New
Mexico Register / Volume XXIX, Issue 4 / February 27, 2018
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, 2/27/2018]
2.2.2.2 SCOPE: Agencies as defined
by the Audit Act and independent public accountants interested in contracting
to perform audit services for those agencies.
[2.2.2.2
NMAC - Rp, 2.2.2.2 NMAC, 2/27/2018]
2.2.2.3 STATUTORY AUTHORITY: Audit Act, Sections 12-6-1
to 12-6-14 NMSA 1978.
[2.2.2.3 NMAC - Rp, 2.2.2.3 NMAC, 2/27/2018]
2.2.2.4 DURATION: Permanent.
[2.2.2.4 NMAC - Rp, 2.2.2.4 NMAC, 2/27/2018]
2.2.2.5 EFFECTIVE DATE: February 27, 2018,
unless a later date is cited at the end of a section.
[2.2.2.5 NMAC - Rp, 2.2.2.5 NMAC, 2/27/2018]
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, 2/27/2018]
A. “AAG GAS” means AICPA Audit and Accounting Guide - Government auditing
standards and Single Audits (latest edition).
B. “AAG SLV” means AICPA
Audit and Accounting Guide - State and Local Governments (latest edition).
C. “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.
D. “Audit” means
both annual financial and compliance audits and agreed upon procedures, unless
otherwise specified.
E. "Auditor" means independent public accountant.
F. “AICPA” means
American institute of certified public accountants.
G. “AU-C” means U.S. auditing
standards-AICPA (Clarified)
H. “AUP” means agreed upon procedures.
I. “CPA” means certified public accountant.
J. “CPE” means continuing professional education.
K. “DFA” means the New Mexico department
of finance and administration.
L. “ERB” means the New Mexico education retirement
board.
M. “FCD” means financial control division
of the department of finance and administration.
N. “FDIC” means federal deposit insurance corporation.
O. “FDS” means financial data schedule.
P. “GAAP” means accounting principles generally
accepted in the United States of America.
Q. “GAGAS” means the most recent revision
of government auditing standards issued by the comptroller general of the
United States (yellow book).
R. “GAO” means the
government accountability office, a division of the OSA.
S. “GASB” means governmental accounting standards
board.
T. “GAAS” means auditing standards generally
accepted in the United States of America.
U. “GSD” means the New Mexico general services
department.
V. “GRT” means gross receipts tax.
W. “HED” means the New Mexico higher education
department.
X. “HUD” means United States (US) department
of housing and urban development.
Y. “IPA” means independent public accountant.
Z. “IRC” means internal revenue code.
AA. “LGD” means the local government division
of department of finance and administration (DFA).
BB. “Local public body” means a mutual
domestic water consumers association, a land grant, an incorporated municipality or a special district.
CC. “NCUSIF” means national credit union shares
insurance fund.
DD. “NMAC” means New Mexico administrative code.
EE. “NMSA” means New Mexico statutes annotated.
FF. “Office” or “OSA” means the New Mexico office of the state auditor.
GG. “OMB” means the United States office of
management and budget.
HH. “PED” means the New Mexico public education
department.
II. “PERA” means the New Mexico public employee
retirement association.
JJ. “PHA” means public housing authority.
KK. “REAC” means real estate assessment center.
LL. “REC” means regional education cooperative.
MM. “RSI” means required supplementary information.
NN. “SAS” means the AICPA’s statement on auditing
standards.
OO. “SHARE” means statewide human resources
accounting and management reporting system.
PP. “SI” means
supplementary information.
QQ. “State auditor” may refer to either the
elected state auditor of the state of New Mexico, or personnel of his office
designated by him.
RR. “STO” means state treasurer’s office.
SS. “Tier” is established based on the
amount of each local public body’s annual revenue, pursuant to Section 12-6-3 NMSA
1978 and Section 2.2.2.16 NMAC.
TT. “UFRS” means uniform financial reporting
standards.
UU. “Uniform guidance” Title 2 U.S. Code of
Federal Regulations Part 200, Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards.
VV. “U.S. GAO” means the United States government
accountability office.
[2.2.2.7
NMAC - Rp, 2.2.2.7 NMAC, 2/27/2018]
2.2.2.8 THE
PROCUREMENT AND AUDIT PROCESS:
A. Firm profiles: For an IPA to be included on the state auditor’s
list of approved firms, an IPA shall submit a firm profile online annually on
January 5th or on the next business day, in accordance with the
guidelines set forth herein. The OSA shall
review each firm profile for compliance with the requirements set forth in this
rule. IPAs shall notify the state auditor
of changes to the firm profile as information becomes available. The state auditor shall approve contracts
only with IPAs who have submitted a
complete and correct firm profile that has been approved by the OSA, and
who have complied with all the requirements of this rule, including but not
limited to:
(1) Subsection
A of Section 2.2.2.14 NMAC, continuing professional education requirements for
all staff that the firm will use on any New Mexico governmental engagements;
(2) listed
professional service contracts the firm entered into;
(3) for
IPAs who have audited agencies under this rule in the past, they shall have
previously complied with: Section 2.2.2.9 NMAC, Report Due Dates, including
notifying the state auditor regarding late audit reports and Section 2.2.2.13
NMAC, review of audit reports and audit documentation.
B. List of approved firms: The state auditor
shall maintain a list of independent public accounting (IPA) firms that are approved
and eligible to compete for audit contracts and agreed upon procedures
engagements with agencies. The state auditor’s
list of approved firms shall be reviewed and updated on an annual basis. An IPA on the list of approved firms is approved
to perform government audits until the list of approved firms is published for
the following year; provided that the OSA may restrict firms at any time for
failure to submit firm profile updates timely.
An IPA that is included on the state auditor’s list of approved firms
for the first time shall be subject to an OSA quality control review of the
IPA’s working papers. This review shall
be conducted as soon as the documentation completion date, as defined by AU-C Section
230, has passed (60 days after the report release date). The state auditor shall
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 OSA.
The OSA shall inform all IPAs whose firm profiles were submitted by the due
date whether they are on the list of approved firms and shall publish the list
of approved firms concurrent with notification to government agencies to begin
the procurement process to obtain an IPA to conduct the agency’s annual
financial audit.
C. 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 Section 2.2.2.14 NMAC, to perform GAGAS audits;
(4) the
IPA has been restricted in the past and has not demonstrated improvement (this
includes submitting excessively deficient audit reports or having excessively
deficient workpapers);
(5) the
IPA made false statements in their firm profile or any other official
communication with the OSA that were misleading enough to merit
disqualification; or
(6) any
other reason determined by the state auditor to serve the interest of the state
of New Mexico.
(1) IPAs
may be placed on restriction based on the OSA’s review of the firm profile and
deficiency considerations as described below.
Restriction may take the form of limiting either the type of engagements
or the number of audit contracts, or both, that the IPA may hold. The OSA may impose a corrective action plan
associated with the restriction. The
restriction remains in place until the OSA notifies the IPA that the
restriction has been modified or removed. The deficiency considerations include, but are
not necessarily limited to:
(a) failure
to submit reports in accordance with report due dates provided in Subsection A
of Section 2.2.2.9 NMAC, or the terms of their individual agency contract(s);
(b) failure to
submit late report notification letters in accordance with Subsection A of Section
2.2.2.9 NMAC;
(c) failure
to comply with this rule;
(d) poor
quality reports as determined by the OSA;
(e) poor
quality working papers as determined by the OSA;
(f) a
peer review rating of “pass with deficiencies” with the deficiencies being
related to governmental audits;
(g) failure
to contract through the OSA for New Mexico governmental audits or agreed upon
procedures engagements;
(h) failure
to inform agency in prior years that the IPA is restricted;
(i) failure
to comply with the confidentiality requirements of this rule;
(j) failure
to invite the state auditor or his designee to engagement entrance conferences,
progress meetings or exit conferences after receipt of related notification
from the OSA;
(k) failure
to comply with OSA referrals or requests in a timely manner;
(l) suspension
or debarment by the U.S. general services administration;
(m) false
statements in the IPA’s firm profile or any other official communication with
the OSA;
(n) failure to
cooperate timely with requests from successor IPAs, such as reviewing
workpapers; or
(o) any
other reason determined by the state auditor to serve the interest of the state
of New Mexico.
(2) The
OSA shall notify any IPA that it proposes to place under restriction. If the proposed restriction includes a
limitation on the number of engagements that an IPA is eligible to hold, the
IPA shall not submit proposals or bids to new agencies if the number of
multi-year proposals the IPA possesses at the time of restriction is equal to
or exceeds the limitation on the number of engagements for which the IPA is
restricted.
(3) An IPA under restriction is responsible for informing the
agency whether the restricted IPA is eligible to engage in a proposed contract.
(4) If an agency or local public body submits an unsigned
contract to the OSA for an IPA that was ineligible to perform that contract due
to its restriction, the OSA shall reject the unsigned contract.
E. Procedures for imposition
of restrictions:
(1) The
state auditor may place an IPA under restriction in accordance with Subsection D
of Section 2.2.2.8 NMAC.
(a) The
state auditor or his designee shall cause written notice of the restriction to
be sent by email and certified mail, return receipt requested, to the IPA,
which shall take effect as of the date of the letter of restriction. The letter shall contain the following
information:
(i) the
nature of the restriction;
(ii) the
conditions of the restriction;
(iii) the
reasons for the restriction;
(iv) the
action to place the IPA on restriction is brought pursuant to Subsection A of Section
12-6-3 NMSA 1978 and these regulations;
(v) the
IPA may request, in writing, reconsideration of the proposed contract
restriction which shall be received by the OSA within 15 calendar days from the
day the IPA receives the letter of restriction; and
(vi) the
e-mail or street address where the IPA’s written request for reconsideration
shall be delivered, and the name of the person to whom the request shall be
sent.
(b) The
IPA’s written request for reconsideration shall include sufficient facts to
rebut on a point for point basis each deficiency noted in the OSA’s letter of restriction. The IPA may request an opportunity to present
in person its written request for reconsideration and provide supplemental
argument as to why the OSA’s determination should be modified or
withdrawn. The IPA may be represented by
an attorney licensed to practice law in the state of New Mexico.
(c) The IPA shall
have forfeited its opportunity to request reconsideration of the restriction(s)
if the OSA does not receive a written request for reconsideration within 15
calendar days of the date of receipt of the letter of restriction. The state auditor may grant, for good cause
shown, an extension of the time an IPA has to submit a request for
reconsideration.
(2) The
OSA shall review an IPA’s request for reconsideration and shall make a determination
on reconsideration within 15 calendar days of receiving the request unless the
IPA has asked to present its request for reconsideration in person, in which
case the OSA shall make a determination within 15 calendar days from the date
of the personal meeting. The OSA may
uphold, modify or withdraw its restriction pursuant to its review of the IPA’s
request for reconsideration, and shall notify the IPA of its final decision in
writing which shall be sent to the IPA via email and certified mail, return
receipt requested.
F. Procedures to obtain
professional services from an IPA: Concurrent with
publication of the list of approved firms, the OSA shall authorize agencies to
select an IPA to perform their audit or agreed-upon procedures engagement.
Agencies are prohibited from beginning the process of procuring IPA services
until they receive the OSA authorization. Agencies that wish to begin the IPA
procurement process prior to receiving OSA authorization may request an
exception, however any such exceptions granted by OSA are subject to changes in
the final audit rule applicable to the audit and changes in restrictions to, or
disqualifications of, IPAs. The
notification shall inform the agency that it shall consult its prospective IPA
to determine whether the prospective IPA has been restricted by the OSA as to
the type of engagement or number of contracts it is eligible to perform. Agencies that may be eligible for the tiered
system shall complete the evaluation described in Subsection B of Section 2.2.2.16
NMAC. Agencies that receive and expend
federal awards shall follow the uniform guidance procurement requirements from 2
CFR 200.317 to 200.326 and 200.509, and shall also incorporate applicable
guidance from the following requirements.
Agencies shall comply with the following procedures to obtain
professional services from an IPA for an audit or agreed-upon procedures
engagement.
(1) Upon
receipt of written authorization from the OSA to proceed, and at no time before
then unless OSA has granted an exception, the agency shall identify all
elements or services to be solicited pursuant to this rule and conduct a
procurement that includes each applicable element of the annual financial audit
or agreed upon procedures engagement.
(2) Quotations
or proposals for annual financial audits shall contain each of the following
elements:
(a) financial
statement audit;
(b) federal
single audit (if applicable);
(c) financial
statement preparation so long as the IPA has considered any threat to
independence and mitigated it;
(d) other
non-audit services (if applicable and allowed by current government auditing
standards); and
(e) other
(i.e., audits of component units such as housing authorities, charter schools,
foundations and other types of component units).
(3) The
agency is encouraged to request multiple year proposals for audit and AUP services
(not to exceed three years), however the term of the contract shall be for one year
only. The parties shall enter a new
audit contract each year. The agency is
responsible for procuring IPA services in accordance with all applicable laws
and regulations which may include, but are not limited to, the State
Procurement Code (Chapter 13, Article 1 NMSA 1978) or equivalent home rule
procurement provisions; GSD Rule, Section 1.4.1 NMAC, Procurement Code
Regulations, if applicable; DFA Rule, Section 2.40.2 NMAC, Governing the
Approval of Contracts for the Purchase of Professional Services; Uniform
Guidance; and Section 13-1-191.1 NMSA 1978 relating to campaign contribution
disclosure forms. In the event that
either of the parties to the contract elects not to contract for all of the
years contemplated by a multiple year proposal, or the state auditor
disapproves the contract, the agency shall use the procedures described above
to procure services from a different IPA.
(4) If
the agency is a component of a primary government, the agency’s procurement for
audit services shall include the AU-C 600 (group audits) requirements for the
IPA to communicate and cooperate with the group engagement partner and team,
and the primary government. This
requirement applies to agencies and universities that are part of the statewide
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. Costs for the
IPA to cooperate with the group engagement partner and team, and the primary
government, caused by the requirements of AU-C 600 (group audit) may not be
charged in addition to the cost of the engagement, as the OSA views this in the
same manner as compliance with any other applicable standard.
(5) Agencies
are encouraged to include representatives of the offices of separately elected
officials such as county treasurers, and component units such as charter
schools and housing authorities, in the IPA selection process. As part of their evaluation process, the OSA
recommends that agencies consider the following when selecting an IPA:
(a) responsiveness
to the request for proposal (the firm’s integrity, record of past performance,
financial and technical resources);
(b) relevant
experience, availability of staff with professional qualifications and
technical abilities;
(c) results
of the firm’s peer and external quality control reviews; and
(d) weighting
the price criteria less than fifteen percent of the total criteria taken into
consideration by the evaluation process or selection committee.
Upon
the OSA’s request, the agency shall make accessible to the OSA all of the IPA procurement
and selection documentation.
(6) After selecting an IPA,
each agency shall enter the appropriate requested information online on the
OSA-connect website (www.osa-app.org). In order to do
this, the agency shall register on OSA-Connect and obtain a user-specified
password. The agency’s user shall then use
OSA-Connect to enter information necessary for the contract and for the OSA’s
evaluation of the IPA selection. After
the agency enters the information, the OSA-Connect system generates a draft
contract containing the information entered. The agency shall submit to the OSA for
approval a copy of the unsigned draft contract by following the instructions on
OSA-Connect. Note that the IPA recommendation
form no longer exists as a separate document, because OSA-Connect gathers and delivers to the OSA the information
historically submitted on the IPA recommendation form.
(7) The
OSA shall notify the agency as to the OSA’s approval or rejection of the
selected IPA and contract. The OSA’s
review of audit contracts does not include evaluation of compliance with any
state or local procurement laws or regulations; each agency is responsible for
its own compliance with applicable procurement laws, regulations or policies. After the agency receives notification of
approval of the selected IPA and contract from the OSA, the agency is responsible
for getting the contract signed and sent to any oversight agencies, including
DFA, for approval (if applicable). The
OSA shall not physically sign the contract.
After the agency obtains all the required signature and approvals of the
contract, the agency shall submit an electronic portable document format (PDF)
copy of the final signed contract to the OSA by electronic mail to: reports@osa.state.nm.us.
(8) The
agency shall deliver the unsigned contract generated by OSA-Connect to the OSA by the due date shown below. In the event that the due date falls on a
weekend or holiday, the due date shall be the next business day. If the unsigned contract is not submitted to
the state auditor by these due dates, the IPA may, according to professional
judgment, include a finding of non-compliance with Subsection F of Section 2.2.2.8
NMAC in the audit report or agreed-upon procedures report.
(a) Regional
education cooperatives, cooperative educational services, independent housing authorities,
hospitals and special hospital districts: April 15;
(b) school
districts, counties, and higher education: May 1;
(c) incorporated
counties (of which Los Alamos is the only one), local workforce investment
boards and local public bodies that do not qualify for the tiered system: May
15;
(d) councils
of governments, district courts, district attorneys, state agencies and the state
of New Mexico CAFR: June 1;
(e) local
public bodies that qualify for the tiered system pursuant to Subsections A and
B of Section 2.2.2.16 NMAC: July 1;
(f) agencies
with a fiscal year end other than June 30 shall use a due date 30 days before
the end of the fiscal year; and
(g) component
units that are being separately audited: on the primary government’s due date.
(h) Charter
schools that are chartered by the PED and agencies that are subject to
oversight by the HED have the additional requirement of submitting their audit
contract to PED or HED for approval (Section 12-6-14 NMSA 1978).
(i) In
the event the agency’s unsigned contract is submitted to the OSA, but is not approved
by the state auditor, the state auditor shall promptly communicate the
decision, including the reason(s) for disapproval, to the agency, at which time
the agency shall promptly submit a contract with a different IPA using OSA-Connect.
This process shall continue until the state
auditor approves an unsigned contract. During
this process, whenever an unsigned contract is not approved by the state auditor,
the agency may submit a written request to the state auditor for
reconsideration of the disapproval. The
agency shall submit its request no later than 15 calendar days after the date
of the disapproval and shall include documentation in support of its IPA
selection. If warranted, after review of
the request, the state auditor may hold an informal meeting to discuss the
request. The state auditor shall set the
meeting in a timely manner with consideration given to the agency’s
circumstances.
(9) The agency
shall retain all procurement documentation, including completed evaluation
forms, for five years and in accordance with applicable public records laws.
(10) If
the agency fails to submit an unsigned contract by the due date set forth in
this rule, or, if no due date is applicable, within 60 days of notification
from the state auditor to engage an IPA, the state auditor may conduct the
audit or select the IPA for that agency. The reasonable costs of such an audit shall be
borne by the agency audited unless otherwise exempted pursuant to Section 12-6-4
NMSA 1978.
(11) In
selecting an IPA for an agency pursuant to Subsection F of Section 2.2.2.8 NMAC
the state auditor shall at a minimum consider the following factors, but may
consider other factors in the state auditor’s discretion that serve the best
interest of the state of New Mexico and the agency:
(a) the
IPA shall be drawn from the list of approved IPAs maintained by the state auditor;
(b) an
IPA subject to restriction pursuant to Subsection D of Section 2.2.2.8 NMAC, is
ineligible to be selected under this paragraph;
(c) whether
the IPA has conducted one or more audits of similar government agencies;
(d) the
physical proximity of the IPA to the government agency to be audited;
(e) whether
the resources and expertise of the IPA are consistent with the audit
requirements of the government agency to be audited;
(f) the
IPA’s cost profile, including examination of the IPA’s fee schedule and blended
rates;
(g) the
state auditor shall not select an IPA in which a conflict of interest exists
with the agency or that may be otherwise impaired, or that is not in the best
interest of the state of New Mexico.
(12) The
state auditor shall consider, at a minimum, the following factors when
considering which agencies shall be subject to the state auditor’s selection of
an IPA:
(a) whether
agency is demonstrating progress in its own efforts to select an IPA;
(b) whether
the agency has funds to pay for the audit;
(c) whether
the agency is on the state auditor’s “at risk” list;
(d) whether
the agency is complying with the requirements imposed on it by virtue of being
on the state auditor’s “at risk” list;
(e) whether
the agency has failed to timely submit its e-mailed draft unsigned contract
copy in accordance with the audit rule on one or more occasions;
(f) whether
the agency has failed to timely submit its annual financial audit report in
accordance with the audit rule due dates on one or more occasions.
(13) The
state auditor may appoint a committee of the state auditor’s staff to make
recommendations for the state auditor’s final determination as to which IPAs shall
be selected for each government agency subject to the discretion of the state auditor.
(14) Upon selection
of an IPA to audit a government agency subject to the discretion of the state auditor,
the state auditor shall notify the agency in writing regarding the selection of
an IPA to conduct its audit. The
notification letter shall include, at a minimum, the following statements:
(a) the
agency was notified by the state auditor to select an IPA to perform its audit
or agreed upon procedures engagement;
(b) 60
days or more have passed since such notification, or the applicable due date in
this rule has passed, and the agency failed to deliver its draft contract in
accordance with this subsection;
(c) pursuant
to Subsection A of Section 12-6-14 NMSA 1978, the state auditor is selecting
the IPA for the agency;
(d) delay
in completion of the agency’s audit is contrary to the best interest of the
state and the agency, and threatens the functioning of government and the
preservation or protection of property;
(e) in
accordance with Section 12-6-4 NMSA 1978, the reasonable costs of such an audit
shall be borne by the agency unless otherwise exempted;
(f) selection
of the IPA is final, and the agency shall immediately take appropriate measures
to procure the services of the selected IPA.
