15-10 NMSA 1978 states that the district shall be governed by the governing
body that adopted a resolution to form the district or by a five-member board
composed of four members appointed by that governing body; provided, however,
that the fifth member of the five-member board is the secretary of finance and
administration or the secretary’s designee with full voting privileges. However, in the case of an appointed board of
directors that is not the governing body, at the end of the appointed
directors’ initial terms, the board shall hold an election of new directors by
majority vote of owners and qualified resident electors. Therefore, a TIDD and its audit firm shall
apply the criteria of GASBS 14, 39, 61, and 80 to determine whether the TIDD is
a component unit of the municipality or county that approved it, or whether the
TIDD is a related organization of the municipality or county that approved
it. If the TIDD is determined to be a
related organization per the GAAP requirements, then the TIDD shall contract
separately for an audit separate from the audit of the municipality or county
that approved it.
Y. GASBS 68, accounting
and financial reporting for pensions:
(1) PERA and ERB shall each prepare
schedules of employer allocations as of June 30 of each fiscal year. The state auditor requires the following:
(a) Prior
to distribution of the schedule of employer allocations, PERA and ERB shall
obtain audits of their respective schedules.
These audits shall be conducted in accordance with government auditing
standards and AU-C 805, special considerations - audits of single financial
statements and specific elements, accounts, or items of a financial statement.
(b) Pursuant to AU-C 805.16, the PERA and
ERB auditors shall each issue a separate auditor’s report and express a
separate opinion on the AU-C 805 audit performed (distinct from the agency’s
regular financial statement and compliance audit). Additionally, the auditor
shall apply the procedures required by AU-C 725 to all supplementary
information schedules included in the schedule of employer allocations report in order to determine whether the supplementary information
is fairly stated, in all material respects, in relation to the financial
statements as a whole. The IPA shall
include the supplementary information schedules in the related reporting in the
other-matter paragraph pursuant to AU-C 725.09, regarding whether such
information is fairly stated in all material respects in relation to the
schedule of employer allocations as a whole.
(c) PERA
and ERB shall include note
disclosures in their respective schedule of employer allocations reports that
detail each component of allocable pension expense at the fund level, excluding
employer-specific pension expense for changes in proportion. Each plan shall also include note disclosures
by fund detailing collective fund-level deferred outflows of resources and
deferred inflows of resources. The
disclosures shall include a summary of changes in the collective deferred and
inflows outflows of resources (excluding employer specific amounts), by year of
deferral.
(d) The AU-C 805 audits and resulting
separate reports on the PERA and ERB schedules of employer allocations shall be
submitted to the OSA for review and release pursuant to Subsection A of
2.2.2.13 NMAC, prior to distribution to the participant employers.
(e) As soon as the AU-C 805 reports
become public record, PERA and ERB shall make the information available to
their participant employers.
(f) PERA
and ERB shall each prepare an
employer guide that illustrates [the correct use of their respective
schedule of employer allocations report by their participant employers. The guides shall explicitly distinguish
between the plan-level reporting and any employer-specific items] the
use of their respective schedule of employer allocations report to create
journal entries generally required by GASBS 68. The calculations [and record-keeping] necessary
at the employer level (for adjusting journal entries, amortization of deferred
amounts, etc.) shall be described and illustrated. The employer guides shall be made available
to the participant employers by June 30 of the subsequent fiscal year. Stand-alone state agency financial statements
that exclude the proportionate share of the collective net pension liability of
the state of New Mexico shall include note disclosure referring the reader to
the statewide ACFR for the state’s net pension liability and other pension-related information.
(2) Stand-alone state
agency financial statements that exclude the proportionate share of the
collective net pension liability of the state of New Mexico shall include note
disclosure referring the reader to the statewide ACFR for the state’s net
pension liability and other pension-related information.
Z. GASBS 77, tax abatement agreements: Unaudited, but
final, GASBS 77 disclosure information shall be provided to any agency whose
tax revenues are affected by the reporting agency’s tax abatement agreements no
later than September 15 of the subsequent fiscal year. This due date does not
apply if the reporting agency does not have any tax abatement agreements that
reduce the tax revenues of another agency.
All tax abatement agreements entered into by an
agency’s component unit(s) shall be disclosed in the same manner as the tax
abatement agreements of the primary government.
If an agency determines that any required disclosure is confidential,
the agency shall cite the legal authority for the determination.
AA. GASBS 75, accounting and financial
reporting for postemployment benefits other than pensions: The retiree health care authority (RHCA)
shall prepare a schedule of employer allocations as of June 30 of each fiscal
year. The state auditor requires the
following:
(1) Prior
to distribution of the schedule of employer allocations, RHCA shall obtain an
audit of the schedule. This audit shall
be conducted in accordance with government auditing standards and AU-C 805,
special considerations - audits of single financial statements and specific
elements, accounts, or items of a financial statement.
(2) Pursuant to AU-C 805.16, the RHCA
auditors shall issue a separate auditor’s report and express a separate opinion
on the AU-C 805 audit performed (distinct from the agency’s regular financial
statement and compliance audit).
Additionally, the auditor shall apply the procedures required by AU-C
725 to all supplementary information schedules included in the schedule of
employer allocations report in order to determine
whether the supplementary information is fairly stated, in all material
respects, in relation to the financial statements as a whole. The IPA shall include the supplementary
information schedules in the related reporting in the other-matter paragraph
pursuant to AU-C 725.09, regarding whether such information is fairly stated in
all material respects in relation to the schedule of employer allocations as a whole.
(3) RHCA shall include note disclosures in the
schedule of employer allocations report that detail each component of allocable
OPEB expense at the fund level, excluding employer-specific OPEB expense for
changes in proportion. RHCA shall also include note disclosures by fund
detailing collective fund-level deferred outflows of resources and deferred
inflows of resources. The disclosures
shall include a summary of changes in the collective deferred outflows and
inflows of resources (excluding employer specific amounts), by year of
deferral.
(4) The AU-C 805 audit and resulting
separate report on the RHCA schedule of employer allocations shall be submitted
to the OSA for review and release pursuant to Subsection A of 2.2.2.13 NMAC,
prior to distribution to the participant employers.
(5) As soon as the AU-C 805 reports
become public record, RHCA shall make the information available to its
participant employers.
(6) RHCA
shall prepare an employer guide that illustrates the correct use of the
schedule of employer allocations report by its participant employers. The guide shall explicitly distinguish
between the plan-level reporting and any employer-specific items. The calculations and record-keeping necessary
at the employer level (for adjusting journal entries, amortization of deferred
amounts, etc.) shall be described and illustrated. The employer guide shall be made available to
the participant employers by June 30 of the subsequent fiscal year.
(7) Stand-alone
state agency financial statements that exclude the proportionate share of the
collective OPEB liability of the state of New Mexico, shall include note
disclosure referring the reader to the statewide ACFR for the state’s net OPEB
liability and other OPEB-related information.
[2.2.2.10
NMAC - Rp, 2.2.2.10 NMAC, 3/28/2023; A, xx/xx/2024]
2.2.2.12 SPECIFIC
CRITERIA: The specific criteria described in this
section shall be considered in planning and conducting governmental audits. These
requirements are not intended to be all-inclusive; therefore, OSA recommends
that IPAs review the NMSA and NMAC while planning governmental audits.
A. Pertaining to audits of state agencies:
(1) Due dates for agency audits: audit
reports of agencies under the oversight of DFA FCD are due to OSA in accordance
with the requirements of Subsection D of Section 12-6-3 NMSA 1978 and
Subsection A of 2.2.2.9 NMAC.
(2) All the individual SHARE funds
shall be reported in the financial statements, either within the basic
financial statements or as SI.
(3) Accounts payable at year-end and
reversion calculation: If goods and
services were received (as defined by generally accepted accounting principles)
by the end of the fiscal year but not paid for by the end of the fiscal year,
an accounts payable shall be reported for the respective amount due in both the
government-wide financial statements and the fund financial statements. The “actual”
expenditures in the budgetary comparison exclude any accounts payable that were
not paid timely and therefore require a request to the
financial control division to pay prior year bills out of the current year
budget. They are paid out of the budget
of the following fiscal year. An
agency’s reversions are calculated using the budgetary basis expenditures because the agency does not have the
legal authority to obligate the state for liabilities once the appropriation
period has lapsed. Thus, the agency cannot
keep the cash related to accounts payable that were not paid
timely. This results in a
negative fund balance in the modified accrual basis financial statements of a
reverting fund.
