TITLE 2 PUBLIC FINANCE
CHAPTER 2 AUDITS OF GOVERNMENTAL ENTITIES
PART 2 REQUIREMENTS FOR CONTRACTING AND CONDUCTING AUDITS
OF AGENCIES
2.2.2.1 ISSUING AGENCY: Office of the State Auditor.
[2.2.2.1 NMAC - Rp, 2.2.2.1 NMAC, 3-16-15]
2.2.2.2 SCOPE: Agencies as defined by the Audit Act and
independent public accountants (IPAs) interested in contracting to perform
audit services for those agencies.
[2.2.2.2 NMAC - Rp, 2.2.2.2 NMAC, 3-16-15]
2.2.2.3 STATUTORY AUTHORITY: Section 12-6-12 NMSA 1978 of the Audit Act,
requires the state auditor to promulgate reasonable regulations necessary to
carry out the duties of his office, including regulations required for
conducting audits in accordance with auditing standards generally accepted in
the United States of America. Chapter
12, Article 6 NMSA 1978 of the Audit Act, requires the state auditor to conduct
financial and compliance audits of every agency in accordance with governmental
auditing, accounting and financial reporting standards, and local, state and
federal laws, rules, and regulations. The Audit Act further establishes a
tiered system of financial reporting for local public bodies in which the
amount of a local public body’s annual revenue determines whether the local
public body is subject to an agreed upon procedures engagement. The Audit Act
also gives the state auditor the authority to cause the financial affairs and
transactions of an agency to be audited in whole or in part, in addition to the
annual audit.
[2.2.2.3 NMAC - Rp, 2.2.2.3 NMAC, 3-16-15]
2.2.2.4 DURATION: Permanent
[2.2.2.4 NMAC - Rp, 2.2.2.4 NMAC, 3-16-15]
2.2.2.5 EFFECTIVE DATE: March 16, 2015, unless a later date is
cited at the end of a section.
[2.2.2.5 NMAC - Rp, 2.2.2.5 NMAC, 3-16-15]
2.2.2.6 OBJECTIVE: The objective is to establish policies,
procedures, rules and requirements for contracting and conducting financial
audits, special audits, attestation engagements, performance audits, and
forensic audits of governmental agencies of the state of New Mexico.
[2.2.2.6 NMAC - Rp, 2.2.2.6 NMAC, 3-16-15]
2.2.2.7 DEFINITIONS:
A. “Agency”
means any department, institution, board, bureau, court, commission, district
or committee of the government of the state, including district courts,
magistrate or metropolitan courts, district attorneys and charitable
institutions for which appropriations are made by the legislature; any
political subdivision of the state, created under either general or special
act, that receives or expends public money from whatever source derived,
including counties, county institutions, boards, bureaus or commissions;
municipalities; drainage, conservancy, irrigation, or other special districts;
and school districts; any entity or instrumentality of the state specifically
provided for by law, including the New Mexico finance authority, the New Mexico
mortgage finance authority, the New Mexico lottery authority and every office
or officer of any entity listed in Paragraphs
(1) through (3) of Subsection A of Section 12-6-2 NMSA 1978.
B. “Auditor”
means state auditor or independent public accountant.
C. “AICPA”
means American institute of certified public accountants.
D. “AUP”
means agreed upon procedures.
E. “CPA”
means certified public accountant.
F. “CPE”
means continuing professional education.
G. “DFA”
means the New Mexico department of finance and administration.
H. “ERB”
means the New Mexico education retirement board.
I. “FCD”
means financial control division of the department of finance and
administration.
J. “FDIC”
means federal deposit insurance corporation.
K. “FDS”
means financial data schedule.
L. “GAAP”
means accounting principles generally accepted in the United States of America.
M. “GAGAS”
means generally accepted government auditing standards.
N. “GASB”
means governmental accounting standards board.
O. “GAAS”
means auditing standards generally accepted in the United States of America.
P. “GSD”
means the New Mexico general services department.
Q. “HED”
means the New Mexico higher education department.
R. “HUD”
means U.S. department of housing and urban development.
S. “IPA”
means independent public accountant.
T. “IRC”
means internal revenue code.
U. “LGD”
means local government division of the New Mexico department of finance and administration.
V. “Local
public body” means a mutual domestic water consumers association, a land grant,
an incorporated municipality or a special district.
W. “NCUSIF”
means national credit union shares insurance fund.
X. “NMAC”
means New Mexico administrative code.
Y. “NMSA”
means New Mexico statutes annotated.
Z. “Office”
or “OSA” means the New Mexico office of the state auditor.
AA. “OMB”
means the United States office of management and budget.
BB. “PED”
means the New Mexico public education department.
CC. “PERA”
means the New Mexico public employee retirement association.
DD. “PHA”
means public housing authority.
EE. “REAC”
means real estate assessment center.
FF. “REC”
means regional education cooperative.
GG. “RSI”
means required supplemental information.
HH. “SAS”
means the AICPA’s statement on auditing standards.
II. “SHARE”
means statewide human resources accounting and management reporting system.
JJ. “State
auditor” may refer to either the elected state auditor of the state of New
Mexico, personnel of his office designated by him, or independent auditors
designated by him.
KK. “STO”
means state treasurer’s office.
LL. “Tier”
is established based on the amount of each local public body’s annual revenue,
pursuant to Section 12-6-3 NMSA 1978 and 2.2.2.16 NMAC.
MM. “UFRS”
means uniform financial reporting standards.
NN. “U.S.
GAO” means the United States government accountability office.
[2.2.2.7 NMAC - Rp, 2.2.2.7 NMAC, 3-16-15]
2.2.2.8 THE PROCUREMENT AND AUDIT
PROCESS:
A. Section
12-6-3 NMSA 1978 (Annual Audits) mandates that:
(1) the financial affairs of every agency be
thoroughly examined and audited each year by the state auditor, personnel of
his office designated by him, or by independent auditors approved by him;
(2) the
comprehensive annual financial report for the state be thoroughly examined and
audited each year by the state auditor, personnel of his office designated by
him or by independent auditors approved by him; and
(3) the
audits be conducted in accordance with generally accepted auditing standards
and rules issued by the state auditor. Subsection B of Section 12-6-3 NMSA 1978
establishes a tiered system of financial reporting for local public bodies in
which the amount of a local public body’s annual revenue determines whether the
local public body is subject to an agreed upon procedures engagement. See
2.2.2.16 NMAC for information applicable to local public bodies. Section C of Section
12-6-3 NMSA 1978 states that 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. Section 2.2.215 NMAC provides regulations regarding this type
of engagement. Section 12-6-14 NMSA 1978 (Contract Audits) states that “the
state auditor shall notify each agency designated for audit by an independent
auditor, and the agency shall enter into a contract with an independent auditor
of its choice in accordance with procedures prescribed by rules of the state
auditor; provided, however that a state-chartered charter school subject to
oversight by the PED or an agency subject to oversight by the HED shall receive
approval from its oversight agency prior to submitting a recommendation for an
independent auditor of its choice. The state auditor may select the auditor for
an agency that has not submitted a recommendation within 60 days of
notification by the state auditor to contract for the year being audited, and
the agency being audited shall pay the cost of the audit. Each contract for
auditing entered into between an agency and an independent auditor shall be
approved in writing by the state auditor. 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.” Section 61-28B-13(B) of the 1999 Public
Accountancy Act states that a firm with an office in New Mexico must hold a
permit issued pursuant to this section of the 1999 Public Accountancy Act (61-28B-1
NMSA 1978) in order to provide attest services including audits of financial
statements. A permit is also required for a firm that does not have an office
in New Mexico but performs attest services for a client whose principal place
of business is in New Mexico. Pursuant to Subsection A of Section 16.60.3.14
NMAC, a person whose principal place of business is not New Mexico and who has
a valid certificate/license as a certified public accountant from another state
shall be presumed to have qualifications substantially equivalent to New
Mexico’s requirements if the person meets the requirements of Section 26,
Subsection A of the Act. Except as otherwise provided in 2.2.2.16 NMAC, IPAs
shall submit a firm profile to the state auditor. Firms are required to notify
the state auditor of changes to the firm profile as information becomes
available. The state auditor shall approve contracts only with IPAs who have
submitted a complete and correct firm profile that has been approved by the office
and who have complied with all the requirements of this rule including but not
limited to:
(4) 2.2.2.14
NMAC, continuing education and quality control requirements;
(5) listed
professional service contracts the firm entered into pursuant to Subsection M of
2.2.2.8 NMAC, IPA Independence;
(6) for
IPAs who have audited agencies under this rule in the past, they must have previously
complied with:
(a) 2.2.2.9
NMAC, report due dates;
(b) 2.2.2.13
NMAC, review of audit reports and working papers; and
(c) 2.2.2.9
NMAC Paragraph (5) of Subsection A, notifying the state auditor regarding why
audit reports will be late.
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 and agreed upon procedures engagements with agencies. The state
auditor’s list of approved audit firms shall be reviewed and updated on an
annual basis. The state auditor 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. For an
IPA to be included on the state auditor’s list of approved firms:
(1) an
IPA shall submit its firm profile annually on January 5th or on the
next business day, in accordance with the guidelines set forth herein;
(2) the
office shall review each firm profile for compliance with the requirements set
forth in Subsections A through F of 2.2.2.8 NMAC; and
(3) the
state auditor may approve contracts 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 office;
(4) the
office shall inform all IPAs whose firm profiles were submitted by the deadline
whether they are on the list of approved firms; and
(5) concurrent
with publication of the list of approved firms, the office shall inform
government agencies and local public bodies that they are to select an IPA to
perform their audit or agreed upon procedures engagement. The notification
shall inform the agency or local public body that it should consult its
prospective IPA to determine whether the prospective IPA has been restricted by
the office as to the type of engagement or number of contracts it is eligible
to perform.
C. Conditional
approval: An IPA firm may be added to the list of approved firms even though
the firm has one or more of the deficiencies of its firm profile listed below,
except that the office shall not approve any contracts for the deficient IPA
until the office receives documentation demonstrating all deficiencies have
been cured:
(1) the
firm profile does not include at least one CPA with a current CPA certificate;
(2) the
firm does not have at least one CPA that meets the 80 hour GAGAS CPE
requirement of Subsection A of 2.2.2.14 NMAC;
(3) the
firm profile does not include a copy of the IPA’s current proof of insurance;
(4) the
IPA employs only one CPA qualified to sign a GAGAS audit report and the firm
has not submitted the completed original contingency subcontractor form
required by Subsection L of 2.2.2.8 NMAC;
(5) the
IPA’s peer review is scheduled to be completed on or before publication of the
list of approved firms, but is missing from the firm profile; or
(6) the
firm profile does not include either the signed attestation form regarding CPE
or the signed attestation form regarding the firm profile.
D. Disqualified
firms: An IPA firm shall not be included on the list of approved firms 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;
(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; or
(4) the
IPA has been restricted in the past and has not demonstrated improvement; or
(5) any
other reason determined by the state auditor to serve the interest of the state
of New Mexico.
E. Restriction:
(1) IPAs
may be placed on contract restriction based on the office’s review of the firm
profile and deficiency considerations as described below. Contract restriction
may take the form of limiting either the type of engagement or number of audit
contracts, or both, that the IPA may hold. The office may impose a corrective
action plan associated with the contract restriction. The deficiency considerations
include, but are not necessarily limited to:
(a) failure
to submit reports in accordance with Paragraph (1) of Subsection A of 2.2.2.9
NMAC, or the terms of their individual agency contract(s) whichever applies;
(b) failure
to submit late report notification letters in accordance with Paragraph (5) of
Subsection A of 2.2.2.9 NMAC;
(c) failure
to comply with Paragraphs (1) and (2) of Subsection M of 2.2.2.8 NMAC;
(d) poor
quality reports as determined by the office;
(e) poor quality
working papers as determined by the office;
(f) a
peer review rating of “pass with deficiencies” with the deficiencies being related
to governmental audits;
(g) failure
to contract through the office for New Mexico governmental audits or agreed
upon procedures engagements;
(h) failure
to submit to the office a dated signed engagement letter within 30 days of
execution;
(i) lack
of compliance with the Procurement Code;
(j) failure
to inform agency in prior years that the IPA is restricted;
(k) failure
to comply with confidentiality requirements of 2.2.2.15 NMAC;
(l) failure
to invite the state auditor or his designee to engagement entrance conference,
progress meetings or exit conference after receipt of related notification from
the office;
(m) refusal
to comply with office referrals or requests in a timely manner; or
(n) any
other reason determined by the state auditor to serve the interest of the state
of New Mexico.
(2) The
office shall notify IPAs that are under restriction. If the restriction
includes a limitation on the number of engagements the IPA is eligible to hold,
the IPA shall not enter into audit contracts with new government 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 the proposed contract.
(4) If
an agency or local public body submits an IPA recommendation letter to the office
for an IPA that was ineligible to perform that contract due to its restriction,
the office shall immediately reject the IPA recommendation in accordance with
Subparagraph (f) of Paragraph (6) of Subsection G of 2.2.2.8 NMAC.
F. Procedures
for imposition of contract restrictions:
(1) The
state auditor may place an IPA under contract restriction in accordance with
Subsection E of 2.2.2.8 NMAC.
(a) The
state auditor or his designee shall cause written notice of the contract
restriction to be sent by 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
office has placed a restriction on either the type of engagement or the number
of audit contracts, or both, that the IPA is eligible to enter into;
(ii) the
conditions of the contract restriction;
(iii) the
reasons for the contract restriction;
(iv) the
action to place the IPA on restriction is brought pursuant to Section 12-6-3(A)
NMSA 1978 and these regulations;
(v) the
IPA may request, in writing, reconsideration of the proposed contract
restriction which must be received by the office within 15 calendar days from
the day the IPA receives the letter of restriction; and
(vi) the
email 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 office’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 office’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
contract restriction(s) if the office does not receive a written request for
reconsideration within the 15 calendar days of the date of receipt of the
letter of restriction. The state auditor may grant, for good cause shown, an
extension of time within which the IPA has to submit a request for
reconsideration.
(2) The
office shall review an IPA’s request for reconsideration and shall make a
determination on reconsideration within 15 calendar days of receiving the
request unless the IPA has asked to present its request for reconsideration in
person, in which case the office shall make a determination within 15 calendar
days from the date of the personal meeting. The office may uphold, modify or
withdraw its contract 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 certified mail, return receipt requested.
G. If
the agency’s notification letter referred to in Paragraph (5) of Subsection B
of 2.2.2.8 NMAC, indicates that the agency’s audit is to be conducted by an
IPA, the agency shall comply with the following procedures to obtain
professional services from an IPA for an audit.
(1) Upon
receipt of written notification to proceed from the office, the agency shall
identify all elements or services to be solicited pursuant to Subsection A of
2.2.2.10 NMAC, and request quotations or proposals for each applicable element
of the annual financial audit as indicated below. Costs for the IPA to
cooperate with the group engagement partners and team, and the primary
government, caused by the requirements of AU-C 600 (Group Audit) will be
included in the cost of the engagement like compliance with any other
applicable standard.
(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
nonaudit 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).
(2) The
state auditor considers IPA services that cost less than $60,000 excluding
gross receipts tax to be small purchases. The agency may procure audit services
for one year only. The agency is encouraged to procure the audit services using
a multiple year proposal (not to exceed three years) in which the cost of audit
service is $60,000 or less in each year (excluding gross receipts taxes). The
agency is encouraged to obtain no fewer than three written or oral quotations
to be recorded and placed in the procurement file. Section 13-1-191.1 NMSA
1978, requires prospective contractors to complete a standard campaign
contribution disclosure form and file it with the state agency or local public
body as part of the competitive sealed proposal, or in the case of a sole source
or small purchase contract, on the date on which the contractor signs the
contract.
(3) For
IPA services that cost over $60,000 excluding gross receipts tax for each year
of the contract, the agency shall seek competitive sealed proposals and
contract for audit services in accordance with the Procurement Code (Chapter
13, Article 1 NMSA 1978); GSD rule 1.4.1 NMAC, Procurement Code Regulations, if applicable; and DFA rule 2.40.2
NMAC, Governing the Approval of Contracts
for the Purchase of Professional Services. Section 13-1-191.1 NMSA 1978
requires prospective contractors to complete a standard campaign contribution
disclosure form and submit it to the agency as part of the competitive sealed
proposal. In addition, if the agency intends to allocate a portion of the audit
cost to federal funds as direct or indirect charges, the agency should comply
with applicable procurement requirements stated in the federal office of management
and budget's in OMB Circular A-102, Grants
and Cooperative Agreements with State and Local Governments. Institutions
of higher education and state and local hospitals should comply with
procurement standards stated in OMB Circular A-110, Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals and Other Non-Profit Organizations. The agency should note that the above circulars are in the process of
being replaced by Uniform Guidance for Federal Awards. For one full
fiscal year after the effective date of the Uniform Guidance (FY15), nonfederal
entities must comply with the terms and conditions of their federal award,
which will specify whether the Uniform Guidance applies.
(4) The
agency may, and is strongly encouraged to, request a multiple year proposal to
provide services not to exceed a term of three years including all extensions
and renewals. The term of the contract shall be one-year with the option to
extend for two successive one-year terms at the same price, terms and
conditions as stated on the original proposal. Exercising the option to extend
must be by mutual agreement of the parties to the contract and with the
approval of the state auditor. In the event that either of the parties to the
contract elects not to extend, or the state auditor disapproves the
recommendation for renewal, the agency shall use the procedures described in
Paragraphs (2) and (3) of Subsection G of 2.2.2.8 NMAC to solicit services.
(5) The
agency shall evaluate all competitive sealed proposals or quotations received
pursuant to Paragraphs (2) and (3) of Subsection G of 2.2.2.8 NMAC using an
evaluation process, preferably executed by a selection committee. Members of
component units such as charter schools, housing authorities, etc., are
encouraged to be included in the IPA selection process. As part of their
evaluation process, agencies may and are strongly encouraged to consider the
following criteria when selecting an IPA:
(a) the
capability of the IPA, including:
(i) whether
the IPA has the resources to perform the type and size of the audit required;
(ii) the
results of the IPA’s most recent external quality control review (peer review);
and
(iii) the
organization and completeness of the IPA’s proposal or bid for audit services;
(b) the
work requirements and audit approach of the IPA, including:
(i) the
IPAs knowledge of the agency’s need and the product to be delivered;
(ii) whether
the IPA’s proposal or bid contains a sound technical plan and realistic
estimate of time to complete the audit;
(iii) plans
for using agency staff, including internal auditors; and
(iv) if
the proposal or bid is for a multi-year contract, the IPA’s approach for
planning and conducting the work efforts of subsequent years;
(c) the
IPA’s technical experience, including:
(i) the
governmental audit experience of the IPA and the specialization in the agency’s
type of government (e.g., state agencies, schools, hospitals, counties, cities,
etc.), including component units (housing authorities, charter schools,
foundations); and
(ii) the
IPA’s attendance at continuing professional education seminars or meetings on
auditing, accounting and regulations directly related to state and local
government audits and the agency.
(6) After
completing the evaluations for each IPA and making the IPA selection, each
agency shall submit the completed IPA recommendation form for audits and the
completed and signed audit contract to the state auditor by the deadline
indicated in Subparagraph (c) below. In the event that the due date falls on a
weekend or holiday the due date will be the next business day. Agencies with a
fiscal year end other than June 30 must use a due date 30 days before the end
of the fiscal year:
(a) agencies
shall complete the IPA recommendation form for audits provided at www.osanm.org;
agencies shall print the form on agency letterhead;
(b) agencies
shall complete the applicable audit contract form provided at www.osanm.org,
obtain the IPA’s signature on the contract, and submit the completed and signed
audit contract to the office with the completed IPA recommendation form;
(c) the
agency shall deliver the fully completed and signed IPA recommendation form for
audits and the completed audit contract to the state auditor by the deadlines
shown below; if a completed IPA recommendation form and audit contract are not
delivered to the state auditor by these deadlines, the auditor may according to
professional judgment, include a finding of noncompliance with Paragraph (6) of
Subsection G of 2.2.2.8 NMAC in the audit report:
(i) regional
education cooperatives, independent housing authorities, hospitals and special
hospital districts - April 15;
(ii) school
districts, counties, and higher education - May 1;
(iii) local
workforce investment boards and combined county/municipality governments - May
15;
(iv) local public bodies that do not qualify
for the tiered system - May 15;
(v) councils
of governments, district courts, district attorneys, state agencies and the
state of New Mexico CAFR - June 1;
(vi) local
public bodies that qualify for the tiered system pursuant to Subsections A and
B of 2.2.2.16 NMAC should follow the procedures at Subsection D of 2.2.2.16
NMAC, and submit the required recommendation form for tiered system local
public bodies and the completed signed agreed upon procedures contract to the
state auditor - July 1; and
(vii) component
units on the primary government’s due date;
(d) schools
that are chartered by PED and agencies that are subject to oversight by HED
have the additional requirement of submitting their IPA recommendation to PED
or HED for approval prior to submitting the recommendation to the state auditor
(Section 12-6-14(A) NMSA 1978);
(e) IPA
recommendation forms for audits and the related audit contracts that are
submitted to the office with errors or omissions will be rejected by the office;
the office will return the rejected contract and IPA recommendation form for
audits to the agency with a checklist indicating the reason(s) for the rejection;
the office will first process the correct IPA recommendation forms and related
contracts that were submitted timely; the office will then process any IPA
recommendation forms and audit contracts that were submitted late or were
rejected by the office and not resubmitted correctly by the deadline; and
(f) in
the event the agency’s recommendation and related contract are submitted
without errors or omissions, but are not approved by the state auditor for
reasons described at Subsection H of 2.2.2.8 NMAC, the state auditor will
promptly communicate the decision, including the reason(s) for disapproval, to
the agency; at which time the agency shall promptly submit a different
recommendation; this process may continue until the state auditor approves a
recommendation and related contract; during this process, whenever a
recommendation and related contract are 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 from the date of the disapproval and shall include documentation in
support of its recommendation; the state auditor may hold an informal meeting
to discuss the request; the state auditor may set the meeting in a timely
manner with consideration given to the agency’s circumstances.
(7) If
the agency fails to make an IPA recommendation by the deadline contained in Subparagraph
(c) of Paragraph (6) of this subsection, the state auditor may conduct the audit.
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.
(8) If
the agency fails to submit an IPA recommendation within 60 days of notification
from the state auditor to engage an IPA (pursuant to Paragraph (5) of this
subsection), the state auditor may 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.
(9) In
selecting an IPA for an agency (pursuant to Paragraph (8) of this subsection),
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
state auditor’s IPA selection shall be drawn from the list of approved IPAs
maintained by the state auditor;
(b) an
IPA subject to contract restriction pursuant to Subsection E 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.
(10) The
state auditor shall consider, at a minimum, the following factors when
considering which government agencies will be subject to the state auditor’s
selection of an IPA whether the agency:
(a) is
demonstrating progress in its own efforts to select an IPA;
(b) has
funds to pay for the audit;
(c) is
on the state auditor’s “at risk” list;
(d) is
complying with the requirements imposed on it by virtue of being on the state
auditor’s “at risk” list;
(e) has
failed to timely submit its IPA recommendation in accordance with the audit
rule on one or more occasions;
(f) has
failed to make necessary corrections to its IPA recommendation in accordance
with the audit rule or comments from office staff on one or more occasions; or
(g) has
failed to timely submit its annual financial audit report in accordance with
the audit rule deadlines on one or more occasions.
(11) 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
will be selected for each government agency subject to the discretion of the
state auditor pursuant to Paragraph (8) of this subsection.
(12) Upon
selection of an IPA to audit a government agency subject to the discretion of
the state auditor pursuant to Paragraph (8) of this subsection, 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 agreed upon procedures engagement;
(b) 60
days or more have passed since such notification, and the agency failed to
deliver its fully completed and signed IPA recommendation form for audits along
with its completed audit contract in accordance with Subparagraph (c) of Paragraph
(6) of this subsection;
(c) pursuant
to Subsection A of 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;
(f) selection
of the IPA is final, and the agency should immediately take appropriate
measures to procure the services of the selected IPA.
(13) The
agency shall retain all procurement documentation, including completed
evaluation forms, for five years and in accordance with applicable public
records laws.