G. State auditor approval/disapproval of unsigned contract: The state auditor shall
use discretion and may not
approve:
(1) An
unsigned audit contract or an unsigned agreed upon procedures professional
services contract under Section 2.2.2.16 NMAC that does not serve the best
interests of the public or the agency or local public body because of one or
more of the following reasons:
(a) lack
of experience of the IPA;
(b) failure
to meet the auditor rotation requirements as follows:
(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 six consecutive years;
(ii) if
firm A purchases the stock or assets of firm B, or if firm B merges into firm A
with firm A being the surviving firm, firm A shall not be affected for purposes
of the auditor rotation requirement; the auditor rotation clock shall continue
to run without interruption for firm B’s audit contracts, despite the fact that
such audit contracts may be issued by firm A after the purchase or merger. Because of the impact of firm purchases and mergers
on IPA independence the OSA may evaluate historical mergers when applying this section;
(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, the audit act, or this rule;
(h) the
agency giving too much consideration to the price of the IPA’s response to the
request for bids or request for proposals in relation to other evaluation
criteria;
(i) newness of
the IPA to the state auditor’s list of approved firm;
(j) noncompliance
with the requirements of Section 12-6-3 NMSA 1978 the audit act by the agency
for previous fiscal years; or
(k) any
other reason determined by the state auditor to be in the best interest of the
state of New Mexico.
(2) Audit
contracts or agreed-upon procedures contracts 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
non-audit 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
non-audit services under a separate contract for services that may be disallowed
by GAGAS independence standards;
(f) failed to
respond, in a timely and acceptable manner, to an OSA audit 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) not adhered
to external quality control review standards as defined by GAGAS and Section 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 was received from the OSA;
(l) failed
to submit a completed signed contingency subcontractor form, if required;
(m) failed
to submit a completed firm profile as required by Subsection A of Section 2.2.2.8
NMAC or failed to include all staff in the firm profile who would be working on
the firm’s engagements;
(n) reached
the limit of contracts to which the state auditor restricted the IPA;
(o) failed to
respond to communications from the OSA or engagement clients within a
reasonable amount of time; or
(p) otherwise,
in the opinion of the state auditor, the IPA was unfit to be awarded a
contract.
(3) An
audit or agreed-upon procedures contract for an IPA received by the OSA which
the state auditor decides to perform himself with or without the assistance of
an IPA, and pursuant to Section 12-6-3 NMSA 1978, even if the agency or local
public body was previously designated for audit or agreed upon procedures to be
performed by an IPA.
H. Audit contract requirements: The agency shall use
the appropriate audit or agreed upon procedures engagement contract form
provided by the OSA through the OSA-connect website at www.osa-app.org. The OSA may provide audit or agreed-upon
procedures engagement contract forms to the agency via facsimile or U.S. mail
if specifically requested by the agency.
Only contract forms provided by the state auditor shall be accepted and
shall:
(1) be
completed and submitted in its unsigned form by the due date indicated at Subsection
F of Section 2.2.2.8 NMAC;
(2) for all
agencies whose contracts are approved through the DFA’s contracts review bureau,
have the IPA’s combined reporting system (CRS) number verified by the taxation
and revenue department (TRD) after approval by the state auditor; and
(3) in
the compensation section of the contract, include the dollar amount that
applies to each element of the contracted procedures that shall be performed;
I. Professional liability insurance: The IPA shall
maintain professional liability insurance covering any error or omission
committed during the term of the contract.
The IPA shall provide proof of such insurance to the state auditor with
the firm profile. The amount maintained
should be commensurate with the risk assumed.
The IPA shall provide to the state auditor, prior to expiration, updated
insurance information.
J. Breach of contract: A breach of any terms
of the contract shall be grounds for immediate termination of the contract. The injured party may seek damages for such
breach from the offending party. Any IPA
who knowingly makes false statements, assurances, or disclosures may be
disqualified from conducting audits or agreed upon procedures engagements of New
Mexico governmental agencies.
K. Subcontractor requirements:
(1) Audit
firms that have only one individual qualified to supervise a GAGAS audit and
issue the related audit report pursuant to Section 61-28B-17 NMSA 1978, and
GAGAS Paragraph 3.76 shall submit with the firm profile, a completed contingency
subcontractor form that is dated to be effective until the date the next firm
profile shall be submitted. The form
shall indicate which IPA on the state auditor’s current list of approved IPA’s shall
complete the IPA’s audits in the event the one individual with the
qualifications described above becomes incapacitated and unable to complete the
audit. See the related contingency subcontractor
form available at www.osanm.org. The OSA shall not
approve audit contracts for such a firm without the required contingency subcontractor
form.
(2) In
the event an IPA chooses to use a subcontractor to assist the IPA in working on
a specific audit, then the IPA shall obtain the prior written approval of the state
auditor to 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 Section 2.2.2.8 NMAC. Subcontractors are subject to an independence
analysis, which may include the IPA rotation requirements of Subsection G of Section
2.2.2.8 NMAC. “Technical review contracts”
are considered subcontracting and are subject to the requirements of this section.
The audit contract shall specify
subcontractor responsibility, who shall sign the report(s), and how the
subcontractor shall be paid. For
additional information see the subcontract work section of the OSA website.
L. IPA independence: IPAs shall maintain
independence with respect to their client agencies in accordance with the
requirements of government auditing
standards, December 2011 revision, issued by the US-GAO (GAGAS 3.02-3.59).
(1) An
IPA who performs the agency’s annual financial audit shall not enter into any
special audit or non-audit 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 one thousand dollars ($1,000) and less (exclusive of
gross receipts tax) for client assistance with responses to IRS and other
regulators. Requests for approval of
professional service contracts shall be submitted to the OSA with the signed
agreement. The OSA shall review the
requests and respond to the agency and the IPA within 30 calendar days of
receipt. The following documentation shall
be submitted to the OSA for review and approval.
(a) The
professional services contract shall be submitted to the state auditor for
review and approval after it has been signed by the agency and the IPA. The contract shall include the contract fee,
start and completion date, and the specific scope of services to be performed
by the IPA.
(b) For
non-audit services, include the auditor’s documentation of:
(i) whether management has
the ability to effectively oversee the non-audit service pursuant to GAGAS
3.34;
(ii) the documented
assurance from the entity that management shall 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 non-audit services, the services to be performed, audited
entity’s acceptance of its responsibilities, the auditor’s responsibilities,
and any limitations of the non-audit 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.
(c) Upon
completion of the non-audit services, the IPA shall provide the state auditor
with a copy of any report submitted to the agency. Such reports are not subject to OSA review
and release procedures unless Section 2.2.2.15 NMAC requires such review and
release procedures.
(2) An IPA may
not enter into any type of fraud-related engagement (this includes waste and
abuse related engagements) with a New Mexico governmental agency without first
obtaining the prior written approval of the state auditor. This requirement applies both when the IPA is
the annual auditor approved by OSA and when the IPA is not the agency’s annual
auditor. See Section 2.2.2.15 NMAC for
the requirements to submit such reports to the OSA for review and release. If the proposed engagement is not related to
fraud, waste or abuse and is therefore not subject to Section 2.2.2.15 NMAC,
then prior written approval by the state auditor is not required when the IPA
is not the agency’s annual auditor.
However, a copy of the contract that is unrelated to fraud and a copy of
any report resulting from such a contract shall be submitted to the OSA when
requested by the OSA.
(3) The
state auditor shall not approve any contract for an agency’s annual auditor to
perform non-audit services that are management responsibilities as provided in
GAGAS 3.36. Nor shall the state auditor
approve any contract for an agency’s annual auditor to perform services that
always impair the auditor’s independence pursuant to GAGAS 3.50, 3.53, 3.54, 3.56,
3.57, and 3.58.
M. Progress Payments: The state auditor shall
approve progress and final payments for the annual audit contract as follows:
(1) Subsection
A of Section 12-6-14 NMSA 1978 (contract audits) provides that “payment of
public funds may not be made to an independent auditor unless a contract is
entered into and approved as provided in this section.”
(2) Subsection
B of Section 12-6-14 NMSA 1978 (contract audits) provides that the state auditor
may authorize progress payments on the basis of evidence of the percentage of
audit work completed as of the date of the request for partial payment.
(3) Progress
payments up to seventy percent do not require state auditor approval provided
that the agency certifies the receipt of services before any payments are made
to the IPA. The agency shall monitor
audit progress and make progress payments only up to the percentage that the
audit is completed. If requested by the state
auditor, the agency or the IPA shall provide a copy of the approved invoices
and progress billing(s). Progress
payments of seventy percent to ninety percent require state auditor approval
after being approved by the agency. When
component unit audits are part of a primary government’s audit contract,
requests for progress payments on the component unit audit(s) shall be included
within the primary government’s request for progress payment approval. In this situation, the OSA shall not process
separate progress payment approvals submitted by the component unit.
(4) The
state auditor may limit progress payments allowed to be made without state auditor
approval for an IPA whose previous audits were submitted after the due date
specified in Subsection A of Section 2.2.2.9 NMAC to only the first fifty
percent of the total fee.
(5) Section
12-6-14 NMSA 1978 (contract audits) provides that final payment under an audit
contract may be made by the agency to the IPA only after the state auditor has determined,
in writing, that the audit has been made in a competent manner in accordance
with contract provisions and this rule.
The state auditor's determination with respect to final payment shall be
stated in the letter accompanying the release of the report to the agency. In no circumstance may the total billed by the
IPA under the audit contract exceed the total contract amount, as amended if
applicable. Further, as the compensation
section of the contract shall include the dollar amount that applies to each
element of the contracted procedures that shall be performed, if certain
procedures, such as a single audit, are determined to be unnecessary and are
not performed, the IPA may not bill the agency for these services. Final payment to the IPA by the agency prior
to review and release of the audit report by the state auditor is considered a
violation of Section 12-6-14 NMSA 1978 and this rule and shall be reported as
an audit finding in the audit report of the agency. If this statute is violated, the IPA may be
removed from the state auditor’s list of approved auditors.
N. Contract amendment
requirements:
(1) Contract
amendments to contracts for audit services, agreed upon procedures services, or
non-audit services may be submitted to the OSA regarding executed
contracts. Contracts may not be amended
after they expire. The contract should
be amended prior to the additional work being performed or as soon as
practicable thereafter. Any amendments
to contracts shall be made on the contract amendment form available at
www.saonm.org. The OSA’s review of audit
contracts and amendments does not include evaluation of compliance with the state
procurement code or other applicable requirements. Although the parties may amend the delivery
dates in a contract, audit report regulatory due dates cannot be modified by
amendment. The OSA’s review of audit
contract amendments does not include evaluation of compliance with any state or
local procurement laws or regulations; each agency is responsible for its own
compliance with applicable procurement laws, regulations or policies.
(2) Contract
amendments submitted for state auditor approval shall include a detailed
explanation of:
(a) the
work to be performed and the estimated hours and fees required for completion
of each separate professional service contemplated by the amendment; and
(b) how
the work to be performed relates to the scope of work outlined in the original
contract.
(3) Since
annual financial audit contracts are fixed-price contracts, contract amendments
for fee increases shall only be approved for extraordinary circumstances, reasons
determined by the state auditor to be in the best interest of the state of New
Mexico, or a significant change in the scope of an audit. For example, if an audit contract did not
include a federal single audit, a contract amendment shall be approved if a
single audit is required. Other examples
of significant changes in the scope of an audit include: the addition of a new
program, function or individual fund that is material to the government-wide
financial statements; the addition of a component unit; and the addition of special
procedures required by this rule, a regulatory body or a local, state or
federal grantor. Contract amendments shall
not be approved to perform additional procedures to achieve an unmodified opinion.
The state auditor shall also consider
the auditor independence requirements of Subsection L of Section 2.2.2.8 NMAC
when reviewing contract amendments for approval. Requests for contract amendments shall be
submitted to the OSA with the signed contract amendment. The OSA shall review the requests and respond
to the agency and the IPA within 30 calendar days of receipt.
(4) If
a proposed contract amendment is rejected for lack of adequate information, the
IPA and agency may submit a corrected version for reconsideration.
O. Termination
of audit contract requirements:
(1) The state auditor
may terminate an audit contract to be performed by an IPA after determining
that the audit has been unduly delayed, or for any other reason, and perform
the audit entirely or partially with IPAs contracted by the OSA (consistent
with the October 6, 1993, stipulated order Vigil v. King, No. SF 92-1487(C). The notice of termination of the contract shall
be in writing.
(2) If the agency
or IPA terminate the audit or agreed upon procedures engagement contract
pursuant to the termination paragraph of the contract, the OSA shall be
notified of the termination immediately.
The party sending out the termination notification letter shall
simultaneously send a copy of the termination notification letter to the OSA with
an appropriate cover letter, addressed to the state auditor.
(a) The
agency is responsible for procuring the services of a new IPA in accordance
with all applicable laws and regulations, and this rule.
(b) The unsigned
contract for the newly procured IPA shall be submitted to the OSA within 30
calendar days of the date of the termination notification letter.
(c) As
indicated in Subsection A of Section 2.2.2.9 NMAC, the state auditor shall not grant
extensions of time to the established regulatory due dates.
(d) If
the IPA does not expect to deliver the engagement report by the regulatory due
date, the IPA shall submit a written notification letter to the state auditor
and oversight agency as required by Subsection A of Section 2.2.2.9 NMAC or Subsection
G of Section 2.2.2.16 NMAC.
[2.2.2.8 NMAC - Rp, 2.2.2.8 NMAC 2/27/2018]
2.2.2.9 REPORT
DUE DATES:
A. Report
due dates: The IPA 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 postmarked by the due date. IPAs and
agencies are encouraged to perform interim work as necessary and appropriate to
meet the following due dates.
(1) The
audit report due dates are as follows:
(a) regional
education cooperatives, cooperative educational services and independent housing
authorities: September 30;
(b) hospitals
and special hospital districts: October
15;
(c) higher
education, state agencies not specifically named elsewhere in this Subsection ,
district courts, district attorneys, the New Mexico finance authority, the New
Mexico lottery authority, and other agencies with June 30 fiscal year-ends that
are reported as component units in the state of New Mexico comprehensive annual
financial report: November 1;
(d) school
districts and the state of New
Mexico component appropriation funds (state general fund): November 15;
(e) the
PED, the state investment council, and the three post-employment benefit
agencies (PERA, ERB and the retiree health care authority): the Wednesday before Thanksgiving day;
(f) counties,
incorporated counties (of which Los Alamos is the only one), workforce investment
boards, councils of governments, and the New Mexico mortgage finance authority:
December 1;
(g) local
public bodies including municipalities: December
15;
(h) the
state of New Mexico comprehensive annual financial report (CAFR): December 31;
(i) the
ERB, PERA and retiree health care authority schedules of employer allocations reports
and related employer guides required by SubSections Z and DD of Section
2.2.2.10 NMAC: June 15;
(j) agencies
with a fiscal year-end other than June 30 shall submit the audit report no
later than five months after the fiscal
year-end;
(k) regarding
component unit reports (e.g., housing authorities, charter schools, hospitals,
foundations, etc.), all separate audit reports prepared by an auditor that is
different from the primary government’s auditor, are due fifteen days before the primary government’s audit report is due,
unless some other applicable due date requires the report to be submitted
earlier;
(l) any
agency that requires its report to be released by December 31st for
any reason (bonding, GFOA, etc.): the earlier of its agency due date or
December 1; and
(m) late
audit or agreed upon procedures reports of any agency (not performed in the
current reporting period): not more than six months after the date the contract
was executed.
(2) If an audit
report is not delivered on time to the state auditor, the auditor shall include
this instance of non-compliance with Subsection A of Section 2.2.2.9 NMAC as an
audit finding in the audit report. This
requirement is not negotiable. If
appropriate, the finding may also be reported as a significant deficiency or
material weakness in the operation the agency’s internal controls over
financial reporting pursuant to AU-C 265.
(3) An
organized bound hard copy of the report shall be submitted for review by the OSA
with the following: copy of the signed
management representation letter and a copy of the completed state auditor
report review guide (available at www.saonm.org). A report shall not be considered submitted to
the OSA for the purpose of meeting the due date until a copy of the signed
management representation letter and the completed report review guide are also
submitted to the OSA. All separate
reports prepared for component units shall also be submitted to the OSA for
review, along with a copy of the management representation letter, and a
completed report review guide for each separate audit report. A separate component unit report shall not be
considered submitted to the OSA for the purpose of meeting the due date until a
copy of the signed management representation letter and the completed report
review guide are also submitted to the OSA.
If a due date falls on a weekend or holiday, or if the OSA is closed due
to inclement weather, the audit report is due the following business day by
5:00 p.m. If the report is mailed to the
state auditor, it shall be postmarked no later than the due date to be
considered filed by the due date. If the
due date falls on a weekend or holiday the audit report shall be postmarked by
the following business day.
(4) AU-C 700.41 requires
the auditor’s report to be dated after audit evidence supporting the opinion
has been obtained and reviewed, the financial statements have been prepared and
the management representation letter has been signed. AU-C 580.20 requires the management
representation letter to be dated the same date as the independent auditor’s
report.
(5) As
soon as the auditor becomes aware that circumstances exist that will make an
agency’s audit report be submitted after the applicable due date provided in Subsection
A of Section 2.2.2.9 NMAC, the auditor shall notify the state auditor in
writing. This notification shall consist
of a letter, not an email. However, a
scanned version of the official letter sent via email is acceptable. A copy of the letter shall be sent to the
legislative finance committee and any applicable oversight agency: PED, FCD, LGD,
or HED. There shall be a separate
notification for each late audit report. The notification shall include a specific
explanation regarding why the report will be late, when the IPA expects to
submit the report and a concurring signature by a duly authorized
representative of the agency. If the IPA
is going to miss the expected report submission date, then the IPA shall send a
revised notification letter. In the
event the contract was signed after the report due date, the notification
letter shall still be submitted to the OSA explaining the reason the audit
report will be submitted after the report due date. The late report notification letter is not
required if the report was submitted to the OSA for review by the due date, and
then rejected by the OSA, making the report late when resubmitted. Reports resubmitted to the OSA with changes of
the IPA’s opinion after the report due date shall be considered late and a late
audit finding shall be included in the audit report.
B. Delivery and release of the audit report:
(1) All
audit reports (and all separate reports of component units, if applicable) shall
be organized, bound and paginated. The OSA
does not accept facsimile or e-mailed 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 shall be considered received by the due date. Unfinished or excessively deficient reports shall
not satisfy this requirement; such reports shall be rejected and returned to
the IPA and the OSA may take action in accordance with Subsection C of Section 2.2.2.13
NMAC. When the OSA rejects and returns a
substandard audit report to the IPA, the OSA shall consider the audit report
late if the corrected report is not resubmitted by the due date. The IPA shall also report a finding for the
late audit report in the audit report. The
firm shall submit an electronic version of the corrected rejected report for OSA
review. The name of the electronic file shall
be “corrected rejected report” followed by the agency name and fiscal year.
(2) Before
initial submission, the IPA shall review the report using the appropriate
report review guide available on the OSA’s website. The report review guide shall reference
applicable page numbers in the audit report. The audit manager or person responsible for
the IPA’s quality control system shall either complete the report review guide
or sign off as having reviewed it. All
questions in the guide shall be answered, and the reviewer shall sign and date
the last page of the guide. If the
review guide is not accurately completed or incomplete, the report shall not be
accepted.
(3) IPAs
are encouraged to deliver completed audit reports before the due date. The OSA shall review all audit reports
submitted by the report due date before reviewing reports that are submitted
after the report due date. Once the
review of the report is completed pursuant to Subsection A of Section 2.2.2.13
NMAC, and any OSA comments have been addressed by the IPA, the OSA shall
indicate to the IPA that the report is ready to print. After the OSA issues the “ok to print” communication for the audit
report, the OSA shall authorize the IPA to submit the corrected report with the
following items to the OSA within five business days; an electronic searchable
version of the audit report labeled “final”, in PDF format, an electronic excel
version of the summary of findings report, an electronic excel version of the
vendor schedule, an electronic excel version of the completed fund balance form,
an electronic excel version of the GASBS 77 disclosure template, if applicable,
an electronic excel version of the indigent care schedules for hospitals, if
applicable, and an electronic excel version of the schedule of asset management
costs for investing agencies, if applicable (all available at www.saonm.org). The OSA shall not release the report until
the searchable electronic PDF version of the report and all required electronic
excel schedules are received by the OSA.
The electronic file containing the final audit report shall:
(a) be created
and saved as a PDF document in a single PDF file format (simply naming the file
using a PDF extension .pdf does not by itself create a PDF file);
(b) be
version 5.0 or newer;
(c) not
exceed 10 megabyte (MB) per file submitted (contact the OSA to request an
exception if necessary);
(d) have
all security settings like self-sign security, user passwords, or permissions
removed or deactivated so the OSA is not prevented from opening, viewing, or
printing the file;
(e) not
contain any embedded scripts or executables, including sound or movie
(multimedia) objects;
(f) have
a file name that ends with .pdf;
(g) be
free of worms, viruses or other malicious content (a file with such content shall
be deleted by the OSA);
(h) be
“flattened” into a single layer file prior to submission;
(i) not
contain any active hypertext links, or any internal/external links (although it
is permissible for the file to textually reference a URL as a disabled link);
(j) be saved at
300 dots per inch (DPI) (lower DPI makes the file hard to read and higher DPI makes
the file too large);
(k) have a name
that starts with “final version,” followed by the name of the agency and the
fiscal year; and
(l) be searchable.