(4) Net position/fund balance:
(a) Pursuant to GASBS 63.8 the
government-wide statement of net position and the proprietary fund statement of
net position show net position as:
(i) net investment in capital assets as
defined by GASBS 63.9;
(ii) restricted
(distinguishing between major categories of restrictions) as defined by GASBS
63.10; and
(iii) unrestricted
as defined by GASBS 63.11.
(b) Governmental fund financial
statement fund balances shall be reported in accordance with GASBS 54.
(5) Book
of record:
(a) The
state maintains the centralized accounting system SHARE. The SHARE data and reports are the original
book of record that the auditor is auditing.
Each fiscal year, the agency shall record all audit adjusting journal
entries in SHARE. The financial
information in SHARE shall agree to the agency’s
audited financial statements, with the exception of
accounts payable as explained in Subsection A of 2.2.2.12 NMAC. If the agency maintains a separate accounting
system, it shall be reconciled with the SHARE system and all applicable
adjustments shall be recorded in SHARE in the month in which the transactions
occurred. DFA FCD provides guidance to
agencies, which IPAs shall review, regarding policy and procedure
requirements. These documents are
available on the DFA FCD website and include:
(i) the manual of model accounting
practices (MAPs);
(ii) various
white papers, yearly closing instructions; and
(iii) various
accounting guideline memos.
(b) The
statement of revenues and expenditures in the audit report shall be presented
in accordance with GAAP, by function or program classification and object
code. However, the budgetary comparison
statements shall be presented using the level of appropriation reflected in the
final approved budget. The SHARE chart
of accounts reflects the following appropriation unit levels:
|
Appropriation unit code/appropriation unit description |
|
|
200 |
personal
services & employee benefits |
|
300 |
contractual
services |
|
400 |
other |
|
500 |
other financing
uses |
|
600 |
non-budgeted |
(c) Revenue
categories of appropriations to state agencies are listed below. The budgetary comparison statements for state
agencies shall be presented in the audit report by the revenue categories shown
below and by the expenditure categories that appear in the agency’s final
approved budget.
(i) state general
fund;
(ii) other state funds;
(iii) internal service funds/inter-agency
transfers; or
(iv) federal funds.
(d) For more detail about the SHARE
chart of accounts see the DFA website.
(6) Reversions
to state general fund:
(a) All
reversions to the state general fund shall be identified in the financial
statements or the notes to the financial statements by the fiscal year of
appropriation (i.e., reversion to state general fund - FY 16). The gross amount of the appropriation and the
gross amount of the reversion shall be shown separately.
(b) Subsection A of Section 6-5-10 NMSA
1978 states “all unreserved undesignated fund balances in reverting funds and
accounts as reflected in the central accounting system as of June 30 shall
revert by September 30 to the general fund.
The division may adjust the reversion within 45 days of release of the
audit report for that fiscal year.”
Failure to transfer reverting funds timely in compliance with the statute
requires an audit finding.
(7) Non-reciprocal (not payments for
materials or services rendered) interfund (internal) activity includes:
(a) transfers;
and
(b) reimbursements
(GASBS 34.410):
(i) intra-agency
transfers between funds within the agency shall offset (i.e. balance). Reasons for intra-agency transfers shall be
fully explained in the notes to the financial statements. In the separate audit reports of state
agencies, transfers between their internal funds are shown as other financing
sources or uses in the fund financial statements and as transfers (that get
eliminated) in the government-wide financial statements;
(ii) inter-agency transfers (between an agency’s
internal funds and other funds of the state that are outside the agency such as
state general fund appropriations, special appropriations, bond proceeds
appropriations, reversions to the state general fund, and transfers to/from
other state agencies) shall be segregated from intra-agency transfers and fully
explained in the notes to the financial statements along with the agency number
and SHARE fund number to whom and from whom transferred. The transfers may be detailed in supporting
schedules rather than in the notes, but agency and SHARE fund numbers shall be
shown. The schedule shall be presented
on the modified accrual basis. The IPA
is responsible for performing audit procedures on all such inter-agency
transfers.
(c) Regarding inter-agency transfers
between legally separate component units and the primary government (the state
of New Mexico):
(i) if the
inter-agency transfer is between a blended component unit of the state and
other funds of the state, then the component unit’s separately issued financial
statements report such activity between itself and the primary government as
revenues and expenses. When the blended
component unit is included in the primary government’s financial statements,
such inter-agency transfers are reclassified as transfers (GASBS 34.318);
(ii) all resource flows between a
discretely presented component unit of the state and other funds of the state shall
be reported as external transactions - revenues and expenses - in the primary
government’s financial statements and the component unit’s separately issued
financial statements (GASBS 34.318);
(d) All transfers to and from SHARE
fund 853, the state general fund appropriation account, shall be clearly
identifiable in the audit report as state general fund appropriations,
reversions, or collections;
(e) Reimbursements are transfers
between funds that are used to reallocate the revenues and
expenditures/expenses to the appropriate fund.
Reimbursements are not reported as inter-fund activity in the financial
statements.
(8) General
services department capital projects: in general, GSD records the state of New
Mexico capitalized land and buildings for which it is responsible, in its
accounting records. The cost of
furniture, fixtures, and moveable equipment owned by agencies is to be
capitalized in the accounting records of the agency that purchased them. The agency shall capitalize those assets
based on actual amounts expended in accordance with GSD instructions issued in
2.20.1.10 NMAC.
(9) State-owned
motor vehicle inventory: successful management of state-owned vehicles pursuant
to the Transportation Services Act (Sections 15-8-1 to 15-8-11 NMSA 1978) is
dependent on reliable and accurate capital assets inventory records and
physical verification of that inventory.
Thus, the annual audit of state agencies shall include specific tests of
the reliability of the capital assets inventory and verification that a
physical inventory was conducted for both the agency's owned vehicles and
long-term leased vehicles.
(10) Independent auditor’s report: The independent auditor’s report for state
agencies, district attorneys, district courts, and the educational institutions
created by New Mexico Constitution Article XII, Sec. 11 shall include an
emphasis of matter paragraph referencing the summary of significant accounting
principles disclosure regarding the reporting agency. The emphasis of matter paragraph shall
indicate that the financial statements are not intended to present the
financial position and changes in financial position of the primary government,
the state of New Mexico, but just the financial position and the changes in
financial position of the department.
The emphasis of matter paragraph shall follow the example provided in
AAG SLV 16.103 ex. A-17.
(11) Budgetary
basis for state agencies: the state budget is adopted on the modified accrual
basis of accounting except for accounts payable accrued at the end of the
fiscal year that do not get accrued by the statutory deadline per Section
6-10-4 NMSA 1978. Those accounts payable
that do not get paid timely or accrued by the statutory deadline shall be paid
out of the next year’s budget. If an
agency needs to recognize additional accounts payable amounts that were not
accrued by the statutory deadline, then the budgetary statements and the fund
financial statements require a reconciliation of expenditures, as discussed at
Subsection Q of 2.2.2.10 NMAC. All
transactions are recorded in the state’s book of record, SHARE, under the
modified accrual basis of accounting except for accounts payable not meeting
the statutory deadline; therefore, the “actual” expenditures in the budgetary
comparison schedules equal the expenditures as recorded in SHARE for the fund. Encumbrances related to single year
appropriations lapse at year end.
Appropriation periods are sometimes for periods in
excess of 12 months (multiple-year appropriations). When multiple-year appropriation periods
lapse, the authority for the related budgets also lapse
and encumbrances can no longer be charged to those budgets. The legal level of budgetary control shall be
disclosed in the notes to the financial statements. Per Subsection C of Section 9 of the General
Appropriation Act of 2017, all agencies, including legislative agencies, may
request category transfers among personal services and employee benefits,
contractual services and other.
Therefore, the legal level of budgetary control is the appropriation
program level (A-Code, P-Code, and Z-Code).
A-Codes pertain to capital outlay appropriations (general
obligation/severance tax or state general fund). P-Codes pertain to program/operating funds.
Z-Codes pertain to special appropriations.
The IPA shall compare total expenditures for each program to the
program’s approved final budget to evaluate compliance.
