TITLE
5 POST-SECONDARY
EDUCATION
CHAPTER
3 POST-SECONDARY EDUCATION
INSTITUTION FINANCES
PART
11 FISCAL OVERSIGHT
5.3.11.1 ISSUING
AGENCY: State of New Mexico Higher Education Department
[5.3.11.1
NMAC - N, 12/11/2018]
5.3.11.2 SCOPE:
Provisions of 5.3.11 NMAC apply to all public
higher education institutions operating within and receiving financial support
from the state of New Mexico.
[5.3.11.2 NMAC - N, 12/11/2018]
5.3.11.3 STATUTORY AUTHORITY: Section
9-25-8 NMSA 1978, Section 21-1-26 NMSA 1978, Section 21-1-26.3 NMSA 1978, Section 21-1-26.12 NMSA 1978, and Section
21-1-33 NMSA 1978.
[5.3.11.3 NMAC - N,
12/11/2018]
5.3.11.4 DURATION:
Permanent.
[5.3.11.4 NMAC - N, 12/11/2018]
5.3.11.5 EFFECTIVE DATE: December
11, 2018, unless a later date is cited at the end of a section.
[5.3.11.5 NMAC - N,
12/11/2018]
5.3.11.6 OBJECTIVE: The
objective of 5.3.11 NMAC is to:
A. establish
regulations and procedures for the fiscal oversight of institutions designated
in Article 12, Section 11 of the Constitution of New Mexico and any other
public higher education institutions operating within
and receiving financial support from the state of New Mexico;
B. develop
a system that measures, monitors, and verifies the fiscal health of
institutions and ensures governing boards continually monitor the overall fiscal
health of their institutions;
C. provide
fiscal oversight of institutions through accountability reporting; and
D. establish procedures to redress problems of finance or poor
fiscal health of institutions through use of the enhanced fiscal oversight program
(EFOP).
[5.3.11.6 NMAC - N,
12/11/2018]
5.3.11.7 DEFINITIONS:
A. “Accrediting agency” means an accrediting agency recognized by the
United States department of education that has issued an accreditation status to the institution.
B. “Attorney
general” means the New Mexico office of the attorney general.
C. “Board” or “Governing Board” means the board of
an institution, charged by law with determining financial policy and providing the
management and control to implement the financial policies at the institution. In the case of branch community colleges,
means both the board of regents and the advisory board of the institution.
D. “Department” means
the New Mexico higher education department.
E. “EFOP” means the
enhanced fiscal oversight program.
F. “Higher education
institution” or “Institution” means a public post-secondary higher education institution
operating within and receiving financial support from the state of New Mexico.
G. “IPA” means an independent public accountant.
H.
“OSA” means the New Mexico office of the state auditor.
I. “Risk factor” or “risk factors” means the factors outlined in Paragraphs 1 through 24 of Subsection A
of 5.3.11.9 NMAC, to be utilized by the department to detect potential problems
of finance and to evaluate fiscal health of institutions, pursuant to 5.3.11.9
NMAC.
J. “Substantial
mitigation” or “substantially
mitigate” or “substantially
mitigated” means significant remedial action to address any risk factor(s)
and demonstrable evidence that the risk factor(s) will be eliminated within 90
days.
[5.3.11.7 NMAC - N, 12/11/2018]
5.3.11.8 STANDARD REPORTING REQUIREMENTS:
A. Institutions
shall file financial reports in accordance with deadlines set by the
department, pursuant to a schedule published by the department. The department shall make the published
reporting schedule available on its website.
B. Institutions
shall submit all requested documentation to the department in the manner
requested by the department, utilizing any applicable forms.
C. The
department may request any additional supporting documentation to verify an institution’s
required submission.
D. Institutions
designated by the department to participate in the EFOP shall continue to comply
with standard reporting requirements as well as EFOP reporting requirements.