(4) The
IPA shall deliver to the agency the number of copies of the audit report
indicated in the audit contract only after the state auditor has officially
released the audit report with a “release letter”. Release of the audit report to the agency or
the public prior to it being officially released by the state auditor shall result
in an audit finding. 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 OSA shall provide DFA and the legislative finance committee
with notification that the report is available on the OSA website.
(6) If
an audit report is reissued pursuant to AU-C 560, subsequent events and subsequently
discovered facts, or AAG GAS 13.29-.30 for uniform guidance compliance reports,
the reissued audit report shall be submitted to the OSA with a cover letter
addressed to the state auditor. The
cover letter shall explain that:
(a) the
attached report is a “reissued” report;
(b) the
circumstances that caused the reissuance; and
(c) a
summary of the changes that appear in the reissued report. The OSA shall subject the reissued report to
the report review process and upon completion of that report review process, shall
issue a “release letter.” The contents
of the reissued audit report are subject to the confidentiality requirements
described in Subsection M of Section 2.2.2.10 NMAC. Agency management and the IPA are responsible
for ensuring that the latest version of the report is provided to each
recipient of the prior version of the report. The OSA shall notify the appropriate oversight
agencies regarding the updated report on the OSA website.
(7) If
changes to a released audit report are submitted to the OSA, and the changes do
not rise to the level of requiring a reissued report, the IPA shall submit a
cover letter addressed to the agency, with a copy to the state auditor, which
includes the following minimum elements:
(a) a
statement that the changes did not rise to the level of requiring a reissued
report;
(b) a
description of the circumstances that caused the resubmitted updated report;
and
(c) a
summary of the changes that appear in the resubmitted updated report compared
to the prior released report. Agency
management and the IPA are responsible for ensuring that the latest version of
the resubmitted report is provided to each recipient of the prior version of
the report. The OSA shall notify the
appropriate oversight agencies regarding the updated report on the OSA website.
C. Required status
reports: For an agency that has failed to submit audit
or agreed-upon procedures reports as required by this rule, and has therefore
been designated as “at risk” due to late reports, the state auditor requires
the agency to submit written status reports to the OSA on each March 15, June 15,
September 15, and December 15 that the agency is not in compliance with this
rule. Status reports are not required
for agencies that are included on the “at risk” list solely due to an adverse
or disclaimed independent auditor’s opinion. The status report shall be signed by a member
of the agency’s governing authority, a designee of the governing authority or a
member of the agency’s top management. If
the agency has a contract with an IPA to conduct the audit or perform the
agreed upon procedures engagement, the agency must send the IPA a copy of the
quarterly status report. IPAs engaged to audit or perform agreed upon procedures
engagements for agencies with late reports are responsible for assisting these
agencies in complying with the reporting requirements of this section. Failure to do so shall be noted by the OSA and
taken in to account during the IPA Firm Profile evaluation process. At a minimum, the quarterly written status report
shall include:
(1) a
detailed explanation of the agency’s efforts to complete and submit its audit
or agreed-upon procedures;
(2) the
current status of any ongoing audit or agreed-upon procedures work;
(3) any
obstacles encountered by the agency in completing its audit or agreed-upon
procedures; and
(4) a projected
completion date for the financial audit or agreed-upon procedures report.
[2.2.2.9 NMAC - Rp,
2 2.2.9 NMAC, 2/27/2018]
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 the component units of the primary government, if any.
(a) The
primary government shall determine whether an agency that is a separate legal entity
from the primary government is a component unit of the primary government as
defined by GASBS 14, 39, 61, and 80 (as amended). The flowchart at GASBS 61.68 may be useful in
making this determination. The primary
government shall notify all other agencies determined to be component units by
September 15 of the subsequent fiscal year. Failure to meet this due date results in a
compliance finding. All agencies that
meet the criteria to be a component unit of the primary government shall be
included with the audited financial statements of the primary government by
discrete presentation unless otherwise approved by the state auditor. An exemption shall be requested by the primary
government, 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 shall include a detailed explanation,
conclusion and supporting documentation justifying the request for blended
component unit presentation. Documentation
of the state auditor’s approval of the blended component unit presentation
shall accompany the bound hard copy of the report submitted to OSA for review. Component units are reported using the
government financial reporting format if they have one or more of the
characteristics described at AAG SLV 1.01. If a component unit does not qualify to be
reported using the governmental format, that fact shall 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 shall be disclosed in
the notes to the financial statements (summary of significant accounting policies:
financial reporting entity). If the
primary government has component units that are not included in the financial
statements due to materiality, that fact shall also be disclosed in the notes. However, if the primary government is a state
agency, department, board, public institution of higher education, public
post-secondary educational institution, county, municipality or public school
district, Section 6-5A-1 NMSA 1978 requires all 501(c)3 component unit
organizations with a gross annual income in excess of two hundred fifty
thousand dollars (250,000) to be audited annually. This statutory requirement does not set a
universal materiality threshold for purposes of the performing audits subject
to this rule.
(c) The
state auditor requires component unit(s) to be audited by the same audit firm
that audits the primary government (except for public housing authority
component units that are statutorily exempt from this requirement, and the
statewide CAFR). Requests for exemption
from this requirement shall be submitted in writing by the primary government
to the state auditor. If the request to
use a different auditor for the component unit is approved in writing by the state
auditor, the following requirements shall be met:
(i) the IPAs of the
primary government and all component units shall consider and comply with the
requirements of AU-C 600;
(ii) the group
engagement partner shall agree that the group engagement team will be able to
obtain sufficient appropriate audit evidence through the use of the group
engagement team’s work or use of the work of the component auditors (AU-C 600.15);
(iii) the component
unit auditor selected shall appear on the OSA list of approved IPAs;
(iv) all bid and
auditor selection processes shall comply with the requirements of this rule;
(v) the OSA standard
contract form shall be used by both the primary government and the component
unit;
(vi) the primary government,
the primary engagement partner, management of the component unit, and the
component unit auditor shall all coordinate their efforts to ensure that the
audit reports of the component unit and the primary government are submitted by
the applicable due dates;
(vii) all component unit
findings shall be disclosed in the primary government’s audit report (except
the statewide CAFR which shall include only component unit findings that are
significant to the state as a whole); and
(viii) any separately issued
component unit financial statements and associated auditors’ reports shall be
submitted to the state auditor by the due date in Subsection A of Section 2.2.2.9
NMAC for the review process described in Subsection A of Section 2.2.2.13 NMAC.
(d) With
the exception of the statewide CAFR, the following SI pertaining to component
units for which separately issued financial statements are not available shall be
audited and opined on as illustrated in AAG SLV 16.103 example A-15: financial statements for each of the component
unit’s major funds, combining and individual fund financial statements for all of
the component unit’s non-major funds, and budgetary comparison statements for
the component unit’s general fund and major special revenue funds that have
legally adopted annual budgets (AAG SLV 3.22).
(2) Audits
of agencies shall be comprised of a financial and compliance audit of the
financial statements and schedules as follows:
(a) The
level of planning materiality described at AAG SLV 4.72-4.73 and exhibit 4.1 shall
be used. Planning materiality for
component units is at the individual component unit level.
(b) The
scope of the audit includes the following statements and disclosures which the
auditor shall audit and give an opinion on. The basic financial statements (as defined by
GASB and displayed in AAG SLV exhibit 4.1) consisting of:
(i) the
governmental activities, the business-type activities, and the aggregate
discretely presented component units;
(ii) each major fund
and the aggregate remaining fund information;
(iii) budgetary
comparison statements for the general fund and major special revenue funds that
have legally adopted annual budgets (when budget information is available on
the same fund structure basis as the GAAP fund structure, the state auditor
requires that the budgetary comparison statements be included as part of the
basic financial statements consistent with GASBS 34 fn. 53, as amended, and AAG
SLV 11.13); and
(iv) the related notes to the financial statements.
(c) Budgetary
comparison statements for the general fund and major special revenue funds
presented on a fund, organization, or program structure basis because the
budgetary information is not available on the GAAP fund structure basis for
those funds shall be presented as RSI pursuant to GASBS 41.
(d) The
auditor shall apply procedures and report in the auditor’s report on the
following RSI (if applicable) pursuant to AU-C 730:
(i) management’s discussion
and analysis (GASBS 34.8-.11);
(ii) RSI data
required by GASBS 67 and 68 for defined benefit pension plans;
(iii) RSI schedules
required by GASBS 43 and 74 for postemployment benefit plans other than pension
plans;
(iv) RSI schedules
required by GASBS 45 and 75 regarding employer accounting and financial
reporting for postemployment benefits other than pensions; and
(v) infrastructure
modified approach schedules derived from asset management systems (GASBS 34.132-133).
(e) The
audit engagement and audit contract compensation include an AU-C 725 opinion on
the SI schedules presented in the audit report. The auditor shall subject the information on
the SI schedules to the procedures required by AU-C 725. The auditor shall report on the remaining SI
in an other-matter paragraph following the opinion paragraph in the auditor’s
report on the financial statements pursuant to AU-C 725. With the exception of
the statewide CAFR, the following SI schedules are required to be included in
the AU-C 725 opinion if the schedules are applicable to the agency:
(i) primary
government combining and individual fund financial statements for all non-major
funds (GASBS 34.383);
(ii) the
schedule of expenditures of federal awards required by uniform guidance;
(iii) the schedule of
pledged collateral required by Subsection P of Section 2.2.2.10 NMAC;
(iv) the schedule
of changes in assets and liabilities for agency funds required by Subsection X
of Section 2.2.2.10 NMAC;
(v) the financial
data schedule (FDS) of housing authorities pursuant to Subsection B of 2.2.2.12
NMAC;
(vi) the school
district schedule of cash reconciliation required by Subsection C of 2.2.2.12
NMAC. In addition, the school district schedule
of cash reconciliation SI shall be subjected to audit procedures that ensure
the cash per the schedule reconciles to the PED reports as required by Subsection
C of 2.2.2.12 NMAC;
(vii) the indigent
care schedules for hospitals pursuant to Subsection F of 2.2.2.12 NMAC; and
(viii) any other SI schedule
required by this rule.
(f) The agency
shall prepare a schedule of vendors using the form and instructions available
on www.saonm.org, for procurements
exceeding sixty thousand dollars ($60,000) (excluding gross receipts tax) that
occurred during the audited fiscal year, that includes the following
information: request for bid or request for proposal number; type of
procurement, for example, request for proposal (RFP), sole source, etc.; the
names and physical addresses of all vendors that responded to requests for bids
or requests for proposals during the fiscal year; whether each vendor received
the award; dollar amount of the awarded contract; dollar amount of any contract
amendment during the fiscal year that caused a previously awarded contract to
exceed sixty thousand dollars ($60,000) (excluding gross receipts tax); whether
each responding vendor was an in-state vendor or an out-of-state vendor (based
on the statutory definition); if the vendor was in-state and chose the
veterans’ preference instead of the in-state preference (this is n/a for
federal funds); and a short description of the scope of work. The schedule shall include all contracts
totaling over sixty thousand dollars ($60,000) (excluding gross receipts tax)
regardless of whether related expenditures exceeded sixty thousand dollars ($60,000)
during the fiscal year and regardless of procurement method. Exclude information on a multi-year
procurement that occurred in a prior year unless there was a contract amendment
during the current fiscal year that caused the previously existing contract to
exceed sixty thousand dollars ($60,000) for the first time. Exclude procurements that agencies performed
based on statewide pricing agreements obtained by general services department
(GSD) or cooperative educational services from the schedule. However, agencies like GSD and cooperative educational
services that perform procurement services for other agencies that result in
price agreements shall disclose all their procurements in their vendor
schedules in their own audit reports, including procurements that resulted in
price agreements. The IPA shall submit
an electronic excel version of the vendor schedule using the form provided by
the OSA with the final PDF version of the audit report as required by Subsection
B of Section 2.2.2.9 NMAC. The GAO may aggregate, analyze and publish vendor
schedule information.
B. Governmental auditing, accounting and
financial reporting standards: The audits shall be conducted in accordance
with:
(1) the
most recent revision of GAGAS issued by the United States government accountability
office;
(2) U.S.
auditing standards-AICPA (clarified);
(3) uniform
administrative requirements, cost principles, and audit requirements for
federal awards (uniform guidance);
(4) AICPA
audit and accounting guide, government auditing standards and single audits,
(AAG GAS) latest edition;
(5) AICPA
audit and accounting guide, state and local governments (AAG SLV) latest
edition; and
(6) 2.2.2
NMAC, requirements for contracting and conducting audits of agencies, latest
edition.
C. Financial statements and notes to the
financial statements: The financial statements and notes to the
financial statements shall be prepared in accordance with accounting principles
generally accepted in the United States of America. Governmental accounting principles are
identified in the government accounting standards board (GASB) codification,
latest edition. IPAs shall follow
interpretations, technical bulletins, and concept statements issued by GASB,
other applicable pronouncements, and GASB illustrations and trends for
financial statements. In addition to the
revenue classifications required by NCGAS 1.110, the OSA requires that the
statement of revenues, expenditures, and changes in fund balance - governmental
funds include classifications for intergovernmental revenue from federal
sources and intergovernmental revenue from state sources, as applicable.
D. Requirements for preparation of
financial statements:
(1) The
financial statements presented in audit reports shall be prepared from the
agency's books of record and contain amounts rounded to the nearest dollar.
(2) The
financial statements are the responsibility of the agency. The agency shall maintain adequate accounting
records, prepare financial statements in accordance with accounting principles
generally accepted in the United States of America, and provide complete,
accurate, and timely information to the IPA as requested to meet the audit
report due date imposed in Subsection A of Section 2.2.2.9 NMAC.
(3) If
there are differences between the financial statements and the books, the IPA shall
provide to the agency the adjusting journal entries and the supporting
documentation that reconciles the financial statements in the audit report to
the books.
(4) If
the IPA prepared the financial statements for management’s review and approval,
including documenting independence safeguards as required by GAGAS 3.59, the
fact that the auditor prepared the financial statements shall be disclosed on
the exit conference page of the audit report.
If the IPA prepared the financial statements, the auditor shall
determine whether an audit finding shall be reported in accordance with AU-C
265.
E. Audit documentation requirements:
(1) The
IPA’s audit documentation shall be retained for a minimum of five years from
the date shown on the opinion letter of the audit report or longer if requested
by the federal oversight agency, cognizant agency, or the state auditor. The state auditor shall have access to the
audit documentation at the discretion of the state auditor.
(2) When
requested by the state auditor, all of the audit documentation shall be
delivered to the state auditor by the due date indicated in the request.
(3) The
audit documentation of a predecessor IPA shall be made available to a successor
IPA in accordance with AU-C 510.07 and 510.A3 to 510.A11, and the predecessor
auditor’s contract. Any photocopy costs
incurred shall be borne by the requestor. If the successor IPA finds that the
predecessor IPA’s audit documentation does not comply with applicable auditing
standards and this rule, or does not support the financial data presented in
the audit report, the successor IPA shall notify the state auditor in writing
specifying all deficiencies. If the
state auditor determines that the nature of deficiencies indicate that the
audit was not performed in accordance with auditing or accounting standards
generally accepted in the United States of America and related laws, rules and
regulations and this rule, any or all of the following actions may be taken:
(a) the
state auditor may require the predecessor IPA firm to correct its working
papers and reissue the audit report to the agency, federal oversight or
cognizant agency and any others receiving copies;
(b) the
state auditor may deny or limit the issuance of future audit contracts; or
(c) the
state auditor may refer the predecessor IPA to the New Mexico public
accountancy board for possible licensure action.
F. Auditor communication requirements:
(1) The IPA
shall comply with the requirements for auditor communication with those charged
with governance as set forth in AU-C 260 and GAGAS 4.03 and 4.04.
(2) After
the agency and IPA have an approved audit contract in place, the IPA shall
prepare a written and dated engagement letter during the planning stage of a
financial audit, addressed to the appropriate officials of the agency, keeping
a copy of the signed letter as part of the audit documentation. In addition to meeting the requirements of
the AICPA professional standards and the GAGAS requirements, the engagement
letter shall state that the engagement shall be performed in accordance with Section
2.2.2 NMAC.
(3) The audit
engagement letter shall not include any fee contingencies. The engagement letter shall not be
interpreted as amending the contract.
Nothing in the engagement letter can impact or change the amount of
compensation for the audit services.
Only a contract amendment submitted pursuant to Subsection N of Section 2.2.2.8
NMAC may amend the amount of compensation for the audit services set forth in
the contract.
(4) A separate
engagement letter and list of client prepared documents is required for each
fiscal year audited. The IPA shall
provide a copy of the engagement letter and list of client prepared documents
immediately upon request from the state auditor.
(5) The
IPA shall conduct an audit entrance conference with the agency. The OSA has the authority to notify the agency
or IPA that the state auditor shall be informed of the date of the entrance
conference, any progress meetings and the exit conference. If such notification is received, the IPA and
agency shall invite the state auditor or his designee to attend all such
conferences no later than 72 hours before the proposed conference or meeting.
(6) All
communications with management and the agency’s oversight officials during the
audit, regarding any instances of non-compliance or internal control
weaknesses, shall be made in writing.
The auditor shall obtain and report the views of responsible officials
of the audited agency concerning the audit findings, pursuant to GAGAS
4.33. Any violation of law or good
accounting practice, including instances of non-compliance or internal control
weaknesses, shall be reported as audit findings per Section 12-6-5NMSA
1978. Separate management letter comments
shall not be issued as a substitute for such findings.
G. Reverting or non-reverting funds: Legislation can
designate a fund as reverting or non-reverting.
The IPA shall review the state law that appropriated funds to the agency
to confirm whether any unexpended, unencumbered balance of a specific
appropriation shall be reverted and to whom. The law may also indicate the due date for the
required reversion. Appropriate audit
procedures shall be performed to evaluate compliance with the law and accuracy
of the related liability account balances due to other funds, governmental
agencies, or both. The financial
statements and the accompanying notes shall fully disclose the reverting or
non-reverting status of a fund or appropriation. The financial statements shall disclose the
specific legislation that makes a fund or appropriation non-reverting and any
minimum balance required. If
non-reverting funds are commingled with reverting appropriations, the notes to
the financial statements shall disclose the methods and amounts used to
calculate reversions. For more
information regarding state agency reversions, see Subsection A of Section 2.2.2.12
NMAC and the department of finance and administration (DFA) white papers “calculating
reversions to the state general fund,” and “basis of accounting-modified accrual
and the budgetary basis.” The statewide
CAFR is exempt from this requirement.
H. Referrals and Risk
Advisories: The Audit Act (Section 12-6-1 et seq. NMSA 1978)
states that “the financial affairs of every agency shall be thoroughly examined
and audited each year by the state auditor, personnel of the state auditor’s
office designated by the state auditor or independent auditors approved by the
state auditor.” (Section 12-6-3 NMSA 1978). Further, audits of New Mexico governmental
agencies “shall be conducted in accordance with generally accepted auditing
standards and rules issued by the state auditor.” (Section 12-6-3 NMSA 1978).
(1) In an effort
to ensure that the finances of state and local governments are thoroughly
examined, OSA may provide IPAs with written
communications to inform the IPA that OSA received information that suggests elevated
risk in specific areas relevant to a particular agency’s annual financial and
compliance audit. These communications shall
be referred to as “referrals.” Referrals
may relate to any topic relevant to the scope of the annual financial and
compliance audit. IPAs shall take the circumstances described in OSA referral
communications into account in their risk assessment and perform such
procedures as, in the IPA’s professional judgment, are necessary to determine
what further action, if any, in the form of additional disclosure, findings and
recommendations are appropriate in connection with the annual audit of the agency.
After the conclusion of fieldwork but at
least 14 days prior to submitting the draft annual audit report to the OSA for
review, IPAs shall provide written confirmation to the OSA that the IPA took
appropriate action in response to the referral. This written confirmation shall respond to all
aspects of the referral and list any findings associated with the subject
matter of the referral. IPAs shall
retain adequate documentation in the audit workpapers to support the written
confirmation to OSA that the IPA took appropriate action in response to the
referral. As outlined in Section 2.2.2.13
NMAC the OSA may review IPA workpapers associated with the annual audit of any
agency. OSA workpaper review procedures shall
include examining the IPA documentation associated with referrals. Insufficient or inadequate documentation may
result in deficiencies noted in the workpaper review letter and may negatively
impact the IPA during the subsequent firm profile review process. In accordance with Subsection D of Section 2.2.2.8
NMAC IPAs may be placed on restriction if an IPA refuses to comply with OSA
referrals in a timely manner.
(2) OSA
may issue written communications to inform agencies and IPAs that OSA received
information that suggests elevated risk in specific areas relevant to the
annual financial and compliance audits of some agencies. These communications shall be referred to as
“risk advisories.” Risk advisories shall
be posted on the OSA website in the following location:
https://www.saonm.org/risk_advisories. Risk
advisories may relate to any topic relevant to annual financial and compliance
audits of New Mexico agencies. IPAs
shall take the circumstances described in OSA risk advisories into account in
their risk assessment and perform such procedures and testwork as, in the IPA’s
professional judgment, are necessary to determine what further action, if any,
in the form of disclosure, findings and recommendations are appropriate in
connection with the annual audit of the agency.