(12) Budgetary
comparisons of state agencies shall show the original and final appropriated
budget (same as final budget approved by DFA), the actual amounts on the
budgetary basis, and a column with the variance between the final budget and
actual amounts. If a state agency
presents budgetary comparisons by fund, the appropriation program code(s)
(A-Code, P-Code, and Z-Code) shall be reported on the budgetary comparison
schedule.
(13) Accounting for special capital outlay
appropriations financed by bond proceeds.
(14) Amounts “due from other state agencies”
and “due to other state agencies”: if a state agency reports amounts “due from”
or “due to” other state agencies the notes shall disclose the amount “due to”
or “due from” each agency, the name of each agency, the SHARE fund account
numbers, and the purpose of the account balance.
(15) Investments in the state general fund
investment pool (SGFIP): these balances are presented as cash and cash
equivalents in the statements of net position and the balance sheets of the
participant agencies, with the exception of the
component appropriation funds (state general fund). The notes to the financial statements of the
component appropriation funds shall contain GASBS 40 disclosures for the
SGFIP. This disclosure may refer the
reader to the separate audit report for STO for additional information
regarding the SGFIP.
(16) Format for the statement of
activities: state agencies that have
more than one program or function shall use the financial statement format
presented in GASBS 34, Illustrations B-1 through B-4. The simplified statement of activities (GASBS
34, Illustration B-5) may not be used for agencies that have multiple programs
or functions. GASBS 34.41 requires governments to report direct expenses for
each function.
B. Pertaining to audits of housing authorities:
(1) Housing authorities within the
state of New Mexico consist of regional housing authorities, component units or
departments of local governments, component units of housing authorities, and
housing authorities created by intergovernmental agreements between cities and
counties that are authorized to exercise all powers under the Municipal Housing
Law, Section 3-45-1 et seq., NMSA
1978.
(2) The
financial statements of a housing authority that is a department, program or
component unit of a primary government shall be included in the financial audit
report of the primary government. IPAs
shall use GASB guidelines as found in relevant GASBS to determine the correct
presentation of the component unit.
(3) Audits of PHAs that are departments
of a local government shall be conducted by the same IPA that performs the
audit of the local government. Separate
audit contracts shall not be approved.
(a) Local
governments are encouraged to include representatives from PHAs that are
departments of the local government in the IPA selection process.
(b) The
IPA shall include the housing authority’s governing board and management
representatives in the entrance and exit conferences with the primary
government. If it is not possible to
hold such combined conferences, the IPA shall hold separate entrance and exit
conferences with housing authority’s management and a member of the governing
board. The OSA has the authority to
notify the agency or IPA that the state auditor shall be informed of the date
of the entrance conference, any progress meetings and
the exit conference. If such
notification is received, the IPA and agency shall invite the state auditor to
attend all such conferences no later than 72 hours before the proposed
conference.
(4) The following information relates
to housing authorities that are
component units of a local government.
(a) The housing authority shall account
for financial activity in proprietary funds.
(b) At the public housing authority’s
discretion, the agency may “be audited separately from the audit of its local
primary government entity, other than a housing department of a local
government or a regional housing authority.
If a separate audit is made, the public housing authority audit shall be
included in the local primary government entity audit and need not be conducted
by the same auditor who audits the financial affairs of the local primary
government entity” (Subsection E of Section 12-6-3 NMSA 1978). Statute further stipulates in Subsection A of
Section 12-6-4 NMSA 1978 that “a public housing authority other than a regional
housing authority shall not bear the cost of an audit conducted solely at the
request of its local primary government entity.”
(c) Audit reports of separate audits of
component unit housing authorities shall be released by the state auditor
separately from the primary government’s report under a separate release letter
to the housing authority.
(5) Public housing authorities and their
IPAs shall follow the requirements of Guidelines
on Reporting and Attestation Requirements of Uniform Financial Reporting
Standards (UFRS), which is available on the U.S. department of housing and
urban development’s website under a search for UFRS. Additional administrative issues related to
audits of public housing authorities follow.
(a) Housing authority audit contracts
include the cost of the audit firm’s AU-C 725 opinion on the FDS. The preparation and submission cost for this
HUD requirement shall be included in the audit contract. The public housing authority shall
electronically submit a final approved FDS based on the audited financial
statements no later than nine months after the public housing authority’s
fiscal year end. The IPA shall:
(i) electronically report on the
comparison of the electronic FDS submission in the [REAC] real estate
assessment center staging database through the use of
an identification (ID) and password;
(ii) include
an electronic version of the FDS in the audit report;
(iii) render an AU-C 725 opinion on the FDS; and
(iv) explain
in the notes any material differences between the FDS and the financial
statements.
(b) The
IPA shall consider whether any fee accountant used by the housing authority is
a service organization and, if applicable, follow the requirements of AU-C 402
regarding service organizations.
(c) The IPA shall provide the housing
authority with an itemized cost breakdown by program area for audit services
rendered in conjunction with the housing authority.
(6) Single audit reporting issue: If a single audit is performed on the
separate audit report for the public housing authority, including the housing
authority’s schedule of expenditures of federal awards, the housing authority
federal funds do not need to be subjected a second time to a single audit
during the single audit of the primary government. In this situation, the
housing authority’s federal expenditures do not need to be included in the
primary government’s schedule of expenditures of federal awards. See AAG GAS 6.15 for more information.
C. Pertaining to audits of school districts:
(1) In the event that a state-chartered
charter school subject to oversight by PED is not subject to the requirement to
use the same auditor as PED, that charter school is reminded that their audit
contract shall be submitted to PED for approval. Charter schools shall ensure that sufficient
time is allowed for PED review refer to Subsection F of 2.2.2.8 NMAC for the
due date for submission of the audit contract to the OSA.
(2) [Regional education
cooperative (REC)]
REC audits:
(a) A separate financial and compliance
audit is required on activities of RECs. The IPA shall provide copies of the REC
report to the participating school districts and PED once the report has been
released by the state auditor.
(b) Audits of RECs shall include tests
for compliance with Section 6.23.3 NMAC.
(c) Any ‘on-behalf’ payments for fringe
benefits and salaries made by RECs for employees of school districts shall be
accounted for in accordance with GASB Cod. Sec. N50.135 and communicated to the
employer in accordance with GASB Cod. Sec. N50.131.
(d) The audit report of each REC shall
include a cash reconciliation schedule which reconciles the cash balance as of
the end of the previous fiscal year to the cash balance as of the end of the
current fiscal year. This schedule shall
account for cash in the same categories used by the REC in its monthly cash
reports to the PED. If there are
differences in cash per the REC financial statements and cash per the REC
accounting records, the IPA shall provide the adjusting entries to the REC to
reconcile cash per the financial statements to cash per the REC accounting
records. If cash per the REC accounting
records differs from the cash amount the REC reports to PED in the monthly cash
report, the IPA shall issue a finding which explains that the PED reports do
not reconcile to the REC accounting records.
(3) School district audits shall
address the following issues:
(a) Audits of school districts shall
include tests for compliance with Section 6.20.2 NMAC and PED’s manual of
procedures for public schools accounting and budgeting (PSAB), with specific
emphasis on supplement 7, cash controls.
(b) The
audit report of each school district shall include a cash reconciliation
schedule which reconciles the cash balance as of the end of the previous fiscal
year to the cash balance as of the end of the current fiscal year. This schedule is also required for each
charter school chartered by a school district and each charter school chartered
by PED. This schedule shall account for
cash in the same categories used by the district in its monthly cash reports to
PED. Subsection D of Section 6.20.2.13
NMAC states that school districts shall use the “cash basis of accounting for
budgeting and reporting”. The financial
statements are prepared on the accrual basis of accounting. Subsection E of Section 6.20.2.13 NMAC states
that “if there are differences between the financial statements, school
district records and department records, the IPA should provide the adjusting
entries to the school district to reconcile the report to the school district
records.” If there are differences
between the school district records and the PED report amounts, other than
those explained by the adjusting entries, the IPA shall issue a finding which
explains that the PED reports do not reconcile to the school district records.
(c) Any joint ventures or other
Agencies created by a school district are agencies subject to the Audit Act.
(d) Student
activity funds: Risk should be assessed and an appropriate sample tested regarding controls
over student activity funds.
(e) Relating
to capital expenditures by the New Mexico public school facilities authority
(PSFA), school districts shall review capital expenditures made by PSFA for
repairs and building construction projects of the school district. School districts shall also determine the
amount of capital expenditures that shall be added to
the capital assets of the school district and account for those additions
properly. The IPA shall test the school
district capital asset additions for proper inclusion of these expenditures.