H. The
state auditor will use discretion and may not approve:
(1) an
audit recommendation or agreed upon procedures professional services contract
recommendation 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) the
following criteria for required auditor rotation apply:
(i) the
IPA is prohibited from conducting the agency audit or agreed upon procedures
engagement for a period of two years because the IPA already conducted those
services for that agency for a period of: (a) six consecutive years and for at
least one of those years the audit fees exceeded $60,000, excluding gross
receipts tax; or (b) 12 consecutive years and each year the audit fees did not
exceed $60,000, excluding gross receipts tax;
(ii) an
IPA firm that has undergone a merger or acquisition will be determined (on an
individual basis) to be a new firm for the purposes of the rotation requirement
based on, but not limited to, the following criteria (a) the firm is a newly
registered business entity; and (b) at least 67% of the firm’s ownership has
changed;
(iii) if
the firm resulting from a merger or acquisition is determined to be the same
firm, as before, and it is in the middle of a multiple year award, there will
be a mandatory rotation of all the audit managers and the consecutive year
count for rotation purposes starts over again (resets) with the new audit
managers;
(iv) if
the firm resulting from a merger or acquisition is determined to be a new firm,
the new firm must compete for audit services in accordance with the Procurement
Code and this rule;
(v) prior
to the closing of the transaction, the parties to a proposed acquisition,
merger or consolidation may apply to the state auditor for the determination on
an individual basis, referred to in (ii) above, of audit rotation conditions; and
(vi) any
other consideration(s) that may be in the best interest of the public;
(c) lack
of competence or staff availability;
(d) circumstances
that may cause untimely delivery of the audit report or agreed upon procedures
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 or this rule; or
(h) any
other reason determined by the state auditor to be in the best interest of the
state of New Mexico;
(2) audit
contract recommendations or agreed upon procedures contract recommendations of
an IPA that has:
(a) breached
a prior-year contract;
(b) failed
to deliver an audit or agreed upon procedures report on time;
(c) failed
to comply with state laws or regulations of the state auditor;
(d) performed
nonaudit services (including services related to fraud) for an agency or local
public body it is performing an audit or an agreed upon procedures for, without
prior approval of the state auditor;
(e) performed
nonaudit services under a separate contract for services that may be disallowed
by GAGAS independence standards (see Subsection M of 2.2.2.8 NMAC);
(f) failed
to respond, in a timely and acceptable manner, to an audit or agreed upon
procedures 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) has
not adhered to external quality control review standards as defined by GAGAS
and Subsections A and B of 2.2.2.14 NMAC;
(j) has
a history of excessive errors or omissions in audit or agreed upon procedures
reports or working papers;
(k) released
the audit report or agreed upon procedures report to the agency, local public
body or the public before the audit release letter or the OSA letter releasing
the agreed upon procedures report, described in Subsection G of 2.2.2.16 NMAC,
was received from the office;
(l) failed
to submit a completed signed contingency subcontractor form, if required;
(m) failed
to submit a completed firm profile as required by Paragraph (3) of Subsection B
of 2.2.2.8 NMAC;
(n) reached
the limit of contracts to which the state auditor restricted the IPA;
(o) failed
to respond to communications from the office 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 or
continue in a contract;
(3) an
audit or agreed upon procedures contract recommendation for an IPA received by
the office which the state auditor decides to perform himself or with 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 agreed upon
procedures services by an IPA.
I. The
agency must use the appropriate audit contract form provided by the state
auditor on the website at www.osanm.org. The state auditor may provide audit
contract forms to the agency via U.S. mail if specifically requested by the
agency. Only contract forms provided by the state auditor will be accepted and
shall:
(1) be
completed and returned with the number of required copies (two copies for state
agencies) and the completed IPA recommendation form for audits by the deadline
indicated above at Subparagraph (c) of Paragraph (6) of Subsection G of 2.2.2.8
NMAC;
(2) bear
original signatures;
(3) have
the IPA's combined reporting system (CRS) number verified by the TRD for all
state agencies whose contracts are approved through DFA's contracts office,
prior to submission to the state auditor; and
(4) in
the compensation section of the contract, include the dollar amount that
applies to each element of the contracted procedures that will be performed.
J. 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, or with the firm
information if the IPA performs only engagements pursuant to 2.2.2.16 NMAC. The
amount maintained should be commensurate with the risk assumed. The IPA must
provide to the state auditor, prior to expiration, updated insurance
information.
K. 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 agreed upon
procedures engagements of agencies or local public bodies in New Mexico.
L. Subcontractor
requirements appear below.
(1) Audit
firms that have only one individual qualified to supervise a GAGAS audit and
issue the related audit report pursuant to Subsection B of 61-28B-17 NMSA 1978,
and Paragraph 3.76 of GAGAS must submit with the firm profile, a completed
original contingency subcontractor form that is dated to be effective until the
date the next firm profile must be submitted. The form shall indicate which IPA
on the state auditor’s current list of approved IPA’s will 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 office will not
approve audit contracts for such a firm without the required original
contingency subcontractor form.
(2) In
the event an IPA chooses to use a subcontractor to assist the IPA in working on
an audit, then the IPA must obtain the prior written approval of the state auditor
to subcontract a portion of the audit work. 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. The audit contract shall specify
subcontractor responsibility, who will sign the report(s), and how the
subcontractor will be paid. See the related subcontractor form available at
www.osanm.org.
M. The
GAGAS 2011 Revision was issued by the
United States government accountability office (GAO). It became effective for
financial audits and attestation engagements for periods ending on or after
December 15, 2012 (FY13), and for performance audits that began on or after
December 15, 2011. Pursuant to GAGAS 3.08, “Auditors should apply the GAGAS
conceptual framework at the audit organization, engagement, and individual
auditor level to: identify threats to independence; evaluate the significance
of the threats identified; both individually and in the aggregate; and apply
safeguards as necessary to eliminate the threats or reduce them to an
acceptable level.” Auditors should use Paragraphs 3.33 and 3.58 of the GAGAS in
evaluating threats to independence related to nonaudit services. Note that the
old guidance on this subject, Government
Auditing Standards: Answers to Independence Standard Questions
(GAO-02-870G, July 2002), has been retired. Pursuant to GAGAS 3.40, “Auditors
should establish and document their understanding with the audited entity’s
management or those charged with governance, the following: objectives of the
nonaudit services; services to be performed; audited entity’s acceptance of its
responsibilities; the auditor’s responsibilities; and any limitations of the
nonaudit services.”
(1) An
IPA who performs the agency’s annual financial audit shall not enter into any
special audit or nonaudit service contract with the respective agency without
the prior written approval of the state auditor. The exception to this
requirement is an engagement that costs $1,000 and less (exclusive of gross
receipts tax) for client assistance with responses to IRS and other regulators.
Only one exception per agency will be allowed per fiscal year. Requests for
approval of professional service contracts should be submitted to the office
with the original version of the signed agreement by the 5th of each month. The
office shall review the requests and respond to the agency and the IPA by the
25th of each month. The following documentation must be submitted to the office
for review and approval.
(a) The
original professional services contract must be submitted to the state auditor
for review and approval after it has been signed by the agency and the IPA. The
contract must include the contract fee, start and completion date, and the
specific scope of services to be performed by the IPA.
(b) For
nonaudit services, include the auditor’s documentation of:
(i) whether
management has the ability to effectively oversee the nonaudit service pursuant
to GAGAS 3.34;
(ii) the
documented assurance from the entity that management will assume all management
responsibilities, oversee the services by designating an individual, preferably
within senior management, who possesses suitable skill, knowledge, or
experience; evaluate the adequacy and results of the services performed; and
accept responsibility for the results of the services pursuant to GAGAS 3.37;
(iii) the
auditor’s establishment and documentation (engagement letter) of the auditor’s
understanding with the entity’s management or those charged with governance of
the objectives of the nonaudit services, the services to be performed, audited
entity’s acceptance of its responsibilities, the auditor’s responsibilities,
and any limitations of the nonaudit service, pursuant to GAGAS 3.39; and
(iv) the
auditor’s consideration of significant threats (if applicable) to independence
that have been eliminated or reduced to an acceptable level through the
application of additional safeguards, and a description of those safeguards. Upon
completion of the nonaudit services, the IPA must provide the state auditor
with a copy of any report submitted to the agency.
(2) Except
as provided in Paragraph (2) of Subsection D of 2.2.2.15 NMAC, an agency and an
IPA who does not perform that agency’s annual financial audit shall submit a
copy to the state auditor of each professional services contract entered into
between the agency and the IPA for a special audit, agreed upon procedures or
any other nonaudit services. The contract shall not require approval by the state
auditor but shall be submitted to the state auditor within 30 days of execution.
(3) The
state auditor will not approve any contract for:
(a) an
agency’s external auditor to perform the following nonaudit services that are
management responsibilities:
(i) “setting
policies and strategic direction for the audited entity;
(ii) directing
and accepting responsibility for the actions of the audited entity’s employees
in the performance of their routine, recurring activities;
(iii) having
custody of an audited entity’s assets;
(iv) reporting
to those charged with governance on behalf of management;
(v) deciding
which of the auditor’s or outside third party’s recommendations to implement;
(vi) accepting
responsibility for the management of an audited entity’s project;
(vii) accepting
responsibility for designing, implementing, or maintaining internal control;
(viii) providing
services that are intended to be used as management’s primary basis for making
decisions that are significant to the subject matter of the audit;
(ix) developing
an audited entity’s performance measurement system when that system is material
or significant to the subject matter of the audit; and
(x) serving
as a voting member of an audited entity’s management committee or board of
directors (GAGAS 3.36);”
(b) the
following nonaudit services, pursuant to GAGAS 3.50, always impair the auditor’s
independence:
(i) “determining
or changing journal entries, account codes or classifications for transactions,
or other accounting records for the entity without obtaining management’s
approval;
(ii) authorizing
or approving the entity’s transactions;
(iii) preparing
or making changes to source documents without management approval. Source
documents include those providing evidence that transactions have occurred (for
example, purchase orders, payroll time records, customer orders, and contracts);
such records also include an audited entity’s general ledger and subsidiary
records or equivalent;”
(c) the
following nonaudit services, pursuant to GAGAS 3.53 and 3.54, always impair the
auditor’s independence:
(i) “setting
internal audit policies or the strategic direction of internal audit
activities;
(ii) performing
procedures that form part of the internal control, such as reviewing and
approving changes to employee data access privileges; and
(iii) determining
the scope of the internal audit function and resulting work; and performing or
supervising ongoing internal control monitoring procedures;”
(d) the
following nonaudit services, pursuant to GAGAS 3.56, always impair the auditor’s
independence:
(i) “designing
or developing a financial or other IT system that will play a significant role
in the management of an area of operations that is or will be the subject
matter of an audit;
(ii) providing
services that entail making other than insignificant modifications to the
source code underlying such a system; and
(iii) operating
or supervising the operations of such a system;”
(e) pursuant
to GAGAS 3.47, “valuation services that would have a material effect,
separately or in the aggregate, on the financial statements or other
information on which the audit firm is reporting, and the valuation involves a
significant degree of subjectivity, would impair the auditor’s independence;”
(f) the
auditor’s independence would also be impaired by the performance of any of the
nonaudit services listed at GAGAS 3.58 regarding the entity’s non tax
disbursements, benefit plan administration, investment advisory or management
services, listed prohibited consulting or advisory services, executive or
employee personnel matters, and business risk consulting.
N. The
state auditor will approve progress and final payments for the annual audit
contract as follows.
(1) Subsection
A of 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 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 69% do not require state auditor approval provided that the
agency certifies the receipt of services before any payments are made to the
IPA. The agency must monitor audit progress and make progress payments only up
to the percentage that the audit is completed prior to making the 69% payment. If
requested by the state auditor, the agency shall provide a copy of the approved
progress billing(s). Progress payments from 70% to 90% 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 payment
approvals should be submitted by the primary government for both the primary
government and the component unit. In this situation, the office will not
process separate progress payment approvals submitted by the component unit.
(4) The
state auditor may allow only the first 50% of progress payments 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.
(5) Subsection
B of 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 stated, 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 stated in the letter
accompanying the release of the report to the agency. 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(B) NMSA 1978 and this rule and must
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 list of approved auditors.
O. Preparation
of financial statements appears below:
(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 deadline imposed in Subsection A
of 2.2.2.9 NMAC.
(3) If
there are differences between the financial statements and the books, the IPA
must 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 for management’s review and approval,
in conformance with Subsection M of 2.2.2.8 NMAC, including documenting the
safeguards as required by GAGAS 3.59, the fact that the auditor prepared the
financial statements must be disclosed in the exit conference page of the audit
report. If the IPA prepared the financial statements, the auditor must determine
whether an AU-C 265.09 and .10 related audit finding should be reported.
(5) If
the agency is a component of a primary government, the agency’s procurement for
audit services must 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 CAFR, other component units of the statewide
CAFR and other component units of any primary government that use a different
audit firm from the primary government’s audit firm.
P. Audit
documentation requirements are listed below:
(1) The
IPA’s audit documentation must 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. 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 deadline indicated in the request.
(3) The
audit documentation of a predecessor IPA must 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 will 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 and
require that the IPA to give precedence to outstanding multiple year proposals;
or
(c) the
state auditor may refer the predecessor IPA to the New Mexico public accountancy
board for possible licensure action.
Q. Auditor
communication requirements appear below:
(1) The
AICPA requirements for auditor communication with those charged with governance
are set forth in AU-C 260, effective for periods ending on or after December
15, 2012 (FY13). The 2011 version of GAGAS also has these additional
requirements at GAGAS 4.03 and 4.04.
(a) “Auditors
should communicate pertinent information that in the auditors’ professional
judgment needs to be communicated to individuals contracting for or requesting
the audit, and to cognizant legislative committees when auditors perform the
audit pursuant to a law or regulation, or they conduct the work for the
legislative committee that has oversight of the audited entity.”
(b) “In
those situations where there is not a single individual or group that both
oversees the strategic direction of the audited entity and the fulfillment of
its accountability obligations or in other situations where the identity of
those charged with governance is not clearly evident, auditors should document
the process followed and conclusions reached for identifying the appropriate
individuals to receive the required auditor communications.”
(2) After
the agency and auditor 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 photocopy of the signed letter as part of the audit documentation. In
addition to meeting the requirements of the AICPA guidance and the GAGAS
requirements, the engagement letter should state that the engagement will be
performed in accordance with 2.2.2 NMAC.
(3) Within
30 days of execution of the engagement letter, the IPA shall submit to the
state auditor an electronic copy of the signed and dated engagement letter and
a list of client prepared documents with expected delivery dates, which should
facilitate meeting the audit due date in Subsection A of 2.2.2.9 NMAC. A
separate engagement letter and list of client prepared documents is required
for each fiscal year audited. Failure to provide this information within 30
days of execution could result in a restriction of contracts.
(4) The
IPA shall conduct an audit entrance conference with the agency. The office has
the authority to notify the agency or IPA that the state auditor should be
informed of the date of the entrance conference, any progress meetings and the
exit conference. If such notification is received, the IPA and agency must
invite the state auditor or his designee to attend all such conferences.
(5) All
communications with management and the agency oversight officials during the
audit, regarding any instances of noncompliance or internal control weaknesses,
must be communicated in writing. The auditor should obtain responsible
officials’ views responding to the audit findings, pursuant to GAGAS 4.33. Any
violation of law or good accounting practice including instances of
noncompliance or internal control weaknesses must be reported as an audit
finding per Section 12-6-5 NMSA 1978. Separate management letter comments shall
not be issued as a substitute for such findings.
R. Contract
amendment requirements appear below:
(1) Amendments
to contracts for audit services, agreed upon procedures services, or nonaudit
services may be submitted to the office regarding executed contracts. Contract
amendments submitted on an expired contract will be rejected. Amendments shall
be approved in writing by the state auditor. Any amendments to contracts should
be made on the contract amendment form. The contract should be amended prior to
the additional work being performed or as soon as practicable thereafter. Any amendments
to the contract must be in compliance with Sections 13-1-1 to 13-1-199 NMSA
1978 of the Procurement Code. Notwithstanding the delivery dates of the
contract, audit report regulatory due dates are not subject to amendment.
(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;
(b) how
the work to be performed is beyond the scope of work outlined in the original
contract; and
(c) when
the auditor or agency became aware of the work needed to be performed.
(3) Since
annual financial audit contracts are fixed-price contracts, contract amendments
for fee increases will only be approved for extraordinary circumstances 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 will 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 special procedures required by a
regulatory body or a local, state or federal grantor. The addition of a “new program” does not mean
the addition of one more major federal program when the Single Audit was
already included in the IPA’s procurement response. Contract amendments will
not be approved to perform additional procedures to achieve an unqualified
opinion. The state auditor shall also consider the auditor independence
requirements of Subsection M of 2.2.2.8 NMAC when reviewing contract amendments
for approval. Requests for contract amendments should be submitted to the office
with the original version of the signed contract amendment by the 5th of each
month. The request for contact amendment should include a description of the
work to be performed and the estimated hours required to perform the additional
work. The office will review the requests and respond to the agency and the IPA
by the 25th of each month. Requests for contract amendments submitted after the
5th of each month will not be reviewed and responded to by the office until the
25th of the following month.
(4) If
a proposed contract amendment is disapproved for lack of adequate information,
the IPA and agency may submit a corrected version for reconsideration.
(5) 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 Paragraph (3) of
Subsection R of 2.2.2.8 NMAC may amend the amount of compensation for the audit
services set forth in the contract.
S. Contract
termination requirements follow:
(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 him consistent
with the October 6, 1993, stipulated order Vigil v. King No. SF 92-1487(C). The
notice of termination of the contract will be in writing.
(2) If
the agency or IPA terminate the audit or agreed upon procedures engagement
contract pursuant to the termination paragraph of the contract, the office should
be notified of the termination immediately.
The party sending out the termination notification letter must
simultaneously send a copy of the termination notification letter to the office
with an appropriate cover letter, addressed to the state auditor.
(a) The
agency should follow the Procurement Code and Subsection G of 2.2.2.8 NMAC, Subsection
A of 2.2.2.15 NMAC or Subsection D of 2.2.2.16 NMAC, to obtain the services of
a different IPA.
(b) The
IPA recommendation and completed contract for the newly procured IPA should be
submitted to the office within 30 calendar days of the date of the termination
notification letter.
(c) As
indicated in Paragraph (3) of Subsection A of 2.2.2.9 NMAC, the state auditor will
grant no extensions of time to the established regulatory due dates.
(d) If
the agency does not expect to deliver the engagement report by the regulatory
due date, the agency must submit a written notification letter to the state
auditor and oversight agency as required by Paragraph (5) of Subsection A of
2.2.2.9 NMAC and Paragraph (2) of Subsection H of 2.2.2.16 NMAC.
[2.2.2.8 NMAC - Rp, 2.2.2.8 NMAC, 3-16-15]
2.2.2.9 REPORT DUE DATES:
A. The
auditor shall deliver the organized and bound annual financial audit report to
the state auditor by 5:00 p.m. on the date specified in the audit contract or send
it post marked by the due date.
(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) counties:
November 1;
(d) school
districts and higher education: November 15;
(e) district
courts, district attorneys and county/municipality governments: December 1;
(f) pursuant
to Subsection D of 12-6-3 NMSA 1978, state agency reports are due no later than
60 days after the state auditor receives notice from the FCD that the agency’s
books and records are ready and available for audit; see Paragraph (1) of
Subsection A of 2.2.2.12 NMAC for additional details regarding due dates for
state agencies. State agency reports are due no later than December 1 after the
close of the fiscal year;
(g) workforce
investment boards, councils of government and local public bodies (see also
Subsection H of 2.2.2.16 NMAC): December 15;
(h) agencies
with a fiscal year-end other than June 30 must submit the audit report no more
than five months after the fiscal year-end;
(i) all
separate audit reports prepared for component units (e.g., housing authorities,
charter schools, hospitals, foundations, etc.) are due fifteen days before the
primary government’s audit report is due; and
(j) the
state of New Mexico comprehensive annual financial report (CAFR) is due February
15.
(2) If
an audit report is not delivered on time to the state auditor, the auditor must
include this instance of noncompliance 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 should also be reported as a significant deficiency,
or material weakness in the operation of internal control in the agency’s
internal controls over financial reporting pursuant to AU-C 265.09 and .10.
(3) An
organized bound hard copy of the report should be submitted for review by the office
with the following: copy of the signed management representation letter; a copy
of the completed state auditor report review guide (available at); and a
completed Summary of Findings Form also available at www.osanm.org. The report
review guide should reference applicable page numbers in the audit report and
be signed by the person completing the review guide. The audit manager or
person responsible for the firm’s quality control system should either complete
the report review guide or sign off as having reviewed it. A report will not be
considered submitted to the office for the purpose of meeting the deadline
until a copy of the signed management representation letter, the completed
report review guide; and completed Summary of Findings Form are also submitted
to the office. All separate reports prepared for component units should also be
submitted to the office for review, along with a copy of the representation
letter, and a completed report review guide for each separate audit report. A
separate component unit report will not be considered submitted to the office
for the purpose of meeting the deadline until a copy of the signed management
representation letter, and the completed report review guide, and a completed
Summary of Findings Form are also submitted to the office. If a due date falls
on a weekend or holiday, or if the office is closed due to inclement weather,
the audit report is due the following workday by 5:00 p.m. If the report is
mailed to the state auditor, it should be postmarked no later than the due date
to be considered filed by the due date. If the due date falls on a weekend or
holiday the audit report shall be postmarked by the following workday. The
state auditor will grant no extensions of time to the established regulatory
due dates.
(4) AU-C
700.4 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 shown in Subsection
A of this section, the auditor shall notify the state auditor and oversight
agency of the situation in writing. This notification shall consist of a letter
with official signatures, not an email. However, a scanned version of the
official letter sent via email that contains the required signatures is
acceptable. There must be a separate notification for each late audit report. The
notification must include a specific explanation regarding why the report will
be late, when the IPA expects to submit the report and a concurring signature
by the agency. If the IPA is going to miss the expected report submission date,
then the IPA should send a revised notification letter. In the event the
contract was signed after the report due date, the notification letter must
still be submitted to the office explaining the reason the audit report will be
submitted after the report due date. A copy of the letter must be sent to the
legislative finance committee and the applicable oversight agency: public education
department, DFA’s financial control division, DFA’s local government division,
or the higher education department. The late report notification letter is not
required if the report was submitted to the office for review by the deadline,
and then rejected by the office, making the report late when resubmitted. At
the time the audit report is due, if circumstances still exist that will make
the report late, the IPA or agency may consult the state auditor regarding the
opinion to be rendered, but such a discussion should occur no later than the
date the audit report is due. It is not the responsibility of the auditor to go
beyond the scope of auditing standards generally accepted in the United States
of America, or the audit report due date, to assure an unmodified opinion.
Therefore, reports resubmitted to the office with changes of the IPA’s opinion
after the report deadline will be considered late and a late audit finding must
be included in the audit report.
B. As
in any contract, both parties can and are encouraged to negotiate a delivery
date prior to the regulated due date specified in Subsection A of 2.2.2.9 NMAC.
No delivery date, however, may exceed the “no later than” due date specified in
Subsection A of 2.2.2.9 NMAC.
C. Audit
report delivery and release requirements follow:
(1) All
audit reports (and all separate reports of component units if applicable) must
be organized, bound and paginated. The office does not accept facsimile or
emailed versions of the audit reports for initial review. The IPA shall deliver
to the state auditor a hard copy of the audit report for review by 5:00 p.m. on
the day the report is due. Reports postmarked by the due date will be
considered received by the due date. Unfinished or excessively deficient
reports will not satisfy this requirement; such reports will be rejected and
returned to the IPA and the office may take action in accordance with
Subsection C of 2.2.2.13 NMAC. The firm should submit an electronic version of
the corrected rejected report for office review. The name of the electronic
file should be “corrected rejected report” followed by the agency name and
fiscal year.
(2) Before
initial submission the IPA should review the report using the appropriate
report review guide available on the office’s website. All questions in the
guide must be answered, and the reviewer must sign and date the last page of
the guide. The audit manager or person responsible for the IPA’s quality
control system must either complete the report review guide or sign off as
having reviewed the completed questionnaire. If the review guide is not
accurately completed or incomplete, the report will not be accepted.
(3) The
office will review all audit reports submitted by the report due date before
reviewing reports that are submitted after the report due date. Once the review
of the report is completed pursuant to 2.2.2.13 NMAC, and any significant
deficiencies have been corrected by the IPA, the office will indicate to the IPA
that the report is ready to print. After the office review of the final version
of the audit report pursuant to 2.2.2.13 NMAC, the office will authorize the
IPA to submit the following items to the office within five business days: the
required number of hardcopies specified in the audit contract; and an
electronic version of the audit report labeled “Final,” in PDF format. The
office will not release the report until the electronic version of the report
is received by the office. The electronic file must:
(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 MB per file submitted (contact the office to request an exception if
necessary);
(d) have
all security settings like self-sign security, user passwords, or permissions
removed or deactivated so the office 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
will be deleted by the office);
(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 DPI (lower DPI will make the file hard to read and higher DPI will
make the file too large); and
(k) the
electronic file name must start with “final version,” followed by the name of
the agency and the fiscal year, and then end with .pdf.