I. State auditor workpaper requirement: The state auditor requires that audit
workpapers include a written audit program for fund balance and net position
that includes tests for proper classification of fund balance pursuant to GASBS
54 and proper classification of net position pursuant to GASBS 34.34-.37 (as
amended) and GASBS 46.4-.5 (as amended).
J. State compliance audit
requirements: An IPA shall identify significant state
statutes, rules and regulations applicable to the agency under audit and
perform tests of compliance. In
designing tests of compliance, IPAs may reference AU-C 250 relating to
consideration of laws and regulations in an audit of financial statements and
AU-C 620 relating to using the work of an auditor’s specialist. As discussed in AU-C 250.A23, in situations
where management or those charged with governance of the agency, or the
agency’s in-house or external legal counsel, do not provide sufficient
information to satisfy the IPA that the agency is in compliance with an
applicable requirement, the IPA may consider it appropriate to consult the
IPA’s own legal counsel. AU-C 620.06 and
620.A1 discuss the use of an auditor’s specialist in situations where expertise
in a field other than accounting or auditing is necessary to obtain sufficient,
appropriate audit evidence, such as the interpretation of contracts, laws and
regulations. In addition to the
significant state statutes, rules and regulations identified by the IPA, compliance
with the following shall be tested if applicable (with the exception of the
statewide CAFR audit):
(1) Procurement
Code, Sections 13-1-1 to 13-1-199 NMSA 1978 including providing the state purchasing
agent with the name of the agency’s chief procurement officer, pursuant to Section
13-1-95.2 NMSA 1978, and Procurement Code Regulations, Section 1.4.1 NMAC, or home
rule equivalent.
(2) Per
Diem and Mileage Act, Sections 10-8-1 to 10-8-8 NMSA 1978, and Regulations Governing
the Per Diem and Mileage Act, Section 2.42.2 NMAC.
(3) Public
Money Act, Sections 6-10-1 to 6-10-63 NMSA 1978, including the requirements
that county and municipal treasurers deposit money in their respective
counties, and that the agency receive a joint safe keeping receipt for pledged
collateral.
(4) Public
School Finance Act, Sections 22-8-1 to 22-8-48 NMSA 1978.
(5) Investment
of Public Money Act, Sections 6-8-1 to 6-8-25 NMSA 1978.
(6) Public
Employees Retirement Act, Sections 10-11-1 to 10-11-142 NMSA 1978. IPAs shall
test to ensure one hundred percent of payroll is reported to PERA. PERA membership is mandatory, unless
membership is specifically excluded pursuant to Subsection B of Section 10-11-3
NMSA 1978.
(7) Educational
Retirement Act, Sections 22-11-1 to 22-11-55 NMSA 1978.
(8) Sale
of Public Property Act, Sections 13-6-1 to 13-6-8 NMSA 1978.
(9) Anti-Donation
Clause, Article IX, Section 14, New Mexico Constitution.
(10) Special,
Deficiency, and Supplemental Appropriations (appropriation laws applicable for
the year under audit).
(11) State
agency budget compliance with Sections 6-3-1 to 6-3-25 NMSA 1978, and local
government compliance with Sections 6-6-1 to 6-6-19 NMSA 1978.
(12) Lease
purchase agreements, Article IX, Sections 8 and 11, New Mexico Constitution; Sections
6-6-11 to 6-6-12 NMSA 1978; Montano v. Gabaldon, 108 NM 94, 766 P.2d 1328,
1989).
(13) Accounting
and control of fixed assets of state government, Sections 2.20.1.1 to 2.20.1.18
NMAC, (updated for GASBS 34 as applicable).
(14) Requirements
for contracting and conducting audits of agencies, Section 2.2.2 NMAC.
(15) Article
IX of the state constitution limits on indebtedness.
(16) Any
law, regulation, directive or policy relating to an agency’s use of gasoline
credit cards, telephone credit cards, procurement cards, and other
agency-issued credit cards.
(17) Retiree
Health Care Act, Sections 10-7C-1 to 10-7C-19 NMSA 1978. IPAs shall test to ensure one hundred percent of
payroll is reported to NMRHCA. NMRHCA
employer and employee contributions are set forth in Section 10-7C-15 NMSA
1978.
(18) Governmental
Conduct Act, Sections 10-16-1 to 10-16-18 NMSA 1978.
(19) School
Personnel Act, Sections 22-10A-1 to 22-10A-39 NMSA 1978.
(20) School
Athletics Equity Act, Sections 22-31-1 to 22-31-6 NMSA 1978. IPAs shall test whether the district has
submitted the required school-district-level reports, but no auditing of the
reports or the data therein is required.
K. Federal
requirements: IPAs shall conduct
their audits in accordance with the requirements of the following government
pronouncements and shall test federal compliance audit requirements as
applicable:
(1) government
auditing standards (GAGAS) issued by the United States government accountability
office, most recent revision;
(2) uniform
administrative requirements, cost principles, and audit requirements for federal
awards;
(3) compliance
supplement, latest edition;
(4) catalog
of federal domestic assistance (CFDA), latest edition; and
(5) internal
revenue service (IRS) employee
income tax requirements. IRS Publication
15-B, employer’s tax guide to fringe benefits, available online, provides
detailed information regarding the taxability of fringe benefits.
L. Audit finding requirements:
(1) Communicating
findings: IPAs shall communicate findings in accordance with generally accepted
auditing standards and the requirements of GAGAS 4.23. All finding reference numbers shall follow a
standard format with the four digit audit year, a hyphen and a three digit
sequence number (e.g. 2013-001, 2013-002…2013-999). All prior year findings shall include all
finding numbers used under historical numbering systems in brackets, following
the current year finding reference number, to enable the report user to see
what year the finding originated and how it was identified in previous years. Finding reference numbers for single audit
findings reported on the data collection form shall match those reported in the
schedule of findings and questioned costs and the applicable auditor’s report. Depending on the IPA’s classification of the
finding, the finding reference number shall be followed by one of the following
descriptions: “material weakness”; “significant deficiency”; “material
non-compliance”; “other non-compliance”; or “findings that do not rise to the
level of a significant deficiency.”
(a) IPAs
shall evaluate deficiencies to determine whether individually or in combination
they are significant deficiencies or material weaknesses in accordance with
AU-C 260.
(b) Findings
that meet the requirements described in AAG GAS 4.12 shall be included in the
report on internal control over financial reporting and on compliance and other
matters based on an audit of financial statements performed in accordance with government
auditing standards. AAG GAS 13.35 table
13-2 provides guidance on whether a finding shall be included in the schedule
of findings and questioned costs.
(c) Section
12-6-5NMSA 1978 requires that “each report set out in detail, in a separate section,
any violation of law or good accounting practices found by the audit or
examination.” When auditors detect
violations law or good accounting practices that shall be reported per Section 12-6-5NMSA
1978, but that do not rise to the level of significant deficiencies or material
weaknesses, such findings are considered to warrant the attention of those
charged with governance due to the statutory reporting requirement. The auditor shall communicate such violations
in the “compliance and other matters” paragraph in the report on internal
control over financial reporting and on compliance and other matters based on
an audit of financial statements performed in accordance with government
auditing standards. Findings required by
Section 12-6-5NMSA 1978 shall be presented in a separate schedule of findings
labeled “Section 12-6-5NMSA 1978 findings”. This schedule shall be placed in the back of
the audit report following the financial statement audit and federal award
findings. Per AAG GAS 13.48 there is no
requirement for such findings to be included or referenced in the uniform
guidance compliance report.
(d) Each audit
finding (including current year and unresolved prior-year findings) shall
specifically state and describe the following:
(i) condition
(provides a description of a situation that exists and includes the extent of
the condition and an accurate perspective, the number of instances found, the
dollar amounts involved, if specific amounts were identified, and for repeat findings, management’s progress
or lack of progress towards implementing the prior year planned corrective
actions);
(ii) criteria
(identifies the required or desired state or what is expected from the program
or operation; cites the specific section of law, regulation, ordinance,
contract, or grant agreement if applicable);
(iii) effect
(the logical link to establish the impact or potential impact of the difference
between the situation that exists (condition) and the required or desired state
(criteria); demonstrates the need for corrective action in response to
identified problems or relevant risks);
(iv) cause
(identifies the reason or explanation for the condition or the factors
responsible for the difference between what the auditors found and what is
required or expected; the cause serves as a basis for the recommendation);
(v) recommendation
addressing each condition and cause; and
(vi) agency
response (the agency’s comments about the finding, including specific planned corrective actions with a timeline and
designation of what employee position(s) are responsible for meeting the
deadlines in the timeline).
(e) Uniform
guidance regarding single audit findings (uniform guidance 200.511): The
auditee is responsible for follow-up and corrective action on all audit
findings. As a part of this
responsibility, the auditee shall prepare a summary schedule of prior audit
findings and a corrective action plan for current year audit findings in
accordance with the requirements of uniform guidance 200.511. The corrective action plan and summary
schedule of prior audit findings shall include findings relating to the
financial statements which shall be reported in accordance with GAGAS. The summary schedule of prior year findings
and the corrective action plan shall be included in the reporting package
submitted to the federal audit clearinghouse (AAG GAS 13.48 fn 38). In addition to being included in the agency
response to each audit finding, the corrective action plan shall be provided on
the audited agency’s letterhead in a document separate from the auditor’s
findings. (COFAR frequently asked questions on the office of management and
budget’s uniform administrative requirements, cost principles, and audit
requirements for federal awards at 2 CFR 200, Section 511-1).
(2) Prior
year findings:
(a) IPAs
shall comply with the requirements of GAGAS Section 4.05 relating to findings
and recommendations from previous audits and attestation engagements. In addition, IPAs shall report the status of all prior-year findings and all findings from special audits
performed under the oversight of the state auditor in the current year audit
report in a summary schedule of prior year audit findings. The summary schedule of prior year audit findings
shall include the prior year finding number, the title, and whether the finding
was resolved, repeated, or repeated and modified in the current year. No other information shall be included in the
summary schedule of prior year audit findings. All findings from special audits performed
under the oversight of the state auditor shall be included in the findings of
the annual financial and compliance audits of the related fiscal year.
(b) Uniform
guidance regarding single audit prior year findings (uniform guidance 200.511):
The auditor shall follow up on prior
audit findings, perform procedures to assess the reasonableness of the summary
schedule of prior audit findings prepared by the auditee in accordance with the
uniform guidance, and report, as a current-year audit finding, when the auditor
concludes that the summary schedule of prior audit findings materially
misrepresents the status of any prior audit finding (AAG GAS 13.51).
(3) Current-year
audit findings: Written audit findings
shall be prepared and submitted to management of the agency as soon as the IPA
becomes aware of the findings so the agency has time to respond to the findings
prior to the exit conference. The agency
shall prepare “planned corrective actions” as required by GAGAS 4.33. The agency shall respond, in writing, to the
IPA’s audit findings within 10 business days. Lack of agency responses within the 10
business days does not warrant a delay of the audit report. The agency’s responses to the audit findings
and the “planned corrective actions” shall be included in the finding after the
recommendation. If the IPA disagrees
with the management’s comments in response to a finding, they may explain in
the report their reasons for disagreement, after the agency’s response (GAGAS
4.38). 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.”
(4) If
appropriate in the auditor’s professional judgment, failure to submit the
completed audit contract to the OSA by the due date at Subsection F of Section 2.2.2.8
NMAC may be reported as a current year compliance finding.
(5) If
an agency has entered into any professional services contract with the IPA who
performs the agency’s annual financial audit, or the scope of work on any
professional services contract relates to fraud, waste, or abuse, and the
contract was not approved by the state auditor, the IPA shall report a finding
of non-compliance with Subsection L of Section 2.2.2.8 NMAC.
(6) If
an agency subject to the procurement code failed to meet the requirement to
have a certified chief procurement officer during the fiscal year, the IPA
shall report a finding of non-compliance with Section 1.4.1.94 NMAC.
(7) Component
unit audit findings shall be reported in the primary government’s financial
audit report. This is not required for
the statewide CAFR unless a finding of a legally separate component unit is
significant to the state as a whole.
(8) Except
as discussed in Subsections A and E of Section 2.2.2.12 NMAC, release of any
portion of the audit report by the IPA or agency prior to being officially
released by the state auditor is a violation of Section 12-6-5NMSA 1978 and
requires a compliance finding in the audit report.
(9) In
the event that an agency response to a finding indicates in any way that the OSA
is the cause of the finding, the OSA may require that a written response from
the OSA be included in the report, below the other responses to that finding.
M. Exit conference and related confidentiality
issues:
(1) The
IPA shall hold an exit conference with representatives of the agency's
governing authority and top management including representatives of any
component units (housing authorities, charter schools, hospitals, foundations,
etc.) if applicable. The OSA has the
authority to notify the agency or IPA that the state auditor shall be informed
of the date of the entrance conference, any progress meetings and the exit
conference. If such notification is received, the IPA and agency shall 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 shall be held
with the component unit's governing authority and top management. Unless the cost of the audit is five thousand
dollars ($5,000) or less (excluding GRT), the exit conference shall be held in
person; a telephone or webcam exit conference shall not meet this requirement. If extraordinary circumstances exist that
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 seven days prior to the scheduled exit conference. The written request for the exemption shall
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 if the cost of the audit is greater than five thousand dollars ($5,000).
The date of the exit conference(s) and
the names and titles of personnel attending shall be stated in the last page of
the audit report.
(2) The
IPA, with the agency’s cooperation, shall provide to the agency for review a
draft of the audit report (stamped “draft”), a list of the “passed audit
adjustments,” and a copy of all the adjusting journal entries at or before the
exit conference. The draft audit report
shall include, at minimum, the following elements: independent auditor’s report,
basic financial statements, audit findings, summary schedule of prior year
audit findings, and the reports on internal control and compliance required by government
auditing standards and uniform guidance.
(3) Agency
personnel and the agency’s IPA shall not release information to the public
relating to the audit until the audit report is released by the OSA, and has
become a public record.
(4) Once
the audit report is officially released to the agency by the state auditor (by
a release letter) and the required waiting period of five calendar days has
passed, unless waived by the agency in writing, the audit report shall be
presented by the IPA, to a quorum of the governing authority of the agency at a
meeting held in accordance with the Open Meetings Act, if applicable. This requirement only applies to agencies with
a governing authority, such as a board of directors, board of county
commissioners, or city council, which is subject to the Open Meetings Act. The IPA shall ensure that the required
communications to those charged with governance are made in accordance with
AU-C 260.12 to 260.14.
(5) At
all times during the audit and after the audit report becomes a public record,
the IPA shall follow applicable standards and Section 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 4.30-32 and GAGAS 4.40-.44.
N. Possible violations of criminal statutes in
connection with financial affairs:
(1) IPAs
shall comply with the requirements of GAGAS 4.06-.09 relating to fraud,
noncompliance with provisions of laws, regulations, contracts and grant
agreements, and abuse. Relating to
contracts and grant agreements, IPAs shall extend the AICPA requirements
pertaining to the auditors’ responsibilities for laws and regulations to also
apply to consideration of compliance with provisions of contracts or grant
agreements. Concerning abuse, if an IPA becomes
aware of abuse that could be quantitatively, or qualitatively material to the
financial statements or other financial data significant to the audit
objectives, the IPA shall apply audit procedures specifically directed to
ascertain the potential effect on the financial statements or other financial
data significant to the audit objectives.
(2) Pursuant
to Section 12-6-6 NMSA 1978 (criminal violations), an agency 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. The state auditor may cause the financial
affairs and transactions of the agency to be audited in whole or in part
pursuant to Section 12-6-3 NMSA 1978 and Section 2.2.2.15 NMAC. If the state auditor does not designate an
agency for audit, an agency shall follow the provisions of Section 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) In
accordance with Section 12-6-6 NMSA 1978, the state auditor, immediately upon
discovery of any violation of a criminal statute in connection with financial
affairs, shall report the violation to the proper prosecuting officer and
furnish the officer with all data and information in his possession relative to
the violation.
O. Special revenue funds authority: The authority for
creation of special revenue funds and any minimum balance required shall be
shown in the audit report (i.e., cite the statute number, code of federal
regulation, executive order, resolution number, or other specific authority) on
the divider page before the combining financial statements or in the notes to
the financial statements. This
requirement does not apply to the statewide CAFR.
(1) All
monies coming into all agencies (i.e., vending machines, fees for photocopies,
telephone charges, etc.) shall be considered public monies and be accounted for
as such. For state agencies, all
revenues generated shall be authorized by legislation (MAPS FIN 11.4).
(2) If
the agency has investments in
securities and derivative instruments, the
IPA shall comply with the requirements of AU-C 501.04-.10. If the IPA elects to use the work of an
auditor’s specialist to meet the requirements of AU-C 501, the requirements of AU-C
620 shall also be met.
(3) Pursuant
to Section 12-6-5NMSA 1978, each audit report shall include a list of
individual deposit and investment accounts held by the agency. The information presented in the audit report
shall include at a minimum:
(a) name
of depository (i.e., bank, credit union, state treasurer, state investment council,
etc.);
(b) account
name;
(c) type
of deposit or investment account (also required in separate component unit
audit reports):
(i) types of
deposit accounts include non-interest bearing checking, interest bearing
checking, savings, money market accounts, certificates of deposit, etc.;
(ii) types of
investment accounts include state treasurer general fund investment pool
(SGFIP), state treasurer local government investment pool (LGIP), U.S. treasury
bills, securities of U.S. agencies such as Fannie Mae (FNMA), Freddie Mac (FHLMC),
government national mortgage association (GNMA), Sallie Mae, small business administration
(SBA), federal housing administration (FHA), etc.
(d) account balance
of deposits and investments as of the balance sheet date;
(e) reconciled
balance of deposits and investments as of the balance sheet date as reported in
the financial statements; and
(f) for state
agencies only, statewide human resources accounting and management reporting
system (SHARE) fund number. In auditing the balance of a state agency’s
investment in the SGFIP, the IPA shall review the individual state agency’s
cash reconciliation procedures and determine whether those procedures would
reduce the agency’s risk of misstatement in the investment in SGFIP, and
whether the agency is actually performing those procedures. The IPA shall also take into consideration the
complexity of the types of cash transactions that the state agency enters into
and whether the agency processes its deposits and payments through SHARE. The IPA shall use professional judgment to
determine each state agency’s risk of misstatement in the investment in the
SGFIP and write findings and modify opinions as deemed appropriate by the IPA. The state auditor requires the IPAs auditing
cash of state agencies to obtain a confirmation of cash at the individual
agency level from STO.
(4) Pledged
collateral:
(a) All
audit reports shall disclose applicable collateral requirements in the notes to
the financial statements. In addition, there shall be a supplementary schedule
or note to the financial statements that discloses the collateral pledged by
each depository for public funds. The
schedule or note shall disclose the type of security (i.e., bond, note,
treasury, bill, etc.), security number, committee on uniform security
identification procedures (CUSIP) number, fair market value and maturity date.
(b) Pursuant
to Section 6-10-17 NMSA 1978, the pledged collateral for deposits in banks and
savings and loan associations shall have an aggregate value equal to one-half
of the amount of public money held by the depository. If this requirement is
not met the audit report shall include a finding. No security is required for the deposit of
public money that is insured by the federal deposit insurance corporation
(FDIC) or the national credit union administration (NCUA) in accordance with Section
6-10-16 NMSA 1978. Collateral
requirements shall be calculated separately for each bank and disclosed in the
notes.
(c) All
applicable GASB 40 disclosure requirements relating to deposit and investment
risk shall be met. In accordance with GASBS 40.8, relating to custodial credit
risk, the notes to the financial statements shall disclose the dollar amount of
deposits subject to custodial credit risk, and the type of risk the deposits
are exposed to. To determine compliance
with the fifty percent pledged collateral requirement of Section 6-10-17 NMSA
1978, the disclosure shall include the dollar amount of each of the following
for each financial institution: fifty percent pledged collateral requirement
per statute, total pledged collateral, uninsured and uncollateralized.
(d) Repurchase
agreements shall be secured by pledged collateral having a market value of at
least one hundred two percent of the contract per Subsection H of Section 6-10-10
NMSA 1978. To determine compliance with
the one hundred two percent pledged collateral requirement of Section 6-10-10
NMSA 1978, the disclosure shall include the dollar amount of each of the
following for each repurchase agreement: one hundred two percent pledged collateral
requirement per statute, total pledged collateral.
(e) Per Section 6-10-16.A
NMSA 1978, “deposits of public money shall be secured by: securities of the
United States, its agencies or instrumentalities; securities of the state of
New Mexico, its agencies, instrumentalities, counties, municipalities or other
subdivisions; securities, including student loans, that are guaranteed by the
United States or the state of New Mexico; revenue bonds that are underwritten
by a member of the financial industry regulatory authority (known as FINRA),
and are rated “BAA” or above by a nationally recognized bond rating service; or
letters of credit issued by a federal home loan bank.”
(f) Securities
shall be accepted as security at market value pursuant to Subsection C of Section
6-10-16 NMSA 1978.