(f) Sub-funds
of the general fund: school district audit reports shall include individual
fund financial statements for the following sub-funds of the general fund: operational, transportation, instructional
materials and teacherage (if applicable).
(4) Pertaining
to charter schools:
(a) A charter school is a conversion
school or start-up school within a school district authorized by the local
school board or PED to operate as a charter school. A charter school is considered a public
school, accredited by the state board of public education and accountable to
the school district’s local school board, or PED, for ensuring compliance with
applicable laws, rules and charter provisions. A charter school is administered and governed
by a governing body in a manner set forth in the charter.
(b) Certain GASBS 14 criteria (as
amended by GASBS 39, 61, and 80) shall be applied to determine whether a
charter school is a component unit of the chartering entity (the district or
PED). The chartering agency (primary
government) shall make the determination whether the charter school is a
component unit of the primary government.
(c) No charter school that has been
determined to be a component unit may be omitted from the financial statements
of the primary government based on materiality.
All charter schools that are component units shall be included in the
basic financial statements using one of the presentation methods described in
GASBS 34.126, as amended.
D. Pertaining to audits of counties: Tax roll
reconciliation county governments: Audit
reports for counties shall include two SI schedules.
(1) The
first one is a “tax roll reconciliation of changes in the county treasurer’s
property taxes receivable” showing the June 30 receivable balance and a breakout
of the receivable for the most recent fiscal year ended, and a total for the
previous nine fiscal years. Per
Subsection C of Section 7-38-81 NMSA 1978, property taxes that have been
delinquent for more than 10 years, together with any penalties and interest,
are presumed to have been paid.
(2) The
second schedule titled “county treasurer’s property tax schedule” shall show by
property tax type and agency, the amount of taxes: levied; collected in the current year;
collected to-date; distributed in the current year; distributed to-date; the
amount determined to be uncollectible in the current year; the uncollectible
amount to-date; and the outstanding receivable balance at the end of the fiscal
year. This information is necessary for
proper revenue recognition on the part of the county as well as on the part of
the recipient agencies, under GASBS 33.
If the county does not have a system set up to gather and report the
necessary information for the property tax schedule, the IPA shall issue a
finding.
E. Pertaining to audits of educational
institutions:
(1) Educational
institutions are reminded that audit contracts shall be submitted to HED for
approval. Refer to Subsection F of 2.2.2.8
NMAC for the due date for submission of the audit contract to the OSA.
(2) Budgetary
comparisons: the legal level of
budgetary control per 5.3.4.10 NMAC shall be disclosed in the notes to the
financial statements. The state auditor
requires that every educational institution’s audit report include budgetary
comparisons as SI. The budgetary
comparisons shall be audited and an auditor’s opinion
shall be rendered. An AU-C 725 opinion
does not meet this requirement. The
budgetary comparisons shall show columns for: the original budget; the revised
budget; actual amounts on the budgetary basis; and a
variance column. The IPA shall confirm
the final adjusted and approved budget with HED. The IPA shall compare the financial statement
budget comparison to the related September 15 budget submission to HED. The
only differences that should exist between the HED budget submission and the
financial statement budgetary comparisons are adjustments made by the
institution after September 15 and audit adjustments. If the HED budget submission does not tie to
the financial statement budgetary comparison, taking into
account only those differences, then the IPA shall write a related
finding. A reconciliation of actual
revenue and expense amounts on the budgetary basis to
the GAAP basis financial statements shall be disclosed at the bottom of the
budgetary comparisons or in the notes to the financial statements. The reconciliation is required only at the
“rolled up” level of “unrestricted and restricted - all operations” and shall
include revenues and expenses. HED
approved the following categories which shall be used for the budgetary
comparisons.
(a) Unrestricted and restricted – All
operations (schedule 1): beginning
fund balance/net position; unrestricted
and restricted revenues; state
general fund appropriations; federal
revenue sources; tuition and fees; land and permanent fund; endowments and private gifts; other; total unrestricted & restricted revenues; unrestricted and restricted expenditures; instruction; academic
support; student services; institutional support; operation and maintenance of plant; student social & cultural
activities; research; public service; internal services; student aid, grants & stipends; auxiliary services; intercollegiate athletics; independent operations; capital outlay; renewal &
replacement; retirement of
indebtedness; total unrestricted
& restricted expenditures; net transfers; change in fund balance/net position (budgetary basis); ending fund
balance/net position.
(b) Unrestricted instruction &
general (schedule 2): beginning fund
balance/net position; unrestricted
revenues; tuition; miscellaneous fees; federal government appropriations; state government appropriations; local government appropriations; federal government contracts/grants; state government contracts/grants; local government contracts/grants; private contracts/grants; endowments; land & permanent fund; private
gifts; sales and services; other; total unrestricted revenues;
unrestricted expenditures; instruction; academic support; student services; institutional
support; operation & maintenance
of plant; total unrestricted expenditures;
net transfers; change in fund
balance/net position (budgetary basis); ending
fund balance/net position.
(c) Restricted instruction &
general (schedule 3): beginning fund
balance/net position; restricted
revenues; tuition; miscellaneous fees; federal government appropriations; state government appropriations; local government appropriations; federal government contracts/grants; state government contracts/grants; local government contracts/grants; private contracts/grants; endowments; land & permanent fund; private
gifts; sales and services; other; total restricted revenues; restricted
expenditures; instruction; academic support; student services; institutional
support; operation & maintenance
of plant; total restricted
expenditures; net transfers; change in fund balance/net position (budgetary
basis); ending fund balance/net position.
(3) Educational institutions shall
present their financial statements using the business type activities model.
(4) Compensated absence liability is
reported as follows: the statement of net position reflects the current portion
of compensated absences under current liabilities and the long-term portion of
compensated absences under noncurrent liabilities.
(5) Component
unit issues: educational institutions shall comply with the requirements of
Subsection A of 2.2.2.10 NMAC.
Additionally:
(a) individual component unit budgetary
comparisons are required if the component unit has a “legally adopted
budget.” A component unit has a legally
adopted budget if it receives any federal funds, state funds, or any other
appropriated funds whose expenditure authority derives from an appropriation
bill or ordinance that was signed into law; and
(b) there is no level of materiality for
reporting findings of component units that do not receive public funds. All component unit findings shall be
disclosed in the primary government’s audit report.
(6) Management discussion and analysis
(MD&A): The MD&A of educational
institutions shall include analysis of significant variations between original
and final budget amounts and between final budget amount and actual budget
results. The analysis shall include any
currently known reasons for those variations that are expected to have a
significant effect on future services or liquidity.
(7) Educational institutions
established by Section 11 of Article XII of the New Mexico state constitution
shall provide the department of finance and administration’s financial control
division with a draft copy of their financial statements excluding opinions and
findings, pursuant to Subsection A of 2.2.2.12 NMAC.
F. Pertaining to audits of investing agencies: Investing
agencies, which are defined as STO, PERA, ERB, and the state investment
council, shall prepare schedules of asset management costs which include management fee information by investment class.
(1) For all asset classes except private
asset classes and alternative investment classes, the schedules shall, at
minimum, include the following information:
(a) relating to consultants: the name of
the firm or individual, the location of the consultant (in-state or
out-of-state), a brief description of investments subject to the agreement, and
fees;
(b) relating to third-party marketers (as defined in Section 6-8-22 NMSA
1978): the name of the firm or individual, the location of the marketer
(in-state or out-of-state), a brief description of investments subject to the
agreement, and any fees, commissions or retainers;
(c) relating to traditional asset
classes: name of the investment, asset class, value of the investment, and fees
(including both “direct” and “embedded” costs).
(2) For private asset classes and
alternative investment classes, the schedules shall, at minimum, include the
following information:
(a) relating to consultants: the
aggregate fees by asset class and consultant location (in-state or
out-of-state), and a brief description of investments included in each asset
class;
(b) relating to third-party marketers (as defined in Section 6-8-22 NMSA
1978): aggregate fees, commissions and retainers by asset class and third-party
marketer location (in-state or out-of-state), and a brief description of
investments included in each asset class;
(c) relating to alternative asset
classes: the total fees by asset class (including both “direct” and “embedded”
costs), and a brief description of the investments included in each asset
class.