(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.” Release of the audit report
to the agency or the public prior to it being officially released by the state
auditor will result in an audit finding. The agency or the IPA shall ensure
that every member of the agency’s governing authority receives a copy of the
audit report.
(5) After
the release of a report, the office will provide DFA and the legislative
finance committee with notification that the report is available on the office
website.
(6) If
an audit report is reissued pursuant to AU-C Section 560, Subsequent Events and
Subsequently Discovered Facts, the reissued audit report must be submitted to
the office with a cover letter addressed to the state auditor. The cover letter
must 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 office will subject the reissued report to the
report review process and upon completion of that report review process, will
issue a “release letter.” The contents of the reissued audit report are subject
to the same confidentiality requirements described in Paragraph (3) of
Subsection J 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 office will notify the
appropriate oversight agencies regarding the updated report on the office website.
(7) If
changes to a released audit report are submitted to the office, 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, that
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 office will notify the
appropriate oversight agencies regarding the updated report on the office website.
D. The
agency and IPA may agree to, or the state auditor may impose, a contract
provision that unjustified failure to meet delivery requirements by either
party to the contract may result in a liability for a specified amount of
liquidated damages from the offending party.
E. IPAs
are encouraged to deliver completed audit reports before the due date to
facilitate the review process performed by the office. If the office rejects
and returns a substandard audit report to the IPA, the office will consider the
audit report late if the corrected report is not resubmitted by the due date. The
IPA will also be required to report a finding for the late audit report in the
audit report.
F. For
an agency that has failed to submit audit or agreed-upon procedures reports as
required by this rule, the state auditor may require the agency to submit a
status report to the office in accordance with deadlines specified by the state
auditor. 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. At a minimum, the report shall include:
(1) a
detailed explanation of the agency’s efforts to complete and submit its audit
or agreed-upon procedures;
(2) an
explanation of the current status of any ongoing audit or agreed-upon
procedures work;
(3) a
description of 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.
[2.2.2.9 NMAC - Rp, 2.2.2.9 NMAC, 3-16-15]
2.2.2.10 GENERAL CRITERIA:
A. Scope
of annual financial audit:
(1) The
financial audit shall cover the entire financial reporting entity including the
primary government and any component units of the primary government.
(a) Entities
must be reported as component units within the financial statements of the
primary government, if the primary government is financially accountable for
the entity (Paragraph 10 of GASBS 14) or if the nature and significance of the
entity to the primary government warrants inclusion (Paragraphs 5 and 6 of
GASBS 39). The primary government, in conjunction with its auditors, must
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
(as amended) and 39. The flowchart at Paragraph 68 of GASBS 61 is useful for
this determination. All agencies that meet the criteria of GASBS 14 (as
amended) or 39 to be a component unit of the primary government must be
included with the audited financial statements of the primary government by
discrete presentation unless otherwise approved by the state auditor. Exceptions
may occur when an agency requires presentation other than discrete. An
exemption must be requested by the agency, in writing, from the state auditor
in order to present a component unit as other than a discrete component unit. The
request for an exemption must include a detailed explanation, conclusion and
supporting documentation justifying the request for blended component unit
presentation. The approval of the state auditor for the exemption is required
prior to issuing the report. Per Paragraph 1.01 of AAG-SLV, not-for-profit
component units should be reported using the government financial reporting
format if they have one or more of the following characteristics: popular
election of officers or appointment or approval of a controlling majority of
the members of the organization’s governing body by officials of one or more
state or local governments; the potential for unilateral dissolution by a
government with the net assets reverting to the government; or the power to
enact and enforce a tax levy. If a not-for-profit does not qualify to be
reported using the governmental format under the above criteria, that fact
should be explained in the notes to the financial statements (summary of
significant accounting policies-financial reporting entity).
(b) If
a primary government has no component units, that fact should 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 statement due to materiality, that
fact must also be disclosed in the notes. However, if the primary government is
a state agency, department or board, or public institution of higher education
or public post-secondary educational institution, county, municipality or
public school district, Subparagraph (a) of Paragraph (4) of Subsection B of 6-5A-1
NMSA 1978 requires all 501(c) 3 component unit organizations with a gross
annual income in excess of $250,000 to receive an audit. Such component units
cannot be excluded from the audit based on the “materiality” criterion.
(c) The
state auditor requires the 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 CAFR). Requests for exemption from this requirement must 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 must be met:
(i) the
group engagement partner should 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);
(ii) the
component unit auditor selected must appear on the office of the state auditor
list of eligible independent public accountants;
(iii) the
bid and auditor selection processes must comply with the requirements of this rule;
(iv) the
office of the state auditor standard contract form must be used;
(v) the
primary government, the primary engagement partner, management of the component
unit, and the component auditor should all coordinate their efforts to ensure
that all audit reports of the component unit and the primary government are
submitted by the applicable deadlines;
(vi) all
component unit findings must be disclosed in the primary government’s audit
report except the statewide CAFR is required to include only separate legal
component unit findings that are significant to the state as a whole; and
(vii) any
separately issued component unit audit report must be submitted to the state
auditor for the review process described in 2.2.2.13 NMAC.
(d) The
level of planning materiality required by the state auditor for component units
is at the individual fund level. This requirement does not apply to the audit
of the statewide CAFR. College and university component units have a different
materiality level. See Paragraph (3) of Subsection E of 2.2.2.12 NMAC.
(e) With
the exception of the statewide CAFR, the following supplemental information
(SI) pertaining to component units should be audited at the more detailed fund
level included in the scope of the audit and opined on as illustrated in
Example A-14 (AAG-SLV):
(i) component
unit fund financial statements, and the combining and individual fund financial
statements if separately issued financial statements of the component units are
not available (AAG-SLV 3.22); and
(ii) individual
fund budgetary comparisons when a legally adopted budget exists for a fund if
separately issued financial statements are not available; the office interprets
a “legally adopted budget” to exist any time the agency prepares a budget and
in every case where an entity receives federal funds, state funds, or any other
“appropriated” funds.
(2) Audits
of state and local governmental agencies shall be comprised of a financial and
compliance audit of the financial statements and schedules as follows.
(a) the
level of planning materiality required by the state auditor is at the
individual fund level; the state auditor requires that the budgetary comparison
statements be audited and included as part of the basic financial statements
consistent with GASBS 34 footnote 53 and AAG-SLV 11.13. The level of planning
materiality described in the Paragraphs 4.72 and 4.73 of the AICPA Audit and
Accounting Guide, State and Local Governments, should be used for the statewide
CAFR audit.
(b) the
scope of the audit includes the following statements and disclosures which the
auditor is required to audit and give an opinion on, the basic financial
statements consisting of:
(i) the
government-wide financial statements;
(ii) fund
financial statements;
(iii) budgetary
comparison statements (for only the general fund and major special revenue
funds when the budget information is available on the same fund structure basis
as the GAAP fund structure); and
(iv) notes
to the financial statements;
(c) the
auditor must audit the following required supplemental information, if
applicable, and include it in the auditor’s opinion (AAG-SLV 14.65); budgetary
comparisons for the general fund and major special revenue fund data 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 (GASB Statement No. 41, Budgetary Comparison
Schedules-Perspective Differences an amendment of GASB Statement No. 34);
(d) with
the exception of the statewide CAFR, the auditor must audit the following
supplemental information at the individual fund level, if applicable, and opine
on it in the auditor’s opinion following Example A-14 (AAG-SLV 14 Appendix A):
(i) component
unit fund financial statements, and the combining and individual fund financial
statements (if there are no separately issued financial statements on the
component unit per AAG-SLV 3.22);
(ii) combining
and individual fund financial statements; and
(iii) individual
fund budgetary comparison statements for the remaining funds that have a
legally adopted budget including any major capital project or debt service
funds, non-major governmental funds, enterprise funds and internal service
funds.
(e) 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 pension plans;
(iii) RSI
schedules required by GASBS 43 for postemployment benefit plans other than
pension plans;
(iv) RSI
schedules required by GASBS 45 regarding employer accounting and financial
reporting for postemployment benefits other than pensions; and
(v) infrastructure
modified approach schedules derived from asset management systems (Paragraphs
132 and 133 of GASBS 34);
(f) the
audit engagement and audit contract compensation include an AU-C 725 opinion on
the remaining supplemental information schedules presented in the audit report;
(i) some
examples of remaining SI schedules are: the schedule of expenditures of federal
awards required by OMB Circular A-133, the schedule of pledged collateral
required by Paragraph (3) of Subsection N of 2.2.2.10 NMAC, the schedule of
changes in assets and liabilities for agency funds required by Subsection Z of
2.2.2.10 NMAC, and the school district schedule of cash reconciliation required
by Subparagraph (e) of Paragraph (4) of Subsection C of 2.2.2.12 NMAC;
(ii) the
auditor shall subject the information on the remaining SI schedules to
procedures required by AU-C 725;
(iii) 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 Subparagraph (b) of Paragraph (4) of
Subsection C of 2.2.2.12 NMAC;
(iv) the
auditor shall report on the remaining supplementary information (SI) in an
explanatory paragraph following the opinion paragraph in the auditor’s report
on the financial statements pursuant to AU-C 725; see also the independent
auditor’s report example on the office website at www.osanm.org.
(g) the
audit engagement and audit contract compensation include AU-C 720 procedures
and auditor reporting be performed on a schedule of vendor information. The agency shall prepare a schedule of
vendors for purchase exceeding $60,000 (excluding gross receipts tax) that
includes the following information: names of all vendors that responded to
requests for bids or requests for the proposals during the fiscal year; whether
the vendor was an in-state vendor or an out-of-state vendor; if the vendor was
in-state and chose the veterans’ preference instead of the in-state preference;
a short description of the scope of work; the name of the vendor that was
awarded the contract; and the dollar amount of the resulting contract. This
“Schedule of Vendors” must be included in the “Other Information Section” of
the audit report.
B. Legislation
regarding budget adjustment requests (BARs) prevents or restricts many budget
transfers or increases. The IPA shall satisfy himself that these restrictions
are not being violated by direct payment or other unauthorized transfers.
C. Legislation
can designate a fund as reverting or non-reverting: The IPA must review the
state law that appropriated funds to the agency to confirm whether any
unexpended, unencumbered balance of a specific appropriation must be reverted
and to whom. The law will also indicate the deadline for the required
reversion. Appropriate audit procedures must be performed to determine
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 should fully disclose the reverting or non-reverting
status of a fund or appropriation. The financial statements must 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 must 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 DFA white papers
“calculating reversions to the state general fund,” and “basis of accounting-modified
accrual and the budgetary basis.” The statewide CAFR is exempt from this
requirement.
D. Governmental
auditing, accounting and financial reporting standards: The audits shall be
conducted in accordance with:
(1) GAGAS
issued by the U.S. general accounting office, the 2011 revision;
(2) U. S. Auditing Standards-AICPA (Clarified)
effective for periods ending on or after December 15, 2012;
(3) OMB Circular A-133, Audits of States, Local
Governments and Non-Profit Organization, as amended (unless the grant agreement specifies that the Uniform
Administrative Requirements apply in FY15);
(4) AICPA
Audit Guide, Governmental Auditing Standards and Circular A-133 Audits, latest
edition;
(5) AICPA
Audit and Accounting Guide, State and Local Governments, latest edition; and
(6) 2.2.2
NMAC, Requirements for Contracting and Conducting Audits of Agencies, latest
edition.
E. 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 GASB Codification, latest edition. Auditors
shall follow interpretations, technical bulletins, 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 office requires that the statement of revenues, expenditures,
and changes in fund balances - governmental funds include intergovernmental
revenue from federal sources and intergovernmental revenue from state sources,
as applicable.
F. IPAs
who perform government audits are expected to maintain professional libraries
including current editions of the publications and standards noted above. The
audit guides published by the practitioners publishing company (PPC) or similar
authors’ practice aides are not considered to be authoritative.
G. State
compliance audit requirements follow. An IPA shall identify significant state
statutes, rules and regulations applicable to the governmental agency under
audit and perform tests of compliance. In addition to the significant state
statutes, rules and regulations identified by the IPA, the following state
statutes and constitutional provisions must be tested (with the exception of
the statewide CAFR audit):
(1) Procurement
Code (Sections 13-1-1 through 13-1-199 NMSA 1978) including providing the state
purchasing agent with the name of the agency’s or local public body’s chief
procurement officer, pursuant to Section 13-1-95.2 NMSA 1978, and state purchasing
regulations, 1.4.1 NMAC;
(2) Per
Diem and Mileage Act (Sections 10-8-1 through 10-8-8 NMSA 1978), Regulations
Governing the Per Diem and Mileage Act, and 2.42.2.11 NMAC, Mileage-Private
Conveyance, effective June 19, 2009;
(3) Public
Money (Sections 6-10-1 through 6-10-63 NMSA 1978) including the requirements of
Sections 6-10-10(A) and (B) NMSA 1978 that county and municipal treasurers
deposit money in their respective counties, and the requirement of Section
6-10-17 NMSA 1978 that the agency receive a joint safe keeping receipt for
pledged collateral;
(4) Public
School Finance Act (Sections 22-8-1 through 22-8-48 NMSA 1978);
(5) Investment
of Public Money (Sections 6-8-1 through 6-8-21 NMSA 1978);
(6) For
Public Employees Retirement Act (Sections 10-11-1 through 10-11-141 NMSA 1978)
auditors should test to ensure 100% of payroll is reported to PERA; PERA
membership is mandatory under the PERA Act, unless membership is specifically
excluded pursuant to Section 10-11-3(B) NMSA 1978;
(7) Educational
Retirement Act (Sections 22-11-1 through 22-11-55 NMSA 1978);
(8) Sale
of Public Property (Section 13-6-1 through 13-6-8 NMSA 1978);
(9) Anti-Donation
Clause (NM Constitution Article IX, Section 14);
(10) Special,
Deficiency, and Specific Appropriations (appropriation laws applicable for the
year under audit);
(11) state
agency budget compliance with Sections 6-3-1 through 6-3-25 NMSA 1978, and
local government budget compliance with Sections 6-6-2(A) and 6-6-5 through
6-6-7 NMSA 1978;
(12) Lease
Purchase Agreements (New Mexico Constitution Article IX, Sections 8 and 11;
Sections 6-6-11 through 6-6-12 NMSA 1978; Montano v. Gabaldon, 108 NM 94, 766
P.2d 1328, 1989);
(13) 2.20.1.1
through 2.20.1.18 NMAC, Accounting and
Control of Fixed Assets of State Government (updated for GASB 34 as
applicable);
(14) 2.2.2
NMAC, Requirements for Contracting and Conducting Audits of Agencies;
(15) Article
IX of the State Constitution limits on indebtedness;
(16) for
agencies receiving general fund appropriations, Laws of 2014 Regular Session,
Chapter 63, Section 3, Subsection J states, “Except for gasoline credit cards
used solely for operation of official vehicles, telephone credit cards used
solely for official business and procurement cards used as authorized by
Section 6-5-9(1) NMSA 1978, none of the appropriations contained in the General
Appropriation Act of 2014 may be expended for payment of agency-issued credit
card invoices;”
(17) for
Retiree Health Care Authority Act (Section 10-7C-1 through 10-7C-19 NMSA 1978)
auditors should test to ensure 100% of payroll is reported to NMRHCA. RHCA
employer and employee contributions are set forth in Section 10-7C-15 NMSA 1978;
and
(18) Governmental
Conduct Act (Sections 10-16-1 through 10-16-18 NMSA 1978);
(19) If
applicable to the agency’s audit contract, the auditor shall perform additional
audit procedures indicated in the “other provisions” section of the audit
contract. If the additional audit procedures required by the “other provisions”
section of the contract cause a significant change in the scope of the audit,
then the contract amendment provisions of Subsection R of 2.2.2.8 NMAC will
apply.
H. The
following federal compliance audit requirements must be tested (with the
exception of the statewide CAFR audit):
(1) The
following government pronouncements establish requirements and give guidance
for “Yellow Book” and single audits:
(a) Generally Accepted Government Auditing Standards (GAGAS) issued by the U.S. general
accounting office, latest effective edition;
(b) Uniformed
Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards, or the next five items;
(c) OMB
Circular A-21, Cost Principles for
Educational Institutions, as revised May 10, 2004;
(d) OMB
Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments,
revised May 10, 2004;
(e) OMB
Circular A-102, Grants and Cooperative
Agreements with State and Local Governments, revised October 7, 1994 and
further amended August 29, 1997;
(f) OMB
Circular A-110, Uniform Administrative Requirements for Grants and Agreements
with Institutions of Higher Education, Hospitals, and Other Non-Profit
Organizations, as revised November 19, 1993 and further amended September 30,
1999;
(g) OMB
Circular A-133, Audits of States, Local Governments and Non-Profit
Organizations, (June 26, 2007 revision);
(h) OMB
Circular A-133, Compliance Supplement,
latest edition; and
(i) Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards; and
(j) OMB
Catalog of Federal Domestic Assistance (CFDA), latest edition.
(2) IRS
employee income tax compliance issues - noncompliance with these IRS
requirements requires a current year audit finding:
(a) employee
fringe benefits are presumed by the IRS to be income to the employee unless
they are specifically excluded from income by the tax code; any employee fringe
benefits not excluded from income by the tax code must be reported on the
employee’s W-2; examples of such fringe benefits could be: meal allowances paid
to employees for meals away from home when overnight travel is not involved;
discounted housing like school district teacherages, dues for membership in
clubs organized for business, pleasure, recreation, or other social purpose
(except rotary and kiwanis club); cash and non-cash awards, and employee
insurance benefits for dependents who do not meet the IRS definition of a
“dependent”; personal use of a government agency vehicle is always taxable
income to the employee unless the vehicle is a qualified non-personal use
vehicle (Rev. 1.274-5T(k)(3)) provided to the employee as a “working condition
fringe benefit”:
(i) examples
of qualified non-personal use vehicles are: clearly marked police and fire
vehicles; unmarked law enforcement vehicles (officer must be authorized to
carry a firearm and have arrest authority); ambulance or hearse; vehicle with
gross weight over 14,000 lbs.; 20 passenger bus and school bus; tractor and
other farm equipment; and delivery truck with driver seating only;
(ii) the
value of commuting and other personal use of a “nonqualified vehicle” must be
included on the employee’s W-2; there are three rules the IRS allows to be used
for valuing personal use of an employer’s vehicle: automobile lease valuation
rule; cents-per-mile rule; and the commuting rule ($3 per day); for more
detailed information regarding valuation of personal use of vehicles see IRS
Pub. 15-B;
(b) city
or county “volunteer firefighters” who are reimbursed when they provide
firefighting services on state or federal land have been determined by the IRS
to be employees of the respective city or county;
(c) the
social security administration now requires all state and local government
employers to disclose to all new employees the fact that their job is not
covered by social security if they were hired for a position not covered by
social security; these employees must sign a statement that they are aware of a
possible reduction in their future social security benefit entitlement; see the
website at www.socialsecurity.gov/form1945 for the required form and
instructions;
(d) for
more information regarding these and other IRS issues please contact the federal
state and local government specialist with the IRS in Albuquerque, NM at
505-837-5610.
I. Audit
finding requirements appear below:
(1) Internal
control related findings: pursuant to GAGAS 4.23, “auditors should communicate
in the report on internal control over financial reporting and compliance,
based upon the work performed: significant deficiencies and material weaknesses
in internal control; instances of fraud and noncompliance with provisions of
laws or regulations that have a material effect on the audit and any other
instances that warrant the attention of those charged with governance;
noncompliance with provisions of contracts or grant agreements that has a
material effect on the audit; and abuse that has a material effect on the audit.”
(a) AU-C
260.09 requires the auditor to evaluate deficiencies to determine whether
individually or in combination they are significant deficiencies or material
weaknesses. Guidance for evaluating deficiencies is available at AU-C 260.A5
through 269.A11. Examples of circumstances that may be deficiencies,
significant deficiencies, or material weaknesses are listed at AU-C 260.A37;
(b) pursuant
to Section 12-6-5 NMSA 1978, which requires that any violation of good
accounting practices shall be set out in detail in the report, all findings,
including those required by Section 12-6-5 NMSA 1978, regarding weaknesses in
internal controls, warrant the attention of those charged with governance; therefore,
all such findings must be included 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.
(2) GAGAS
Section 4.05 (2011 revision) requires auditors to “evaluate whether the audited
entity has taken appropriate corrective action to address findings and
recommendations from previous engagements that could have a material effect on
the financial statements or financial data significant to the audit objectives.
When planning the audit, auditors should ask management of the audited entity
to identify previous audits, attestation engagements, and other studies that
directly relate to the objectives of the audit, including whether related recommendations
have been implemented; auditors should use this information in assessing risk
and determining the nature, timing, and extent of current audit work, including
determining the extent to which testing the implementation of the corrective
actions is applicable to the current audit objectives.” In addition to this
standard, the IPA will report the status of all prior-year findings in the
current year audit report including the current year finding reference number
(if repeated) followed by the original finding reference number appearing in
brackets, the title of the finding, and whether the finding has been resolved
or repeated in the current year; findings from special audits performed by the state
auditor must be included in the findings of the annual financial and compliance
audits of the related fiscal year.
(3) Current-year
audit findings:
(a) the
Data Collection Form requires federal award audit finding reference numbers to:
have a new standard format with the four digit audit year, a hyphen and a three
digit sequence number (e.g. 2013-001, 2013-002…2013-999); and match the finding
reference numbers on the data collection
form (Form SF-SAC) to those reported in the schedule of findings and questioned
costs and the applicable auditor’s report; therefore, all current year audit
findings will follow this new required format; depending on the IPA’s
classification of the finding, the finding reference number should be followed
by one of the following descriptions: “material weakness” in internal control;
“significant deficiency” in internal control; “material noncompliance;” or “other
noncompliance”; or “findings that do not rise to the level of a significant
deficiency”; any unresolved prior-year findings must be repeated in the current
year using the new format; however, as noted above, the status report of all
prior year findings will include the old original finding number in brackets,
following the new standardized finding reference number, to enable the report
user to see what year the finding was originally written;
(b) written
audit findings should be prepared and submitted to the agency management 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; findings are not subject to
negotiation; the agency should also prepare a corrective action plan as required
by GAGAS 4.33; the agency shall respond, in writing, to the IPA’s audit
findings within 10 business days; the agency’s responses to the audit findings
and the corrective action plan should be included in the finding after the
recommendation; pursuant to GAGAS 4.38, “when the audited agency’s comments are
inconsistent or in conflict with findings, conclusions, or recommendations in
the draft report, or when planned corrective actions do not adequately address
the auditor’s recommendations, the auditors should evaluate the validity of the
audited agency’s comments; if the auditors disagree with the comments, they
should explain in the report their reasons for disagreement,” after the
agency’s response; “conversely, the auditors should modify their report as
necessary if they find the comments valid and supported with sufficient,
appropriate evidence;” lack of agency responses within the 10 business days
does not warrant a delay of the audit report; pursuant to GAGAS 4.39, “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 entity; in such cases, the auditors should
indicate in the report that the audited entity did not provide comments;”
(c) each
audit finding (including unresolved prior-year findings) shall specifically
state and describe the following:
(i) condition
(provides a description of a situation that exists and should include the
extent of the condition and an accurate perspective; the number of instances
found and the dollar amounts involved, if any, and, for repeat findings,
include here, management’s progress or lack of progress towards implementing
the prior year corrective action plan);
(ii) criteria
(should identify the required or desired state or what is expected from the
program or operation; should cite 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 will serve as a basis for the recommendation);
(v) recommendation
addressing each condition and cause; and
(vi) agency
response (agency’s comments about the finding including a specific corrective
action plan with a timeline and designation of what employee position(s) are
responsible for meeting the deadlines in the timeline).
(4) If
appropriate in the auditor’s professional judgment, failure to submit the
completed IPA recommendation form and contract by the due date at Subparagraph
(c) Paragraph (6) of Subsection G of 2.2.2.8 NMAC, may be considered a current
year compliance finding.
(5) If
an agency has entered into any professional services contract with the IPA who
performs the agency’s annual financial audit, or the scope of work on any
professional services contract relates to fraud, and the contract was not
approved by the state auditor, this shall be reported as a finding of noncompliance
with Subsection M of 2.2.2.8 NMAC.
(6) Component
unit audit findings must be reported in the primary government’s financial
audit report. This is not required for the statewide CAFR unless a legally
separate component unit’s (like NM finance authority’s or NM mortgage finance authority’s)
finding is significant to the state as a whole.