[5.3.11.8 NMAC - N, 12/11/2018]
5.3.11.9 EVALUATION OF FISCAL HEALTH: The department shall evaluate the reports submitted pursuant to
5.3.11.8 NMAC, in order to ensure accountability, detect potential problems of
finance, and to evaluate fiscal health of institutions. In its evaluation, the department will assess
potential risk factors exhibited by institutions that have predictive value to
identify problems of finance related to fiscal solvency or fiscal control
concerns of the institution. The department shall make careful consideration of
the severity, frequency, and the potential impact to the institution’s
financial stability when evaluating the risk factors. The department shall also consider whether
the institution has already remedied the risk factor(s) or the likelihood that
the institution can quickly redress the risk factor(s) to mitigate financial
impact to the institution.
A. The
department may determine that potential problems of finance exist within an
institution, if the institution exhibits one or more of the following risk
factors:
(1) financial ratios analysis which may highlight liquidity or
solvency issues (examples include, but are not limited to unrestricted
instruction and general fund balance as a percentage of total expenditures or financial
responsibility composite scores);
(2) weak unrestricted cash position;
(3) negative year-end fund balance;
(4) inability to pay vendor invoices promptly;
(5) delays in making pension retirement contributions;
(6) failure to make scheduled payroll payments;
(7) non-payment of debt principal or interest payment;
(8) requests for advanced state funding or emergency loans;
(9) failure to complete an annual financial audit;
(10) late submission of annual financial audit as determined by
OSA;
(11) annual financial audit with a disclaimer, adverse, or
modified audit opinion, as determined by an IPA;
(12) repeat audit findings classified as material weaknesses or
significant deficiencies, as determined by an IPA;
(13) a finding of fraud, waste, or abuse by OSA in a special
audit or investigation;
(14) an allegation of fraud or other crimes that relate to
financial control of the institution, made by a law enforcement agency;
(15) designation by accrediting agency of “show cause” or
“probation” status;
(16) determinations by the accrediting agency or IPA that
indicate concerns with board fiscal governance and control;
(17) lack of financial systems or resources to support strong
internal control (examples include, but are not limited to inadequate
staffing resources or lack of accounting infrastructure);
(18) significant negative variance between budget and actual
spending, as determined by an IPA;
(19) material
control weaknesses, material legal non-compliance or discussion and analysis
comments by institutional management in the annual financial audit, which could
indicate a significant effect to the financial condition of the institution in
the current and future years, as determined by an IPA;
(20) failure to obtain proper capital projects approval required by law or regulation from the department or the state board of finance, as determined by the department;
(21) failure to comply with any law or regulation related to capital projects, as determined by the department;
(22) failure to comply with any law, regulation, or restriction related to bonds or tax levies, as determined by the department;
(23) failure to comply with the department’s standard reporting requirements; or
(24) any other occurrence that indicates a lack of financial
stability or lack of strong internal control.
B. If in its
evaluation of the institution’s fiscal health, the department determines that
an institution exhibits one or more of the risk factors specified in Paragraphs
(1) through (24) of Subsection A of 5.3.11.9 NMAC, the department may assign
the institution to participate in the enhanced fiscal oversight program.
[5.3.11.9 NMAC - N,
12/11/2018]
5.3.11.10 ENHANCED
FISCAL OVERSIGHT PROGRAM OVERVIEW: The EFOP is administered by the
department for institutions found to exhibit risk factors indicating potential
problems of finance. An institution
assigned by the department to participate in the EFOP will be considered by the
department to be on EFOP status until the institution satisfactorily completes
all conditions of EFOP, as determined by the department. The program will establish reporting
requirements for the institution, increased monitoring and verification by the
department, and establish a systematic approach to substantially mitigate or
eliminate institutional risk factors.
[5.3.11.10 NMAC - N,
12/11/2018]
5.3.11.11 NOTICE OF CONTEMPLATED EFOP
STATUS: If in its evaluation of fiscal health the
department determines that potential problems of finance exist within the institution,
the department shall issue notice of contemplated EFOP status to the
institution. The notice shall indicate
the risk factor(s) identified by the department that provide the basis of the
contemplated EFOP status. Notice of contemplated EFOP status shall be sent via
certified mail to the president of the institution, the chair of the governing
board, and the chief financial officer of the institution.