(3) These schedules shall be included as
unaudited other information in the audit report.
G. Pertaining to audits
of local public bodies; budgetary comparisons: Auditors shall test local public body budgets
for compliance with required reserves and disclose those reserves on the face
of the financial statements and in notes financial statements (if applicable).
[2.2.2.12 NMAC -
Rp, 2.2.2.12 NMAC, 3/28/2023; A, xx/xx/2024]
2.2.2.14 CONTINUING
PROFESSIONAL EDUCATION AND PEER REVIEW REQUIREMENTS:
A. Continuing professional education: IPAs performing annual financial and
compliance audits, or other attest engagements under GAGAS shall ensure that
all members of their staff comply with the CPE requirements of the most recent
revision of GAGAS.
B. Peer review requirements: IPAs performing annual financial and compliance
audits, or other attest engagements under GAGAS shall comply with the
requirements of the most recent revision of GAGAS relating to quality control
and assurance and external peer review.
(1) [Per AICPA PRP
Section 1000 standards for performing and reporting on peer reviews, a] An audit
firm’s due date for its initial peer review is 18 months from the date the firm
enrolled in the peer review program or should have enrolled, whichever is
earlier. A firm’s subsequent peer review
is due three years and six months from the previous peer review year end.
(2) The
IPA firm profile submission to the state auditor shall include copies of the
following peer review documentation:
(a) the peer review report for the
auditor’s firm;
(b) if applicable, detailed
descriptions of the findings, conclusions and recommendations related to
deficiencies or significant deficiencies required by GAGAS 5.91;
(c) if applicable, the auditor's response to deficiencies or significant
deficiencies;
(d) the letter of acceptance from the
peer review program in which the firm is enrolled; and
(e) a list of the governmental audits
reviewed during the peer review.
(3) A peer review rating of “failed” on
the auditor’s peer review shall disqualify the IPA from performing New Mexico
governmental audits.
(4) During the procurement process IPAs
shall provide a copy of their most recent external peer review report to the
agency with their bid proposal or offer.
Any subsequent peer review reports received during the period of the
contract shall also be provided to the agency.
(5) The peer review shall meet the
requirements of GAGAS 5.60 to 5.95.
(6) The peer reviewer shall be familiar
with this rule. This is a requirement of
the state auditor that can be achieved by attendance at audit rule training
provided by the OSA.
C. State auditor quality control reviews: The state
auditor performs its own quality control review of IPA audit reports and
working papers. An IPA that is included
on the state auditor’s list of approved firms for the first time may be subject
to an OSA quality control review of the IPA’s working papers. This review shall be conducted as soon as the
documentation completion date, as defined by AU-C Section 230, has passed (60 days
after the report release date). When the
result of the state auditor’s quality control review differs significantly from
the external quality control report and corresponding peer review rating, the
state auditor may no longer accept external peer review reports performed by
that reviewer. In making this
determination, the state auditor shall take into consideration the fact that
AICPA peer reviews are performed on a risk-based or key-element approach
looking for systemic problems, while the state auditor reviews are
engagement-specific reviews.
D. SOC Audit qualifications: The OSA requires any firm or IPA contracting
with an agency or LPB to conduct a SOC 1 or SOC 2 Audit engagement to have the
following proof of qualifications: Firms
must have a SOC engagement peer review rating of pass to qualify for a SOC
engagement.
[2.2.2.14 NMAC -
Rp, 2.2.2.14 NMAC, 3/28/2023; A, xx/xx/2024]
2.2.2.15 SPECIAL AUDITS AND EXAMINATIONS:
A. Fraud, waste or abuse in government reported by agencies, IPAs or members of
the public:
(1) Reports of fraud,
waste & abuse: Pursuant to the
authority set forth Section 12-6-3 (C) NMSA 1978, the [state auditor]
OSA may [conduct initial] initiate [fact-finding] special
investigation or examination procedures in connection with reports of
financial fraud, waste and abuse in government.
[made by agencies, IPAs or members of the
public. Reports may be made
telephonically or in writing through the fraud hotline or website established
by the state auditor for the confidential reporting of financial fraud, waste,
and abuse in government. Reports
may be made telephonically to the fraud hotline by calling 1-866-OSA-FRAUD
(1-866-672-3728) or reported in writing through the state auditor’s website at
www.saonm.org.] Reports received or
created by the [state auditor] OSA are confidential audit
information and audit documentation in connection with the state auditor’s
statutory duty to examine and audit the financial affairs of every agency, or
in connection with the state auditor’s statutory discretion to audit the
financial affairs and transactions of an agency in whole or in part.
(2) Confidentiality of
sources: The identity of a person making
a report to the OSA [and associated allegations made directly to the
state auditor orally or in writing, or telephonically or in writing through the
state auditor’s fraud hotline or website, or through any other means,]
alleging financial fraud, waste, or abuse in government is confidential audit
information and may not be disclosed, except as required by Section 12-6-6 NMSA
1978.
(3) Confidentiality of
files: A report alleging financial
fraud, waste, or abuse in government that is made to the OSA [directly
to the state auditor orally or in writing, or telephonically or in writing
through the state auditor’s fraud hotline or website,] and any
resulting special audit, performance audit, attestation engagement or forensic
accounting or other non-attest engagement [, and all records and
files related thereto] files are confidential audit documentation
and may not be disclosed by the OSA or the agency, except to an independent
auditor, performance audit team or forensic accounting team in connection with
a special audit, performance audit, attestation engagement, forensic accounting
engagement, non-attest engagement, or other existing or potential engagement
regarding the financial affairs or transactions of an agency. [Any
information related to a report alleging financial fraud, waste, or abuse in
government provided to an independent auditor, performance audit team or
forensic accounting team, is considered to be
confidential audit or engagement documentation and is subject to
confidentiality requirements, including but not limited to requirements under
Subsections E and M of 2.2.2.10 NMAC, the Public Accountancy Act, and the AICPA
Code of Professional Conduct.]
(a) Any records that result in, or are
part of, any subsequent or resulting special audit, performance audit,
attestation engagement or forensic accounting or other non-attest engagement
will be audit workpapers and therefore confidential. Records that result from,
or are part of OSA, special investigations that do not result in a subsequent
special audit, performance audit, attestation engagement or forensic accounting
or other non-attest engagement may be disclosed, with personal identifier
information redacted, once the examination or
investigation is closed.
(b) Any information related to a report
alleging financial fraud, waste, or abuse in government provided to an
independent auditor, performance audit team or forensic accounting team, is considered to be confidential audit or engagement
documentation and is subject to confidentiality requirements, including but not
limited to requirements under Subsections E and M of 2.2.2.10 NMAC, the Public
Accountancy Act, and the AICPA Code of Professional Conduct.
(4) [The]
If the OSA [may make] makes inquiries of agencies as part of the
[fact-finding] investigation process [performed by the OSA’s
special investigations division . Agencies], agencies shall respond
to the OSA inquiries within 15 calendar days of receipt or as soon as
practicable under the circumstances with written notice to the OSA stating the
basis for any delay. IPAs shall test compliance with this requirement and
report noncompliance as a finding in the annual financial and compliance audit
report.
B. Special audit or examination process:
(1) Designation: Pursuant to Section 12-6-3 NMSA 1978, in
addition to the annual audit, the state auditor may cause the financial affairs
and transactions of an agency to be audited in whole or in part. Accordingly, the state auditor may designate
an agency for special audit, attestation engagement, performance audit,
forensic accounting engagement, or non-attest engagement regarding the
financial affairs and transactions of an agency or local public body based on
information or a report received from an agency, IPA
or member of the public. For purposes of
this rule “special audit, attestation engagement, performance audit, forensic
accounting engagement, or non-attest engagement” includes, without limitation,
AUP, consulting, and contract close-out (results-based award) engagements that
address financial fraud, waste, or abuse in government. It also includes non-attest engagements
performed under the forensic services standards issued by the AICPA and
engagements performed following the Code of Professional Standards issued by
the Association of Certified Fraud Examiners (ACFE). The state auditor shall inform the agency of
the designation by sending the agency a notification letter. The state auditor may specify the subject
matter, the scope and any procedures required, the AICPA or other professional
standards that apply, and for a performance audit, performance aspects to be
included and the potential findings and reporting elements that the auditors
expect to develop. Pursuant to Section
200.503 of Uniform Guidance, if a single audit was previously performed, the
special audit, attestation engagement, performance audit or forensic accounting
engagement shall be planned and performed in such a way as to build upon work
performed, including the audit documentation, sampling, and testing already
performed by other auditors. The
attestation and performance audit engagements may be conducted pursuant to
government auditing standards if so specified by the
OSA.