(g) State
agency investments in the state treasurer’s general fund investment pool do not
require disclosure of specific pledged collateral for amounts held by the state
treasurer. However, the notes to the
financial statements shall refer the reader to the state treasurer’s separately
issued financial statements which disclose the collateral pledged to secure state
treasurer cash and investments.
(h) If
an agency has other “authorized” bank accounts, pledged collateral information shall
be obtained from the bank and disclosed in the notes to the financial
statements. The state treasurer monitors
pledged collateral related to most state agency bank accounts. State agencies should not request the pledged
collateral information from the state treasurer. In the event pledged collateral information
specific to the state agency is not available, the following note disclosure shall
be made: detail of pledged collateral specific to this agency is unavailable
because the bank commingles pledged collateral for all state funds it holds. However, STO’s collateral bureau monitors
pledged collateral for all state funds held by state agencies in such
“authorized” bank accounts.
(5) Agencies
that have investments in the state treasurer’s local government investment pool
shall disclose the information required by GASBS 79 in the notes to their financial
statements. Agencies with questions
about the content of these required note disclosures may contact STO (http://www.nmsto.gov)
for assistance.
(1) Prior
year balance included in budget:
(a) If
the agency prepares its budget on the accrual or modified accrual basis, the statement
of revenues and expenditures (budget and actual) or the budgetary comparisons
shall include the amount of fund balance on the budgetary basis used to balance
the budget.
(b) If
the agency prepares its budget on the cash basis, the statement of revenues and
expenditures (budget and actual) or the budgetary comparisons shall include the
amount of prior-year cash balance used to balance the budget (or fund balance
on the cash basis).
(2) The
differences between the budgetary basis and GAAP basis revenues and
expenditures shall be reconciled. If the
required budgetary comparison information is included in the basic financial
statements, the reconciliation shall be included on the statement itself or in
the notes to the financial statements. If
the required budgetary comparison is presented as RSI, the reconciliation to
GAAP basis shall appear in either a separate schedule or in the notes to the RSI
(AAG SLV 11.14). The notes to the
financial statements shall disclose the legal level of budgetary control for
the entity and any excess of expenditures over appropriations at the legal
level of budgetary control. The legal
level of budgetary control for local governments is at the fund level. The legal level of budgetary control for
school districts is at the function level. The legal level of budgetary control for state
agencies is explained at Subsection A of Section 2.2.2.12 NMAC. For additional information regarding the
legal level of budgetary control the IPA may contact the applicable oversight
agency (DFA, HED, or PED).
(3) Budgetary
comparisons shall show the original and final appropriated budget (same as
final budget approved by DFA, HED or PED), the actual amounts on the budgetary
basis, and a column with the variance between the final budget and actual
amounts.
(a) If
the budget structure for the general fund and major special revenue funds is
similar enough to the GAAP fund structure to provide the necessary information,
the basic financial statements shall include budgetary comparison statements those
funds.
(b) Budgetary
comparisons for the general fund and major special revenue funds shall be
presented as RSI if the agency budget structure differs from the GAAP fund
structure enough that the budget information is unavailable for the general
fund and major special revenue funds. An
example of this “perspective difference” would occur if an agency budgets by
program with portions of the general fund and major special revenue funds
appearing across various program budgets. In a case like that the budgetary comparison
would be presented for program budgets and include information in addition to
the general fund and major special revenue funds budgetary comparison data (GASBS
41.03 and .10).
R. Appropriations:
(1) Budget
related findings:
(a) If
actual expenditures exceed budgeted expenditures at the legal level of
budgetary control, that fact shall be reported in a finding and disclosed in
the notes to the financial statements.
(b) If
budgeted expenditures exceed budgeted revenues (after prior-year cash balance
and any applicable federal receivables used to balance the budget), that fact shall
be reported in a finding. This type of finding shall be confirmed with the
agency’s budget oversight entity (if applicable).
(2) Special,
deficiency, specific, and capital outlay appropriations:
(a) Special,
deficiency, specific, and capital outlay appropriations funded by severance tax
bonds or general obligation bonds of the state shall be disclosed in the notes
to the financial statements. The
original appropriation, the appropriation period, expenditures to date,
outstanding encumbrances and unencumbered balances shall be shown in a
supplementary schedule or in a note to the financial statements. The accounting treatment of any unexpended
balances shall be fully explained in the 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 shall be fully explained in the
supplementary schedule or in a note to the financial statements regarding the
special appropriations.
S. Consideration of internal control and risk assessment
in a financial statement audit: Audits performed
under this rule shall include tests of internal controls (manual or automated)
over assertions about the financial statements and about compliance related to
laws, regulations, and contract and grant provisions. IPAs and agencies are
encouraged to reference the U.S. GAOs’ standards
for internal control in the federal government, known as the “green book”, which may be adopted by
state, local, and quasi-governmental entities as a framework for an internal
control system.
T. Required auditor's
reports:
(1) The
AICPA provides examples of independent auditor’s reports in the appendix to chapter
4 of AAG GAS and appendix A to chapter 16 of AAG SLV. Guidance is provided in footnote 3 to appendix
A to chapter 16 of AAG SLV regarding wording used when opining on budgetary
statements on the GAAP basis. IPAs
conducting audits under this rule shall follow the AICPA report examples. All independent auditor’s reports shall include
a statement that the audit was performed in accordance with auditing standards
generally accepted in the United States of America and with applicable government auditing standards per GAGAS
4.18. This statement shall be modified
in accordance with GAGAS 2.24b if some GAGAS requirements were not followed. Reports for single audits of fiscal years
beginning on or after December 26, 2014 shall have references to OMB Circular
A-133 replaced with references to Title 2 U.S. Code of Federal Regulations (CFR)
Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements
for Federal Awards (Uniform Guidance 200.110(b), AAG GAS 4.88 Example 4-1).
(2) The
AICPA provides examples of the report on internal control over financial
reporting and on compliance and other matters based on an audit of financial
statements performed in accordance with government auditing standards in the
appendix to chapter 4 of AAG GAS. IPAs conducting audits under this rule shall
follow the AICPA report examples.
(a) The
state auditor requires the report on internal control over financial reporting
and on compliance and other matters based on an audit of financial statements performed
in accordance with government auditing standards be dated the same date as the independent
auditor’s report.
(b) No
separate management letters shall be issued to the agency by the auditor. Issuance of a separate management letter to
an agency shall be considered a violation of the terms of the audit contract
and may result in further action by the state auditor. See also Subsection F of Section 2.2.2.10 NMAC
regarding this issue.
(3) The
AICPA provides examples of the report
on compliance for each major federal program and on internal control over compliance
required by the uniform guidance in the appendix to chapter 13 of AAG GAS. IPAs
conducting audits under this rule shall follow the AICPA report examples.
(4) The
state auditor requires the financial statements, RSI, SI, and other information
required by this rule, and the following reports to be included under one report cover: the independent auditor’s report;
the report on internal control over financial reporting and on compliance and other
matters based on an audit of financial statements performed in accordance with government
auditing standards; and the report on compliance for each major federal program
and on internal control over compliance required by the uniform guidance. If applicable, the independent auditor’s report
shall include the AU-C 725 opinion on SI, the schedule of expenditures of federal
awards and the HUD financial data schedule (required by HUD guidelines on reporting
and attestation requirements of uniform financial reporting standards). The report shall also contain a table of
contents and an official roster. The IPA
may submit a written request for an exemption
from the “one report cover” requirement, but shall receive prior written
approval from the state auditor in order to present any of the above
information under a separate cover.
U. Disposition of property: Sections 13-6-1 and
13-6-2 NMSA 1978 govern the disposition of tangible personal property owned by
state agencies, local public bodies, school districts, and state educational
institutions. At least 30 days prior to
any disposition of property included on the agency inventory list described at Subsection
W of Section 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 shall be sent to the state auditor.
(1) All
joint powers agreements (JPA) shall be listed in a supplementary schedule in
the audit report. The statewide CAFR
schedule shall include JPAs that are significant to the state as a whole. The schedule shall include the following
information for each JPA: participants; party responsible for operations; description; beginning and ending dates of the JPA; total estimated amount of
project and portion applicable to the agency; amount the agency contributed in
the current fiscal year; audit responsibility; fiscal agent if applicable; and name of government agency where
revenues and expenditures are reported.
(2) For
self-insurance obtained under joint powers agreements, see the GASB
Codification Section J50.113.
(1) The
Audit Act (Section 12-6-10 NMSA 1978) requires agencies to capitalize only
chattels and equipment that cost over five thousand dollars ($5,000). All agencies shall maintain a capitalization
policy that complies with the law. All
agencies shall maintain an inventory listing of capitalized chattels and
equipment that cost over five thousand dollars ($5,000).
(2) Agencies
shall conduct an annual physical inventory of chattels and equipment on the
inventory list at the end of each fiscal year in accordance with the
requirements of Section 12-6-10 NMSA 1978. The agency shall certify the correctness of
the inventory after the physical inventory.
This certification shall be provided to the agency’s auditors. The IPA shall audit the inventory listing for
correctness and compliance with the requirements of the Audit Act.
X. Schedule of changes in assets and liabilities for agency funds: Agency funds are
excluded from the statement of changes in fiduciary net position (GASBS 34.110
as amended by GASBS 63) because they have no “net position.” It is a requirement of the state auditor that
a schedule of changes in assets and liabilities for agency funds be included as
SI for all agencies that have agency funds, except school districts which are
subject to different requirements. The
schedule shall show additions and deductions for each agency fund. 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. The requirements for
school districts regarding the presentation of the statement of changes in
assets and liabilities for agency funds are detailed in Subsection C of 2.2.2.12
NMAC.
Y. Tax increment development districts: Pursuant to Subsection
C of Section 5-15-9 NMSA 1978, tax increment development districts (TIDDs) are
political subdivisions of the state, and they are separate and apart from the
municipality or county in which they are located. Section 5-15-10 NMSA 1978
states that the district shall be governed by the governing body that adopted a
resolution to form the district or by a five-member board composed of four
members appointed by that governing body; provided, however, that the fifth
member of the five-member board is the secretary of finance and administration
or the secretary’s designee with full voting privileges. However, in the case of an appointed board of
directors that is not the governing body, at the end of the appointed
directors’ initial terms, the board shall hold an election of new directors by
majority vote of owners and qualified resident electors. Therefore, a TIDD and its audit firm shall
apply the criteria of GASBS 14, 39, 61, and 80 to determine whether the TIDD is
a component unit of the municipality or county that approved it, or whether the
TIDD is a related organization of the municipality or county that approved it. If the TIDD is determined to be a related
organization per the GAAP requirements, then the TIDD shall contract separately
for an audit separate from the audit of the municipality or county that approved
it.
Z. GASBS 68, accounting
and financial reporting for pensions:
(1) PERA
and ERB shall each prepare schedules of employer allocations as of June 30 of
each fiscal year. The state auditor requires
the following:
(a) Prior to
distribution of the schedule of employer allocations, PERA and ERB shall obtain
audits of their respective schedules. These
audits shall be conducted in accordance with government auditing standards and AU-C
805, special considerations - audits of single financial statements and specific
elements, accounts, or items of a financial statement.
(b) Pursuant to AU-C 805.16, the PERA and
ERB auditors shall each issue a separate auditor’s report and express a
separate opinion on the AU-C 805 audit performed (distinct from the agency’s
regular financial statement and compliance audit). Additionally, the auditor
shall apply the procedures required by AU-C 725 to all supplementary
information schedules included in the schedule of employer allocations report
in order to determine whether the supplementary information is fairly stated,
in all material respects, in relation to the financial statements as a whole. The IPA shall include the supplementary
information schedules in the related reporting in the other-matter paragraph
pursuant to AU-C 725.09, regarding whether such information is fairly stated in
all material respects in relation to the schedule of employer allocations as a
whole.
(c) PERA
and ERB shall include note
disclosures in their respective schedule of employer allocations reports that
detail each component of allocable pension expense at the fund level, excluding
employer-specific pension expense for changes in proportion. Each plan shall also include note disclosures
by fund detailing collective fund-level deferred outflows of resources and
deferred inflows of resources. The
disclosures shall include a summary of changes in the collective deferred and
inflows outflows of resources (excluding employer specific amounts), by year of
deferral.
(d) PERA
and ERB shall each obtain at least one concurring review of their respective
schedules of employer allocations by an outside IPA firm (different from the
firm performing the AU-C 805 audit). The
firm selected to perform the concurring review is subject to OSA approval.
(e) The AU-C 805 audits and resulting
separate reports on the PERA and ERB schedules of employer allocations shall be
submitted to the OSA for review and release pursuant to Subsection A of Section
2.2.2.13 NMAC, prior to distribution to the participant employers.
(f) As soon as the AU-C 805
reports become public record, PERA and ERB shall make the information available
to their participant employers.
(g) PERA
and ERB shall each prepare an employer
guide that illustrates the correct use of their respective schedule of employer
allocations report by their participant employers. The guides shall explicitly distinguish
between the plan-level reporting and any employer-specific items. The calculations and record-keeping necessary
at the employer level (for adjusting journal entries, amortization of deferred
amounts, etc.) shall be described and illustrated. The employer guides shall be made available to
the participant employers by June 30 of the subsequent fiscal year.
(2) Regarding
whether the pension liability shall be included in the stand-alone financial
statements of funds, see the GASB’s comprehensive implementation guide, chapter
5, question and answer 5.129.1, which says, “except for blended component
units, which are discussed in questions 5.125.2 and 5.125.3, 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 shall be given to NCGA statement 1, paragraph 42, 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, shall include note disclosure referring the reader to the statewide
CAFR for the state’s net pension liability and other pension-related
information. The stand-alone report for
the New Mexico component appropriation funds shall include note disclosure of
the net pension liability for all the state agencies of the state of New
Mexico.
AA. Federal Single Audit: OMB Circular A-133 audits of states, local governments, and non-profit
organizations has been replaced by Title 2 U.S. Code of Federal Regulations
Part 200, uniform administrative
requirements, cost principles, and audit requirements for federal awards (uniform
guidance). The standards set forth in
Subpart F - audit requirements, became effective December 26, 2013, and apply
to audits of fiscal years beginning on or after December 26, 2014 (calendar-year-end
December 31, 2015 and FY16 audits).
BB. GASBS
77: GASB Statement 77, tax abatement
disclosures, is effective for reporting periods beginning after December 15,
2015 (FY17 for agencies with a June 30 fiscal year end). The GAO may aggregate, analyze and publish
GASBS 77 information. Unaudited, but
final, GASBS 77 disclosure information in the format prescribed below shall be
provided to any agency whose tax revenues are affected by the reporting
agency’s tax abatement agreements no later than September 15 of the subsequent
fiscal year. Failure to meet this due
date results in a compliance finding. This
due date does not apply if the reporting agency does not have any tax abatement
agreements that reduce the tax revenues of another agency. In addition to the requirements of GASBS 77,
the state auditor requires:
(1) All
tax abatement agreements entered into by an agency’s component unit(s) shall be
disclosed in the same manner as the tax abatement agreements of the primary
government.
(2) Agencies
that make a GASBS 77 disclosure shall use the template GASBS 77 disclosure
spreadsheet available on the OSA website and submit that electronic file with
the final version of the audit report.
(3) If an agency
does not need to make a GASBS 77 disclosure, that fact shall be disclosed in
the notes to the financial statements.
(4) If an
agency determines that any required disclosure is confidential, the agency shall
cite the legal authority for that determination.
(5) If
an agency has GASBS 77 disclosures to make as an agency that entered into a tax
abatement agreement, all information contained in the OSA GASBS 77 disclosure
spreadsheet must be included in the notes to the financial statements. If an agency received intergovernmental
disclosures from another agency, all information contained in the OSA GASBS 77
disclosure spreadsheet must be included in the notes to the financial
statements.
CC. New standards that become effective in FY18
for agencies with a June 30 fiscal year end are:
(1) GASBS
75, accounting and financial reporting for postemployment benefits other than
pensions;
(2) GASBS
81, irrevocable split-interest agreements;
(3) Some
provisions of GASBS 82, pension
issues - an amendment of GASB statements No. 67, No. 68, and No. 73;
(4) GASBS
85, Omnibus 2017;
(5) GASBS
86, certain debt extinguishment
issues;
(6) Implementation
Guide No. 2017-1, implementation guidance update - 2017; and
(7) Implementation
Guide No. 2017-2, financial reporting for postemployment benefit plans other
than pension plans.
DD. GASBS 75, accounting and financial
reporting for postemployment benefits other than pensions: The retiree health
care authority (RHCA) shall prepare a schedule of employer allocations as of
June 30 of each fiscal year. The state
auditor requires the following:
(1) Prior
to distribution of the schedule of employer allocations, RHCA shall obtain an audit
of the schedule. This audit shall be
conducted in accordance with government auditing standards and AU-C 805,
special considerations - audits of single financial statements and specific
elements, accounts, or items of a financial statement.
(2) Pursuant to
AU-C 805.16, the RHCA auditors shall issue a separate auditor’s report and
express a separate opinion on the AU-C 805 audit performed (distinct from the
agency’s regular financial statement and compliance audit). Additionally, the auditor shall apply the
procedures required by AU-C 725 to all supplementary information schedules
included in the schedule of employer allocations report in order to determine
whether the supplementary information is fairly stated, in all material
respects, in relation to the financial statements as a whole. The IPA shall include the supplementary
information schedules in the related reporting in the other-matter paragraph
pursuant to AU-C 725.09, regarding whether such information is fairly stated in
all material respects in relation to the schedule of employer allocations as a
whole.
(3) RHCA shall include note disclosures in the
schedule of employer allocations report that detail each component of allocable
OPEB expense at the fund level, excluding employer-specific OPEB expense for
changes in proportion. RHCA shall also include note disclosures by fund
detailing collective fund-level deferred outflows of resources and deferred
inflows of resources. The disclosures
shall include a summary of changes in the collective deferred outflows and
inflows of resources (excluding employer specific amounts), by year of
deferral.
(4) RHCA
shall each obtain at least one concurring review of the schedule of employer
allocations by an outside IPA firm (different from the firm performing the AU-C
805 audit). The firm selected to perform
the concurring review is subject to OSA approval.
(5) The AU-C 805
audit and resulting separate report on the RHCA schedule of employer
allocations shall be submitted to the OSA for review and release pursuant to Subsection
A of Section 2.2.2.13 NMAC, prior to distribution to the participant employers.
(6) As
soon as the AU-C 805 reports become public record, RHCA shall make the
information available to its participant employers.
(7) RHCA
shall prepare an employer guide that illustrates the correct use of the schedule
of employer allocations report by its participant employers. The guide shall explicitly distinguish between
the plan-level reporting and any employer-specific items. The calculations and record-keeping necessary
at the employer level (for adjusting journal entries, amortization of deferred
amounts, etc.) shall be described and illustrated. The employer guide shall be made available to
the participant employers by June 30 of the subsequent fiscal year.
[2.2.2.10
NMAC - Rp, 2.2.2.10 NMAC, 2/27/2018]
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 the Accountability in
Government Act (Sections 6-3A-1 to 6-3A-9 NMSA 1978) 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 an oversight agency such as the legislative finance committee, DFA,
HED or PED, and preparation guidelines are issued by the oversight agency.
C. The auditor’s
responsibilities for performing procedures and reporting on SI are provided in
AU-C Section 725, supplementary information in relation to the financial statements
as a whole. The auditor shall 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 shall 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, 2/27/2018]
2.2.2.12 SPECIFIC
CRITERIA: The specific criteria described in this section
shall be considered in planning and conducting governmental audits. These
requirements are not intended to be all-inclusive; therefore, OSA recommends
that IPAs review the NMSA and NMAC while planning governmental audits.
A. Pertaining to audits of state agencies:
(1) Due
dates for agency audits: audit reports of agencies under the oversight of DFA
FCD are due to OSA in accordance with the requirements of Subsection D of Section
12-6-3 NMSA 1978 and Subsection A of Section 2.2.2.9 NMAC.
(2) All
the individual SHARE funds shall be reported in the financial statements,
either within the basic financial statements or as SI.
(3) Accounts
payable at year-end and reversion calculation: If goods and services were received (as
defined by generally accepted accounting principles) by the end of the fiscal
year but not paid for by the end of the fiscal year, an accounts payable shall
be reported for the respective amount due in both the government-wide financial
statements and the fund financial statements. The “actual”
expenditures in the budgetary comparison exclude any accounts payable that were
not paid timely and therefore require a request to the financial control division
to pay prior year bills out of current year budget. They are paid out of the budget of the following
fiscal year. An agency’s reversions are
calculated using the budgetary basis
expenditures because the agency does not have the legal authority to
obligate the state for liabilities once the appropriation period has
lapsed. Thus, the agency cannot keep the
cash related to accounts payable that were not paid timely. This results in a negative fund balance in the
modified accrual basis financial statements of a reverting fund.
(4) Net position/fund
balance:
(a) Pursuant
to GASBS 63.8 the government-wide statement of net position and the proprietary
fund statement of net position show net position as:
(i) net investment
in capital assets as defined by GASBS 63.9;
(ii) restricted
(distinguishing between major categories of restrictions) as defined by GASBS
63.10; and
(iii) unrestricted as
defined by GASBS 63.11.
(b) Governmental
fund financial statement fund balances shall be reported in accordance with
GASBS 54.
