New
Mexico Register / Volume XXXV, Issue 3 / February 13, 2024
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.saonm.org/auditing/financial-audits/state-auditor-rule.
The
Office of the State Auditor will consider adopting the proposed new Audit Rule
at a public hearing on March 14, 2024, at 9 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 March 14, 2024. Please
e-mail written comments on the proposed Audit Rule to Christopher Hall, at christopher.hall@osa.nm.gov
between February 13, 2024, through March 14, 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 March 14, 2024. All written
comments will be posted on the Office of the State Auditor’s website within
three days of receipt.
Proposed
amendments to the Audit Rule 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; and (x) updates and clarifies rules
for agency-initiated special audits and special investigations confidentiality
requirements. 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 is in need of 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.
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, Section 12-6-2 NMSA 1978, 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, Section 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”:
“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) [“IPA” means the independent
public accountant performing professional services for agencies and local
public bodies.
(2) “IRC” means internal revenue code.]
“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 an independent
public accountant designated by the state auditor to perform financial audits,
special audits, attestation engagements, performance audits, and forensic
accounting engagements for the examination of the financial affairs of agencies
and local public bodies.
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 [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.
O. Definitions beginning with the
letter “O”:
[ (1)] “Office” or “OSA” means the [New Mexico office of the state auditor.]
office of the state auditor of New Mexico.
[ (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.
(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. 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.
[(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 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, 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 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 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, 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;
(d) school
districts, TRD, CYFD, DOH, DOT, DWS, HSD, GSD, ECECD, SLO, and NMCD: November 15;
(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 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 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, 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 be addressed to the agency executive and governing
body (if applicable). The OSA shall
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, 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 the IPA to 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, 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). The OSA shall not release the report until
the searchable electronic PDF version of the report and all required electronic
Excel schedules are 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. 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. 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:
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 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. 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]
2.2.2.14 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, 3/22/2022; 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 in Subsection C of Section 12-6-3 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 Subsection D of 2.2.2.15 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]