(2) Costs: All reasonable costs of special audits,
attestation engagements, forensic accounting engagements, non-attest
engagements, or single-entity performance audits conducted pursuant to this
Section shall be borne by the agency audited pursuant to Section 12-6-4 NMSA
1978. The state auditor, in its sole
discretion, may apportion among the Agencies audited some or all
of the reasonable costs of a multi-entity performance audit.
(3) Who performs the
engagement: The state auditor may perform
the special audit, attestation engagement, performance audit, forensic
accounting engagement, or non-attest engagement alone or with other
professionals selected by the state auditor.
Alternatively, the state auditor may require the engagement to be
performed by an IPA or a team that may be comprised of any of the following:
independent public accountants; individuals with masters degrees or doctorates
in a relevant field such as business, public administration, public policy,
finance, or economics; individuals with their juris doctorate; CFE-certified
fraud examiners; CFF-certified forensic auditors; CIA-certified internal
auditors; or other specialists. If the
state auditor designates an agency for an engagement to be conducted by an IPA
or professional team, the agency shall:
(a) upon receipt of
notification to proceed from the state auditor, identify all elements or
services to be solicited, obtain the state auditor’s written approval of the
proposed scope of work, and request quotations or proposals for each applicable
element of the engagement;
(b) follow
all applicable procurement requirements which may include, but are not limited
to, Uniform Guidance, Procurement Code (Sections 13-1-28 through 13-1-199 NMSA
1978), or equivalent home rule procurement provisions when selecting an IPA or
team to perform the engagement;
(c) submit
the following information to the state auditor by the due date specified by the
state auditor:
(i) a completed template for special
audits, attestation engagements, performance audits or forensic accounting
engagements, provided at www.osanm.org, which the agency shall print on agency
letterhead; and
(ii) a completed
contract form including the contract fee, start and completion date, and the
specific scope of services to be performed in the format prescribed by the OSA,
provided at www.osanm.org, with all
required signatures on the contract.
(d) If
the agency fails to select an IPA and submit the signed contract to OSA by the
due date specified by the state auditor, or, if none within 60 days of
notification of designation from the state auditor, the state auditor may
conduct the engagement or select the IPA for that agency in accordance with the
process described at Subsection F of 2.2.2.8 NMAC.
(4) Errors: Contracts that are submitted to the OSA with
errors or omissions shall be rejected by the state auditor. The state auditor shall return the rejected
contract to the agency indicating the reason(s) for the rejection.
(5) Recommendation
rejections: In the event the agency’s
recommendation is not approved by the state auditor, the state auditor shall
promptly communicate the decision, including the reason(s) for rejection, to
the agency, at which time the agency shall promptly submit a different
recommendation. This process shall
continue until the state auditor approves a recommendation and related
contract. During this process, whenever
a recommendation and related contract are not approved, the agency may submit a
written request to the state auditor for reconsideration of the
disapproval. The agency shall submit its
request no later than 15 calendar days from the date of the disapproval and
shall include documentation in support of its recommendation. If warranted, after review of the request,
the state auditor may hold an informal meeting to discuss the request. The state auditor shall set the meeting in a
timely manner with consideration given to the agency’s circumstances.
(6) Contract
amendments: Any proposed contract
amendments shall be processed in accordance with Subsection N of 2.2.2.8 NMAC.
(7) Access to records
and documents: For any special audit,
attestation engagement, performance audit or forensic accounting engagement, or
non-attest engagement, the state auditor and any engaged professionals shall have
available to them all documents necessary to conduct the special audit,
attestation engagement, performance audit, forensic accounting engagement, or
non-attest engagement. Furthermore,
pursuant to Section 12-6-11 NMSA 1978, when necessary for a special audit,
attestation engagement, performance audit, forensic accounting engagement, or
non-attest engagement the state auditor may apply to the district court of
Santa Fe County for issuance of a subpoena to compel the attendance of
witnesses and the production of books and records.
(8) Entrance, progress
and exit conferences: The IPA or other
professional shall hold an entrance conference and an exit conference with the
agency, unless the IPA or other professional has submitted a written request to
the state auditor for an exemption from this requirement and has obtained
written approval of the exemption. The
OSA has the authority to notify the agency or IPA or other professional that
the state auditor shall be informed of the date of the entrance conference, any
progress meetings and the exit conference. If such notification is received, the IPA or
other professional and the agency shall invite the state auditor or the
auditor’s designee to attend all such conferences no
later than 72 hours before the proposed conference or meeting. The state auditor may also require the IPA or
other professional to submit its audit plan to the state auditor for review and
approval. The date of the exit
conference(s) and the names and titles of personnel attending shall be stated
on the last page of the special audit report.
(9) Required
reporting: All reports for special
audits, attestation engagements, performance audits, forensic accounting
engagements, or non-attest engagements related to financial fraud, waste or
abuse in government undertaken pursuant to 2.2.2.15 NMAC (regardless of whether
they are conducted pursuant to AICPA standards for consulting services,
forensic services or for attestation engagements, non-attest engagements, or
other professional standards) shall report as findings any fraud, illegal acts,
non-compliance or internal control deficiencies, pursuant to Section 12-6-5
NMSA 1978. Each finding shall comply
with the requirements of Subsection L of 2.2.2.10 NMAC for audit and attest
engagements or Subsection D of 2.2.2.15 NMAC for non-attest engagements.
(10) Report
review: As required by Section 12-6-14
NMSA 1978, the state auditor shall review reports of any special audit,
attestation engagement, performance audit, forensic accounting engagement, or
non-attest engagement made pursuant to this section for compliance with the
professional services contract and this rule.
Upon completion of the report, the IPA or other professional shall
deliver the electronic report to the state auditor with a copy of any signed
management representation letter, if applicable. Unfinished or excessively deficient reports
shall be rejected by the state auditor.
If the report is rejected the firm shall submit an electronic version of
the corrected rejected report for state auditor review. The name of the electronic file shall be
“corrected rejected report” followed by the agency name and fiscal year. The IPA or other professional shall respond
to all review comments as directed by the state auditor.
(11) Report release:
After OSA’s review of the report for compliance with the professional services
contract and this rule, the state auditor shall authorize the IPA to print and
submit the final report. An electronic
version of the report, in the PDF format described at Subsection B of 2.2.2.9
NMAC, shall be delivered to the state auditor within five business days. The state auditor shall not release the
report until all the required documents are received by the state auditor. The state auditor shall provide the agency
with a letter authorizing the release of the report pursuant to Section 12-6-5
NMSA 1978. Agency and local public body
personnel shall not release information to the public relating to the special
audit, attestation engagement, performance audit, forensic accounting
engagement, or non-attest engagement until the report is released and has
become a public record pursuant to Section 12-6-5 NMSA 1978. Except for the exception under Subsection B
of 2.2.2.15 NMAC, at all times during the engagement
and after the engagement report becomes a public record, the IPA or other
professional(s) shall not disclose to the public confidential information about
the auditee or about the engagement. Confidential information is information
that is not generally known to the public through common means of providing
public information like the news media and internet.
(12) Disclosure by
professionals: The IPA or other
professional shall not disclose information identified as confidential
information provided to them by the state auditor unless otherwise specified by
the state auditor. Disclosure of
confidential information by the IPA or other professional may result in legal
action by the state auditor, or in the case of an IPA, restriction pursuant to
Subsection D of 2.2.2.8 NMAC.
(13) Payment: Progress payments up to (but not including)
ninety-five percent of the contract amount do not require state auditor
approval and may be made by the agency if the agency monitors the progress of
the services procured. If requested by
the state auditor, the agency shall provide a copy of the approved progress
billing(s). Final payments over
ninety-five percent may be made by the agency pursuant to either of the
following:
(a) stated in the letter accompanying the
release of the report to the agency, or
(b) in the case of
ongoing law enforcement investigations, stated in a letter prior to the release
of the report to the agency.