(5) Book
of record:
(a) The
state maintains the centralized accounting system SHARE. The SHARE data and reports are the original
book of record that the auditor is auditing. Each fiscal year, the agency shall record all
audit adjusting journal entries in SHARE. The financial information in SHARE shall agree
to the agency’s audited financial statements, with the exception of accounts
payable as explained in Subsection A of Section 2.2.2.12 NMAC. If the agency maintains a separate accounting
system, it shall be reconciled with the SHARE system and all applicable
adjustments shall be recorded in SHARE in the month in which the transactions
occurred. DFA FCD provides guidance to
agencies, which IPAs shall review, regarding policy and procedure requirements.
These documents are available on the DFA
FCD website and include:
(i) the manual of model
accounting practices (MAPs);
(ii) various white papers,
yearly closing instructions; and
(iii) various
accounting guideline memos.
(b) The statement of
revenues and expenditures in the audit report shall be presented in accordance
with GAAP, by function or program classification and object code. However, the budgetary comparison statements shall
be presented using the level of appropriation reflected in the final approved
budget. The SHARE chart of accounts
reflects the following appropriation unit levels:
|
Appropriation
unit code/appropriation unit description |
|
|
200 |
personal
services & employee benefits |
|
300 |
contractual
services |
|
400 |
other |
|
500 |
other
financing uses |
|
600 |
non-budgeted |
(c) Revenue
categories of appropriations to state agencies are listed below. The budgetary comparison statements for state
agencies shall be presented in the audit report by the revenue categories shown
below and by the expenditure categories that appear in the agency’s final approved
budget.
(i) state general fund;
(ii) other state funds;
(iii) internal service funds/inter-agency
transfers; or
(iv) federal funds.
(d) For
more detail about the SHARE chart of accounts see the DFA website.
(6) Reversions
to state general fund:
(a) All
reversions to the state general fund shall be identified in the financial
statements by the fiscal year of appropriation (i.e., reversion to state general
fund - FY 16). The gross amount of the
appropriation and the gross amount of the reversion shall be shown separately.
(b) Subsection A
of Section 6-5-10 NMSA 1978 states “all unreserved undesignated fund balances
in reverting funds and accounts as reflected in the central accounting system
as of June 30 shall revert by September 30 to the general fund. The division may adjust the reversion within forty-five
days of release of the audit report for that fiscal year.” Failure to transfer reverting funds timely in
compliance with the statute requires an audit finding.
(7) Non-reciprocal
(not payments for materials or services rendered) interfund (internal) activity
includes;
(a) transfers;
and
(b) reimbursements
(GASBS 34.410):
(i) intra-agency transfers
between funds within the agency shall offset (i.e. balance). Reasons for intra-agency transfers shall be
fully explained in the notes to the financial statements. In the separate audit reports of state
agencies, transfers between their internal funds are shown as other financing sources
or uses in the fund financial statements and as transfers (that get eliminated)
in the government-wide financial statements;
(ii) inter-agency transfers
(between an agency’s internal funds and other funds of the state that are
outside the agency such as state general fund appropriations, special
appropriations, bond proceeds appropriations, reversions to the state general
fund, and transfers to/from other state agencies) shall be segregated from
intra-agency transfers and fully explained in the notes to the financial
statements along with the agency number and SHARE fund number to whom and from
whom transferred. The transfers may be
detailed in supporting schedules rather than in the notes, but agency and SHARE
fund numbers shall be shown. The
schedule shall be presented on the modified accrual basis. The IPA is responsible for performing audit
procedures on all such inter-agency transfers.
(c) Regarding
inter-agency transfers between legally separate component units and the primary
government (the state of New Mexico):
(i) if the inter-agency
transfer is between a blended component unit of the state and other funds of
the state, then the component unit’s separately issued financial statements
report such activity between itself and the primary government as revenues and
expenses. When the blended component
unit is included in the primary government’s financial statements, such
inter-agency transfers are reclassified as transfers (GASBS 34.318);
(ii) all resource flows between a
discretely presented component unit of the state and other funds of the state shall
be reported as external transactions - revenues and expenses - in the primary
government’s financial statements and the component unit’s separately issued
financial statements (GASBS 34.318);
(d) All
transfers to and from SHARE fund 853, the state general fund appropriation account,
shall be clearly identifiable in the audit report as state general fund
appropriations, reversions, or collections;
(e) Reimbursements
are transfers between funds that are used to reallocate the revenues and
expenditures/expenses to the appropriate fund. Reimbursements are not reported as inter-fund
activity in the financial statements.
(8) General
services department capital projects: in general, GSD records the state of New
Mexico capitalized land and buildings for which it is responsible, in its
accounting records. The cost of
furniture, fixtures, and moveable equipment owned by agencies is to be
capitalized in the accounting records of the agency that purchased them. The agency shall capitalize those assets based
on actual amounts expended in accordance with GSD instructions issued in Section
2.20.1.10 NMAC.
(9) State-owned
motor vehicle inventory: successful management of state-owned vehicles pursuant
to the Transportation Services Act (Sections 15-8-1 to 15-8-11 NMSA 1978) is
dependent on reliable and accurate capital assets inventory records and
physical verification of that inventory. Thus, the annual audit of state agencies shall
include specific tests of the reliability of the capital assets inventory and
verification that a physical inventory was conducted for both the agency's
owned vehicles and long-term leased vehicles.
(10) Independent
auditor’s report: The independent auditor’s
report for state agencies, district attorneys, district courts, and the
educational institutions created by New Mexico Constitution Article XII, Sec. 11
shall include an emphasis of matter paragraph referencing the summary of significant
accounting principles disclosure regarding the reporting agency. The emphasis of matter paragraph shall
indicate that the financial statements are not intended to present the
financial position and changes in financial position of the primary government,
the state of New Mexico, but just the financial position and the changes in
financial position of the department. The
emphasis of matter paragraph shall follow the example provided in AAG SLV 16.103
ex. A-17.
(11) Budgetary
basis for state agencies: the state budget is adopted on the modified accrual
basis of accounting except for accounts payable accrued at the end of the
fiscal year that do not get accrued by the statutory deadline per Section 6-10-4
NMSA 1978. Those accounts payable that
do not get paid timely or accrued by the statutory deadline shall be paid out
of the next year’s budget. If an agency
needs to recognize additional accounts payable amounts that were not accrued by
the statutory deadline, then the budgetary statements and the fund financial
statements require a reconciliation of expenditures, as discussed at Subsection
Q of Section 2.2.2.10 NMAC. All
transactions are recorded in the state’s book of record, SHARE, under the
modified accrual basis of accounting except for accounts payable not meeting
the statutory deadline; therefore, the “actual” expenditures in the budgetary
comparison schedules equal the expenditures as recorded in SHARE for the fund. Encumbrances related to single year
appropriations lapse at year end. Appropriation
periods are sometimes for periods in excess of 12 months (multiple-year
appropriations). When multiple-year
appropriation periods lapse, the authority for the related budgets also lapse
and encumbrances can no longer be charged to those budgets. The legal level of budgetary control shall be
disclosed in the notes to the financial statements. Per Subsection C of Section 9 of the General
Appropriation Act of 2017, all agencies, including legislative agencies, may
request category transfers among personal services and employee benefits,
contractual services and other. Therefore,
the legal level of budgetary control is the appropriation program level
(A-Code, P-Code, and Z-Code). A-Codes
pertain to capital outlay appropriations (general obligation/severance tax or
state general fund). P-Codes pertain to program/operating
funds. Z-Codes pertain to special appropriations. The IPA shall compare total expenditures for each
program to the program’s approved final budget to evaluate compliance.
(12) Budgetary
comparisons of state agencies shall show the original and final appropriated
budget (same as final budget approved by DFA), the actual amounts on the
budgetary basis, and a column with the variance between the final budget and
actual amounts. If a state agency
presents budgetary comparisons by fund, the appropriation program code(s)
(A-Code, P-Code, and Z-Code) shall be reported on the budgetary comparison
schedule.
(13) Accounting for special
capital outlay appropriations financed by bond proceeds:
(a) STO
administers the debt service funds for various bond issues that are obligations
of the state of New Mexico. STO does not
report in its departmental financial statements bonds payable that are
obligations of the state of New Mexico. These
payables and the related bond face amounts (proceeds) are reported in the state’s
CAFR. The note disclosures associated
with STO’s departmental financial statements shall explain that, 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. Additionally, the note disclosures associated
with STO’s departmental financial statements shall refer the reader to detailed
SI in the STO audit report and the statewide CAFR. The STO departmental financial statements shall
include SI regarding the state of New Mexico bond obligations. The SI schedules shall show;
(i) 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 GASBS 34.119;
(ii) the details of
debt service requirements to maturity, as required by GASBS 38.10; and
(iii) any violations of
bond covenants and related actions taken to address violations of bond
covenants, as required by GASBS 38.9 and Section 12-6-5NMSA 1978.
(b) DFA
has provided accounting and reporting guidance for state agencies that receive
or administer special capital outlay appropriations from the state legislature
that are financed by bond proceeds.
DFA’s guidance is available in the “FYI 2008 Audit Forum 9/30/08” section
of DFA’s website at http://www.nmdfa.state.nm.us/Forums.aspx. In the notes to the financial statements,
agencies 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 also disclose the specific revenue
recognition policy for these appropriations. Each agency’s IPA shall audit the agency’s
financial statement presentation of this capital outlay project information to
ensure that they are presented in accordance with accounting principles that
are generally accepted in the United States.
(14) Amounts
“due from other state agencies” and “due to other state agencies”: if a state
agency reports amounts “due from” or “due to” other state agencies the notes shall
disclose the amount “due to” or “due from” each agency, the name of each
agency, the SHARE fund account numbers, and the purpose of the account balance.
(15) Investments
in the state general fund investment pool (SGFIP): these balances are presented
as cash and cash equivalents in the statements of net position and the balance
sheets of the participant agencies, with the exception of the component appropriation
funds (state general fund). The notes to
the financial statements of the component appropriation funds shall contain GASBS
40 disclosures for the SGFIP. This disclosure
may refer the reader to the separate audit report for STO for additional
information regarding the SGFIP.
(16) Format
for the statement of activities: state
agencies that have more than one program or function shall use the financial
statement format presented in GASBS 34, Illustrations B-1 through B-4. The simplified statement of activities (GASBS
34, Illustration B-5) may not be used for agencies that have multiple programs
or functions. GASBS 34.41 requires governments to report direct expenses for
each function.
(17) Oversight
duties of DFA FCD: on October 3, 2008, the state controller and the state auditor
distributed a letter to agencies regarding FCD’s request for agencies’ draft
financial statements for the preparation of the CAFR for the state. Agencies were concerned about violating Section
12-6-5NMSA 1978. However, Subsections of
Section 6-5-2.1 NMSA 1978 states that FCD shall “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 statutes, the state controller and the state auditor concluded that
“pursuant to these rules, Sections 6-5-4.1 and Section 12-6-5NMSA 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 FCD in
order that FCD may compile the CAFR. However,
the agency may only release that information to FCD and not to the public. The
agency’s audit report also is not public record unless released in accordance
with Section 12-6-5NMSA 1978.” The
unaudited draft financial statements submitted to DFA shall exclude the
opinions and findings. The entire letter
is available at: http://www.nmdfa.state.nm.us/uploads/FileLinks/293b21bdbc044c04bd0dbc6de01def7e/DFA-FCD%20Oversight%20Letter.pdf.
B. Pertaining to audits of housing authorities:
(1) Housing
authorities within the state of New Mexico consist of regional housing
authorities, component units or departments of local governments, component
units of housing authorities, and housing authorities created by
intergovernmental agreements between cities and counties that are authorized to
exercise all powers under the Municipal Housing Law, Section 3-45-1 et seq.
NMSA 1978.
(2) The
financial statements of a housing authority that is a department, program or
component unit of a primary government shall be included in the financial audit
report of the primary government by discrete presentation unless an exemption
from this requirement has been obtained from the state auditor. In the event that a primary government
determines that a housing authority is a department or program of, rather than
a component unit of, the primary government, a request for exemption from the
discrete presentation requirement shall be submitted to the state auditor, by
the primary government. The request for
exemption shall include evidence that the housing authority is not a separate
legal entity from the primary government and that the corporate powers of the
housing authority are held by the primary government. Evidence included in the request shall address
these issues:
(a) the housing
authority is not a corporation registered with the secretary of state;
(b) there
was never a resolution or ordinance making the housing authority a public body
corporate; and
(c) the
housing authority was authorized under Section 3-45-1 et seq. NMSA 1978.
(d) Upon receipt
of the exemption granted by the state auditor from the requirement for discrete
presentation, the housing authority department or program shall be included in
the financial report of the primary government like any other department or
program of the primary government.
(3) Audits
of public housing authorities that are departments of a local government shall
be conducted by the same IPA that performs the audit of the local government. Separate audit contracts shall not be approved.
(a) Local
governments are encouraged to include representatives from public housing
authorities that are departments of the local government in the IPA selection
process.
(b) The
IPA shall include the housing authority’s governing board and management
representatives in the entrance and exit conferences with the primary
government. If it is not possible to
hold such combined conferences, the IPA shall hold separate entrance and exit
conferences with housing authority’s management and a member of the governing
board. The OSA has the authority to
notify the agency or IPA that the state auditor shall be informed of the date
of the entrance conference, any progress meetings and the exit conference. If such notification is received, the IPA and
agency shall invite the state auditor or his designee to attend all such
conferences no later than 72 hours before the proposed conference.
(4) The
following information relates to housing
authorities that are component units of a local government.
(a) The
housing authority shall account for financial activity in proprietary funds.
(b) At
the public housing authority’s discretion, the agency may “be audited
separately from the audit of its local primary government entity. If a separate audit is made, the public
housing authority audit shall be included in the local primary government
entity audit and need not be conducted by the same auditor who audits the
financial affairs of the local primary government entity” (Subsection E of Section
12-6-3 NMSA 1978). Statute further
stipulates in Subsection A of Section 12-6-4 NMSA 1978 that “a public housing
authority other than a regional housing authority shall not bear the cost of an
audit conducted solely at the request of its local primary government entity.”
(c) Audit reports
of separate audits of component unit housing authorities shall be released by
the state auditor separately from the primary government’s report under a
separate release letter to the housing authority.
(5) Public
housing authorities and their IPAs shall follow the requirements of guidelines on reporting and attestation requirements
of uniform financial reporting standards (UFRS), which is available on the
U.S. department of housing and urban development’s website under a search for
UFRS. Additional administrative issues
related to audits of public housing authorities follow.
(a) Housing
authority audit contracts include the cost of the audit firm’s AU-C 725 opinion
on the financial data schedule (FDS). The
preparation and submission cost for this HUD requirement shall be included in
the audit contract. The public housing
authority shall electronically submit a final approved FDS based on the audited
financial statements no later than nine months after the public housing
authority’s fiscal year end. The IPA shall:
(i) electronically
report on the comparison of the electronic FDS submission in the REAC staging
database through the use of an identification (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 the financial statements.
(b) The
IPA shall consider whether any fee accountant used by the housing authority is
a service organization and, if applicable, follow the requirements of AU-C 402
regarding service organizations.
(c) The
IPA shall provide the housing authority with an itemized cost breakdown by
program area for audit services rendered in conjunction with the housing authority.
(6) Single
audit reporting issue: If a single audit
is performed on the separate audit report for the public housing authority,
including the housing authority’s schedule of expenditures of federal awards,
the housing authority federal funds do not need to be subjected a second time
to a single audit during the single audit of the primary government. In this
situation, the housing authority’s federal expenditures do not need to be
included in the primary government’s schedule of expenditures of federal awards.
See AAG GAS 6.15 for more information.
C. Pertaining to audits of school districts:
(1) In
the event that a state-chartered charter school subject to oversight by PED is
not subject to the requirement to use the same auditor as PED, that charter
school is reminded that their audit contract shall be submitted to PED for
approval. Charter schools shall ensure
that sufficient time is allowed for PED review refer to Subsection F of Section
2.2.2.8 NMAC for the due date for submission of the audit contract to the OSA.
(2) Regional
education cooperative (REC) audits:
(a) A
separate financial and compliance audit is required on activities of RECs. The IPA shall provide copies of the REC report
to the participating school districts and PED once the report has been released
by the state auditor.
(b) Audits
of RECs shall include tests for compliance with Section 6.23.3 NMAC.
(c) Any
‘on-behalf’ payments for fringe benefits and salaries made by RECs for
employees of school districts shall be accounted for in accordance with GASB
Cod. Sec. N50.135 and communicated to the employer in accordance with GASB Cod.
Sec. N50.131.
(d) The
audit report of each REC shall include a cash reconciliation schedule which
reconciles the cash balance as of the end of the previous fiscal year to the
cash balance as of the end of the current fiscal year. This schedule shall account for cash in the
same categories used by the REC in its monthly cash reports to the PED. If there are differences in cash per the REC
financial statements and cash per the REC accounting records, the IPA shall provide
the adjusting entries to the REC to reconcile cash per the financial statements
to cash per the REC accounting records. If
cash per the REC accounting records differs from the cash amount the REC
reports to PED in the monthly cash report, the IPA shall issue a finding which
explains that the PED reports do not reconcile to the REC accounting records.
(3) School
district audits shall address the following issues:
(a) Audits
of school districts shall include tests for compliance with Section 6.20.2 NMAC
and PED’s manual of procedures for public schools accounting and budgeting
(PSAB), with specific emphasis on supplement 7, cash controls.
(b) The
audit report of each school district shall include a cash reconciliation
schedule which reconciles the cash balance as of the end of the previous fiscal
year to the cash balance as of the end of the current fiscal year. This schedule is also required for each
charter school chartered by a school district and each charter school chartered
by PED. This schedule shall account for
cash in the same categories used by the district in its monthly cash reports to
PED. Subsection D of Section 6.20.2.13
NMAC states that school districts shall use the “cash basis of accounting for
budgeting and reporting”. The financial
statements are prepared on the accrual basis of accounting. Subsection E of Section 6.20.2.13 NMAC states
that “if there are differences between the financial statements, school
district records and department records, the IPA should provide the adjusting
entries to the school district to reconcile the report to the school district
records.” If there are difference between
the school district records and the PED report amounts, other than those
explained by the adjusting entries, the IPA shall issue a finding which
explains that the PED reports do not reconcile to the school district records.
(c) Any
joint ventures or other entities created by a school district are agencies
subject to the Audit Act.
(d) 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 are excluded from this presentation
(GASBS 34.110 as amended by GASBS 63). 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 SI in the audit report for
each school district and each charter school.
The schedules shall show the changes (both additions and deductions) in
the agency funds summarized by school or for each activity. The schedule requires an AU-C 725 opinion in
the independent auditor’s report.
(e) Relating
to capital expenditures by the New Mexico public school facilities authority
(PSFA), school districts shall review capital expenditures made by PSFA for
repairs and building construction projects of the school district. School districts shall also determine the
amount of capital expenditures that shall be added to the capital assets of the
school district and account for those additions properly. The IPA shall test the school district capital
asset additions for proper inclusion of these expenditures.
(f) Functions
of the general fund: school district audit reports shall include individual
fund financial statements and budgetary comparisons for the following functions
of the general fund: operational,
transportation, instructional materials and teacherage (if applicable).
(4) Pertaining
to charter schools:
(a) A
charter school is a conversion school or start-up school within a school
district authorized by the local school board or PED to operate as a charter
school. A charter school is considered a
public school, accredited by the state board of public education and
accountable to the school district’s local school board, or PED, for ensuring
compliance with applicable laws, rules and charter provisions. A charter school is administered and governed
by a governing body in a manner set forth in the charter.
(b) Certain
GASBS 14 criteria (as amended by GASBS 39, 61, and 80) shall be applied to
determine whether a charter school is a component unit of the chartering entity
(the district or PED). The chartering
agency (primary government) shall make the determination whether the charter
school is a component unit of the primary government.
(c) No charter
school that has been determined to be a component unit may be omitted from the
financial statements of the primary government based on materiality. All charter schools that are component units shall
be included in the basic financial statements using one of the presentation
methods described in GASBS 34.126, as amended.
D. Pertaining to audits of counties: Tax roll reconciliation
county governments: Audit reports for
counties shall include two supplementary schedules.
(1) The
first one is a “tax roll reconciliation of changes in the county treasurer’s property
taxes receivable” showing the June 30 receivable balance and a breakout of the
receivable for the most recent fiscal year ended, and a total for the previous
nine fiscal years. Per Subsection C of Section
7-38-81 NMSA 1978, property taxes that have been delinquent for more than 10
years, together with any penalties and interest, are presumed to have been
paid.
(2) The
second schedule titled “county treasurer’s property tax schedule” shall show by
property tax type and agency, the amount of taxes: levied; collected in the current year;
collected to-date; distributed in the current year; distributed to-date; the
amount determined to be uncollectible in the current year; the uncollectible
amount to-date; and the outstanding receivable balance at the end of the fiscal
year. This information is necessary for
proper revenue recognition on the part of the county as well as on the part of
the recipient agencies, under GASBS 33.
If the county does not have a system set up to gather and report the
necessary information for the property tax schedule, the IPA shall issue a
finding.