(7) A
release 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(A) NMSA 1978 and
will require an additional finding in the audit report.
(8) When
auditors detect immaterial violations of provisions of contracts or grant
agreements or abuse that are required to be reported by Section 12-6-5 NMSA
1978, that do not rise to the level of significant deficiencies or material
weaknesses, those findings should be classified as warranting the attention of
those charged with governance, since Section 12-6-5 NMSA 1978 requires any violation
of law found by the audit to be set out in detail in the report; the auditor
must 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 (see the report on
internal control examples at www.osanm.org).
(9) In
the event that an agency response to a finding indicates in any way that the
office is the cause of the finding, the office may require that a written
response from the office of the state auditor be included in the report, below
the other responses in the finding.
J. Exit
conference and related confidentiality issues follow:
(1) The
IPA must hold an exit conference with representatives of the agency's governing
authority and top management including representatives of any component units
(housing authorities, charter schools, hospitals, foundations, etc.) if
applicable. The office has the authority to notify the agency or IPA that the
state auditor should be informed of the date of the entrance conference, any
progress meetings and the exit conference. If such notification is received,
the IPA and agency must invite the state auditor or his designee to attend all
such conferences. If component unit representatives cannot attend the combined
exit conference, a separate exit conference must be held with the component
unit's governing authority and top management. Unless the cost of the audit is
$5,000 or less, the exit conference must be held in person; a telephone or
webcam exit conference will not meet this requirement; if extraordinary
circumstances exist that will prevent the exit conference from taking place in
person, the IPA shall submit a written request for an exemption from this
requirement to the state auditor at least 48 hours prior to the scheduled exit
conference; the written request for the exemption must include the
justification for the request and the concurring signature of the agency; the
IPA may not hold a telephonic or webcam exit conference without prior written
approval of the state auditor; the date of the conference(s) and the names and
titles of personnel attending must be stated in the last page of the audit
report.
(2) The
IPA with the agency’s cooperation shall deliver to the agency a complete and
accurate draft of the audit report (stamped “draft”), a list of the “passed
audit adjustments,” and a copy of all the adjusting journal entries before the
exit conference; the draft audit report shall include the Management’s Discussion
and Analysis (MD&A), independent auditor’s report, a complete set of
financial statements, notes to the financial statements, required schedules,
audit findings that include responses from agency management, status of
prior-year audit findings, and the reports on internal control and compliance
required by government auditing standards and the Single Audit Act or Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards.
(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 office, and has
become a public record; agencies subject to the Open Meetings Act who wish to
have a quorum of the governing board present at the exit conference will have
to schedule the exit conference during a closed meeting in compliance with the
Act, in order to avoid disclosing audit information that is not yet public
record, in a public meeting.
(a) pursuant
to the Open Meetings Act (Sections 10-15-1 through 10-15-4 NMSA 1978), any
closed meetings shall be held only after reasonable notice to the public;
(b) Section
12-6-5 NMSA 1978 (Reports of Audits) provides that an audit report does not
become a public record, subject to public inspection, until five calendar days
after the date it is released by the state auditor to the agency being audited;
(c) Example
31 in the seventh edition of the attorney general's Open Meetings Act Compliance Guide states that “where the agency
being audited is governed by a public body subject to the Open Meetings Act and
where release of the report occurs at an exit conference at which a quorum of
the members of the body is present, such exit conference need not be open to
the public in order to preserve the confidentiality of the information
protected by Section 12-6-5 NMSA 1978;”
(d) once
the audit report is officially released to the agency by the state auditor (by
an authorizing letter) and the required waiting period of five calendar days
has passed, unless waived by the agency in writing, 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. The
presentation of the audit report should be documented in the minutes of the
meeting. See AU-C 260.12 through 260.14 for information that should be
communicated to those charged with governance.
(4) 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 4.30 through 4.32 and GAGAS
4.40 through 4.44.
K. Possible
violations of criminal statutes in connection with financial affairs:
(1) Paragraphs
4.06 through 4.08 of the GAGAS 2011 revision, states that “in addition to the
AICPA requirements concerning fraud and noncompliance with provisions of laws
and regulations, when performing a GAGAS financial audit, auditors should
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; abuse involves 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; abuse also includes misuse of authority or position for personal
financial interests or those of an immediate or close family member or business
associate; abuse does not necessarily involve fraud, or noncompliance with
provisions of laws, regulations, contracts, or grant agreements; because the
determination of abuse is subjective, auditors are not required to detect abuse
in financial audits; however, as part of a GAGAS audit, if auditors become
aware of abuse that could be quantitatively, or qualitatively material to the
financial statements or other financial data significant to the audit
objectives, auditors should apply audit procedures specifically directed to
ascertain the potential effect on the financial statements or other financial
data significant to the audit objectives; after performing additional work,
auditors may discover that the abuse represents potential fraud or
noncompliance with provisions of laws, regulations, contracts, or grant
agreements;”
(2) Pursuant
to Section 12-6-6 NMSA 1978 (Criminal Violations), an agency or IPA shall
notify the state auditor immediately, in writing, upon discovery of any
violation of a criminal statute in connection with financial affairs; the
notification shall include an estimate of the dollar amount involved, and a
complete description of the violation, including names of persons involved and
any action taken or planned; if warranted, the state auditor may cause an audit
of the financial affairs and transactions of the agency in whole or in part
pursuant to Section 12-6-3 NMSA 1978 and Subsection A of 2.2.2.15 NMAC; if the state
auditor does not designate an agency for audit, an agency shall follow the
provisions of Subsection D of 2.2.2.15 NMAC when entering into a professional
services contract for a special audit, performance audit or attestation
engagement regarding the financial affairs and transactions of the agency
relating to financial fraud, waste and abuse.
(3) Section
12-6-6 NMSA 1978 states that 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 his possession relative to the violation.
L. Special
revenue funds authority: the authority for creation of special revenue funds and
any minimum balance required must 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 CAFR.
M. Public
monies:
(1) Definition
- 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 must be authorized by
legislation (Section 6-4-2 NMSA 1978 and MAPS FIN 11.4).
(2) If
the agency has material derivatives or securities investments the auditor
should seek the assistance of audit firm staff or of a specialist from outside
the firm, that has the skill or knowledge required to plan and perform auditing
procedures for specific assertions about derivatives and securities; see the
related requirements at: Paragraphs .04 through .10 AU-C 501, Audit Evidence-Specific Considerations for Selected Items
and AU-C 620, Using the Work of an
Auditor’s Specialist.
(3) List
of individual deposit accounts and investment accounts required by Section
12-6-5(A) 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) and the SHARE fund number (state agencies only);
(b) account
name;
(c) type
of deposit or investment account (also required in separate component unit audit
reports):
(i) types
of deposits are non-interest bearing checking, interest bearing checking, savings,
money market accounts, certificates of deposit; and
(ii) types
of investments are state treasurer general fund investment pool (SGFIP), state
treasurer local government investment pool (LGIP); U.S. treasury bills, notes,
bonds and strips; and U.S. agencies such as FNMA, FHLMC, GNMA, Sallie Mae, SBA,
FHA, federal financing bank, federal farm credit, financial assistance
corporation, including the specific name of each bond, stock, commercial paper,
bankers acceptances, mutual fund, foreign currency, etc.;
(d) account
balance of deposits and investments as of the balance sheet date; and
(e) reconciled
balance of deposits and investments as of the balance sheet date as reported in
the financial statements;
(f) with
the implementation of the SHARE system, both the “book” and “bank” information
reside on this unified system; there are no longer stand-alone systems
providing single-source information. State General Fund Investment Pool (SGFIP)
balance information is now available and retrievable at each state agency being
audited; this information is identical to what DFA or STO can obtain from the
system. At this time, the STO cannot act in the capacity of an independent
third-party to provide account balance confirmations to other agencies or
auditors, IPAs can now access account balance information by having the agency run
a query or a trial balance report from SHARE; therefore, IPAs and state
agencies should not request bank confirmations from STO (state agencies only);
(g) in
auditing the investment in the State General Fund Investment Pool (SGFIP) of a
state agency, the IPA should review the individual state agency’s cash
reconciliation procedure 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 should 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. For example, some agencies receive only the cash annually
appropriated to the agency, and process all expenditures through SHARE,
resulting in low risk that the investment in SGFIP could be misstated. Every
state agency audit report should include disclosure in light of the
reconciliation issues at the statewide level, and what the agency is doing to
mitigate its risk of misstated SGFIP account balances. Taking all these and
more facts gained during audit procedures into consideration, the IPA should
use his or her professional judgment to determine each agency’s risk of
misstatement in the investment in the SGFIP and write findings and modify
opinions as deemed appropriate by the IPA. (state agencies only)
(4) Pledged
collateral:
(a) all
audit reports should disclose the collateral requirements in the notes to the
financial statements; in addition, there should be a supplementary schedule or
note to the financial statements that discloses the collateral pledged by each
bank and savings and loan association (S&L) that is a depository for public
funds; the schedule should disclose the type of security (i.e., bond, note,
treasury, bill, etc.), security number, CUSIP number, fair market value and
maturity date;
(b) if
the pledged collateral for deposits in banks, savings and loan associations, or
credit unions, in an aggregate amount is not equal to one half of the amount of
public money in each account (Section 6-10-17 NMSA 1978), there should be a
finding in the audit report; no security is required for the deposit of public
money that is insured by the FDIC or NCUSIF, according to Section 6-10-16 NMSA
1978; the collateral requirements should be calculated separately for each bank
and disclosed in the notes as follows to show compliance and GASB 40 disclosure
information (for line items iv-viii, delete the line items if custodial credit
risk category does not apply):
(i)
Total on deposit in bank or credit union
$ 450,000
(ii)
Less: FDIC or NCUSIF coverage *
250,000
(iii)
Uninsured public funds
200,000
(iv)
Pledged collateral held by agency’s agent in
agency’s name
(50,000)
(v)
Pledged collateral held by the pledging bank’s trust
department in agency’s name
(75,000)
(vi)
Pledged collateral held by the pledging financial
institution
(12,500)
(vii)
Pledged collateral held by pledging bank’s trust
department or agent but not in agency’s name
(12,500)
(viii)
Uninsured and uncollateralized
($ 50,000)
(c) custodial credit
risk is defined as the risk that the government’s deposits may not be returned
to it in the event of a bank failure; per GASBS 40.8, the notes to the
financial statements should disclose the amount of deposits subject to
custodial credit risk for categories (vi), (vii) or (viii) above;
(d) to determine
compliance with the 50% pledged collateral requirement of Section 6-10-17 NMSA
1978, the following disclosure must be made for each financial institution:
50% pledged collateral requirement per statute
$ 100,000
Total pledged collateral
(150,000)
Pledged collateral (over)under the requirement
$ (50,000)
(e) repurchase
agreements must be covered by 102% of pledged collateral per Subsection H of Section
6-10-10 NMSA 1978; disclosure similar to that shown above is also required for
the 102% pledged collateral requirement;
(f) per
Subsection A of 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;”
(g) securities
shall be accepted as security at market value pursuant to Subsection C of 6-10-16
NMSA 1978;
(h) state
agency investments in the office of 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 should refer the reader to the state treasurer’s separately issued
financial statements which disclose the collateral pledged to secure state treasurer
cash and investments; see Paragraph (14) of Subsection A of 2.2.2.12 NMAC for
related GASBS 40 disclosure requirements;
(i) if
an agency has other “authorized” bank accounts, pledged collateral information
should 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 should 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, the office of the state treasurer’s
collateral bureau monitors pledged collateral for all state funds held by state
agencies in such “authorized” bank accounts;
(5) State
treasurer’s external investment pool (local government investment pool); agencies
that have investments in the state treasurer’s short-term investment fund must
disclose the information required by Paragraph 15 of GASB Statement No. 31 in
the notes to the financial statements; the following information may be helpful
for this disclosure:
(a) the
investments are valued at fair value based on quoted market prices as of the
valuation date;
(b) the
state treasurer local government investment pool is not SEC registered; the state
treasurer is authorized to invest the short-term investment funds, with the
advice and consent of the state board of finance, in accordance with Subsections
I through O of Section 6-10-10 and Paragraph (1) of Subsection A and E of 6-10-10
NMSA 1978;
(c) the
pool does not have unit shares; per Paragraph (1) of Subsection F of 6-10-10
NMSA 1978, at the end of each month all interest earned is distributed by the
state treasurer to the contributing entities in amounts directly proportionate
to the respective amounts deposited in the fund and the length of time the
amounts were invested;
(d) participation
in the local government investment pool is voluntary; and
(e) the
end of the fiscal year weighted average maturity (interest rate risk in number
of days) available on the state treasurer’s website at http://www.nmsto.gov/gasb_40_disclosure.
N. Budgetary
presentation:
(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 required
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 required to balance the budget (or fund
balance on the cash basis);
(2) The
differences between the budgetary basis and GAAP basis revenues and
expenditures should be reconciled; this reconciliation is required at the
individual fund level; if the required budgetary comparison information is
included in the basic financial statements, the reconciliation should be
included on the statement itself (preferred) or in the notes to the financial
statements; if the budgetary comparison is presented as supplemental
information as required by Subparagraph (c) of Paragraph (3) of Subsection O of
2.2.2.10 NMAC below, the reconciliation to GAAP basis should be presented at
the bottom of the budgetary comparison; if the required budgetary comparison is
presented as RSI (for reasons described below in Subparagraph (b) of Paragraph (3)
in this section) the reconciliation should appear in either a separate schedule
or in notes to RSI according to the AICPA
Audit and Accounting Guide, State and Local Governments, (AAG-SLV 11.14); also,
the notes to the financial statements should 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 is at the function level for school districts; the legal
level of budgetary control for state agencies is explained at Paragraph (11) of
Subsection A of 2.2.2.12 NMAC; for additional information regarding the legal
level of budgetary control, the IPA should contact the applicable oversight
agency, DFA, HED, or PED.
(3) Budgetary
comparisons must show the original and final appropriated budget (same as final
budget approval 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) the
basic financial statements must include budgetary comparison statements for
only the general fund and major special revenue funds if the budget structure
for those funds is similar enough to the GAAP fund structure to provide the
necessary information;
(b) the
required supplemental information section is the place where the budgetary comparisons
should appear for the general fund and major special revenue funds 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. See Paragraphs 3 and 10 in GASB Statement No. 41, Budgetary Comparison Schedules -Perspective
Differences. When budgetary comparisons have to be presented as required
supplemental information (RSI) due to such perspective differences it is a
requirement of the state auditor that they be audited and included in the
auditor’s opinion. See AAG-SLV 14.65 in the AICPA
Audit and Accounting Guide, State and
Local Governments (latest edition);
(c) Supplemental
information (SI) is the place where all other budgetary comparison information
should appear except the general and major special revenue fund budgetary
comparisons. Non-major governmental funds and proprietary funds that have
legally adopted budgets (including budgets approved by a resolution) should
have budgetary comparisons appearing in the SI section of the report. It is a
requirement of the state auditor that budgetary comparison statements presented
in the basic financial statements or as required supplemental information (RSI)
or supplemental information (SI) be audited and included in the auditor’s
opinion. For an example of an opinion that includes SI or RSI see Example A-14
in the AICPA Audit and Accounting Guide,
State and Local Governments (latest edition).
O. Appropriations
to agencies:
(1) Budget
related findings:
(a) if
actual expenditures exceed budgeted expenditures at the legal level of
budgetary control, that fact must 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 required to balance the budget), that
fact must also be reported in a finding after the auditor confirms the finding with
the agency’s budget oversight entity (if applicable), since budget deficits are
generally not allowed;
(2) Special,
deficiency, specific, and capital outlay appropriations:
(a) special,
deficiency, and specific appropriations and capital outlay appropriations
funded by severance tax bonds or general obligation bonds of the state must be
disclosed in the financial statements. The original appropriation, the
appropriation period, expenditures to date, outstanding encumbrances and
unencumbered balances should be shown in a supplementary 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 CAFR audit.
(b) the
accounting treatment of any unexpended balances should be fully explained in
the supplementary schedule or in a note to the financial statements regarding
the special appropriations.
P. consideration
of internal control and risk assessment in a financial statement audit: all
financial audits performed under this rule are required to 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. Inquiry alone is not sufficient testing of internal controls;
the requirement to test internal controls applies even in circumstances when
the auditor has assessed control risk at maximum; this is a special requirement
of the state auditor; this requirement does not require an auditor to retest
controls previously tested during the performance of an AU-C 402 (previously SAS
70) audit, when the auditor is relying on the AU-C 402 audit report.
Q. Lease
purchase agreements:
(1) The
New Mexico supreme court has held that it is unconstitutional for agencies to
enter into lease purchase agreements after January 9, 1989, unless special
revenue funds are the designated source of payments for the agreement. (Any
agreements executed prior to that date may not be extended or amended without
compliance with the guidelines of Montano v. Gabaldon, 108 N.M. 94, 766 P.2d
1328);
(a) the
attorney general interpreted Montano to mean that long-term contracts for
professional services, leases, and real property rental agreements may still be
entered into within the constraints of the Bateman Act and the Procurement Code;
however, any agreement which is in effect for more than one fiscal year,
including leases of real property, must have a provision allowing the agency to
terminate the agreement at will at any time, or at least at the end of each
fiscal year, without penalty; furthermore, the agency must have no “equitable
or moral” duty to continue to make payments under the contract; the agreements
must also contain a non-appropriation clause allowing for termination of the
agreement in the event the agency decides not to appropriate funds for each
fiscal year;
(b) the
attorney general subsequently opined that if the source of funds to repay the
debt is solely repaid from the project revenue or from a special
non-general-tax fund and not from any general tax revenue, then the debt, be it
in the form of bonds or a lease purchase agreement, is not the sort of debt
which triggers the constitutional requirement of approval by the voters. This
is the teaching of the Connelly case relied on by the court in Montano. Montano
did not reverse Connelly, Seward and the other cases which have consistently
limited the application of constitutional restrictions to debts which are paid
out of general tax revenues.
(2) If
specific questions as to the constitutionality of a particular lease agreement
remain, an independent legal opinion should be obtained from the attorney general.
R. Required
auditor's reports:
(1) The
independent auditor’s report should follow the examples contained in the AICPA Audit and Accounting Guide, Government
Auditing Standards and Circular A-133 Audits (latest edition), Chapter 4
Example 4-14 (including the reference to the schedule of expenditures of
federal awards when applicable), and the AICPA Audit and Accounting Guide State and Local Governments (latest
edition), Chapter 14, Appendix A - Illustrative Auditor’s Reports, Example A-14
which illustrates how to opine on the basic financial statements and the
combining and individual fund financial statements presented as supplementary
information; see also the guidance provided in Chapter 14, Appendix A, Footnote
4 regarding wording that should be used when opining on budgetary statements on
the GAAP basis. All independent auditor’s reports should 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
4.18; this statement should be modified in accordance with GAGAS 2.24b, if some
GAGAS requirements were not followed. As applicable, the first sentence of the
AU-C 725 opinion paragraph should state that the audit was conducted for the
purpose of forming opinions on the basic financial statements, the combining
and individual financial statements, and the budgetary comparisons; see also
the report example on the office website at www.osanm.org.
(2) 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 should
follow the applicable AICPA report example available in the AICPA Audit and Accounting Guide, Government Auditing Standards and
Circular A-133 Audits, (latest edition) Chapter 4; pursuant to Section
12-6-5 NMSA 1978, which requires that any violation of good accounting
practices shall be set out in detail in the report, all findings, including
those required by Section 12-6-5 NMSA 1978, regarding noncompliance or
weaknesses in internal controls, warrant the attention of those charged with
governance; therefore, all such findings must be included 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; see the report examples on the office website at
www.osanm.org.
(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 will be considered a violation of
the terms of the audit contract and may result in further action by the state
auditor. See also Paragraph (4) of Subsection Q of 2.2.2.8 NMAC above,
regarding this issue.
(3) The
report on compliance for each major federal program: report on internal control
over compliance - report examples are available in Appendix - Illustrative
Auditor’s Reports under Circular A-133 of Chapter 13 in the current version of
the AICPA Audit and Accounting Guide,
Government Auditing Standards and
Circular A-133 Audits.
(4) One
report cover: the state auditor requires the financial statements, supplemental
information, other information required by item (g) in Paragraph (2) of
Subsection A of 2.2.2.10, and the following reports to be included under one
report cover: the independent auditor’s report including the AU-C 725 report on
supplemental information; the AU-C 720 other matter paragraph to disclaim an
opinion on other information; 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 (required by Section
12-6-5 NMSA 1978, GAGAS 4.17 and AU-C 265.11 through 265.16); and the report on
compliance for each major federal program, report on internal control over
compliance (required by OMB Circular A-133 and Uniform Administrative
Requirements,
Cost Principles, and Audit Requirements for Federal
Awards); if applicable, the independent auditor’s report must include the AU-C
725 opinion on the schedule of expenditures of federal awards and the HUD financial
data schedule (required by HUD guidelines on reporting and attestation
requirements of uniform financial reporting standards); the report must also
contain a table of contents and an official roster; the IPA should submit a
written request for an exemption from the “one report cover,” and receive prior
written approval from the state auditor in order to present any of the above
information under a separate cover.
S. Service
organizations: If the agency uses a service organization to process certain transactions,
the auditor should follow the applicable guidance provided in AU-C 402; the
AU-C Section has been updated to:
(1) allow
the IPA to make reference to the work of the service auditor, to explain a
modification of the IPA’s opinion (AU-C 402.22), if applicable; and
(2) require
the IPA to inquire of management of the user entity regarding whether the user
entity is aware of any service organization fraud, noncompliance with laws and
regulations, or uncorrected misstatements that affect the financial statements
of the user entity (AU-C 402.19).
T. Disposition
of property:
(1) Sections
13-6-1 and 13-6-2 NMSA 1978 govern the disposition of obsolete, worn-out or
unusable tangible personal property owned by state agencies, local public
bodies, school districts, and state educational institutions; pursuant to
Subsection A of 13-6-4 NMSA 1978, municipalities are exempt from this
requirement; at least 30 days prior to any such disposition of property on the
agency inventory list described below in Subsection Y of 2.2.2.10 NMAC, written
notification of the official finding and proposed disposition duly sworn and
subscribed under oath by each member of the authority approving the action must
be sent to the state auditor;
(2) In
the event a computer is included in the planned disposition, the agency shall
“sanitize” or effectively make “inaccessible,” all licensed software and any
electronic media pertaining to the agency; hard drive erasure or destruction certification
is still required even if the asset originally cost less than the
capitalization threshold at the time of purchase, and the asset was not
included in the capital asset inventory; according to the May 5, 2002
memorandum from the chief information technology security and privacy office,
“ordinary file deletion procedures do not erase the information stored on hard
disks or other magnetic media; sanitizing erases or overwrites totally and
unequivocally, all information stored on the media; there are three basic
approaches:
(a) purchasing
and using a commercial degaussing product to erase magnetic disks;
(b) overwriting
stored data a minimum of five times; or
(c) reformatting
the drives (F disking).”
(3) Agencies
and local governments disposing of any digital equipment with storage
capabilities should take care to properly erase stored data prior to the
intended disposition; agencies subject to the notification requirements of
Subsection B of 13-6-1 NMSA 1978, must certify in writing the proper erasure or
destruction of the hard drive and submit the written certification along with
the notification of the proposed disposition of property, to the state auditor
at least 30 days prior to taking action to dispose of the asset; the IPA shall
test for compliance with this requirement; this is a special requirement of the
state auditor and it applies even if the original purchase price of the digital
equipment was less than $5,000, in which case the 30 day wait is not required.
U. Joint
powers agreements and memorandums of understanding:
(1) All
joint powers agreements (JPA) and memorandums of understanding (MOU) must be
listed in a supplementary schedule in the audit report. The statewide CAFR
schedule should include JPAs and MOUs that are significant to the state as a
whole. The schedule should include the following information for each JPA or
MOU:
(a) participants;
(b) party
responsible for operations;
(c) description;
(d) beginning
and ending dates of the JPA or MOU;
(e) total
estimated amount of project and portion applicable to the agency;
(f) amount
the agency contributed in current fiscal year;
(g) audit
responsibility;
(h) fiscal
agent if applicable; and
(i) name
of government agency where revenues and expenditures are reported.
(2) For
self-insurance obtained under joint powers agreements or memorandums of
understanding, see the GASB Codification Section J50.113.
