2.2.2NMAC


Published: 2015

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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.

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