C. Agency-initiated
special audits or examinations:
(1) Applicability: With the exception of agencies that are
authorized by statute to conduct performance audits and forensic accounting
engagements, this section applies to all special audits and examinations in
which an agency enters into a professional services contract for a special
audit, attestation engagement, performance audit, forensic accounting
engagement, or non-attest engagement relating to financial fraud, waste or
abuse, but the agency has not been designated by the state auditor for the
engagement pursuant to [Subsection B of 2.2.2.15 NMAC] this rule. For purposes of this rule, “special audit, attestation
engagement, performance audit, forensic accounting engagement, or non-attest
engagement” includes, without limitation, AUP, consulting, forensic services and contract close-out (results-based award)
engagements that address financial fraud, waste or abuse in government.
(2) [Contracting: An agency, IPA or other professional shall
not enter into a professional services contract for a
special audit, attestation engagement, performance audit, forensic accounting
engagement, or non-attest engagement regarding the financial affairs and
transactions of an agency and relating to financial fraud, waste or abuse in
government without the prior written approval of the state auditor. The proposed professional services contract
shall be submitted to the state auditor for review and approval after it has
been signed by the agency and the IPA or other professional,
unless the agency or IPA or other professional applies to the state
auditor for an exemption and the state auditor grants the exemption. When contracting with an IPA or other
professional, the agency shall contract only with an IPA or other professional
that has been approved by the state auditor to conduct such work. The state auditor may, in its sole
discretion, require a non-IPA professional to submit proof of qualifications, a
firm profile or equivalent documentation prior to approving the contract. The contract shall include the contract fee,
start and completion date, and the specific scope of services to be performed,
and shall follow any template that the state auditor may provide. See Subsection F of 2.2.2.10 NMAC for
applicable restrictions on the engagement letter.] Any agency, local
public body, IPA or other professional that enters into a professional services
contract for a special audit or examination of the financial affairs and
transactions of an agency or local public body that was not designated by the
state auditor for the engagement must notify the OSA and provide a copy of any
resulting report or any resulting findings of violations of law or good
accounting practices to the OSA. Findings shall be reported as described in
2.2.2.15 (D) NMAC. All findings relating to any violation of a criminal statute
in connection with financial affairs must be reported immediately to the OSA
pursuant to Section 12-6-6, NMSA 1978.
[(3) Applicability
of other rules: The provisions outlined
in Subsection B of 2.2.2.15 NMAC apply to agency-initiated special audits,
attestation engagements, performance audits and forensic accounting
engagements.]
D. Finding requirements for special
audits or examinations: Communicating
findings: All finding reference numbers
shall follow a consistent format. Findings required by Section 12-6-5 NMSA 1978
shall be presented in a separate schedule of findings and placed at the end of
the report.
(a) Section 12-6-5
NMSA 1978 requires that for every special audit and examination made “each
report set out in detail, in a separate section, any violation of law or good
accounting practices found by the audit or examination.”
(b) Each finding shall specifically state
and describe the following:
(i) condition (provides a
description of a situation that exists and includes the extent of the condition
and an accurate perspective, the number of instances found, the dollar amounts
involved, if specific amounts were identified);
(ii) criteria
(identifies the required or desired state or what is expected from the program
or operation; cites the specific section of law, regulation, ordinance,
contract, or grant agreement if applicable);
(iii) effect
(the logical link to establish the impact or potential impact of the difference
between the situation that exists (condition) and the required or desired state
(criteria); demonstrates the need for corrective action in response to
identified problems or relevant risks);
(iv) cause
(identifies the reason or explanation for the condition or the factors
responsible for the difference between what the auditors found and what is
required or expected; the cause serves as a basis for the recommendation);
(v) recommendation
addressing each condition and cause; and
(vi) agency
response (the agency’s response shall include specific planned corrective actions with a timeline and designation of
what employee position(s) are responsible for meeting the deadlines in
the timeline).
[2.2.2.15 NMAC -
Rp, 2.2.2.15 NMAC, 3/28/2023; A, xx/xx/2024]
2.2.2.16 ANNUAL FINANCIAL PROCEDURES
REQUIRED FOR LOCAL PUBLIC BODIES WITH ANNUAL REVENUES LESS THAN FIVE HUNDRED
THOUSAND DOLLARS ($500,000) (TIERED SYSTEM):
A. Annual revenue and state funded capital
outlay expenditures determine type of financial reporting:
All local public bodies shall comply with the requirements of Section
6-6-3 NMSA 1978. Pursuant to Section 12-6-3 NMSA 1978, the annual revenue of a
local public body determines the type of financial reporting a local public
body shall submit to the OSA. Local
public bodies are mutual domestic water consumers associations, land grants,
incorporated municipalities, and special districts.
(1) The
annual revenue of a local public body shall be calculated on a cash basis as
follows:
(a) Revenue
shall exclude capital outlay funds. OSA
defines capital outlay funds as funds expended pursuant to the Property Control
Act definition of a capital outlay project.
Per section 15-3B-2 NMSA 1978 “Capital outlay project" means the
acquisition, improvement, alteration or reconstruction
of assets of a long-term character that are intended to continue to be held or
used, including land, buildings, machinery, furniture and equipment. A “capital outlay project” includes all
proposed expenditures related to the entire undertaking.
(b) Revenue
shall exclude federal or private grants.
For the purpose of 2.2.2.16 NMAC “private
grant” means funding provided by a non-governmental entity.
(2) For
the purposes of 2.2.2.16 NMAC “state funded capital outlay expenditures” are
expenditures made pursuant to any funding provided by the New Mexico
legislature for a capital outlay project as defined in the Property Control
Act, Section 15-3B-2 NMSA 1978, either received directly by the local public
body or disbursed through an administering agency.
B. Determination of revenue and services:
Annually, following the procedures described in Subsection F of 2.2.2.8
NMAC, the state auditor shall provide local public bodies written authorization
to obtain services to conduct a financial audit or other procedures. Upon receipt of the authorization, a local
public body shall determine its annual revenue in accordance with Subsection A
of 2.2.2.16 NMAC. The following
requirements for financial reporting apply to the following annual revenue
amounts (tiers):
(1) if a local public
body’s annual revenue is less than ten thousand dollars ($10,000) and the local
public body did not directly expend at least fifty percent of, or the remainder
of, a single capital outlay award, then the local public body is exempt from
submitting a financial report to the state auditor, except as otherwise
provided in Subsection C of 2.2.2.16 NMAC (tier one);
(2) if a local public
body’s annual revenue is ten thousand dollars ($10,000) or more but less than
fifty thousand dollars ($50,000), then the local public body is exempt from
submitting a financial report to the state auditor, except as otherwise
provided in Subsection C of 2.2.2.16 NMAC (tier two);
(3) if a local public body’s annual
revenue is less than fifty thousand dollars ($50,000), and the local public
body expended at least fifty percent of, or more of, a single capital outlay
award during the fiscal year, then the local public body shall procure the
services of an IPA for the performance of a tier three AUP engagement in
accordance with the audit contract for a tier three AUP engagement;
(4) if a local public
body’s annual revenue is greater than fifty thousand dollars ($50,000) but less
than two hundred-fifty thousand dollars ($250,000), then the local public body
shall procure the services of an IPA for the performance of a tier four AUP engagement
in accordance with the audit contract for a tier four AUP engagement;
(5) if a local public
body’s annual revenue is greater than fifty thousand dollars ($50,000) but less
than two hundred-fifty thousand dollars ($250,000), and the local public body
expended any capital outlay funds during the fiscal year, then the local public
body shall procure the services of an IPA for the performance of a tier five
AUP engagement in accordance with the audit contract for a tier five AUP
engagement;
(6) if a local public body’s annual
revenue is two hundred-fifty thousand dollars ($250,000) or greater, but less
than five hundred thousand dollars ($500,000), the local public body shall
procure services of an IPA for the performance of a tier six AUP engagement in
accordance with the audit contract for a tier six AUP engagement; the report
shall include at a minimum, a compilation of financial statements and a
financial report consistent with the agreed-upon procedures;
(7) if a local public
body’s annual revenue is five hundred thousand dollars ($500,000) or more, this
section shall not apply and the local public body
shall procure services of an IPA for the performance of a financial and
compliance audit in accordance with other provisions of this rule;
(8) notwithstanding
the annual revenue of a local public body, if the local public body expended
seven hundred-fifty thousand dollars ($750,000) or more of federal funds
subject to a federal single audit during the fiscal year then the local public
body shall procure a single audit.