V. Capital
asset inventory:
(1) The
Audit Act (Section 12-6-10 NMSA 1978) requires agencies to capitalize only
chattels and equipment that cost over $5,000; all agencies are required to update
their capitalization policy and implement it in accordance with the law; this
change in capitalization threshold should be accounted for prospectively from
June 17, 2005 forward, as a change in estimate per GASBS 62.69; older capital
assets that were capitalized under previous lower capitalization thresholds
should not be removed from the capital assets list during the implementation of
the most recent capitalization threshold increase; any new items received after
June 17, 2005 should be added to the inventory list only if they meet the new
capitalization threshold; regarding safeguarding and management of assets that
do not meet the capitalization threshold, the state auditor encourages agencies
to maintain a separate accountability report for those items that cost $5,000
or less;
(2) Subsection
A of 12-6-10 NMSA 1978 requires each agency to conduct an annual physical
inventory of movable chattels and equipment on the inventory list at the end of
each fiscal year; the agency shall certify the correctness of the inventory
after the physical inventory; this certification should be provided to the
agency’s auditors.
W. Schedule
of changes in assets and liabilities for the agency funds: Agency funds are
excluded from the statement of changes in fiduciary net position (Paragraph 110
of GASBS 34 as amended by GASBS 63) because they have no “net assets;” therefore
it is a requirement of the state auditor that a schedule of changes in assets
and liabilities for the agency funds be included as supplemental information (SI)
for all agencies that have agency funds; the schedule should show additions and
deductions for each agency fund except for school districts; school districts
should see Subparagraph (e) of Paragraph (4) of Subsection C of 2.2.2.12 NMAC
for more information regarding the presentation of the statements of changes in
assets and liabilities - agency funds for school districts; the schedule should
appear toward the end of the table of contents and requires an AU-C 725 opinion
in the independent auditor’s report.
X. Accounting
for forfeited property:
(1) Seized
property should be accounted for in an agency fund before the “judgment of
forfeiture” per Section 31-27-6 NMSA 1978 judgment of forfeiture.
(2) Once
the judgment of forfeiture is made, the property should be accounted for in a
special revenue fund because the revenues are legally restricted for specified
purposes; the balance sheet of such a special revenue fund that accounts for
seized property may have zero balances at the end of a fiscal year because net
balance amounts may have been transferred to the general fund of the governing
body of the seizing law enforcement agency, or the general fund to be used for
drug abuse treatment services, for drug prevention and education programs, for
other substance abuse demand-reduction initiatives or for enforcing narcotics
law violations; exceptions are forfeitures of property arising from: violations
of hunting or fishing regulations that must be deposited in the game protection
fund; and violations against cultural properties that must be used for the restoration
of the affected cultural property, with net balances being deposited into the
general fund;
(3) Seized
property resulting in forfeiture proceeds creates revenue for the governmental
agency that seized the property. That
revenue and related expenditures must be included in the budget process of the
governmental agency.
(4) See
Section 31-27-1 NMSA 1978 and related cross references for guidance on various
types of seizures and forfeitures; Section 31-27-7 NMSA 1978 provides statutory
guidance for proper disposition of forfeited property and use (allowable expenditures)
of all related proceeds.
Y. Tax
increment development districts: Pursuant to Subsection C of 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
will have to apply the criteria of Paragraph 132 of GASB 14 (as amended by
GASBS 61) 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 will have to
contract separately for an audit separate from the audit of the municipality or
county that approved it.
Z. AICPA
Statement on Auditing Standards No. 128, Using the Work of Internal Auditors.
This statement is effective for audits of financial statements for periods
ending on or after December 15, 2014 (FY15). SAS No. 128 describes the external
auditor’s responsibilities when using the work of internal auditors when (1)
the external auditor is using the work of the internal audit function in
obtaining audit evidence; and (2) when the external auditor is using the
internal auditors to provide direct assistance under the direction,
supervision, and review of the external auditor. SAS No. 128 supersedes
previous related guidance in AU-C 610. One of the things that SAS No. 128
requires as a prerequisite to being able to use the work of the internal audit
function, is that the external auditor evaluate the application by the internal
audit function of a systematic and disciplined approach, including quality
control.
AA. AICPA
Statement on Auditing Standards No. 129, Amendment to Statement on Auditing
Standards No. 122 Section 920, Letters for Underwriters and Certain Other
Requesting Parties, as amended. This statement is effective for comfort letters
issued on or after December 15, 2014.
BB. GASBS
69, Government Combinations and Disposals
of Government Operations. This statement establishes accounting and
financial reporting standards related to government mergers, acquisitions, and
transfers of operations. The requirements of this statement are effective for
government combinations and disposals of government operations occurring in
financial reporting periods beginning after December 15, 2013 (FY15) and should
be applied on a prospective basis. Either application is encouraged.
CC. GASBS
71, Pension Transaction for Contributions
Made Subsequent to the Measurement Date - an amendment of GASBS Statement No. 68.
“This statement amends Paragraph 137 Statement 68 to require that, at
transition, a government recognize a beginning deferred outflow of resources
for its pension contributions, if any, made subsequent to the measurement date
of the beginning net pension liability. Statement 68, as amended, continues to
require that beginning balances for other deferred outflows of resources and
deferred inflows of resources related to pensions be reported at transition
only if it is practical to determine all such amounts.”
The
requirements of this statement should be applied at the same time the
provisions of Statement 68 are applied (fiscal years beginning after June 15,
2014 (FY15)).
DD. GASBS
68, Accounting and Financial Reporting for Pensions-An Amendment of GASBS
Statement No. 27:
(1) This
statement is effective for financial statements for fiscal years beginning
after June 15, 2014 (FY15); this statement replaces the requirements of GASBS
27, Accounting for Pensions by State and Local Governmental Employers, and the
requirements of GASBS 50 Pension Disclosures, as they relate to pensions that
are provided through pension plans administered as trusts; the requirements of GASBS
27 and 50 remain applicable for pensions that are not covered by GASBS 68.
(2) Employers
that participate in PERA and ERB should consult their oversight agencies (DFA,
LGD, PED and HED), regarding the measurement date that each employer should use
in implementing GASBS 68 in FY15; note that GASBS 68.34 and 68.57 require that
“contributions to the pension plan from the employer subsequent to the
measurement date of the net pension liability and before the end of the
reporting period should be reported as a deferred outflow of resources related
to pensions.”
(3) After
their FY14 audit reports are audited and released, PERA and ERB plan to provide
each of their participant employers with their allocated pension liability
information as of June 30, 2014; the state auditor is requiring that:
(a) prior
to distribution of this information to the participant employers, the PERA and
ERB will obtain an audit of the schedules of allocated pension liability
information, pursuant to AU-C 805, Special
Considerations - Audits of Single Financial Statement and Specific Elements,
Accounts, or Items of a Financial Statement;
(b) pursuant
to AU-C 805.16, the PERA and ERB auditors will provide PERA and ERB with a
separate report on the AU-C 805 audit performed;
(c) the
AU-C 805 audits and resulting separate reports on the PERA and ERB schedules of
allocated pension liability information must be submitted to the office for
review and release pursuant to 2.2.2.13 NMAC, prior to distribution to the PERA
and ERB participant employers; and
(d) as
soon as the AU-C 805 reports, including the allocated pension information,
become public record, PERA and ERB will make the information available to the
participant employers.
(4) On
the subject of whether the liability should be included in the stand-alone
financial statements of funds see Implementation Guide-GASB Statement 68,
Question and Answer 122, that says, “Except for blended component units, which
are discussed in Questions 34 and 35, Statement 68 does not establish specific
requirements for allocation of the employer’s proportionate share of the
collective net pension liability or other pension-related measures to
individual funds. However, for proprietary and fiduciary funds, consideration
should be given to Statement 1, paragraph 42 of NCGA, as amended, which
requires that long-term liabilities that are “directly related to and expected
to be paid from” those funds be reported in the statement of net position or
statement of fiduciary net position, respectively. Stand-alone state agency
financial statements that exclude the proportionate share of the collective net
pension liability of the state of New Mexico based on the above guidance,
should include note disclosure referring the reader to the statewide
comprehensive annual financial report (CAFR) for the state’s pension liability
and other pension-related information. The stand-alone report for the New
Mexico Component Appropriation Funds should include note disclosure of the net
pension liability for all the state agencies of the state of New Mexico.
EE. Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards
OMB Circular A-133 is being replaced by “Uniform
Guidance for Federal Awards” (Uniform Guidance). The standards set forth in
Subpart F – Audit Requirements were effective December 26, 2013, and will apply
to audits of fiscal year beginning on or after December 26, 2014 (FY16). For
one full fiscal year after the effective date of the Uniform Guidance (FY15),
non-federal entities must comply with the terms and conditions of their Federal
award, which will specify whether the Uniform Guidance applies. Regarding the
new procurement standards, “the non-Federal entity must document whether it is
in compliance with the old or new standard, and must meet the documented
standard. For example, the first full fiscal year for a non-Federal entity with
a June 30th year end would be the year ending June 30, 2016 (FY16).
The Single Audit Compliance Supplement will instruct auditors to review
procurement policies and procedures based on the documented standard. For
future fiscal years, all non-Federal entities will be required to comply fully
with the uniform guidance.” See Item 200.100, Frequently Asked Questions for
OMB Uniform Administrative Requirements, Cost Principles, and Audit Requirement
for Federal Awards at 2 CFR 200.
[2.2.2.10 NMAC – Rp, 2.2.2.10 NMAC, 3-16-15]
2.2.2.11 THE ACCOUNTABILITY IN
GOVERNMENT ACT:
A. This
section applies to agencies that have performance measures associated with
their budgets; the purpose of Sections 6-3A-1 through 6-3A-9 NMSA 1978 of the
Accountability in Government Act is to provide for more cost-effective and
responsive government services by using the state budget process and defined
outputs, outcomes and performance measures to annually evaluate the performance
of state government programs.
B. Agency
performance measures are included in the General Appropriations Act; the agency
shall include a schedule of performance data (outcomes, outputs, efficiency,
etc.) if the schedule is required by the agency's oversight agency such as DFA,
HED and PED and preparation guidelines are issued by the oversight agency.
C. The
auditor’s responsibilities for performing procedures and reporting on
supplemental information (SI) are provided in AU-C Section 725, Supplementary
Information in Relation to the Financial Statements as a Whole; the auditor
should apply the procedures required by
AU-C 725 to the agency’s performance data included in the schedule in order
to determine whether it is fairly stated, in all material respects, in relation
to the financial statements as a whole.
D. The
IPA should include this schedule 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 financial statements as a
whole.
[2.2.2.11 NMAC - Rp, 2.2.2.11 NMAC, 3-16-15]
2.2.2.12 SPECIFIC CRITERIA: The specific criteria should be considered
in planning and conducting governmental audits. These requirements are not
intended to be all-inclusive; therefore, the state statutes (NMSA) and
regulations (NMAC) should be reviewed while planning governmental audits.
A. PERTAINING
TO AUDITS OF STATE AGENCIES:
(1) Due
dates for agency audits: Subsection D of Section 12-6-3 NMSA 1978 states that
state agency reports are due no later than 60 days after the state auditor
receives notice from the financial control division of DFA that the agency’s
books and records are ready and available for audit; the financial control
division requires that each agency submit a management representation letter
documenting management’s responsibility for the accounting records, the agency
has recorded all transactions properly in SHARE, and the agency is ready and
available for audit; in addition, the financial control division mandates that
each agency, with the help of its independent auditor, identify and submit with
the management representation letter a schedule of deliverables and agreed to
milestones for the audit; the milestones ensure that the agency’s books and
records are ready and available for audit and the auditor delivers services on
time; once the financial control division receives the management
representation letter, the schedule of deliverables and milestones, the
financial control division will notify the state auditor in writing regarding
the expected audit deadline for the agency; the 60 days to the audit deadline
will be based on the date of the financial control division’s notification to
the state auditor, which will be based on input from the agency to the
financial control division and the agency’s schedule of deliverables and
milestones. State agency reports are due no later than December 1 after the
close of the fiscal year.
(2) Materiality
at the individual fund level means at the individual SHARE fund level for state
agencies; all the individual SHARE funds should be reported in the financial
statements and opined on in the independent auditor’s report.
(3) Accounts
payable at year-end: If goods and services were received (as defined by
generally accepted accounting principles) by the end of the fiscal year but not
paid for by the end of the fiscal year, an accounts payable should be reported
for the respective amount due in both the government-wide financial statements
and the fund financial statements (NCGAS 1 Paragraph 70); per Section 6-10-4
NMSA 1978, the “actual” expenditures in the budgetary comparison exclude any
accounts payable that were not paid timely and therefore require a request to the
financial control division to pay prior year bills out of current year budget;
they will be paid out of the budget of the following fiscal year; an agency’s
reversions should be calculated using the budgetary basis expenditures because
the agency does not have the legal authority to obligate the state for
liabilities once the appropriation period has lapsed; thus the agency cannot
keep the cash related to accounts payable that were not paid timely; this will
result in a negative fund balance in the modified accrual basis financial
statements of a reverting fund.
(4) Net
position/fund balance:
(a) pursuant
to GASBS 63.8 the government-wide statement of net position and the proprietary
fund statement of net position should show net position as:
(i) net
investment in capital assets;
(ii) restricted
(distinguishing between major categories of restrictions); and (iii) unrestricted;
pursuant to GASBS 63.10, “restricted component of net position consists of
restricted assets reduced by liabilities and deferred inflows of resources
related to those assets; generally, a liability relates to restricted assets if
the asset results from a resource flow that also results in the recognition of
a liability or if the liability will be liquidated with the restricted assets
reported;” pursuant to GASBS 63.11, “the unrestricted component of net position
is the net amount of the assets, deferred outflows of resources, liabilities,
and deferred inflows of resources that are not included in the determination of
net investment in capital assets or the restricted component of net position;”
(b) governmental
fund financial statement fund balances should be reported in accordance with
GASBS 54; this statement was effective for financial statements for periods
beginning after June 15, 2010 (FY11);
(c) the
statement of fiduciary net position (fiduciary fund financial statement) should
show net position as “held in trust for ” (Paragraph 108 of GASBS 34 as amended
by GASBS 63).
(5) Book
of record:
(a) The
state maintains the centralized accounting system, SHARE; the SHARE data and
reports are the original book of record that the auditor is auditing; each
fiscal year, the agency is required to record all audit adjusting journal
entries in SHARE; the financial information in SHARE is to agree to the agency’s
audited financial statements, with the exception of accounts payable as
explained in Paragraph (3) Subsection A of 2.2.2.12 NMAC (accounts payable); if
the independent auditor finds that the agency did not record all audit
adjusting journal entries, the auditor must include this instance of
noncompliance with Sections 6-5-2.1 and 6-5-4.1 NMSA 1978; if the agency
maintains a separate accounting system, it should be reconciled with the SHARE
system and all applicable adjustments should be recorded in SHARE periodically
throughout the fiscal year; the financial control division provides to
agencies: the manual of model accounting practices (MAPs), various white
papers, yearly closing instructions, and various accounting guideline memos. These
documents provide guidance for an auditor regarding policy and procedure
requirements and they are available on the financial control division’s website
at http://www.nmdfa.state.nm.us “resource information;”
(b) the
SHARE chart of accounts reflects the following appropriation unit levels. The
statement of revenues and expenditures in the audit report should be presented
in accordance with GAAP, by function or program classification and object code.
However, the budgetary comparison statements must be presented using the level
of appropriation reflected in the final approved budget.
Appropriation unit code
Appropriation unit description
200
Personal services & employee benefits
300
Contractual services
400
Other
500
Other financing uses
600
Non-budgeted
(c) revenue
categories of appropriations to state agencies are listed below; the budgetary
comparison statements for state agencies must be presented in the audit report
by the revenue categories shown below and by the expenditure categories that
appear in the agency’s final approved budget:
(i) state
general fund;
(ii) other
state funds;
(iii) internal
service funds/inter-agency transfers; or
(iv) federal
funds. For more detail about the chart of accounts see the DFA website.
(6) Reversions
to state general fund:
(a) all
reversions to the state general fund must be identified in the financial
statements by the fiscal year of appropriation (i.e., reversion to state general
fund - (FY 15); the gross amount of the appropriation and the gross amount of
the reversion must be shown separately.
(b) Subsection
A of 6-5-10 NMSA 1978 requires “all unreserved, undesignated fund balances in
reverting funds and accounts as reflected in the central accounting system as
of June 30 shall revert by September 30 to the general fund; the division may
adjust the reversion within 45 days of release of the audit report for that
fiscal year;” failure to transfer reverting funds timely in compliance with the
statute requires an audit finding.
(7) Nonreciprocal
(not payments for materials or services rendered) interfund (internal) activity
includes (a) transfers and (b) reimbursements (Paragraph 410 of GASBS 34).
(a) intra-agency
transfers between funds within the agency should offset; reasons for
intra-agency transfers should be fully explained in the notes to the financial statements;
in the separate audit reports of state agencies, transfers between their
internal funds should be shown as other financing sources or uses in the fund
financial statements and as transfers (that get eliminated) in the
government-wide financial statements;
(b) inter-agency
transfers (between an agency’s internal funds and other funds of the state that
are outside the agency such as state general fund appropriations, special
appropriations, bond proceeds appropriations, reversions to the state general
fund, and transfers to/from other state agencies) should be segregated from
intra-agency transfers and should be fully explained in the notes to the
financial statements along with the agency number and SHARE fund number to whom
and from whom transferred; the transfers may be detailed in supporting
schedules rather than in the notes, but agency and SHARE fund numbers must be
shown; the schedule should be presented on the modified accrual basis; the IPA
is responsible for performing audit procedures on all such inter-agency
transfers;
(c) regarding
inter-agency transfers between legally separate component units and the primary
government (the state of New Mexico):
(i) component
units of the state of New Mexico for statewide CAFR purposes are the New Mexico
lottery authority (blended), the New Mexico finance authority (discretely
presented) and the New Mexico mortgage finance authority (discretely
presented);
(ii) if
the inter-agency transfer is between a blended component unit of the state and
other funds of the state, then the component unit’s separately issued financial
statements should report such activity between itself and the primary
government as revenues and expenses; when the blended component unit is
included in the primary government’s financial statements, such inter-agency
transfers would be reclassified as transfers (Paragraph 318 of GASBS 34);
(iii) all
resource flows between a discretely presented component unit of the state and
other funds of the state are required to be reported as external transactions-revenues
and expenses in the primary government’s financial statements and the component
unit’s separately issued financial statements (Paragraph 318 of GASBS 34);
(d) all
transfers to and from SHARE fund 853, the state general fund appropriation account,
must be clearly identifiable in the audit report as state general fund
appropriations, reversions, or collections;
(e) reimbursements
are transfers between funds that are used to reallocate the revenues and expenditures/expenses
to the appropriate fund; reimbursements should not be reported as interfund
activity in the financial statements.
(8) GSD
capital projects: In general, GSD records the state of New Mexico capitalized
land and buildings, for which it is responsible, in its accounting records; the
cost of furniture, fixtures, and moveable equipment owned by agencies is to be
capitalized in the accounting records of the agency that purchased them; the
agency must capitalize those assets based on actual amounts expended in
accordance with GSD instructions issued in 2.20.1.10 NMAC, Valuation of Assets.
(9) State-owned
motor vehicle inventory: Successful management of the state-owned vehicles
pursuant to the Transportation Services Act (Sections 15-8-1 through 15-8-11
NMSA 1978) is dependent on reliable and accurate capital assets inventory
records and physical verification of that inventory; thus, the annual audit of
state agencies shall include specific tests of the reliability of the capital
assets inventory and verification that a physical inventory was conducted for
both the agency's owned vehicles and long-term leased vehicles.
(10) Independent
auditor’s report:
(a) the
independent auditor’s report for state agencies, district attorneys, district
courts, and the educational institutions created by New Mexico Constitution
Article XII, Section 11, must include an explanatory paragraph preceding the
opinion paragraph; the explanatory paragraph should reference the summary of significant
accounting principles disclosure regarding the reporting agency, and indicate
that the financial statements are not intended to present the financial
position and changes in financial position of the primary government, the
state, but just the financial position and the changes in financial position of
the department; the auditor should follow Example A-16 in Appendix A -
Illustrative Auditor’s Reports of the AICPA
Audit and Accounting Guide State and Local Governments (latest edition);
(b) a
statement should be included that the audit was made in accordance with
generally accepted government auditing standards per Paragraphs 4.18, 2.24 and
2.25 of GAGAS.
(11) Budgetary
basis for state agencies: Per Chapter 69, Section 3, item L of the General
Appropriation Act Laws, 2014. “For the purpose of administering the General
Appropriation Act of 2014 and approving operating budgets, the state of New
Mexico shall follow the modified accrual basis of accounting for governmental
funds in accordance with the manual of model accounting practices issued by the
department of finance and administration.” The budget is adopted on the
modified accrual basis of accounting except for accounts payable accrued at the
end of the fiscal year that do not get accrued by the statutory deadline per
Section 6-10-4 NMSA 1978. Those accounts payable that do not get paid timely or
accrued by statutory deadline must be paid out of the next year’s budget. As
previously stated in Paragraph (3) of Subsection A of 2.2.2.12 NMAC (accounts payable),
if goods and services were received by the end of the fiscal year but not paid
for by the end of the fiscal year, an accounts payable should be recorded for
the respective amount due in both the government-wide financial statements and
the fund financial statements (Paragraph 70 of NCGAS 1). If an agency needs to
recognize additional accounts payable amounts that were not accrued by the
statutory deadline, then the budgetary statements and the fund financial
statements will require a reconciliation of expenditures, see Paragraph (2) of
Subsection O of 2.2.2.10 NMAC (budgetary presentation). Since SHARE is the book
of record for the state, all transactions are recorded in SHARE under the
modified accrual basis of accounting except for accounts payable not meeting
the statutory deadline; therefore, the “actual” expenditures in the budgetary
comparison schedules shall equal the expenditures as recorded in SHARE for the
fund. Encumbrances related to single year appropriations lapse at year end. Appropriation
periods are sometimes for periods in excess of 12 months (multiple-year
appropriations). When multiple year appropriation periods lapse, the authority
for the related budgets also lapse and encumbrances can no longer be charged to
those budgets. The legal level of budgetary control should be disclosed in the
notes to the financial statements. Per Subsection C of Section 10 of the
General Appropriation Act of 2014, all agencies, including legislative
agencies, may request category transfers among personal services and employee
benefits, contractual services and other. Therefore, the legal level of
budgetary control would be the appropriation program level (A-Code, P-Code,
R-Code, and Z-Code). The A-Code pertains to capital outlay appropriations
(general obligation/severance tax or state general fund). The P-Code pertains
to operating funds. The R-Code pertains to American Recovery & Reinvestment
Act (ARRA) funds. The Z-Code pertains to special appropriations; total
expenditures for the program need to be compared to the programs approved final
budget for compliance.
(12) Accounting
for special capital outlay appropriations financed by bond proceeds:
(a) STO
administers the debt service funds for various bond issues that are obligations
of the state of New Mexico. STO should not report in its basic financial
statements bonds payable that are obligations of the state of New Mexico. The
proper reporting of these payables and the related bond face amounts (proceeds)
is in the state’s comprehensive annual financial report (CAFR). The STO audit
report, notes to the financial statements must explain the following:
(i) by
statute, STO is responsible for making the state’s bond payments and keeping
the related records; however, it is not responsible for the related debt, the state
is; and
(ii) refer
the reader to the detailed supplemental information in the STO audit report and
the statewide CAFR; the STO’s financial statements include audited supplemental
information (SI) regarding the state of New Mexico bond obligations; the SI
schedules must show:
(iii) the
beginning and end-of-year bond payable balances, increases and decreases
(separately presented), and the portions of each bond issuance that are due
within one year, as required by Paragraph 119 of GASBS 34; (2) the details of
debt service requirements to maturity required by Paragraph 10 of GASBS 38; and
(iv) any violations of bond covenants
and related actions taken to address violations of bond covenants, required by Paragraph
9 of GASBS 38 and Section 12-6-5 NMSA 1978;
(b) DFA
has provided accounting and reporting guidance for state agencies that receive
or administer any special capital outlay appropriations from the state
legislature that are financed by bond proceeds; DFA’s guidance is available in
the “FY 2008 Audit Forum” section at http://www.nmdfa.state.nm.us/Forums.aspx; in
the notes to the financial statements, agencies should disclose that the bond
proceeds were allocated by the legislature to the agency to administer
disbursements to the project recipients, and the agency is not obligated in any
manner for the related indebtedness; agencies should also disclose the specific
revenue recognition policy for these appropriations; each agency’s IPA should
audit the agency’s financial statement presentation of this capital outlay
project information and the related budget comparisons, to ensure that they are
presented in accordance with accounting principles that are generally accepted
in the United States.
(13) Amounts
“due from other state agencies” and “due to other state agencies”: If a state
agency has amounts “due from” or “due to” other state agencies in its balance
sheet, the notes should disclose the amount “due to” or “due from” each agency,
the name of each agency, the SHARE fund account numbers and the purpose of the
account balance.