E. Pertaining to audits of educational institutions:
(1) Educational
institutions are reminded that audit contracts shall be submitted to HED for
approval. Refer to Subsection F of Section
2.2.2.8 NMAC for the due date for submission of the audit contract to the OSA.
(2) Budgetary
comparisons: the legal level of
budgetary control per Section 5.3.4.10 NMAC shall be disclosed in the notes to
the financial statements. The state auditor
requires that every educational institution’s audit report include budgetary
comparisons as SI. The budgetary
comparisons shall be audited and an auditor’s opinion shall be rendered. An AU-C 725 opinion does not meet this
requirement. The budgetary comparisons shall
show columns for: the original budget; the revised budget; actual amounts on
the budgetary basis; and a variance column.
The IPA shall confirm the final adjusted and approved budget with HED. The IPA shall compare the financial statement
budget comparison to the related September 15 budget submission to HED. The
only differences that should exist between the HED budget submission and the
financial statement budgetary comparisons are adjustments made by the
institution after September 15 and audit adjustments. If the HED budget submission does not tie to
the financial statement budgetary comparison, taking into account only those
differences, then the IPA shall write a related finding. A reconciliation of actual revenue and expense
amounts on the budgetary basis to the GAAP basis financial statements shall be
disclosed at the bottom of the budgetary comparisons or in the notes to the
financial statements. The reconciliation
is required only at the “rolled up” level of “unrestricted and restricted - all
operations” and shall include revenues and expenses. HED approved the following categories which shall
be used for the budgetary comparisons.
(a) Unrestricted
and restricted - All operations (schedule 1): beginning fund balance/net position; unrestricted and restricted revenues; state general fund appropriations; federal revenue sources; tuition
and fees; land and permanent fund; endowments and private gifts; other; total unrestricted & restricted revenues; unrestricted and restricted expenditures; instruction; academic support; student services; institutional support; operation
and maintenance of plant; student social
& cultural activities; research; public service; internal services; student aid, grants & stipends; auxiliary services; intercollegiate athletics; independent operations; capital outlay; renewal & replacement; retirement
of indebtedness; total unrestricted
& restricted expenditures; net transfers; change in fund balance/net position (budgetary basis); ending fund
balance/net position.
(b) Unrestricted
instruction & general (schedule 2); beginning
fund balance/net position; unrestricted
revenues; tuition; miscellaneous fees; federal government appropriations; state government appropriations; local government appropriations; federal government contracts/grants; state government contracts/grants; local government contracts/grants; private contracts/grants; endowments; land & permanent fund; private
gifts; sales and services; other; total unrestricted revenues;
unrestricted expenditures; instruction; academic support; student services; institutional
support; operation & maintenance
of plant; total unrestricted expenditures;
net transfers; change in fund balance/net
position (budgetary basis); ending fund
balance/net position.
(c) Restricted
instruction & general (schedule 3); beginning
fund balance/net position; restricted
revenues; tuition; miscellaneous fees; federal government appropriations; state government appropriations; local government appropriations; federal government contracts/grants; state government contracts/grants; local government contracts/grants; private contracts/grants; endowments; land & permanent fund; private
gifts; sales and services; other; total restricted revenues; restricted
expenditures; instruction; academic support; student services; institutional
support; operation & maintenance
of plant; total restricted expenditures; net transfers; change in fund balance/net position (budgetary basis); ending fund
balance/net position.
(3) Educational
institutions shall present their financial statements using the business type activities
model.
(4) Compensated
absence liability is reported as follows: the statement of net position reflects
the current portion of compensated absences under current liabilities and the
long-term portion of compensated absences under noncurrent liabilities.
(5) Component
unit issues: educational institutions shall comply with the requirements of Subsection
A of Section 2.2.2.10 NMAC. Additionally:
(a) individual
component unit budgetary comparisons are required if the component unit has a
“legally adopted budget.” A component
unit has a legally adopted budget if it receives any federal funds, state
funds, or any other appropriated funds whose expenditure authority derives from
an appropriation bill or ordinance that was signed into law; and
(b) there is no
level of materiality for reporting findings of component units that do not
receive public funds. All component unit
findings shall be disclosed in the primary government’s audit report.
(6) Management
discussion and analysis (MD&A): The
MD&A of educational institutions shall include analysis of significant
variations between original and final budget amounts and between final budget
amount and actual budget results. The
analysis shall include any currently known reasons for those variations that
are expected to have a significant effect on future services or liquidity.
(7) Educational
institutions established by Section 11 of Article XII of the New Mexico state
constitution shall provide the department of finance and administration’s
financial control division with a draft copy of their financial statements
excluding opinions and findings, pursuant to Subsection A of Section 2.2.2.12
NMAC.
F. Pertaining to audits of hospitals: hospitals subject to
this rule shall prepare indigent care
cost and funding reports and calculations
of cost of providing indigent care worksheets schedules in accordance with
the definitions for indigent care cost and funding components and the applicable
financial assistance policies, using the form provided by the OSA, for the
three-year period ending June 30 of the year under audit. These schedules shall
be included as supplementary information in the audit report and the auditor
shall apply the procedures required by AU-C 725 in order to determine whether
the schedules are fairly stated, in all material respects, in relation to the
financial statements as a whole. The IPA shall include these supplementary
information schedules in the related reporting in the other-matter paragraph
pursuant to AU-C 725.09, regarding whether such information is fairly stated in
all material respects in relation to the financial statements as a whole. The
IPA shall submit an electronic excel version of the indigent care schedules
using the form provided by the OSA with the final PDF version of the audit
report as required by Subsection B of Section 2.2.2.9 NMAC. If a hospital
subject to the requirements of this subsection is a component unit of another
government, and the component unit issues a separate audit report outside of
the primary government’s audit report, the primary government is not required
to include this information in its audit report. The GAO may aggregate, analyze and publish
indigent care information. IPAs performing audits of hospitals shall perform
the procedures described below.
(1) On the indigent care cost and funding reports:
(a) recalculate
the mathematical accuracy;
(b) compare funding
amounts associated with Legislative appropriations to the amounts listed in the
corresponding New Mexico Appropriations Act;
(c) compare
amounts listed under ‘funding for indigent care’ to supporting detail;
(d) compare
amounts listed under ‘cost of providing indigent care’ to the calculations of cost of providing indigent care
worksheets;
(e) compare
the amounts listed under ‘patients receiving indigent care services’ to
supporting detail.
(2) On the calculations of cost of providing indigent care
worksheets: compare amounts listed
under each line item to supporting detail by patient account.
(3) Select a
sample of the supporting detail by patient account associated with the calculations of cost of providing indigent
care worksheets and perform the following procedures on the sampled items:
(a) obtain
documentation supporting management’s determination that the patient qualified
for indigent care and compare with the policies in effect during the three‐year period ending June 30 of the year under audit;
(b) compare
the total charges on the patient’s account to the supporting detail;
(c) note
if a co‐pay was required from the patient in accordance with the
policies. Obtain information from management as to whether any required payment
was received. If a payment was received, compare it to the supporting detail
provided for the ‘funding for indigent care’ on the indigent care cost and funding reports;
(d) for
‘direct costs paid to other providers on behalf of patients qualifying for
indigent care’, compare the costs to supporting invoices;
(e) obtain
supporting information with respect to each percentage listed under ‘ratio of
cost to charges’. Compare the support to
the calculation of the percentage and recalculate the mathematical accuracy of
the percentage.
G. Pertaining to audits of investing agencies: Investing agencies,
which are defined as STO, PERA, ERB, and the state investment council, shall
prepare schedules of asset management
costs which include management fee information by investment class.
(1) For all asset
classes except private asset classes and alternative investment classes, the
schedules shall, at minimum, include the following information:
(a) relating to
consultants: the name of the firm or individual, the location of the consultant
(in-state or out-of-state), a brief description of investments subject to the
agreement, and fees;
(b) relating
to third-party marketers (as defined
in Section 6-8-22 NMSA 1978): the name of the firm or individual, the location
of the marketer (in-state or out-of-state), a brief description of investments
subject to the agreement, and any fees, commissions or retainers;
(c) relating
to traditional asset classes: name of the investment, asset class, value of the
investment, and fees (including both “direct” and “embedded” costs).
(2) For private
asset classes and alternative investment classes, the schedules shall, at
minimum, include the following information:
(a) relating to
consultants: the aggregate fees by asset class and consultant location
(in-state or out-of-state), and a brief description of investments included in each
asset class;
(b) relating
to third-party marketers (as defined
in Section 6-8-22 NMSA 1978): aggregate fees, commissions and retainers by
asset class and third-party marketer location (in-state or out-of-state), and a
brief description of investments included in each asset class;
(c) relating
to alternative asset classes: the total fees by asset class (including both
“direct” and “embedded” costs), and a brief description of the investments
included in each asset class.
(3) These
schedules shall be included as unaudited other information in the audit report.
The IPA shall submit an electronic excel version of the schedules of asset
management costs using the form provided by the OSA with the final PDF version
of the audit report as required by Subsection B of Section 2.2.2.9 NMAC. The GAO may aggregate, analyze and publish asset
management cost information.
[2.2.2.12
NMAC, Rp, 2.2.2.12 NMAC, 2/27/2018]
2.2.2.13 REVIEW OF AUDIT REPORTS AND
AUDIT DOCUMENTATION:
A. Statutory requirement
to review audit reports: Subsection B of Section 12-6-14 NMSA 1978
requires the state auditor or personnel of his office designated by him examine
all reports of audits of agencies made pursuant to contract. All audits performed under contracts approved
by the state auditor are subject to review.
The OSA shall 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 OSA shall review all audit reports
submitted by the report due date before reviewing reports that are submitted
after the report due date. As discussed in
Subsection B of Section 2.2.2.9 NMAC, audit reports reissued by the agency and
IPA, pursuant to AU-C 560, are also subject to OSA review procedures.
B. Comprehensive reviews: Released audit
reports are subject to a comprehensive report and audit documentation review by
the state auditor. The IPA’s audit
documentation shall be assembled in one complete file or one complete set of
files in one location, whether the documentation is hardcopy or
electronic. The documentation shall be
either all hardcopy or all electronic. OSA
reviews of audit and AUP working papers include inspection of firm
documentation related to compliance with governmental auditing, accounting and
financial reporting standards, rules and other requirements issued by GASB,
AICPA, GAO, and the OSA.
C. Consequences of deficiencies: If during the course
of its review of an audit report or the related audit documentation, the OSA finds
significant deficiencies that warrant a determination that the audit was not
made in accordance with the provisions of the contract or applicable standards
and requirements, any or all of the following action(s) may be taken;
(1) the
IPA may be required by OSA to correct the deficiencies in the report or audit
documentation, and reissue the audit report to the agency and any others
receiving copies;
(2) for
future audit reports, for some or all audit contracts, the IPA may be required to submit working papers with the audit
reports for review by the OSA prior to the release of the report; or
(3) the
IPA may be referred to the New Mexico public accountancy board for possible
licensure action.
D. Results of work paper reviews: After the review is
completed, the OSA shall issue a letter to advise the IPA about the results of
the review. The IPA shall 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 shall be noted during the
firm profile review process.
[2.2.2.13
NMAC - Rp, 2 2.2.13 NMAC, 2/27/2018]
2.2.2.14 CONTINUING
PROFESSIONAL EDUCATION AND PEER REVIEW REQUIREMENTS:
A. Continuing professional education: IPAs shall ensure
that all members of their staff comply with the CPE requirements of the most
recent revision of GAGAS. Accordingly, each auditor performing work in
accordance with GAGAS shall 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 agency operates. Auditors who are involved in planning,
directing, or reporting on GAGAS audits and auditors who are not involved in
those activities but charge twenty percent or more of their time annually to
GAGAS audits shall also obtain at least an additional 56 hours of CPE that
enhances the auditor’s professional proficiency to perform audits.
B. Peer review requirements: IPAs shall comply
with the requirements of GAGAS Sections 3.82 to 3.107 relating to quality
control and assurance and external peer review.
(1) Per
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 view program or should have enrolled, whichever is
earlier. A firm’s subsequent peer review
is due three years and six months from the previous peer review year end.
(2) The
IPA firm profile submission to the state auditor shall include copies of the
following peer review documentation:
(a) the
peer review report for the auditor’s firm;
(b) if
applicable, detailed descriptions of the findings, conclusions and
recommendations related to deficiencies or significant deficiencies required by
GAGAS 3.103;
(c) if
applicable, the auditor's response
to deficiencies or significant deficiencies;
(d) the
letter of acceptance from the peer review program in which the firm is
enrolled; and
(e) a
list of the governmental audits reviewed during the peer review.
(6) A
peer review rating of “failed” on the auditor’s peer review shall disqualify
the IPA from performing New Mexico governmental audits.
(7) During
the procurement process IPAs shall provide a copy of their most recent external
peer review report to the agency with their bid proposal or offer. Any subsequent peer review reports received
during the period of the contract shall also be provided to the agency.
(8) The
peer review shall meet the requirements of GAGAS 3.96 to 3.107.
(9) The
New Mexico public accountancy board’s substantial equivalency provision has
been replaced with mobility pursuant to the 1999 Public Accountancy Act (61-28B
NMSA 1978). If a CPA is performing any
type of attest work subject to this rule, his firm shall maintain a New Mexico firm
permit.
(10) The peer reviewer
shall be familiar with this rule. This
is a requirement of the state auditor that can be achieved by attendance at audit
rule training provided by the OSA.
C. State auditor quality control reviews: The state auditor
performs its own quality control review of IPA audit reports and working
papers. An IPA that is included on the
state auditor’s list of approved firms for the first time shall be subject to
an OSA quality control review of the IPA’s working papers. This review shall be conducted as soon as the
documentation completion date, as defined by AU-C Section 230, has passed (60
days after the report release date). When
the result of the state auditor’s quality control review differs significantly
from the external quality control report and corresponding peer review rating,
the state auditor may no longer accept external peer review reports performed
by that reviewer. In making this
determination, the state auditor shall take into consideration the fact that
AICPA peer reviews are performed on a risk-based or key-element approach
looking for systemic problems, while the state auditor reviews are
engagement-specific reviews.
[2.2.2.14
NMAC - Rp, 2.2.2.14 NMAC, 2/27/2018]
2.2.2.15 SPECIAL AUDITS, ATTESTATION
ENGAGEMENTS, PERFORMANCE AUDITS AND FORENSIC AUDITS:
A. Fraud, waste or abuse in government reported
by agencies, IPAs or members of the public:
(1) Definition of fraud: Fraud includes, but is not limited to,
fraudulent financial reporting, misappropriation of assets, corruption, and use
of public funds for activities prohibited by the constitution or laws of the
state of New Mexico. Fraudulent
financial reporting means intentional misstatements or omissions of amounts or
disclosures in the financial statements to deceive financial statement users,
which may include intentional alteration of accounting records,
misrepresentation of transactions, or intentional misapplication of accounting
principles. Misappropriation of assets
means theft of an agency’s assets, including theft of property, embezzlement of
receipts, or fraudulent payments. Corruption
means bribery and other illegal acts. (GAO-14-704G federal internal control standards
paragraph 8.02).
(2) Definitions
of waste and abuse: Waste is the act of
using or expending resources carelessly, extravagantly, or to no purpose. Abuse involves behavior that is deficient or
improper when compared with behavior that a prudent person would consider
reasonable and necessary operational practice given the facts and
circumstances. This includes the misuse
of authority or position for personal gain or for the benefit of another. Waste
and abuse do not necessarily involve fraud or illegal acts. However, they may be an indication of
potential fraud or illegal acts and may still impact the achievement of defined
objectives. (GAO-14-704G federal internal control standards paragraph 8.03).
(3) Reports of fraud, waste
& abuse: Pursuant to the authority
set forth Section 12-6-3 NMSA 1978, the state auditor may conduct initial
fact-finding procedures in connection with reports of financial fraud, waste
and abuse in government made by agencies, IPAs or members of the public. Reports may be made telephonically or in
writing through the fraud hotline or website established by the state auditor
for the confidential reporting of financial fraud, waste, and abuse in
government. Reports may be made
telephonically to the fraud hotline by calling 1-866-OSA-FRAUD (1-866-672-3728)
or reported in writing through the state auditor’s website at www.saonm.org. Reports received or created by the state auditor
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.
(4) Confidential sources: 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.
(5) Confidentiality of files:
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 prior to
the release of an audit report, except 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.
(6) The
OSA may make inquiries of agencies as part of the fact-finding process
performed by the OSA’s special investigations division. Agencies shall respond
to OSA inquiries within 21 calendar days of receipt. IPAs shall test compliance
with this requirement and report noncompliance as a finding in the annual
financial and compliance audit report.
B. Special
audit or attestation examinations, performance
audits and forensic audits:
(1) Designation: Pursuant to Section 12-6-3 NMSA 1978, in
addition to the annual audit, the state auditor may cause the financial affairs
and transactions of an agency to be audited in whole or in part. Accordingly, the state auditor may designate
an agency for special audit, attestation engagement, performance audit or
forensic audit regarding the financial affairs and transactions of an agency or
local public body based on information or a report received from an agency, IPA
or member of the public. For purposes of
this rule, the term “special audit, attestation engagement, performance audit
or forensic audit” includes, without limitation, agreed-upon procedures, consulting,
and contract close-out (results-based award) engagements that address financial
fraud, waste or abuse in government. The
state auditor shall inform the agency of the designation by sending the agency
a notification letter. The state auditor
may specify the audit subject matter, the scope and any procedures required,
the AICPA professional standards that apply, and for a performance audit,
performance aspects to be included and the potential findings and reporting
elements that the auditors expect to develop. Pursuant to Section 200.503 of Uniform
Guidance, if a single audit was previously performed, the special audit,
attestation engagement, performance audit or forensic audit shall be planned
and performed in such a way as to build upon work performed, including the
audit documentation, sampling, and testing already performed by other auditors.
The attestation and performance audit
engagements may be conducted pursuant to government auditing standards if so
specified by the OSA.
(2) Costs: All reasonable costs of special audits, attestation
engagements, forensic audits, or single-entity performance audits conducted
pursuant to this section shall be borne by the agency audited pursuant to Section
12-6-4 NMSA 1978. The state auditor, in
its sole discretion, may apportion among the entities audited some or all of
the reasonable costs of a multi-entity performance audit.
(3) Who
performs the engagement: The state auditor
may perform the special audit, attestation engagement, performance audit or
forensic audit, alone or with other professionals selected by the state auditor.
Alternatively, the state auditor may
require the engagement to be performed by an IPA or a team that may be
comprised of any of the following: independent public accountants; individuals
with masters degrees or doctorates in a relevant field such as business, public
administration, public policy, finance, or economics; individuals with their
juris doctorate; CFE-certified fraud examiners; CFF-certified forensic
auditors; CIA-certified internal auditors; or other specialists. If the state auditor designates an agency for
an engagement to be conducted by an IPA or professional team, the agency shall:
(a) upon
receipt of notification to proceed from the state auditor, identify all
elements or services to be solicited, obtain the state auditor’s written
approval of the proposed scope of work, and request quotations or proposals for
each applicable element of the engagement;
(b) follow
all applicable procurement requirements which may include, but are not limited
to, Uniform Guidance, Procurement Code (Section 13-1 NMSA 1978), or equivalent
home rule procurement provisions when selecting an IPA or team to perform the
engagement;
(c) submit the
following information to the state auditor by the due date specified by the state
auditor:
(i) a completed recommendation
form for special audits, attestation engagements, performance audits or
forensic audits (the form) provided at www.osanm.org, which 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 in the format prescribed by the OSA,
provided at www.osanm.org, with all required signatures on the contract.
(d) If
the agency fails to select an IPA and submit the recommendation form and signed
contract to OSA by the due date specified by the state auditor, or, if none
within 60 days of notification of designation from the state auditor, the state
auditor may conduct the audit or select the IPA for that agency in accordance
with the process described at Subsection F of Section 2.2.2.8 NMAC.
(4) Errors: Recommendation forms and contracts
that are submitted to the OSA with errors or omissions shall be rejected by the
state auditor. The state auditor shall
return the rejected recommendation form and contract to the agency indicating the
reason(s) for the rejection.
(5) Recommendation
rejections: In the event the agency’s
recommendation is not approved by the state auditor, the state auditor shall
promptly communicate the decision, including the reason(s) for rejection, to
the agency, at which time the agency shall promptly submit a different
recommendation. This process shall
continue until the state auditor approves a recommendation and related contract.
During this process, whenever a recommendation and related contract are not approved,
the agency may submit a written request to the state auditor for
reconsideration of the disapproval. The
agency shall submit its request no later than 15 calendar days from the date of
the disapproval and shall include documentation in support of its
recommendation. If warranted, after
review of the request, the state auditor may hold an informal meeting to
discuss the request. The state auditor shall
set the meeting in a timely manner with consideration given to the agency’s
circumstances.
(6) Contract
Amendments: Any proposed contract amendments shall be
processed in accordance with Subsection N of Section 2.2.2.8 NMAC.
(7) Access
to records and documents: 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.
(8) Entrance,
progress and exit conferences: The IPA
or other professional shall hold an entrance conference and an exit conference
with the agency, unless the IPA or other professional has submitted a written
request to the state auditor for an exemption from this requirement and has
obtained written approval of the exemption.