C. Exemption from financial reporting:
A local public body that is exempt from financial reporting to the state
auditor pursuant to Subsection B of 2.2.2.16 NMAC shall submit written
certification to LGD and the state auditor. The certification shall be provided
on the form made by the state auditor, available through OSA-Connect. The local public body shall certify, at a
minimum:
(1) the local public body’s annual
revenue for the fiscal year; and
(2) that
the local public body did not expend fifty percent of or the remainder of a
single capital outlay award during the fiscal year.
(3) The
OSA will not accept the certification of exemption from financial reporting for
the current year until the prior year certifications or AUP reports (whichever
is appropriate) have been submitted.
D. Procurement of IPA services:
A local public body required to obtain an AUP engagement shall procure
the services of an IPA in accordance with Subsection F of 2.2.2.8 NMAC.
E. Access to Records and Documents: For any AUP the agency should produce all
documents necessary to conduct the engagement.
F. Requirements of the IPA selected to perform
the AUP:
(1) The
IPA shall provide the local public body with a dated engagement letter during the
planning stages of the engagement, describing the services to be provided. See Subsection F of 2.2.2.10 NMAC for
applicable restrictions on the engagement letter.
(2) The IPA may not
subcontract any portion of the services to be performed under the contract with
the local public body except for the activation of a contingency subcontractor
form in the event the IPA is unable to complete the engagement.
(3) The IPA shall hold an entrance conference
and an exit conference with the local public body. The entrance and exit conference shall occur
in the forum agreed to by the local public body and the IPA, to include virtual
or telephonic options. The OSA reserves the right to require an in-person
entrance or exit conference. The OSA has
the authority to notify the agency or IPA that the state auditor shall be
informed of the date of the entrance conference, any progress meetings and the exit conference. If such notification is received, the IPA and
agency shall invite the state auditor to attend all such conferences no later
than 72 hours before the proposed conference or meeting.
(4) The IPA shall submit the report to
the OSA for review in accordance with the procedures described at Subsection B
of 2.2.2.9 NMAC. Before submitting the report to OSA for review, the IPA shall
review the report using the AUP report review guide available on the OSA’s
website at www.saonm.org. The report
shall be submitted to the OSA for review with the completed AUP report review
guide. Once the AUP report is officially
released to the agency by the state auditor (by a release letter) and the
required waiting period of five calendar days has passed, unless waived by the
agency in writing, the AUP report shall be presented by the IPA, to a quorum of
the governing authority of the agency at a meeting held in accordance with the
Open Meetings Act, if applicable. This
requirement only applies to agencies with a governing authority, such as a
board of directors, board of county commissioners, or city council, which is
subject to the Open Meetings Act. The
IPA shall ensure that the required communications to those charged with
governance are made in accordance with AU-C 260.12 to 260.14.
(1) Progress
payments up to ninety-five percent of the contract amount do not require state
auditor approval and may be made by the local public body if the local public
body ensures that progress payments made do not exceed the percentage of work
completed by the IPA. If requested by
the state auditor, the local public body shall provide the OSA a copy of the
approved progress billing(s).
(2) Final
payments from ninety-five percent to one hundred percent may be made by the
local public body pursuant to either of the following:
(a) stated
in the letter accompanying the release of the report to the agency, or
(b) in
the case of ongoing law enforcement investigations, stated in a letter prior to
the release of the report to the agency. In this situation a letter releasing
the report to the agency will be issued when it is appropriate to release the
report.
H. Report due dates, notification letters and
confidentiality:
(1) For local public bodies with a June
30 fiscal year-end that qualify for the tiered system, the report or
certification due date is December 15.
Local public bodies with a fiscal year end other than June 30 shall submit
the AUP report or certification no later than five months after the fiscal
year-end. Late AUP reports (not the
current reporting period) are due not more than six months after the date the
contract was executed. An electronic
copy of the report shall be submitted to the OSA. AUP reports submitted via fax or email shall
not be accepted. A copy of the signed
dated management representation letter shall be submitted with the report. If a due date falls on a weekend or holiday,
or if the OSA is closed due to inclement weather, the report is due the
following business day by [5:00] 11:59 p.m. If the report is mailed to the state auditor,
it shall be postmarked no later than the due date to be considered filed by the
due date. If the due date falls on a
weekend or holiday the audit report shall be postmarked by the following
business day.
(2) As soon as the IPA
becomes aware that circumstances exist that will make the local public body’s
AUP report be submitted after the applicable due date, the auditor shall notify
the state auditor of the situation in writing.
This notification shall consist of a letter, not an email. However, a scanned version of the official
letter sent via email is acceptable. The
late AUP notification letter is subject to the confidentiality requirements
detailed at Subsection M of 2.2.2.10 NMAC.
This does not prevent the state auditor from notifying the legislative
finance committee or applicable oversight agency pursuant to Subsections F and
G of Section 12-6-3 NMSA 1978. There
shall be a separate notification for each late AUP report. The notification shall include a specific
explanation regarding why the report will be late, when the IPA expects to
submit the report and a concurring signature by the local public body. If the IPA will not meet the expected report
submission date, then the IPA shall send a revised notification letter. In the event the contract was signed after
the report due date, the notification letter shall still be submitted to the
OSA explaining the reason the AUP report will be submitted after the report due
date. The late report notification
letter is not required if the report was submitted to the OSA for review by the
deadline, and then rejected by the OSA, making the report late when
resubmitted.
(3) Local public body personnel shall not
release information to the public relating to the AUP engagement until the
report is released and has become a public record pursuant to Section 12-6-5
NMSA 1978. At all times during the
engagement and after the AUP report becomes a public record, the IPA shall
follow applicable professional standards and 2.2.2 NMAC regarding the release
of any information relating to the AUP engagement.
I. Findings:
All AUP engagements shall report as findings any fraud, illegal acts, non-compliance or internal control deficiencies, consistent
with Section 12-6-5 NMSA 1978. The
findings shall include the required content listed at Subparagraph (d) of
Paragraph (1) of Subsection L of 2.2.2.10 NMAC.
J. Review of AUP reports and
related workpapers: AUP shall be reviewed by the OSA for
compliance with professional standards and the professional services
contract. Noncompliant reports shall be
rejected and not considered received.
Such reports shall be returned to the firm and a copy of the rejection
letter shall be sent to the local public body.
If the OSA rejects and returns an AUP report to the IPA, the report
shall be corrected and resubmitted to the OSA by the due date, or the IPA shall
include a finding for non-compliance with the due date. The IPA shall submit an electronic version of
the corrected rejected report for OSA review.
The name of the electronic file shall be “corrected rejected report”
followed by the agency name and fiscal year.
The OSA encourages early submission of reports to avoid findings for
late reports. After its review of the
AUP report for compliance with professional standards and the professional
services contract, the OSA shall authorize the IPA to print and submit the final
report. An electronic version of the AUP
report, in PDF format, as described at Subsection B of 2.2.2.9 NMAC, shall all
be delivered to the OSA within five business days. The OSA shall not release the AUP report
until the electronic version of the report is received by the OSA. The OSA shall provide the local public body
with a letter authorizing the release of the report after the required five day
waiting period. Released reports may be
selected by the OSA for comprehensive report and
workpaper reviews. After such a
comprehensive report and workpaper review is completed, the OSA shall issue a
letter to advise the IPA about the results of the review. The IPA shall respond to all review comments
as directed. If during
the course of its review, the OSA finds significant deficiencies that
warrant a determination that the engagement was not performed in accordance
with provisions of the contract, applicable AICPA standards, or the
requirements of this rule, any or all of the following action(s) may be taken:
(1) the IPA may be
required to correct the deficiencies in the report or audit documentation, and
reissue the AUP report to the agency and any others receiving copies;
(2) the IPA’s
eligibility to perform future engagements may be limited in number or type of
engagement pursuant to Subsection D of 2.2.2.8 NMAC;
(3) for future
reports, for some or all contracts, the IPA may be required to submit working
papers with the reports for review by the OSA prior to the release of the
report; or
(4) the IPA may be
referred to the New Mexico public accountancy board for possible licensure
action.
K. IPA independence: IPAs shall maintain
independence with respect to their client agencies in accordance with the
requirements of the current government auditing standards.
[2.2.2.16 NMAC -
Rp, 2.2.2.16 NMAC, 3/28/2023; A, xx/xx/2024]