(14) Investments
in the state treasurer’s general fund investment pool (SGFIP): These
investments should be recorded as investments in the statement of net position
and the balance sheet, not as cash or cash equivalents; the notes to the
financial statements should contain the following disclosures for the SGFIP as
required by GASBS 40:
(a) an
explanation that credit risk is the risk that an issuer or other counterparty
to an investment will not fulfill its obligations, and a statement that the SGFIP
is not rated for credit risk (Paragraph 7 of GASBS 40);
(b) interest
rate risk:
(i) an
explanation that interest rate risk is the risk that changes in interest rates
will adversely affect the fair value of an investment;
(ii) disclosure
required by Paragraph 15 of GASBS 40, of the agency’s SGFIP investment fair
value as of the end of the fiscal year, and the maturities of the SGFIP for the
fiscal year per DFA and STO; and
(iii) a
statement that the agency does not have an investment policy that limits
investment interest rate risk;
(c) the
disclosure should also refer the reader to the separate audit report for the
STO for additional information regarding the SGFIP.
(15) Format
for the statement of activities: State agencies that have more than one program
or function must use the financial statement format like GASBS 34,
Illustrations B-1 through B-4(b); the simplified statement of activities, GASBS
34, Illustration B-5 should not be used for agencies that have multiple programs
or functions; Paragraph 41 of GASBS 34 requires governments to report direct
expenses for each function.
(16) Oversight
duties of the department of finance and administration’s financial control division:
On October 3, 2008, the state controller and the state auditor distributed a
letter to agencies regarding the CAFR unit’s request for agencies’ draft
financial statements for the preparation of the comprehensive annual financial
report (CAFR) for the state; agencies were concerned about violating Paragraph
(4) of Subsection C of 2.2.2.9 NMAC, delivery and release of the audit report;
Subsection S of 6-5-2.1 NMSA1978 provides FCD to “have access to and authority
to examine books, accounts, reports, vouchers, correspondence files and other
records, bank accounts, money and other property of a state agency;” in
addition, Section 6-5-4.1 NMSA 1978 mandates that FCD shall compile the CAFR; after
some consideration and discussion of the conflicting regulations, the state
controller and the state auditor concluded, “pursuant to these rules, Sections
6-5-4.1 and 12-6-5 NMSA 1978 should be construed to give effect to both
statutes and the corresponding administrative rules; therefore, an agency shall
provide a copy of its draft audited financial statements to financial control
division in order that the division may compile the CAFR; the agency’s audit
report is not public record unless released in accordance with Section 12-6-5
NMSA 1978;” to review the entire letter, the DFA-FCD oversight letter, go to
the FCD website at http://nmdfa.state.nm.us/Financial_Control.aspx under the resource
information tab, memos and notices link, and comprehensive annual financial
report; the unaudited draft financial statements submitted to DFA shall exclude
the opinion and findings; submission of the unaudited draft financial
statements is the responsibility of the agency and not the auditor.
B. PERTAINING
TO AUDITS OF HOUSING AUTHORITIES:
(1) Housing
authorities within the state of New Mexico consist of regional housing
authorities, component units or departments of local governments, component
units of housing authorities, and a housing authority created by an
intergovernmental agreement between a city and county that is authorized to
exercise all powers under the Municipal Housing Law Section 3-45-1 et seq. NMSA 1978.
(2) The
financial statements of a housing authority that is a department or component
unit of a primary government, must be included in the financial audit report of
the primary government by discrete presentation unless an exemption from this
requirement has been obtained from the state auditor.
(a) discrete
presentation shows financial data of the component unit in a column to the
right of and separate from the financial data of the primary government. See Paragraphs
44 through 50 of GASBS 14, as amended.
(b) the
primary government in cooperation with its auditor must make the determination
whether the housing authority is a component unit of the primary government; see
Paragraph (1) of Subsection A of 2.2.2.10 NMAC for guidance in this
determination; in the event the primary government and auditor determine that
the housing authority is a department of, rather than a component unit of the
primary government, a request for exemption from the discrete presentation
requirement must be submitted to the state auditor, by the primary government, explaining
why the housing authority should not be a discretely presented component unit;
the request for exemption must include evidence that the housing authority is
not a separate legal agency from the primary government and that the corporate
powers of the housing authority are held by the primary government; evidence
included in the request must address these issues:
(i) the
housing authority is not a corporation registered with the secretary of state;
(ii) there
was never a resolution or ordinance making the housing authority a public body
corporate; and
(iii) the
housing authority was authorized under the Municipal Housing Law, Section
3-45-1 et seq. NMSA 1978.
(c) upon
receipt of the exemption granted by the state auditor from the requirement for
discrete presentation, the housing authority department or program would be
included in the financial report of the primary government like any other
department or program of the primary government.
(3) Audits
of the public housing authorities that are departments of the local government
shall be conducted by the same IPA that performs the audit of the local
government; separate audit contracts will not be approved.
(a) local
governments are encouraged to include representatives from the public housing
authorities that are departments in the IPA selection process.
(b) the
IPA shall include the housing authority’s governing board and management
representatives in the entrance and exit conferences with the primary
government. If it is not possible to hold such combined conferences, the IPA
shall hold a separate entrance and exit conference with housing authority’s
management and a member of the governing board. The office has the authority to
notify the agency or IPA that the state auditor should be informed of the date
of the entrance conference, any progress meetings and the exit conference. If
such notification is received, the IPA and agency must invite the state auditor
or his designee to attend all such conferences.
(4) Housing
authorities that are component units of a local government:
(a) must
account for financial activity in proprietary funds;
(b) are
authorized by Subsection E of 12-6-3 NMSA 1978, and “at the public housing
authority’s discretion, may be audited separately from the audit of its local
primary government entity; if a separate audit is made, the public housing
authority audit shall be included in the local primary government entity audit
and need not be conducted by the same auditor who audits the financial affairs
of the local primary government entity;” the statute further stipulates in Subsection
A of 12-6-4 NMSA 1978, that “a public housing authority (other than a regional
housing authority) shall not bear the cost of an audit conducted solely at the
request of its local primary government entity;”
(c) any
separate audits of component unit housing authorities must be conducted
according to the following requirements:
(i) the
primary engagement partner should 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 the use of the work of the component auditors
(AU-C 600.15);
(ii) the
component unit auditor selected must appear on the office of the state auditor
list of eligible independent public accountants;
(iii) the
bid and auditor selection processes must comply with the requirements of this
rule;
(iv) the
office of the state auditor standard contract form must be used;
(v) the
primary government, the primary engagement partner, management of the component
unit, and the component auditor should all coordinate their efforts to ensure
that the audit reports of the component unit and the primary government are
submitted by the applicable deadlines at item (i) Paragraph (1) of Subsection A
of 2.2.2.9 NMAC;
(vi) all
component unit findings must be disclosed in the primary government’s audit
report;
(vii) any
separately issued component unit audit report must be submitted to the state auditor
for the review process described in 2.2.2.13 NMAC;
(viii) the
audit report will be released by the state auditor separately from the primary
government’s report under a separate release letter to the housing authority.
(5) Auditors
and public housing authorities must follow the requirements of Guidelines on
Reporting and Attestation Requirements of Uniform Financial Reporting Standards
(UFRS) for Public Housing Authorities Not-for-Profit Multifamily Program
Participants and their Independent Accountants, which is available on the HUD
website under a search for UFRS; additional administrative issues related to
the audit of public housing authorities follow:
(a) housing
authority audit contracts must include the cost of the audit firm’s AU-C 725 opinion
on the financial data schedule (FDS); the public housing authority must
electronically submit a final approved FDS based on the audited financial
statements no later than nine months after the public housing authority’s
fiscal year end; the auditor must:
(i) electronically
report on his comparison of the electronic FDS submission in the REAC staging
data base through the use of an ID and password;
(ii) include
a hard copy of the FDS in the audit report;
(iii) render
an AU-C 725 opinion on the FDS; and (iv) explain in the notes any material
differences between the FDS and financial statements;
(b) the
audit must include this separate attestation engagement; the preparation and
submission cost for this HUD requirement must be included in the audit contract;
the IPA shall consider whether any fee accountant used by the housing authority
is a service organization; the IPA shall follow applicable guidance at AU-C 402
regarding service organizations;
(c) the
IPA shall provide the housing authority with an itemized cost breakdown by
program area for audit services rendered in conjunction with the housing authority.
(6) Single
audit reporting issue: If a single audit is performed on the separate audit
report for the public housing authority, including the housing authority
schedule of expenditures of federal awards, then the housing authority federal
funds do not need to be subjected a second time to a single audit during the
single audit of the primary government. In this situation the housing authority
federal expenditures do not need to be included in the primary government’s
schedule of expenditures of federal awards; see Paragraphs 6.17 and 13.32 of the AICPA Audit Guide, Government Auditing
Standards and Circular A-133 Audits for more information regarding
this issue.
C. PERTAINING
TO AUDITS OF SCHOOL DISTRICTS:
(1) The
auditor selection process: In the event that a state-chartered charter school
subject to oversight by the PED is not subject to the requirement to use the
same auditor as PED, that charter school shall submit its IPA recommendation to
PED for approval, prior to submitting the IPA recommendation to the state auditor
for approval; the sample cover letter is provided at www.osanm.org; it may be used for the PED approval signature; this
process must be completed in time to meet the deadline for submission of the
IPA recommendation and the audit contract to the office; the IPA recommendation
and completed contract are due to the state auditor on or before May 1; in the
event the due date falls on a weekend or a holiday the due date will be the
next business day;
(2) Audit
planning level of materiality:
(a) as
explained in Paragraphs (1) and (2) of Subsection A of 2.2.2.10 NMAC, the level
of planning materiality and required auditor opinion will be at the individual
fund level for the primary government and at the individual fund level for the
component units;
(b) if
a 501(c)3 component unit organization had a gross annual income in excess of $250,000,
Section 6-5A-1 NMSA 1978 requires that entity to be audited regardless of its
materiality in relation to the primary government;
(3) Regional
education cooperative (REC) audits:
(a) a
separate financial and compliance audit is required on activities of RECs; the
IPA shall provide a copy of this report to the participating school districts
and the PED once the report has been released by the state auditor; the
presentation of these funds should be in conformity with accounting principles
generally accepted in the United States of America;
(b) audits
of RECs should test for compliance with PED rule 6.23.3.7 through 6.23.3.12
NMAC;
(c) if
applicable, any on-behalf payments for fringe benefits and salaries made by
RECs for employees of school districts should be accounted for in accordance
with GASB Cod. Sec. N50.135 and communicated to the employer in accordance with
Sec. N50.131;
(d) the
audit report of each REC shall include a cash reconciliation schedule which
reconciles the cash balance as of the end of the previous fiscal year to the
cash balance as of the end of the current fiscal year; this schedule shall
account for cash in the same categories used by the REC in its monthly cash
reports to the PED; if there are differences in cash per the REC financial
statements and cash per the REC accounting records, the IPA should provide the
adjusting entries to the REC to reconcile cash per the financial statements to
cash per the REC accounting records; however, if cash per the REC accounting
records differs from the cash amount the REC reports to PED in the monthly cash
report, then the IPA should write a finding stating that the PED reports do not
reconcile to the REC accounting records.
(4) School
district audits must address the following issues:
(a) audits
of school districts shall test for compliance with PED Regulation, 6.20.2 NMAC,
Governing Budgeting and Accounting for
New Mexico Public Schools and School Districts and the Manual of Procedures, primarily Supplement 7, Cash Controls;
(b) the
audit report of each school district shall include a cash reconciliation
schedule which reconciles the cash balance as of the end of the previous fiscal
year to the cash balance as of the end of the current fiscal year; this
schedule is also required for each charter school chartered by a school
district and each charter school chartered by the PED; this schedule will
account for cash in the same categories as used by the district in its monthly
cash reports to the PED Subsection D and E of 6.20.2.13 NMAC, state that “the
cash basis of accounting is used for budgeting and reporting” to PED; the
financial statements are prepared on the accrual basis of accounting; if there
are differences between the financial statements, school district records and
department records, the IPA should provide the adjusting entries to the school
district to reconcile the report to the school district records;” however, if
there is some difference between the school district records and the PED report
amounts, other than those explained by the adjusting entries, then the IPA
should write a finding stating that the PED reports do not reconcile to the
school district records;
(c) on-behalf
payments of salaries and fringe benefits made for school district employees by
RECs must be accounted for in accordance with GASB Cod. Sec. N50.129 through
.133 and disclosed in accordance with Sec. N50.134; “employer governments
should obtain information about the amount of on-behalf payments for fringe
benefits and salaries from the paying entity or the third-party recipient;
inter-entity cooperation is encouraged. If information cannot be obtained from
those sources, employer governments should make their best estimates of the
amounts” (Paragraph 9 of GASBS 24);
(d) any
joint ventures or other entities created by the school districts are agencies
subject to the Audit Act;
(e) agency
fund reporting: under GASBS 34 a statement of changes in fiduciary net position
is required for pension trust funds, investment trust funds, and
private-purpose trust funds; however, agency funds have no net position and
will be excluded from this presentation (Paragraph 110 of GASBS 34 as amended
by GASBS 63); therefore, it is a requirement of the state auditor that a
schedule of changes in assets and liabilities - agency funds for the fiscal year
be included as supplemental information in the audit report for each school
district and each charter school; the schedules should show the changes (both
additions and deductions) in the agency funds summarized by school or for each
activity; the schedule should appear toward the end of the table of contents
and requires an AU-C 725 opinion in the independent auditor’s report;
(f) capital
expenditures by the New Mexico public school facilities authority: school
districts must: review capital expenditures made for repairs and building
construction projects of the school district by the NM public school facilities
authority; determine the amount of capital expenditures that should be added to
the capital assets of the school district; and account for those additions
properly; the auditor should test the school district capital asset additions
for proper inclusion of these expenditures;
(g) functions
of the general fund: the school district audit reports must include individual
fund financial statements and budgetary comparisons for the following functions
of the general fund: operational, transportation, instructional material and
teacherage (if applicable);
(5) Pertaining
to charter schools:
(a) a
charter school is a conversion school or start-up school within a school
district authorized by the local school board or authorized by the PED to
operate as a charter school; a charter school is considered a public school,
accredited by the state board of public education and accountable to the school
district’s local school board or to the PED, for ensuring compliance with
applicable laws, rules and charter provisions; a charter school is administered
and governed by a governing body in a manner set forth in the charter;
(b) certain
GASBS 14 criteria must be applied to determine whether a charter school is a
component unit of the chartering entity (the district or PED); GASBS 14, was amended
by GASBS 61; the district, the PED, the charter school and the IPA must
evaluate whether the amended GASBS 14 criteria requires a charter school to be
presented as a component unit of its chartering entity; if a charter school is
determined to be a component unit, then the charter school must be included in
the financial statements of its sponsoring school district or PED by discrete
presentation or blended presentation, if the GASB 34 (as amended) criterion for
blended presentation is met;
(c) the
financial statements for charter schools that are determined to be component
units pursuant to the amended GASBS 14 criteria should be presented and opined
on in the following manner:
(i) any
charter school that has been determined to be a component unit should not be
omitted based on materiality; all the charter schools that are component units should
be included in the basic financial statements (full accrual basis presentation)
in one of the following manners: a separate column for each component unit
presented in the government-wide statement; combining statements of component
units presented as a basic financial statement after the fund financial
statements; or as condensed financial statements in the notes to the basic financial
statements (Paragraphs 124 through 126 of GASB 34);
(ii) when
separate audited financial statements are not available for a charter school,
the fund financial statements for that charter school must be presented in the
primary government’s financial statements on the modified accrual basis of
accounting; if applicable, combining and individual fund financial statements
should also be presented for the nonmajor funds; the financial statements
should be presented as supplemental information (SI) according to AAG-SLV 3.22
(latest edition);
(iii) the
state auditor requires that individual fund budgetary comparison statements for
all of the charter school’s funds must be included in the supplemental
information section of the financial statements following the fund financial
statements and the combining statements for the nonmajor funds to demonstrate
compliance with legally adopted budgets; the budgetary comparisons must be
audited and included in the auditor’s opinion;
(6) New
Mexico public schools insurance authority (NMPSIA): both legal compliance and
substantive tests should be performed at the agency level on these
transactions.
D. PERTAINING
TO AUDITS OF COUNTIES:
(1) Tax
roll reconciliation - county governments: Audit reports for counties must
include two supplementary schedules. The first one is a “tax roll
reconciliation of changes in the county treasurer’s property taxes receivable”
showing the June 30 receivable balance and a breakout of the receivable for the
most recent fiscal year ended, and a total for the previous nine fiscal years. Per
Subsection C of 7-38-81 NMSA 1978, property taxes that have been delinquent for
more than 10 years, together with any penalties and interest, are presumed to
have been paid. The second schedule titled “county treasurer’s property tax schedule”
must show by property tax type and agency, the amount of taxes: levied;
collected in the current year; collected to-date; distributed in the current
year; distributed to-date; the amount determined to be uncollectible in the
current year; the uncollectible amount to-date; and the outstanding receivable
balance at the end of the fiscal year. This information is necessary for proper
revenue recognition on the part of the county as well as on the part of the
recipient agencies, under GASBS 33. Property taxes levied in January 2014 are
budgeted for the fiscal year July 1, 2014 through June 30, 2015. If the county
does not have a system set up to gather and report the necessary information
for the property tax schedule, a finding is required to be reported.
(2) The
following is an example of a tax roll reconciliation schedule:
STATE OF NEW MEXICO
(NAME) COUNTY
TAX ROLL RECONCILIATION - CHANGES IN THE COUNTY
TREASURER’S
PROPERTY TAXES RECEIVABLE
FOR THE YEAR ENDED JUNE 30, 2015
Property taxes receivable, beginning of year
$ 641,290
Changes to Tax Roll:
Net taxes charged to treasurer for fiscal year
4,466,602
Adjustments:
Increases in taxes receivables
3,066
Charge off of taxes receivables
(6,144)
Total receivables prior to collections
5,104,814
Collections for fiscal year ended June 30, 2015
(4,330,993)
Property taxes receivable, end of year
$ 773,821
Property taxes receivable by years:
2006-2014
226,344
2015
547,477
Total taxes receivable
$ 773,821
(3) An
example of the schedule titled “county treasurer’s property tax schedule” may
be found on the office website at www.osanm.org.
E. PERTAINING
TO AUDITS OF COLLEGES AND UNIVERSITIES:
(1) Update
to the auditor selection process: After completing the evaluation for each IPA,
the college or university shall submit the IPA recommendation to the HED for
approval, prior to submitting the recommendation to the state auditor for
approval; the sample cover letter provided at www.osanm.org may be used for the HED approval signature; the IPA
recommendation is due to the state auditor on or before May 1; in the event the
due date falls on a weekend or holiday the due date will be the next workday.
(2) Budgetary
comparisons: the legal level of budgetary control per 5.3.4.10 NMAC should be
disclosed in the notes to the financial statements; the state auditor requires
that every college and university’s audit report include budgetary comparisons
as supplementary information (SI); the budgetary comparisons must be audited
and an auditor’s opinion must be rendered; an AU-C 725 opinion does not meet
this requirement, the budgetary comparisons must show columns for: the original
budget; the revised budget; actual amounts on the budgetary basis; and a
variance column; the auditor must confirm the final adjusted and approved budget
with the HED; the auditor must compare the financial statement budget
comparison to the related September 15 budget submission to HED; the only
differences that should exist between the HED budget submission and the
financial statement budget comparisons are: (a) adjustments made by the
institution after September 15; and (b) audit adjustments; if the HED budget
submission does not tie to the financial statement budget comparison, taking
into account only those differences, then the auditor should write a related
finding; a reconciliation of actual revenue and expense amounts on the
budgetary basis to the GAAP basis financial statements should be disclosed at
the bottom of the budgetary comparisons (preferred) or in the notes to the
financial statements; the reconciliation is required only at the “rolled up”
level of unrestricted and restricted - all operations and should include
revenues and expenses; the HED approved the following format which must be used
for the budgetary comparisons:
(a) Unrestricted
and restricted - all operations (Schedule 1)
Beginning fund balance: Unrestricted and restricted revenues: State general fund appropriations, federal
revenue sources, tuition and fees, land and permanent fund, endowments and
private gifts, other
Total
unrestricted and restricted revenues
Fund
balance budgeted
Total
unrestricted and restricted revenues and fund balance budgeted
Unrestricted and restricted expenditures: Instruction, academic support, student
services, institutional support, operation and maintenance of plant, student
social and cultural activities, research, public service, internal service,
student aid grants and stipends, auxiliary services, intercollegiate
athletics, independent operations, capital outlay, building renewal and
replacement, retirement of indebtedness, other (student aid, grants and
stipends; and independent operations)
Total
unrestricted and restricted expenditures
Change in fund balance net assets (budgetary basis),
ending fund balance
(b) Unrestricted
- instruction and general (Schedule 2)
Beginning fund balance, unrestricted revenues: Tuition, miscellaneous fees, federal
government appropriations, state government appropriations, local government
appropriations, federal government contracts/grants, state government
contracts/grants, local government contracts/grants, private
contracts/grants, endowments, land and permanent fund, private gifts, sales
and services, other
Total
unrestricted revenues
Fund
balance budgeted
Total
unrestricted revenues and fund balance budgeted
Unrestricted expenditures: Instruction, academic support, student
services, institutional support, operation and maintenance of plant
Total
unrestricted expenditures
Net
Transfers
Change in fund balance (budgetary basis)
Ending fund
balance
(c) Restricted
- instruction and general (Schedule 3)
Restricted revenues:
Tuition, miscellaneous fees, federal government appropriations, state
government appropriations, local government appropriations, federal
government contracts/grants, state government contracts/grants, local
government contracts/grants, private contracts/grants, endowments, land and
permanent fund, private gifts, sales and services, other
Total
restricted revenues
Fund
balance budgeted
Total
restricted revenues and fund balance budgeted
Restricted expenditures: Instruction, academic support, student
services, institutional support, operation and maintenance of plant
Total
restricted expenditures
Change in net assets (budgetary basis)
(3) The
level of planning materiality required by the state auditor follows: institutions
should present their financial statements using the business type activities
(BTA) model; the level of planning materiality described in the AICPA Audit and Accounting Guide, State and
Local Governments, Section 4.73, must be used for the audit of these
institutions; planning materiality for component units is at the individual
component unit level; if a 501(c)3 component unit organization had a gross
annual income in excess of $250,000, Section 6-5A-1 NMSA 1978, requires that
entity to be audited regardless of materiality; see Paragraph (1) of Subsection
A of 2.2.2.10 NMAC for more information about contracting for these required
audits;
(4) Compensated
absence liability should be shown as follows: the statement of net position
should reflect the current portion of compensated absences under current
liabilities, and the long-term portion of compensated absences under noncurrent
liabilities.
(5) Component
unit issues: legally separate entities that meet the criteria set forth in GASBS
14 as amended by GASBS 39 and GASBS 61 to qualify as a component unit of an
educational institution, must be included in the educational institution’s
audit report as a discrete component unit; an exemption must be obtained from
the state auditor in order to present any component unit as blended; the same
auditor must audit the component unit and the educational institution unless an
exemption is obtained from the state auditor.
(a) if
the college or university has no component units there should be a statement to
that effect in the notes to the financial statement in the description of the
reporting entity;
(b) individual
component unit budgetary comparisons are required if the component unit has a
“legally adopted budget;” a component unit has a legally adopted budget if it
receives any federal funds, state funds, or any other appropriated funds whose
expenditure authority derives from an appropriation bill or ordinance that was
signed into law;
(c) there
is also no level of materiality for reporting findings of component units that
do not receive public funds; all component unit findings must be disclosed in
the primary government’s audit report.
(6) The
MD&A analysis of significant variations between original and final budget
amounts and between final budget amount and actual budget results is required
by this rule for colleges and universities; the analysis should include any
currently known reasons for those variations that are expected to have a
significant effect on future services or liquidity;
(7) Required
note disclosure for donor-restricted endowments are:
(a) “the
amounts of net appreciation on investments of donor-restricted endowments that
are available for authorization for expenditure by the governing board, and how
those amounts are reported in the net position;
(b) the
state law regarding the ability to spend net appreciation; and
(c) the
policy for authorizing and spending investment income, such as a spending-rate
or total-return policy.” (Paragraph 121 of GASBS 34)
(8) Submit
draft copy of financial statements to FCD: Section 11 of Article XII of the New
Mexico state constitution established the following New Mexico educational
institutions:
(a) the
university of New Mexico;
(b) NM
state university;
(c) NM
highlands university;
(d) western
NM university;
(e) eastern
NM university;
(f) NM
institute of mining and technology;
(g) NM
military institute;
(h) NM
school for the visually handicapped;
(i) NM
school for the deaf; and
(j) northern
NM college; these educational institutions should provide the FCD with a draft
copy of their financial statements, excluding opinions and findings, pursuant
to Paragraph (16) of Subsection A of 2.2.2.12 NMAC, and the letter dated
October 3, 2008, described therein, from the state controller and the state auditor.