The OSA has the authority to notify the agency or IPA or other
professional that the state auditor shall be informed of the date of the
entrance conference, any progress meetings and the exit conference. If such notification is received, the IPA or
other professional and the agency shall invite the state auditor or his
designee to attend all such conferences no later than 72 hours before the
proposed conference or meeting. The state
auditor may also require the IPA or other professional to submit its audit plan
to the state auditor for review and approval.
(9) Required
reporting: All reports for special audits,
attestation engagements, performance audits, or forensic audits related to
financial fraud, waste or abuse in government undertaken pursuant to Section 2.2.2.15
NMAC (regardless of whether they are conducted pursuant to AICPA standards for
consulting services or for attestation engagements) shall report as findings
any fraud, illegal acts, non-compliance or internal control deficiencies, pursuant
to Section 12-6-5NMSA 1978. Each finding
shall comply with the requirements of Subsection L of Section 2.2.2.10 NMAC.
(10) Report
review: The state auditor shall review
reports of any special audit, attestation engagement, performance audit or
forensic audit made pursuant to this section for compliance with the
professional services contract and this rule. Upon completion of the report, the IPA or other
professional shall deliver the organized and bound report to the state auditor
with a copy of any signed management representation letter. Unfinished or
excessively deficient reports shall be rejected by the state auditor. If the report is rejected the firm shall submit
an electronic version of the corrected rejected report for state auditor review.
The name of the electronic file shall be
“corrected rejected report” followed by the agency name and fiscal year. The IPA or other professional shall respond to
all review comments as directed by the state auditor.
(11) Report
release: After OSA’s review of the report for compliance with the professional
services contract and this rule, the state auditor shall authorize the IPA to
print and submit the final report. The
required number of hardcopies specified in the professional services contract and
an electronic version of the report, in the PDF format described at Subsection B
of Section 2.2.2.9 NMAC, shall be delivered to the state auditor within five
business days. The state auditor shall
not release the report until all the required documents are received by the state
auditor. The state auditor shall provide
the agency with a letter authorizing final payment to the IPA and the release
of the report pursuant to Section 12-6-5NMSA 1978. Agency and local public body personnel shall
not release information to the public relating to the special audit,
attestation engagement, performance audit or forensic audit engagement until
the report is released and has become a public record pursuant to Section 12-6-5NMSA
1978. Except for the exception under Subsection
B of Section 2.2.2.15 NMAC, at all times during the engagement and after the
engagement report becomes a public record, the IPA or other professional(s)
shall not disclose to the public confidential information about the auditee or
about the engagement. Confidential information is information that is not
generally known to the public through common means of providing public
information like the news media and internet.
(12) Disclosure
by professionals: The IPA or other
professional shall not disclose confidential information provided to them by
the state auditor unless otherwise specified by the state auditor. Disclosure of confidential information by the
IPA or other professional may result in legal action by the state auditor, or
in the case of an IPA, restriction pursuant to Subsection D of Section 2.2.2.8
NMAC.
(13) Payment:
Progress payments up to (but not
including) ninety percent of the contract amount do not require state auditor
approval and may be made by the agency if the agency monitors the progress of
the services procured. If requested by
the state auditor, the agency shall provide a copy of the approved progress
billing(s). Final payments of ninety
percent and above 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.
C. Agency-initiated
special audits, attestation engagements, performance audits and forensic audits:
(1) Applicability:
With the exception of agencies that are
authorized by statute to conduct performance audits and forensic audits, this section
applies to all instances in which an agency enters into a professional services
contract for a special audit, attestation engagement, performance audit, or
forensic audit relating to financial fraud, waste or abuse, but the agency has
not been designated by the state auditor for the engagement pursuant to Subsection
B of Section 2.2.2.15 NMAC. For purposes
of this rule, the term “special audit, attestation engagement, performance
audit or forensic audit” includes, without limitation, agreed-upon procedures,
consulting, and contract close-out (results-based award) engagements that
address financial fraud, waste or abuse in government.
(2) Contracting: An agency, IPA or other professional shall not
enter into a professional services contract for a special audit, attestation
engagement, performance audit, 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 shall
be submitted to the state auditor for review and approval after it has been
signed by the agency and the IPA or other professional, unless the agency or
IPA or other professional applies to the state auditor for an exemption and the
state auditor grants the exemption. When
contracting with an IPA or other professional, the agency shall contract only
with an IPA or other professional that has been approved by the state auditor
to conduct such work. The state auditor
may, in its sole discretion, require a non-IPA professional to submit proof of
qualifications, a firm profile or equivalent documentation prior to approving
the contract. The contract shall include
the contract fee, start and completion date, and the specific scope of services
to be performed, and shall follow any template that the state auditor may
provide.
(3) Applicability
of other rules: The provisions outlined
in Subsection B of Section 2.2.2.15 NMAC apply to agency-initiated special
audits, attestation engagements, performance audits and forensic audits.
[2.2.2.15
NMAC - Rp, 2.2.2.15 NMAC, 2/27/2018]
2.2.2.16 ANNUAL FINANCIAL PROCEDURES
REQUIRED FOR LOCAL PUBLIC BODIES WITH ANNUAL REVENUES LESS THAN FIVE HUNDRED
THOUSAND DOLLARS ($500,000) (TIERED SYSTEM):
A. Annual revenue determines
type of financial reporting: All local public
bodies shall comply with the requirements of Section 6-6-3 NMSA 1978. Pursuant
to Section 12-6-3 NMSA 1978, the annual revenue of a local public body
determines the type of financial reporting a local public body shall submit to
the OSA. Local public bodies are mutual
domestic water consumers associations, land grants, incorporated
municipalities, and special districts. The
annual revenue of a local public body shall be calculated on a cash basis,
excluding capital outlay funds, federal and private grants. For the purpose of Section 2.2.2.16 NMAC
“capital outlay” is funding provided through capital appropriations of the New
Mexico legislature. For the purpose of Section 2.2.2.16 NMAC “private grant”
means funding provided by a non-governmental entity.
B. Determination of revenue and services: Annually, following
the procedures described in Subsection F of Section 2.2.2.8 NMAC, the state auditor
shall provide local public bodies written authorization to obtain services to
conduct a financial audit or other procedures.
Upon receipt of the authorization, a local public body shall determine
its annual revenue in accordance with Subsection A of Section 2.2.2.16 NMAC. The following requirements for financial
reporting apply to the following annual revenue amounts (tiers):
(1) if
a local public body’s annual revenue is less than ten thousand dollars ($10,000)
and the local public body did not directly expend at least fifty percent of, or
the remainder of, a single capital outlay award, then the local public body is
exempt from submitting a financial report to the state auditor, except as
otherwise provided in Subsection C of Section 2.2.2.16 NMAC;
(2) if
a local public body’s annual revenue is ten thousand dollars ($10,000) or more
but less than fifty thousand dollars ($50,000), then the local public body is
exempt from submitting a financial report to the state auditor, except as
otherwise provided in Subsection C of Section 2.2.2.16 NMAC;
(3) if a local
public body’s annual revenue is less than fifty thousand dollars ($50,000), and
the local public body expended at least fifty percent of, or 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 three agreed upon procedures
engagement in accordance with the audit contract for a tier three agreed upon procedures
engagement;
(4) if
a local public body’s annual revenue is greater than fifty thousand dollars ($50,000)
but less than two hundred-fifty thousand dollars ($250,000), then the local
public body shall procure the services of an IPA for the performance of a tier
four agreed upon procedures engagement in accordance with the audit contract
for a tier four agreed upon procedures engagement;
(5) if
a local public body’s annual revenue is greater than fifty thousand dollars ($50,000)
but less than two hundred-fifty thousand dollars ($250,000), and the local
public body expended any capital outlay funds, then the local public body shall
procure the services of an IPA for the performance of a tier five agreed upon procedures
engagement in accordance with the audit contract for a tier five agreed upon procedures
engagement;
(6) if a local
public body’s annual revenue is two hundred-fifty thousand dollars ($250,000) or
greater, but less than five hundred thousand dollars ($500,000), the local
public body shall procure services of an IPA for the performance of a tier six agreed
upon procedures engagement in accordance with the audit contract for a tier six
agreed upon procedures engagement;
(7) if
a local public body’s annual revenue is five hundred thousand dollars ($500,000)
or more, this section shall not apply and the local public body shall procure
services of an IPA for the performance of a financial and compliance audit in
accordance with other provisions of this rule;
(8) not-withstanding
the annual revenue of a local public body, if the local public body expended seven
hundred-fifty thousand dollars ($750,000) or more of federal funds subject to a
federal single audit during the fiscal year then the local public body shall
procure a single audit.
C. Exemption from financial reporting: A local public
body that is exempt from financial reporting to the state auditor pursuant to Subsection
B of Section 2.2.2.16 NMAC shall submit written certification to LGD and the state
auditor. The certification shall be provided on the form made by the state
auditor, available through OSA-Connect.
The local public body shall certify, at a minimum:
(1) the local
public body’s annual revenue for the fiscal year; and
(2) that
the local public body did not expend fifty percent of or the remainder of a
single capital outlay award.
D. Procurement of IPA services: A local public body
required to obtain an agreed-upon procedures engagement shall procure the
services of an IPA in accordance with Subsection F of Section 2.2.2.8 NMAC.
E. Requirements of the IPA selected to perform
the agreed-upon procedures:
(1) The
IPA shall provide the local public body with a dated engagement letter during
the planning stages of the engagement, describing the services to be
provided. See Subsection F of Section
2.2.2.10 NMAC for applicable restrictions on the engagement letter.
(2) The
IPA may not subcontract any portion of the services to be performed under the
contract with the local public body except for the activation of a contingency subcontractor
form in the event the IPA is unable to complete the engagement.
(3) The IPA shall
hold an entrance conference and an exit conference with the local public body
unless the IPA has submitted a written request to the OSA for an exemption from
this requirement and has obtained written approval of the exemption from the OSA. Unless the cost of the AUP is five thousand
dollars ($5,000) (excluding GRT) or less, the exit conference shall be held in
person; a telephone or webcam exit conference shall not meet this
requirement. The OSA has the authority
to notify the agency or IPA that the state auditor shall be informed of the
date of the entrance conference, any progress meetings and the exit
conference. If such notification is
received, the IPA and agency shall invite the state auditor or his designee to
attend all such conferences no later than 72 hours before the proposed
conference or meeting.
(4) The IPA shall
submit the report to the OSA for review in accordance with the procedures
described at Subsection B of Section 2.2.2.9 NMAC. Before submitting the report
to OSA for review, the IPA shall review the report using the AUP report review
guide available on the OSA’s website at www.saonm.org. The report shall be submitted to the OSA for
review with the completed AUP report review guide. Once the audit report is officially released
to the agency by the state auditor (by a release letter) and the required
waiting period of five calendar days has passed, unless waived by the agency in
writing, the audit report shall be presented by the IPA, to a quorum of the
governing authority of the agency at a meeting held in accordance with the Open
Meetings Act, if applicable. This
requirement only applies to agencies with a governing authority, such as a
board of directors, board of county commissioners, or city council, which is
subject to the Open Meetings Act. The
IPA shall ensure that the required communications to those charged with
governance are made in accordance with AU-C 260.12 to 260.14.
(1) Progress
payments up to ninety percent of the contract amount do not require state auditor
approval and may be made by the local public body if the local public body
ensures that progress payments made do not exceed the percentage of work
completed by the IPA. If requested by
the state auditor, the local public body shall provide the OSA a copy of the approved
progress billing(s).
(2) Final
payments from ninety percent to one hundred percent may be made by the local
public body only after the state auditor has stated in a letter to the local
public body that the agreed-upon procedures report has been released by the state
auditor and the engagement and management representation letter have been
received by the state auditor.
G. Report due dates, notification letters and confidentiality:
(1) For local
public bodies with a June 30 fiscal year-end that qualify for the tiered system,
the report or certification due date is December 15. Local public bodies with a fiscal year end
other than June 30 shall submit the agreed-upon procedures report or
certification no later than five months after the fiscal year-end. Late agreed-upon procedures reports (not the
current reporting period) are due not more than six months after the date the
contract was executed. An organized
bound hard copy of the report shall be submitted to the OSA. Agreed-upon procedures reports submitted via
fax or email shall not be accepted. A
copy of the signed dated management representation letter shall be submitted
with the report. If a due date falls on
a weekend or holiday, or if the OSA is closed due to inclement weather, the
report is due the following business day by 5:00 pm. If the report is mailed to the state auditor,
it shall be postmarked no later than the due date to be considered filed by the
due date. If the due date falls on a
weekend or holiday the audit report shall be postmarked by the following business
day.
(2) As
soon as the IPA becomes aware that circumstances exist that will make the local
public body’s agreed-upon procedures report be submitted after the applicable
due date, the auditor shall notify the state auditor and oversight agency of
the situation in writing. This
notification shall consist of a letter, not an email. However, a scanned version of the official
letter sent via email is acceptable.
There shall be a separate notification for each late agreed-upon
procedures report. The notification shall
include a specific explanation regarding why the report will be late, when the
IPA expects to submit the report and a concurring signature by the local public
body. If the IPA will not meet the
expected report submission date, then the IPA shall send a revised notification
letter. In the event the contract was
signed after the report due date, the notification letter shall still be
submitted to the OSA explaining the reason the agreed-upon procedures report
will be submitted after the report due date. A copy of the letter shall 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 OSA for review by the deadline, and
then rejected by the OSA, making the report late when resubmitted.
(3) Local public
body personnel shall not release information to the public relating to the
agreed-upon procedures engagement until the report is released and has become a
public record pursuant to Section 12-6-5NMSA 1978. At all times during the engagement and after
the agreed-upon procedures report becomes a public record, the IPA shall follow
applicable professional standards and Section 2.2.2 NMAC regarding the release
of any information relating to the agreed-upon procedures engagement.
H. Findings: All agreed upon
procedures engagements shall report as findings any fraud, illegal acts, non-compliance
or internal control deficiencies, consistent with Section 12-6-5NMSA 1978. The findings shall include the required content
listed at Subsection L of Section 2.2.2.10 NMAC.
I. Review of agreed-upon procedures reports
and related workpapers: Agreed-upon procedures reports shall be
reviewed by the OSA for compliance with professional standards and the
professional services contract. Noncompliant
reports shall be rejected and not considered received. Such reports shall be returned to the firm
and a copy of the rejection letter shall be sent to the local public body. If the OSA rejects and returns an agreed upon
procedures report to the IPA, the report shall be corrected and resubmitted to
the OSA by the due date, or the IPA shall include a finding for non-compliance with
the due date. The IPA shall submit an
electronic version of the corrected rejected report for OSA review. The name of the electronic file shall be “corrected
rejected report” followed by the agency name and fiscal year. The OSA encourages early submission of reports
to avoid findings for late reports.
After its review of the agreed-upon procedures report for compliance
with professional standards and the professional services contract, the OSA shall
authorize the IPA to print and submit the final report. The required number of hardcopies of the final
report as specified in the professional services contract, an electronic excel
version of the findings summary form and an electronic version of the agreed
upon procedures report, in PDF format as described at Subsection B of Section 2.2.2.9
NMAC, shall all be delivered to the OSA within five business days. The OSA shall not release the agreed-upon
procedures report until the electronic version of the report is received by the
OSA. The OSA shall provide the local
public body with a letter authorizing the release of the report after the
required five day waiting period, and final payment to the IPA. Released reports may be selected by the OSA for
comprehensive report and workpaper reviews.
After such a comprehensive report and workpaper review is completed, the
OSA shall issue a letter to advise the IPA about the results of the
review. The IPA shall respond to all
review comments as directed. If during
the course of its review, the OSA finds significant deficiencies that warrant a
determination that the engagement was not performed in accordance with
provisions of the contract, applicable AICPA standards, or the requirements of
this rule, any or all of the following action(s) may be taken:
(1) the
IPA may be required to correct the deficiencies in the report or audit
documentation, and reissue the agreed upon procedures report to the agency and
any others receiving copies;
(2) the
IPA’s eligibility to perform future engagements may be limited in number or
type of engagement pursuant to Subsection D of Section 2.2.2.8 NMAC;
(3) for
future reports, for some or all contracts, the IPA may be required to submit
working papers with the reports for review by the OSA prior to the release of
the report; or
(4) the
IPA may be referred to the New Mexico public accountancy board for possible
licensure action.
J. IPA Independence: IPA’s that perform
agreed-upon procedure engagements under Section 2.2.2.16 NMAC shall maintain
independence in fact 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 non-attest service
contracts with that local public body without the prior written approval of the
state auditor.
(2) To
obtain this approval, the IPA shall follow the requirements set forth in Subsection
L of Section 2.2.2.8 NMAC.
[2.2.2.16
NMAC, Rp, 2.2.2.16, 2/27/2018]
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
5/14/1971; SA Rule No. 71-2, Regulations of State Auditor for Audits by
Independent Auditors, filed 5/27/1971; 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 6/1/1972; SA Rule No. 72-2, Regulations of State
Auditor for Audits by Independent Auditors, filed 6/1/1972; SA Rule No. 74-1,
Regulations of State Auditor Relating to Reporting Statutory Violations, filed
2/28/1974; SA Rule No. 74-2, Rotation of Assignments, filed 2/28/1974; SA No.
78-1, Regulations Governing the Auditing of New Mexico Governmental Agencies,
filed 11/3/1978; Amendment No. 1 to SA Rule 78-1, Regulations Governing the
Auditing of New Mexico Governmental Agencies, filed 5/28/1980; SA Rule No.
82-1, Regulation Governing the Auditing of New Mexico Governmental Agencies,
filed 12/17/1982; SA Rule No. 84-1, Regulations Governing the Auditing of
Agencies of the State of New Mexico, filed 4/10/1984; SA Rule No. 85-1, Regulations
Governing the Auditing of Agencies of the State of New Mexico, filed 1/28/1985;
SA Rule No. 85-3, Regulation for State Agencies Concerning NCGA Statement No. 4
- Accounting and Financial Reporting Principles for Claims and Judgements and
Compensated Absences, filed 4/16/1980; SA Rule No. 85-4, Regulations Governing
the Auditing of Housing Authorities of the State of New Mexico, filed 6/12/1985;
SA Rule No. 85-5, Regulations Pertaining to Single Audits of State Agencies and
Local Public Bodies, filed 6/17/1985; SA Rule No. 85-6, Audits of Grants to
Subrecipients, filed 6/17/1985; SA Rule 86-1, Regulations Governing the Audits
of Agencies of the State of New Mexico, filed 1/20/1986; SA Rule No. 86-2,
Regulation Governing Violations of Criminal Statutes in Connection with
Financial Affairs, filed 3/20/1986; SA Rule No. 86-3, Professional Services
Contracts, filed 7/9/1986; SA Rule 87-1, Regulations Governing the Audits of
Agencies of the State of New Mexico, filed 2/13/1987; SA Rule 87-2, Approval of
Audit Contracts, filed 4/2/1987; SA Rule 87-3, Audit Requirements for Deferred
Compensation, Retirement Plans, Budget and Public Money for the State of New
Mexico, filed 8/14/1987; SA Rule 88-1, Regulations Governing the Audits of
Agencies of the State of New Mexico, filed 2/10/1988; SA Rule 89-1, Regulations
Governing the Audits of Agencies of the State of New Mexico, filed 3/10/1989;
SA Rule 90-1, Regulations Governing the Audits of Agencies of the State of New
Mexico, filed 3/1/1990; SA Rule 90-3, Auditor's Responsibilities Related to
Fees Collected on Convictions Relating to Intoxicating Liquor and Controlled
Substances, filed 5/7/1990; SA Rule 91-1, Regulations Governing the Audits of
Agencies of the State of New Mexico, filed 3/13/1991; SA Rule 92-1, Regulations
Governing the Audits of Agencies of the State of New Mexico, filed 3/6/1992; SA
Rule 93-1, Regulations Governing the Audits of Agencies of the State of New
Mexico, filed 2/25/1993; SA Rule 94-1, Regulations Governing the Audits of
Agencies of the State of New Mexico, filed 2/25/1994; Amendment 1 to SA Rule
94-1, Regulations Governing the Audits of Agencies of the State of New Mexico,
filed 5/16/1994; SA Rule 95-1, Regulations Governing the Audits of Agencies of
the State of New Mexico, filed 3/16/1995; and 2 NMAC 2.2, Requirements for
Contracting and Conducting Audits of Agencies, filed 4/2/1996.
History of Repealed Material:
2 NMAC 2.2, Requirements for Contracting and
Conducting Audits of Entities - Repealed, 3/30/2001.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 3/29/2002.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 4/30/2003.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 3/31/2004.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 5/13/2005.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 3/16/2006.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 4/16/2007.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 4/15/2008.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 2/27/2009.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 2/12/2010.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 2/28/2011.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 2/15/2012.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 2/28/2013.
2.2.2 NMAC Requirements for Contracting and
Conducting Audits of Entities - Repealed, 2/28/2014.
2.2.2
NMAC Requirements for Contracting and Conducting Audits of Entities - Repealed,
3/16/2015.
2.2.2
NMAC Requirements for Contracting and Conducting Audits of Entities - Repealed,
3/15/2016.
2.2.2
NMAC Requirements for Contracting and Conducting Audits of Entities - Repealed,
3/14/2017.
2.2.2
NMAC Requirements for Contracting and Conducting Audits of Entities - Repealed,
2/27/2018.