[2.2.2.12 NMAC - Rp, 2.2.2.12 NMAC, 3-16-15]
2.2.2.13 REVIEW OF AUDIT REPORTS AND
AUDIT DOCUMENTATION:
A. Section
12-6-14(B) NMSA 1978 requires that the state auditor or personnel of his office
designated by him examine all audit reports of agencies made pursuant to
contract; all audits under the contracts approved by the state auditor are
subject to review. The office will review all reports submitted by the IPA to
determine if the reports are presented in accordance with the requirements of
this rule and applicable auditing, accounting and financial reporting standards.
The office will review all audit reports submitted by the report due date
before reviewing reports that are submitted after the report due date. In
addition, as discussed in Paragraph (6) of Subsection C of 2.2.2.9 NMAC, audit
reports reissued by the agency and IPA pursuant to AU-C 560 are also subject to
office review procedures.
B. Released
audit reports are subject to a comprehensive report and audit documentation
review by the state auditor. The IPA’s audit documentation must be assembled in
one complete file or one complete set of files in one location, whether the documentation
is hardcopy or electronic, pursuant to AU-C 230.16. The documentation must be
either all hardcopy or all electronic office reviews of audit and AUP working
papers include the review of firm documentation of compliance with governmental
auditing, accounting and financial reporting standards issued by GASB, AICPA,
GAO, OMB Circular A-133 or Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards, and the requirements of
this rule.
C. If
during the course of its review of an audit report or the related audit
documentation, the office finds significant deficiencies that warrant a
determination that the audit was not made in a competent manner in accordance
with the provisions of the contract or applicable standards, or requirements of
this rule, any or all of the following action(s) may be taken:
(1) As
instructed by the office, the IPA may be required to correct the deficiencies
and if necessary the working papers, and reissue the audit report to the agency,
and any others receiving copies.
(2) The
IPA may be required to submit working papers along with the audit report to the
state auditor for review by the office, prior to the release of future audit
reports, for some or all audit contracts; or
(3) The
IPA may be referred to the New Mexico public accountancy board for possible
licensure action.
D. Results
of review follow. After the review is completed, the office will issue a letter
to advise the IPA about the results of the review. The IPA is required to
respond in writing to all review comments when directed. If the firm disagrees
with any comments, the firm shall provide references to professional standards
supporting the firm’s disagreement. Failure to respond will be noted during the
firm profile review process.
[2.2.2.13 NMAC - Rp, 2.2.2.13 NMAC, 3-16-15]
2.2.2.14 CONTINUING PROFESSIONAL EDUCATION
AND PEER REVIEW REQUIREMENTS:
A. Continuing
professional education: U.S. GAO Government
Auditing Standards, 2011 Revision
(GAGAS), Section 3.76 states “Auditors performing work in accordance with GAGAS,
including planning, directing, performing audit procedures, or reporting on an
audit in accordance with GAGAS, should maintain their professional competence
through CPE. Therefore, each auditor performing work in accordance with GAGAS
should complete, every two years, at least 24 hours of CPE that directly
relates to government auditing, the government environment, or the specific or
unique environment in which the audited entity operates. Auditors who are
involved in any amount of planning, directing, or reporting on GAGAS audits and
auditors who are not involved in those activities but charge 20% or more of
their time annually to GAGAS audits should also obtain at least an additional
56 hours of CPE (for a total of 80 hours of CPE in every two-year period) that
enhances the auditor’s professional proficiency to perform audits. Auditors
required to take the total 80 hours of CPE should complete at least 20 hours of
CPE in each year of the two-year period. Auditors hired or initially assigned
to GAGAS audits after the beginning of an audit organization’s two-year CPE
period should complete a prorated number of CPE hours.” The GAO issued Government Auditing Standards: Guidance on
GAGAS Requirements for Continuing Professional Education, GAO-05-568G,
April 2005. It provides helpful guidance to auditors and audit organizations
regarding the implementation of the GAGAS CPE requirements. The guide is
available at www.gao.gov/govaud.
B. Peer
review: GAGAS Section 3.82 states “each audit organization performing audits in
accordance with GAGAS must: establish and maintain a system of quality control
that is designed to provide the audit organization with reasonable assurance
that the organization and its personnel comply with professional standards and
applicable legal and regulatory requirements; and have an external peer review
performed by reviewers independent of the audit organization being reviewed at
least once every three years.” Required elements of each audit organization’s
system of quality control are described at GAGAS 3.83 through 3.96. Section
3.96 states “the audit organization should obtain an external peer review at
least once every three years that is sufficient in scope to provide a
reasonable basis for determining whether, for the period under review, the
reviewed audit organization’s system of quality control was suitably designed
and whether the audit organization is complying with its quality control system
in order to provide the audit organization with reasonable assurance of
conforming with applicable professional standards.”
(1) Per
the AICPA PR Section 100 Standards for Performing and Reporting on
Peer Reviews, a 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) If
the firm is unable to submit its latest current external quality control review
documentation by the date the annual firm profile review process is completed,
the firm will be put on “conditional approval” status by the office pursuant to
Subsection C of 2.2.2.8 NMAC.
(3) The
state auditor requires the location of the external quality control review to
be the office of the firm under review, regardless of whether the firm reviewed
is a sole practitioner and regardless of the number of firm employees. External
quality control reviews performed at a location other than the office of the
firm under review will not be accepted by the state auditor.
(4) The
IPA firm profile submission to the state auditor requires copies of:
(a) proof
that the firm your peer reviewer is associated with is a firm that received a
peer review rating of “pass” under the updated peer review standards;
(b) the
peer review report for the auditor’s firm;
(c) if
applicable, the detailed description of the findings, conclusions and
recommendations related to deficiencies or significant deficiencies required by
(GAGAS 3.103);
(d) auditor’s
response to deficiencies or significant deficiencies (if applicable);
(e) the
letter of acceptance from the peer review program in which the firm is enrolled;
and
(f) a
list of the governmental audits reviewed during the peer review; the office
assumes that at least one of these will be a New Mexico governmental audit.
(5) A
peer review rating of “failed” on the auditor’s peer review, will disqualify
the IPA from performing New Mexico governmental audits.
(6) During
the procurement process audit firms shall provide a copy of their most recent
external peer review report to the agency upon submitting a bid proposal or
offer and any subsequent peer review reports received during the period of the
contract.
(7) The
peer review should meet the requirements of GAGAS 3.96 through 3.107s.
(8) The
New Mexico public accountancy board’s substantial equivalency provision has
been replaced with mobility pursuant to Section 61-28B-13 NMSA 1978. Under the
mobility provision in the statute, a CPA may enter the state and perform work,
provided he or she holds a current, valid license from some state. If the CPA
is performing any type of attest work, his firm must apply for a firm permit.
(9) The
reviewer should 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 office.
C. The
state auditor performs its own quality control review of IPA audit reports and
working papers. 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
will 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.
[2.2.2.14 NMAC - Rp, 2.2.2.14 NMAC, 3-16-15]
2.2.2.15 SPECIAL AUDITS, ATTESTATION
ENGAGEMENT, PERFORMANCE AUDITS, AND FORENSIC AUDITS:
A. Requirements
for special audits or attestation examinations follow.
(1) Information
regarding designations follows. 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 or attestation
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. The state auditor shall inform the agency of the
designation by sending the agency a notification letter. The state auditor may
specify the scope and any procedures required for the special audit or
attestation engagement.
(2) All
reasonable costs of special audits or attestation engagements conducted
pursuant to this section shall be borne by the agency audited pursuant to
Section 12-6-4 NMSA 1978.
(3) Information
about who performs the special audit or attestation engagement follows. The state
auditor may perform the special audit or attestation engagement, or require the
audit or attestation engagement to be performed by an IPA. If the state auditor
designates an agency for special audit or attestation engagement to be
conducted by an IPA, the agency shall:
(a) upon
receipt of notification to proceed from the state auditor, identify all
elements or services to be solicited, and obtain the state auditor’s written
approval of the proposed scope of work and request quotations or proposals for
each applicable element of the special audit or attestation engagement;
(b) follow
all applicable procurement requirements in accordance with Chapter 13 Article 1
of the Procurement Code, when selecting an IPA to perform the special audit or
attestation engagement;
(c) evaluate
all competitive sealed proposals or quotations received by using an evaluation
process, preferably executed by a selection committee, as similarly described
in Paragraph (5) of Subsection G of 2.2.2.8 NMAC; and
(d) after
completing the evaluations for each IPA and making the IPA selection, each
agency shall submit the following information to the state auditor by the due
date specified by the state auditor in the notification letter;
(i) a
completed IPA Recommendation Form for special audits, or attestation
engagements (the form) provided at www.osanm.org, that the agency shall print on agency letterhead;
and
(ii) a
completed audit contract form including the contract fee, start and completion
date, and the specific scope of services to be performed by the IPA, for
special audit, or attestation engagement, provided at www.osanm.org, with the IPA and agency signatures on the contract;
(e) IPA
Recommendation Forms and contracts that are submitted to the office with errors
or omissions will be rejected by the state auditor. The state auditor will return the rejected
IPA Recommendation Form and contract to the agency with a checklist indicating the
reason(s) for the rejection;
(f) in
the event the agency’s recommendation is not approved by the state auditor, the
state auditor will promptly communicate the decision, including the reason(s)
for disapproval, to the agency, at which time the agency shall promptly submit
a different recommendation. This process will 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 fifteen (15) 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 may set
the meeting in a timely manner with consideration given to the agency’s
circumstances;
(g) any
contract amendments will be processed in accordance with Subsection R of
2.2.2.8 NMAC.
(4) Entrance,
progress and exit conferences requirements follow. The IPA will hold an
entrance conference and an exit conference with the agency, unless the IPA has
submitted a written request to the state auditor for an exemption from this
requirement and has obtained written approval of the exemption. The state auditor
has the authority to notify the agency or IPA that the state auditor should be
informed of the date of the entrance conference, any progress meetings and the
exit conference. If such notification is received, the IPA and agency must
invite the state auditor or his designee to attend all such conferences.
(5) Requirements
for report submission follow. The state auditor will review reports of any
special audit or attestation engagement made pursuant to this section for
compliance with the professional services contract and Section 2.2.2.15 NMAC.
Upon completion of the report, the IPA shall deliver the organized and bound
report to the state auditor, along with a completed Summary of Findings Form
available at www.osanm.org. A report will not be considered received by the state
auditor unless it is accompanied by the completed Summary of Findings Form.
Unfinished or excessively deficient reports will be rejected by the state auditor.
The firm should submit an electronic version of the corrected rejected report
for state auditor review. The name of the electronic file should be “Corrected
Rejected Report” followed by the agency name and fiscal year. The IPA is
required to respond to all review comments as directed by the state auditor.
After its review of the report for compliance with the professional services
contract, the state auditor will authorize the IPA to print and submit the
final report; the required number of hardcopies specified in the professional
services contract and an electronic version of the report, in the PDF format
described at Paragraph (3) of Subsection C of 2.2.2.9 NMAC, all must be
delivered to the state auditor within five business days. The state auditor
will not release the report until the electronic version of the report is
received by the state auditor. The state auditor will provide the agency with a
letter authorizing final payment to the IPA and the release of the report
pursuant to Section 12-6-5 NMSA 1978. Released reports may be selected by the state
auditor for comprehensive report and work paper reviews. After a comprehensive
review is completed, the state auditor will issue a letter to advise the IPA
about the results of the review. The IPA is required to respond, in writing, to
all review comments as directed in the letter.
(6) Payment
requirements follow. All reasonable costs of special audits and attestation
engagements conducted pursuant to this section shall be borne by the agency audited
pursuant to Section 12-6-4 NMSA 1978. Progress payments up to 90% 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 from 91% to 100% may be made by the agency
only after the state auditor has stated in a letter to the agency that the
report has been released by the state auditor. When component unit audits are
part of a primary government’s audit contract, requests for progress payment
approvals should be submitted by the primary government for both the primary
government and the component unit. The primary government cannot exclude the
component units in this process. All applicable component units and the primary
government should be included in one request for progress payment approval. The
state auditor will not process separate progress payment approvals submitted by
the component units.
B. Requirements
for performance audits follow.
(1) Definition
and designation requirements follow. Pursuant to the authority set forth in
Section 12-6-3(C) NMSA 1978, the state auditor may initiate a performance audit
based on information or a report received from an agency, IPA or member of the
public. “Performance audits are defined as audits that provide findings or
conclusions based on an evaluation of sufficient, appropriate evidence against
criteria.” Performance audits provide objective oversight to improve program
performance and operations, reduce costs, facilitate decision making by parties
with responsibility to oversee or initiate corrective action, and contribute to
public accountability. The term “program” includes government entities,
organizations, programs, activities, and functions. For each performance audit,
the state auditor shall identify the audit subject matter and performance
aspects to be included, and may also include the potential findings and
reporting elements that the auditors expect to develop. The audit plan for each
performance audit shall be submitted to the state auditor for written approval.
(2) All
reasonable costs of a single-entity performance audit conducted pursuant to
this section shall be borne by the entity audited pursuant to Section 12-6-4
NMSA 1978. The state auditor, in its sole discretion, may apportion among the
entities audited some or all of the reasonable costs of a multi-entity performance
audit.
(3) Requirements
regarding who conducts the performance audit follow. The state auditor may
perform the performance audit, or may engage a team comprised of any of the
following: independent public accountants; individuals with master’s degrees or
doctorates in a relevant field such as business, public administration, public
policy, finance, economics; individuals with their juris doctorate;
CFE-certified fraud examiners; CFF-certified forensic auditors; CIA-certified
internal auditors; or other specialists (collectively, the “performance audit team”).
The state auditor shall follow all applicable provisions of the Procurement
Code in selecting and contracting with the performance audit team.
(4) Entrance,
progress and exit conferences requirements follow. The performance audit team
shall hold an entrance conference and an exit conference with the state auditor.
The state auditor, in its sole discretion, may invite to an entrance or exit
conference any representative of an agency.
(5) The
state auditor may direct that the performance audit be conducted in accordance
with the general standards of Chapter 3 and the field work standards of Chapter
6 of the Government Auditing Standards. If so directed, the CPE requirements of
Paragraph 3.76 and 3.79 through 3.81 of GAGAS apply. If so directed, the
performance audit report will follow the reporting standards set forth in
Chapter 7 of the Government Auditing Standards. GAGAS 7.32 requires the
performance auditors to obtain and report the views of responsible officials of
the agency concerning the findings, conclusions, and recommendations included
in the audit report, as well as any planned corrective actions.
(6) Report
requirements follow. The performance audit team will submit to the state
auditor for review a draft report of any performance audit. Upon completion of
the report, the performance audit team shall deliver the organized and bound
report to the state auditor, along with a completed Summary of Findings Form
available at www.osanm.org (if applicable). Unfinished or excessively deficient
reports will be rejected by the state auditor. The firm should submit an
electronic version of the corrected rejected report to the state auditor for
review. The name of the electronic file should be “Corrected Rejected Report”
followed by the performance audit name and fiscal year. The performance audit team
is required to respond to all review comments as directed by the state auditor.
After its review of the report, the state auditor will authorize the performance
audit team to print and submit the final report; the required number of
hardcopies specified in the professional services contract and an electronic
version of the report, in the PDF format described at Paragraph (3) of
Subsection C of 2.2.2.9 NMAC, all of which must be delivered to the state auditor
within five business days. The state auditor will not release the report until
the electronic version of the report is received by the state auditor. A copy
of the report shall be sent to the agency audited or examined; five days later,
or earlier if the agency waives the five-day period, the report shall become a
public record, at which time the office will notify the secretary of finance
and administration and the legislative finance committee that the reports are
available on the office website. The state auditor will provide the agency or
agencies responsible for payment with a letter authorizing final payment to the
performance audit team and the release of the report pursuant to Section 12-6-5
NMSA 1978. Released reports may be selected by the state auditor for
comprehensive report and workpaper reviews. After a comprehensive review is
completed, the state auditor will issue a letter to advise the performance audit
team about the results of the review. The performance audit team is required to
respond, in writing, to all review comments as directed in the letter.
(7) Payment
requirements follow. The contract(s) governing the performance audit team shall
set forth the procedures for progress payments, final payment and submission of
invoices.
C. Forensic
audits of financial fraud, waste or abuse in government reported by agencies,
IPAs or members of the public follow.
(1) Information
regarding definitions, reports of fraud, waste & abuse, and designation
follows. Pursuant to the authority set forth in Section 12-6-3(C) NMSA 1978,
the state auditor may conduct procedures in connection with reports of
financial fraud, waste and abuse in government made by agencies, IPAs or
members of the public (“forensic audit”). The state auditor may conduct a
forensic audit pursuant to an IPA report made in satisfaction of Section 12-6-6
NMSA 1978 and Subsection K of 2.2.2.10 NMAC, or the oral or written report of
an agency, IPA or member of the public regarding financial fraud, waste or
abuse in government.
(a) 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.osanm.org;
(b) reports
received or created by the state auditor are 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) All
reasonable costs of a single-entity forensic audit conducted pursuant to this
section shall be borne by the entity being investigated pursuant to Section
12-6-4 NMSA 1978. The state auditor, in its sole discretion, may apportion
among the entities being investigated some or all of the reasonable costs of a
multi-entity Forensic Audit.
(3) Requirements
regarding who conducts the forensic audit follow. The state auditor may perform
the forensic audit, or may engage a team comprised of any of the following:
independent public accountants; individuals with their juris doctorate;
CFE-certified fraud examiners; CFF-certified forensic auditors; CIA-certified
internal auditors; or other specialists (collectively, the “forensic audit team”).
The state auditor shall follow all applicable provisions of the procurement code
in selecting and contracting with the forensic audit team.
(4) Entrance
and exit conference requirements follow. The forensic audit team will hold an
entrance conference and an exit conference with the state auditor. The state auditor,
in its sole discretion, may invite to an entrance or exit conference any
representative of an agency.
(5) Report
requirements follow. The forensic audit team will submit to the state auditor
for review a draft report of any forensic audit. Upon completion of the report,
the forensic audit team shall deliver the organized and bound report to the state
auditor, along with a completed Summary of Findings Form available at
www.osanm.org (if applicable). Unfinished or excessively deficient reports will
be rejected by the state auditor. The firm should submit an electronic version
of the corrected rejected report for state auditor review. The name of the
electronic file should be “Corrected Rejected Report” followed by the
performance audit name and fiscal year. The forensic audit team is required to
respond to all review comments as directed by the state auditor. After its
review of the report, the state auditor will authorize the IPA to print and
submit the final report; the required number of hardcopies specified in the
professional services contract and an electronic version of the report, in the
PDF format described at Paragraph (3) of Subsection C of 2.2.2.9 NMAC, all of
which must be delivered to the state auditor within five business days. The state
auditor will not release the report until the electronic version of the report
is received by the state auditor. The state auditor will provide the agency or
agencies responsible for payment with a letter authorizing final payment to the
forensic audit team and the release of the report pursuant to Section 12-6-5
NMSA 1978. Released reports may be selected by the state auditor for
comprehensive report and work paper reviews. After a comprehensive review is
completed, the state auditor will issue a letter to advise the forensic audit team
about the results of the review. The forensic audit team is required to
respond, in writing, to all review comments as directed in the letter.
(6) Payment
requirements follow. The contract(s) governing the forensic audit team shall
set forth the procedures for progress payments, final payment and submission of
invoices.
D. Rules applicable to all
agency-initiated special audits, attestation engagements, performance audits
and forensic audits follows.
(1) With
the exception of agencies that are authorized by statue to do performance
audits and forensic audits, this section applies to instances in which an
agency enters into a professional services contract for a special audit,
performance audit, attestation or forensic audit 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 or Subsection C of 2.2.2.15
NMAC.
(2) Contracting
requirements follow. An agency or an IPA shall not enter into a professional
services contract for a special audit, performance audit, attestation or
forensic audit 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 must be submitted to the state auditor for review and approval after
it has been signed by the agency and the IPA unless the agency or IPA applies
to the state auditor for an exemption and the state auditor grants the
exemption. The agency shall contract with an IPA that has been approved by the state
auditor for a special audit or attestation. The IPA may contract with the
professionals described in 2.2.2.15(B)(3) NMAC for a performance audit. The IPA
may contract with the professionals described in 2.2.2.15(C)(3) NMAC for a
forensic audit. 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 must
include the contract fee, start and completion date, and the specific scope of
services to be performed.
(3) Entrance
and exit conference requirements follow. The IPA or other professional(s) will
hold an entrance conference and an exit conference with the agency unless the
IPA has submitted a written request to the state auditor for an exemption from
this requirement and has obtained written approval of the exemption from the state
auditor. The state auditor has the authority to notify the agency or the IPA or
other professional(s) that the state auditor should 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(s) and agency must
invite the state auditor or his designee to attend all such conferences.
(4) Draft
report submission requirements follow. A report of a special audit, performance
audit, attestation or forensic audit made pursuant to a contract approved under
this section is subject to review by the state auditor unless the agency or IPA
applies to the state auditor for an exemption and the state auditor grants the
exemption. The report should be submitted to the state auditor for review along
with a completed Summary of Findings Form available at www.osanmn.org. The
report will not be considered received by the state auditor unless it is
accompanied by the required Summary of Findings Form.
(5) Response
and release procedures follow. The IPA or other professional is required to
respond to all review comments as directed by the state auditor. After its
review of the report, the state auditor will authorize the IPA to print and
submit the final report. The required number of hardcopies specified in the
contract and an electronic version of the report, in PDF format described at
Paragraph (3) of Subsection C of 2.2.2.9 NMAC, must be delivered to the state auditor
within the time specified by the state auditor pursuant to the authorization to
print and submit the final report. The state auditor will not release the
report until the electronic version of the report is received by the state auditor.
(6) The
IPA or other professional(s) shall deliver to the agency the number of copies
of the report indicated in the contract only after the state auditor has
officially released the audit report with a “release letter.”
E. Rules
applicable to all special audits, attestation engagements, performance audits
and forensic audits follow.
(1) All
reports for special audit, performance audit, attestation or forensic audit
engagements related to financial fraud, waste or abuse in government undertaken
pursuant to Section 2.2.2.15 NMAC, should report as findings any fraud, illegal
acts, noncompliance or internal control deficiencies, consistent with Section 12-6-5
NMSA 1978. The findings should include the following elements:
(a) the
condition or description of the situation that exists, including the extent of
the condition, like the number of instances the condition was found out of the
number of samples tested and the amount of dollars involved compared to the
amount of dollars tested and for repeat findings, included here, management
progress or lack of progress towards implementing the prior year corrective
action plan (if applicable);
(b) the
criteria of the policy or procedure, law, regulation, ordinance, contract, or
grant agreement excerpt that illustrates what is expected;
(c) the
cause of the condition, if it can be determined;
(d) the
effect or impact of the condition;
(e) the
IPA or other professional(s)’ recommendation addressing each condition and
cause;
(f) agency
Response (agency’s comments about the finding including a specific corrective
action plan with a timeline and designation of what employee position(s) are
responsible for meeting the deadlines in the timeline).
Upon completion of the report, the IPA or other
professional shall deliver the organized and bound report to the state auditor
with a copy of any signed management representation letter.
(2) Requirements
regarding access to records and documents follow. For any special audit,
attestation engagement, performance audit or forensic audit, the state auditor
and any engaged professionals shall have available to them all documents
necessary to conduct the special audit, attestation engagement, performance
audit or forensic audit. Furthermore, pursuant to Section 12-6-11 NMSA 1978,
when necessary for a special audit, attestation engagement, performance audit
or forensic audit, 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.
(3) Requirements
regarding confidential sources follow. The identity of a person making a report
directly to the state auditor orally or in writing, or telephonically or in
writing through the state auditor’s fraud hotline or website, alleging
financial fraud, waste, or abuse in government is confidential audit
information and may not be disclosed, unless the person making the report
agrees to the disclosure of that person's name.
(4) Requirements
regarding confidentiality of files follow. A report alleging financial fraud,
waste, or abuse in government that is made directly to the state auditor orally
or in writing, or telephonically or in writing through the state auditor’s
fraud hotline or website, any resulting special audit, performance audit,
attestation engagement or forensic audit, and all records and files related
thereto are confidential audit documentation and may not be disclosed except as
provided in Paragraph (6) of this subsection to an independent auditor,
performance audit team or forensic audit team in connection with a special
audit, performance audit, attestation engagement, forensic audit or other
existing or potential engagement regarding the financial affairs or
transactions of an agency.
(5) Disclosure
by the state auditor may occur in the following circumstances. The state auditor
shall disclose special audit, performance audit, attestation engagement, and
forensic audit documentation that are confidential under Subsections (E)(3) and
(E)(4) of 2.2.2.15 NMAC, only if and when required by Section 12-6-6 NMSA 1978.
(6) Guidance
regarding disclosure by professionals follows. The IPA, performance audit team
or forensic audit team shall not disclose information provided to them by the state
auditor unless otherwise specified by the state auditor. Disclosure of
confidential information by the IPA, performance audit team or forensic audit
team may result in legal action by the state auditor, or in the case of an IPA,
being restricted pursuant to Subsection E of 2.2.2.8 NMAC.
(7) Report
release and confidentiality guidance follow. Agency and local public body
personnel shall not release information to the public relating to the special
audit, performance audit or attestation engagement until the report is released
and has become a public record pursuant to Section 12-6-5 NMSA 1978. At all
times during the engagement and after the engagement report becomes a public
record, the IPA or other professional(s) shall follow applicable standards and
2.2.2 NMAC regarding the release of any information relating to the engagement.
Applicable standards include but are not limited to Section 1.700.001 AICPA
Code of Conduct ET and related interpretations and guidance, and GAGAS 4.30 through
4.32 and GAGAS 4.40 through 4.44.
[2.2.2.15 NMAC - Rp, 2.2.2.15 NMAC, 3-16-15]
2.2.2.16 ANNUAL FINANCIAL PROCEDURES
REQUIRED FOR LOCAL PUBLIC BODIES WITH REVENUES LESS THAN $500,000:
A. Pursuant
to Subsection B of Section 12-6-3 NMSA 1978, the annual revenue of a local
public body determines the type of financial reporting a local public body
shall submit to the office; local public bodies are mutual domestic water
consumers associations, land grants, incorporated municipalities, and special
districts; the annual revenue of a local public body shall be calculated on a
cash basis, excluding capital outlay funds, federal and private grants.
B. Annually,
the state auditor shall provide local public bodies written authorization to
proceed with obtaining services to conduct a financial audit or other
procedures. Upon receipt of the authorization, a local public body shall
determine its annual revenue in accordance with Subsection A of 2.2.2.16 NMAC. The
following requirements for financial reporting apply to the following annual
revenue amounts.
(1) If
a local public body’s annual revenue is less than $10,000 and the local public
body did not directly expend at least 50% of, or the remainder of, a single
capital outlay award, then the local public body is exempt from submitting and
filing quarterly reports and budgets for approval to the LGD-DFA and from
submitting a financial report to the state auditor, except as otherwise
provided in Subsection C of 2.2.2.16 NMAC.
(2) If
a local public body’s annual revenue is $10,000 or more but less than $50,000, then
the local public body: shall comply with the requirements of Section 6-6-3 NMSA
1978; and is exempt from any financial reporting to the state auditor, except
as otherwise provided in Subsection C of 2.2.2.16 NMAC.
(3) If
a local public body’s annual revenue is less than $50,000, and the local public
body expended at least 50% of, or the remainder of, a single capital outlay
award, then the local public body shall procure the services of an IPA for the
performance of a tier 3 agreed upon procedures engagement in accordance with
the tier 3 agreed upon procedures checklist on the state auditor’s website.
(4) If
a local public body’s annual revenue is $50,000 or more, but less than
$250,000, then the local public body shall procure the services of an IPA for
the performance of a tier 4 agreed upon procedures engagement in accordance
with the tier 4 agreed upon procedures checklist on the state auditor’s
website.
(5) If
a local public body’s annual revenue is $50,000 or greater, but less than
$250,000, and the local public body expended any capital outlay funds, then the
local public body shall procure the services of an IPA for the performance of a
tier 5 agreed upon procedures engagement in accordance with the tier 5 agreed
upon procedures checklist on the state auditor’s website.
(6) If
a local public body’s annual revenue is $250,000 or greater, but less than
$500,000, the local public body shall procure services of an IPA for the
performance of a tier 6 agreed upon procedures engagement in accordance with
the tier 6 agreed upon procedures checklist on the state auditor’s website.
(7) If
a local public body’s annual revenue is $500,000 or more, the section shall not
apply and the local public body shall procure services of an IPA for the
performance of a financial and compliance audit in accordance with other
provisions of 2.2.2 NMAC.
(8) Notwithstanding
the annual revenue of a local public body, if the local public body expended
$500,000 or more of federal funds subject to a federal single audit during the
fiscal year then the local public body must procure a single audit in
accordance with 2.2.2.8 NMAC.
C. A
local public body that is exempt from financial reporting to the state auditor
pursuant to Paragraphs (1) and (2) of Subsection B of 2.2.2.16 NMAC shall
submit written certification to the local government division and the state auditor.
The certification shall be provided on the form made by the state auditor and
available on the state auditor’s website at www.osanm.org. The local public body shall certify, at a minimum:
(1) the
local public body’s annual revenue for the fiscal year; and
(2) that
the local public body did not expend 50% of or the remainder of a single capital
outlay award.
D. A
local public body required to perform an agreed upon procedures engagement
shall procure the services of an IPA in accordance with the procedures below.
(1) Upon
receipt of notification to proceed from the office, the local public body shall
identify all elements or services to be solicited and request quotations or
proposals for the applicable agreed upon procedures engagement pursuant to Subsection
A of 2.2.2.16 NMAC. A local public body is strongly encouraged to select an IPA
on the state auditor’s list of audit firms approved to perform audits of New
Mexico government agencies. However, a local public body may select an IPA who
has submitted the following information and been approved by the office
pursuant to applicable procedures described at Subsection B through F of
2.2.2.8 NMAC:
(a) a
New Mexico firm permit to practice;
(b) current
liability insurance; and
(c) a
current peer review (if applicable) with a rating of at least “pass with
deficiencies.”
(2) The
state auditor considers IPA services that cost less than $60,000 excluding
gross receipts tax to be small purchases. The local public body may procure
professional services for one year only. The local public body may procure the
required services using a multiple year proposal (not to exceed three years) in
which the cost of service is $60,000 or less in each year (excluding gross
receipts taxes). The local public body is encouraged to obtain no fewer than
three written or oral quotations to be recorded and placed in the procurement
file. Section 13-1-191.1 NMSA 1978 requires prospective contractors to complete
a standard campaign contribution disclosure form and submit it to the local
public body on the date the contractor signs the contract.
(3) For
IPA services that cost $60,000 or more excluding gross receipts tax on each
year’s contract, the local public body shall seek competitive sealed proposals
and contract for services in accordance with the Procurement Code (Chapter 13,
Article 1 NMSA 1978). Section 13-1-191.1 NMSA 1978 requires prospective
contractors to complete a standard campaign contribution disclosure form and
submit it to the local public body as part of the competitive sealed proposal.
(4) The
local public body may request a multiple year proposal to provide services not
to exceed a term of three years including all extensions and renewals. The term
of the contract shall be one-year with the option to extend for two successive
one-year terms at the same price, terms and conditions as stated on the
original proposal. Exercising the option to extend shall be by mutual agreement
of the parties to the contract and with the approval of the state auditor. In
the event that either of the parties to the contract elects not to extend, or
the state auditor disapproves the recommendation for renewal, the local public
body shall use the procedures described above in Paragraphs (2) and (3) of
Subsection D of 2.2.2.16 NMAC to solicit services.
(5) The
local public body shall evaluate all competitive sealed proposals or quotations
received using an evaluation process, preferably executed by a selection
committee. Members of component units such as housing authorities, etc., should
be included in the IPA selection process. As part of their evaluation process,
local public bodies may and are strongly encouraged to consider the following
criteria when selecting an IPA:
(a) the
capability of the IPA, including:
(i) whether
the IPA has the resources to perform the type and size of the agreed upon procedures
required;
(ii) the
results of the IPA’s most recent external quality control review (peer review);
and
(iii) the
organization and completeness of the IPA’s proposal or bid for agreed upon
procedures services;
(b) the
work requirements and approach of the IPA, including:
(i) the
IPA’s knowledge of the local public body’s need and the product to be delivered;
(ii) whether
the IPA’s proposal or bid contains a sound technical plan and realistic
estimate of time to complete the agreed upon procedures engagement;
(iii) plans
for using local public body staff, including internal auditors; and (iv) if
the proposal or bid is for a multiple year contract, the IPA’s approach for
planning and conducting the work efforts of subsequent years;
(c) the
IPA’s technical experience, including:
(i) the
governmental audit experience of the IPA and the specialization in the local
public body’s type of government; and
(ii) the
IPA’s attendance at continuing professional education seminars or meetings on
auditing, accounting and regulations directly related to state and local
government audits and agreed upon procedures services.
(6) A
local public body that does not qualify for the tiered system should submit the
completed IPA recommendation form and completed audit contract to the office by
May 15 pursuant to Paragraph (6) of Subsection G of 2.2.2.8 NMAC. A local
public body that does qualify for the tiered system should complete the
evaluations for each IPA that responds, make the IPA selection and then submit
the completed IPA recommendation form for tiered system local public bodies and
the completed and signed agreed upon procedures contract to the state auditor
on or before July 1. The blank form and contract that the local public body
shall use are available at www.osanm.org. In the event the due date falls on a
weekend or holiday, the due date will be the next business day. Local public
bodies with a fiscal year end other than June 30 must use an IPA recommendation
form and contract due date of one day after the end of the fiscal year. If a
completed IPA recommendation form and AUP contract are not delivered to the
state auditor by the applicable deadline, the IPA must include a finding of
noncompliance with Paragraph (7) of Subsection D of 2.2.2.16 NMAC in the AUP
report:
(a) the
local public body shall print the form on the local public body’s letterhead;
(b) the
local public body shall complete the agreed upon procedures contract form
provided at www.osanm.org for the applicable tier; the local public
body should obtain the IPA’s signature on the contract, and submit the
completed and signed agreed upon procedures contract to the state auditor with
the completed IPA recommendation form for agreed upon procedures;
(c) if the IPA is
not on the state auditor’s list of audit firms approved to perform audits of
New Mexico government agencies, the local public body or the IPA shall submit:
(i) firm
contact information;
(ii) a
copy of the firm’s current New Mexico firm permit to practice;
(iii) proof
of current liability insurance;
(iv) if
applicable, a copy of the firm’s current peer review with a rating of at least
pass with deficiencies; a peer review rating of less than “pass with
deficiencies” (under the January 1, 2009 standards) on the IPA’s peer review
will disqualify the IPA from performing New Mexico governmental agreed upon
procedures engagements; and
(v) an
explanation regarding why the local public body selected an IPA that did not
appear on the state auditor’s list;
(d) the
IPA recommendation form for agreed upon procedures and the related agreed upon
procedures contract that are submitted to the office with errors or omissions
will be rejected by the office; the office will return the rejected contract
and IPA recommendation form to the local public body with a checklist
indicating the reason(s) for the rejection; the office will process first the
timely submitted correct IPA recommendation forms and related contracts; then
the office will process any IPA recommendation forms and related contracts that
are submitted late or were rejected by the office and not resubmitted correctly
by the deadline;
(e) the
local public body shall retain all procurement documentation including
completed evaluation forms, for five years and in accordance with applicable
records laws;
(f) if
the local public body fails to submit an IPA recommendation by the deadline,
the office may send a letter to the local public body reminding the local
public body that pursuant to Section 12-6-14 NMSA 1978, the state auditor may
select an IPA to perform the AUP engagement if the local public body has not
submitted a recommendation within 60 days of the date of the notification
letter sent by the state auditor to the local public body with instructions to
procure an AUP contract for the fiscal year specified;
(g) the
office may select an IPA for the local public body pursuant to Section 12-6-14
NMSA 1978 and Paragraphs (9) through (13) of Subsection G of 2.2.2.8 NMAC.
E. In
the event the local public body’s recommendation and related contract have been
submitted without errors or omissions, but were not approved by the state
auditor pursuant to Subsection H of 2.2.2.8 NMAC, the state auditor will
promptly communicate the decision, including the reasons(s) for disapproval, to
the agency; at which time, the agency shall promptly submit a different
recommendation. This process will continue until the state auditor approves a
recommendation and related contract. During this process, whenever a
recommendation and related contract are not approved, the local public body may
submit a written request to the state auditor for reconsideration of the disapproval.
The local public body 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. The state auditor may hold an informal meeting to discuss the
request. The state auditor may set the meeting in a timely manner with
consideration given to the agency’s circumstances; any contract amendments will
be processed in accordance with Subsection R of 2.2.2.8 NMAC.
F. Requirements
of the IPA selected to perform the agreed upon procedures follow.
(1) The
IPA will provide the local public body with a dated engagement letter during
the planning stages of the engagement, describing the services to be provided.
The IPA will provide an electronic copy of the dated signed engagement letter
to the office within 30 days of execution. Failure to submit the copy of the
engagement letter could result in a contract restriction. See Paragraph (5) of
Subsection R of 2.2.2.8 NMAC for applicable restrictions on the engagement
letter.
(2) The
IPA may not subcontract any portion of the services to be performed under the
contract with the local public body.
(3) The
IPA will hold an entrance conference and an exit conference with the local
public body unless the IPA has submitted a written request to the office for an
exemption from this requirement and has obtained written approval of the
exemption from the office. Unless the cost of the AUP is $5,000 or less, the
exit conference must be held in person; a telephone or webcam exit conference
will not meet this requirements. The office has the authority to notify the
agency or IPA that the state auditor should be informed of the date of the
entrance conference, any progress meetings and the exit conference. If such
notification is received, the IPA and agency must invite the state auditor or
his designee to attend all such conferences.
(4)
The report should be submitted to the office for review along with a completed
Summary of Findings Form available at www.osanm.org. The report will not be considered received by the
office unless it is accompanied by the required Summary of Findings Form. Once the
report is officially released to the agency by the state auditor (by an
authorizing letter) and the required waiting period of five calendar days has
passed or has been waived by the local public body, the agreed upon procedures
report shall be presented by the IPA, to a quorum of the governing authority of
the local public body at a meeting held in accordance with the Open Meetings
Act, if applicable.
G. Progress
payment requirements follow.
(1) Progress
payments up to 90% of the contract amount do not require state auditor approval
and may be made by the local public body if the local public body ensures that
progress payments made do not exceed the percentage of work completed by the
IPA. If requested by the state auditor, the local public body shall provide the
office a copy of the approved progress billing(s).
(2) Final
payment from 91% to 100% may be made by the local public body only after the
state auditor has stated in a letter to the entity that the agreed upon procedures
report has been released by the state auditor and the engagement letter and
management representation letter have been received by the state auditor.
H. Report
due date, notification letters and confidentiality requirements follow.
(1) For
local public bodies with a June 30 fiscal year-end, the report or certification
due date is December 15. Local public bodies with a fiscal year end other than
June 30 must submit the agreed upon procedures report no later than five months
after the fiscal year-end. An organized bound hard copy of the report should be
submitted. Reports submitted via fax or email will not be accepted. A copy of
the signed dated management representation letter shall be submitted with the
report. If a due date falls on a weekend or holiday, or if the office is closed
due to inclement weather, the report is due the following business day by 5:00
p.m. If the report is mailed to the state auditor, it should be postmarked no
later than the due date to be considered filed by the due date. If the due date
falls on a weekend or holiday the audit report should be postmarked by the
following workday. The state auditor will grant no extensions of time to the
established regulatory due dates.
(2) As
soon as the auditor becomes aware that circumstances exist that will make the
local public body’s agreed upon procedures report be submitted after the
applicable due date shown in Paragraph (1) above, the auditor shall notify the state
auditor and oversight agency of the situation in writing. This notification
shall consist of a letter with official signatures, not an email. However, a
scanned version of the official letter sent via email that contains the
required signatures is acceptable. There must be a separate notification for
each late agreed upon procedures report. The notification must include a
specific explanation regarding why the report will be late, when the IPA
expects to submit the report and a concurring signature by the local public
body. If the IPA will not meet the expected report submission date, then the
IPA should send a revised notification letter. In the event the contract was
signed after the report due date, the notification letter must still be
submitted to the office explaining the reason the agreed upon procedures report
will be submitted after the report due date. A copy of the letter must be sent
to the LGD, if LGD oversees the local public body. The late report notification
letter is not required if the report was submitted to the office for review by
the deadline, and then rejected by the office, making the report late when
submitted.
(3) Local
public body personnel shall not release information to the public relating to
the agreed upon procedures engagement until the report is released and has
become a public record pursuant to Section 12-6-5 NMSA 1978. At all times
during the engagement and after the agreed upon procedures 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 agreed upon procedures engagement.
I. Findings
requirements follow. All agreed upon procedures engagements should report as findings
any fraud, illegal acts, noncompliance or internal control deficiencies,
consistent with Section 12-6-5 NMSA 1978. The findings should include the
content listed at Subparagraph (c) of Paragraph (3) in Subsection I of 2.2.2.10
NMAC.
J. Review
of agreed upon procedures reports and related work papers follow. Agreed upon
procedures reports will be reviewed by the office for compliance with the
professional services contract; unfinished or excessively deficient reports
will not be considered received. Such reports will be returned to the firm and
a copy of the rejection letter will be sent to the local public body. If the office
rejects and returns a substandard agreed upon procedures report to the firm,
the report will be considered late if the revised report is not submitted by
the due date, and the firm must include a finding for noncompliance with the
due date. The firm should submit an electronic version of the corrected
rejected report for office review. The name of the electronic file should be “Corrected
Rejected Report’ followed by the agency name and fiscal year. The office
encourages early submission of reports to avoid findings for late reports; after
its review of the agreed upon procedures report for compliance with the
professional services contract, the office will authorize the IPA to print and
submit the final report. The required number of hardcopies specified in the
professional services contract and an electronic version of the agreed upon
procedures report, in PDF format described at Paragraph (3) of Subsection C of
2.2.2.9 NMAC, all must be delivered to the office within five business days. The
office will not release the agreed upon procedures report until the electronic
version of the report is received by the office. The office will provide the
local public body with a letter authorizing the release of the report after the
required five day waiting period, and final payment to the IPA; released
reports may be selected by the office for comprehensive report and work paper
reviews. After a comprehensive review is completed, the office will issue a
letter to advise the IPA about the results of the review. The IPA is required
to respond to all review comments as directed. If during the course of its
review, the office finds significant deficiencies that warrant a determination
that the engagement was not performed in accordance with the provisions of the
contract, applicable AICPA standards, or the requirements of this rule, any or
all of the following action(s) may be taken:
(1) as
instructed by the office, the IPA may be required to correct the working papers
and reissue the agreed upon procedures report to the agency, and any others
receiving copies;
(2) the
IPA’s future engagements may be limited in number pursuant to Subsections E and
F of 2.2.2.8 NMAC; or
(3) the
IPA may be required to submit working papers along with the agreed upon
procedures report to the state auditor for review by the office, prior to the
release of future agreed upon procedures reports, for some or all contracts; or
(4) the
IPA may be referred to the New Mexico public accountancy board for possible
licensure action.
K. IPA
independence follows. IPA’s that perform agreed upon procedure engagements
under the tiered system must maintain independence in mind and appearance, in
all matters relating to the engagement.
(1) An
IPA who performs the local public body’s annual agreed upon procedures
engagement shall not enter into any special audit or nonaudit service contract
with that local public body without the prior written approval of the state auditor. To obtain this approval, the IPA should
follow the requirements set forth at Paragraph (1) of Subsection M of 2.2.2.8
NMAC.
(2) Except
as provided in Paragraph (2) of Subsection D of 2.2.2.15 NMAC, a local public
body and an IPA who does not perform that local public body’s annual financial
audit shall submit a copy to the state auditor of each professional services
contract entered into between the local public body and the IPA for a special
audit, agreed upon procedure or any other nonaudit services. The contract shall not require approval by
the state auditor but shall be submitted to the state auditor within 30 days of
execution.
[2.2.2.16 NMAC - Rp, 2.2.2.16 NMAC, 3-16-15]
HISTORY of 2.2.2 NMAC:
Pre-NMAC Regulatory Filing History: The material in this part was derived from
that previously filed with the State Records Center and Archives under SA Rule
No. 71-1, Regulations of State Auditor Relating to Audit Contracts with Independent
Auditors by State Agencies, filed 5-14-71; SA Rule No. 71-2, Regulations of State
Auditor for Audits by Independent Auditors, filed 5-27-71; SA Rule No. 72-1,
Regulations of State Auditor Relating to Audit Contracts With Independent
Auditors by Agencies of the State of New Mexico, filed 6-1-72; SA Rule No.
72-2, Regulations of State Auditor for Audits by Independent Auditors, filed
6-1-72; SA Rule No. 74-1, Regulations of State Auditor Relating to Reporting
Statutory Violations, filed 2-28-74; SA Rule No. 74-2, Rotation of Assignments,
filed 2-28-74; SA No. 78-1, Regulations Governing the Auditing of New Mexico
Governmental Agencies, filed 11-3-78; Amendment No. 1 to SA Rule 78-1,
Regulations Governing the Auditing of New Mexico Governmental Agencies, filed
5-28-80; SA Rule No. 82-1, Regulation Governing the Auditing of New Mexico
Governmental Agencies, filed 12-17-82; SA Rule No. 84-1, Regulations Governing
the Auditing of Agencies of the State of New Mexico, filed 4-10-84; SA Rule No.
85-1, Regulations Governing the Auditing of Agencies of the State of New
Mexico, filed 1-28-85; SA Rule No. 85-3, Regulation for State Agencies
Concerning NCGA Statement No. 4 - Accounting and Financial Reporting Principles
for Claims and Judgments and Compensated Absences, filed 4-16-80; SA Rule No.
85-4, Regulations Governing the Auditing of Housing Authorities of the State of
New Mexico, filed 6-12-85; SA Rule No. 85-5, Regulations Pertaining to Single
Audits of State Agencies and Local Public Bodies, filed 6-17-85; SA Rule No.
85-6, Audits of Grants to Subrecipients, filed 6-17-85; SA Rule 86-1,
Regulations Governing the Audits of Agencies of the State of New Mexico, filed
1-20-86; SA Rule No. 86-2, Regulation Governing Violations of Criminal Statutes
in Connection with Financial Affairs, filed 3-20-86; SA Rule No. 86-3,
Professional Services Contracts, filed 7-9-86; SA Rule 87-1, Regulations
Governing the Audits of Agencies of the State of New Mexico, filed 2-13-87; SA
Rule 87-2, Approval of Audit Contracts, filed 4-2-87; SA Rule 87-3, Audit
Requirements for Deferred Compensation, Retirement Plans, Budget and Public
Money for the State of New Mexico, filed 8-14-87; SA Rule 88-1, Regulations
Governing the Audits of Agencies of the State of New Mexico, filed 2-10-88; SA
Rule 89-1, Regulations Governing the Audits of Agencies of the State of New
Mexico, filed 3-10-89; SA Rule 90-1, Regulations Governing the Audits of
Agencies of the State of New Mexico, filed 3-1-90; SA Rule 90-3, Auditor's
Responsibilities Related to Fees Collected on Convictions Relating to
Intoxicating Liquor and Controlled Substances, filed 5-7-90; SA Rule 91-1,
Regulations Governing the Audits of Agencies of the State of New Mexico, filed
3-13-91; SA Rule 92-1, Regulations Governing the Audits of Agencies of the
State of New Mexico, filed 3-6-92; SA Rule 93-1, Regulations Governing the
Audits of Agencies of the State of New Mexico, filed 2-25-93; SA Rule 94-1,
Regulations Governing the Audits of Agencies of the State of New Mexico, filed
2-25-94; Amendment 1 to SA Rule 94-1, Regulations Governing the Audits of
Agencies of the State of New Mexico, filed 5-16-94; SA Rule 95-1, Regulations
Governing the Audits of Agencies of the State of New Mexico, filed 3-16-95; and
2 NMAC 2.2, Requirements for Contracting and Conducting Audits of Agencies,
filed 4-2-96.
History of Repealed Material:
2 NMAC 2.2, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 3-30-01.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 3-29-02.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 4-30-03.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 3-31-04.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 5-13-05.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 3-16-06.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 4-16-07.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 4-15-08.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 2-27-09.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 2-12-10.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 2-28-11.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 2-15-12.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 2-28-13.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 2-28-14.
2.2.2 NMAC, Requirements for Contracting and
Conducting Audits of Agencies - Repealed 3-16-15.