[5.3.11.11 NMAC - N,
12/11/2018]
5.3.11.12 INITIAL MEETING: The institution shall schedule an initial meeting with the department within
30 days of issuance of notice of contemplated EFOP status. Representatives from the institution in
attendance at the initial meeting shall include the president of the
institution, the chair of the governing board, and the chief financial officer
of the institution. Representatives from
the department in attendance at the initial meeting shall include the department
cabinet secretary and designated department staff. During the initial meeting, the department
shall make available the reports or documents utilized in identifying the risk factor(s)
that served as the basis of the contemplated EFOP status. The institution may provide additional
documentation or information during the initial meeting, to be considered by
the department. Any documentation or
information provided by the institution shall be considered when determining
whether the institution shall be placed on EFOP status. The department shall consider information
provided by the institution that demonstrates the risk factor or risk factors
have already been remedied or the likelihood that the institution can quickly
redress the risk factor(s) to mitigate financial impact to the institution.
[5.3.11.12 NMAC - N,
12/11/2018]
5.3.11.13 NOTICE OF EFOP STATUS: Within
15 days of the initial meeting, the department shall issue notice regarding its
decision of whether the institution will be placed on EFOP status to the
president of the institution, the chair of the governing board, and the chief
financial officer of the institution via certified mail.
A. If
the department determines that the institution demonstrated the substantial
mitigation or elimination of the risk factor(s) that led to the notice of
contemplated EFOP status at the initial meeting, the department shall send
notice to the institution stating as such and withdraw the notice of
contemplated EFOP status.
B. If the
department determines that the risk factor(s) which led to the notice of contemplated EFOP
status have not been substantially mitigated or eliminated and potential
problems of finance continue to exist within the institution, the department
shall issue notice of EFOP status to the institution. If notice of EFOP status is issued, the
department shall also issue notice of the EFOP status to:
(1) the legislative finance committee;
(2) any accrediting agency of the institution;
(3) the department of finance and administration; and
(4) other entities, as determined by the department, that may be
concerned with any identified risk factor(s).
[5.3.11.13 NMAC - N,
12/11/2018]
5.3.11.14 CORRECTIVE ACTION PLAN:
A. The institution
shall submit to the department a corrective action plan to redress the risk
factor(s) identified in the notice of EFOP status, within 30 days of the
department’s issuance of notice of EFOP status.
B. The institution
may consult with the department in developing its corrective action plan. The institution is strongly
encouraged to engage in discussions with the department during the development
of a corrective action plan designed to substantially mitigate or eliminate the
risk factor(s).
C. After receipt of
the corrective action plan, the department may either accept the plan as
proposed, request additional information to accompany the plan, or reject the
plan as proposed. If the department
rejects the plan as proposed, the department shall issue its reasoning in
writing to the institution. If the
initial plan is rejected, the institution shall submit a new or revised plan
within 15 days of issuance of the rejection.
The corrective action plan proposed by the institution shall focus on actions which will rapidly address and substantially
mitigate or eliminate the risk factor(s) and must:
(1) identify responsible representatives of the institution that
will regularly communicate with the department while the institution is on EFOP
status;
(2) establish
a clear timeline and deadlines to complete proposed action steps to resolve the
risk factor(s) that prompted EFOP status;
(3) provide a description of the efforts or initiatives proposed
to address the risk factor(s) that prompted EFOP status; and
(4) provide analysis of how the proposed efforts or initiatives
will resolve the risk factor(s) that prompted EFOP status.
[5.3.11.14 NMAC - N,
12/11/2018]
5.3.11.15 EFOP REPORTING:
A. An institution placed on EFOP status shall provide periodic financial
reports, as determined by the department, in accordance with deadlines set by
the department.
B. The
department shall establish additional financial reporting requirements for an
institution placed on EFOP status. The
department shall establish a timeline and deadlines for institutional
reporting. In establishing the reporting
requirements for an institution on EFOP status, the department shall consider
the risk factor(s) exhibited by the institution and request reports that will
help the department monitor institutional progress to complete its corrective
action plan.
C. All reports
requested by the department shall be prepared pursuant to generally accepted
accounting principles. The department
may require the institution to submit one or more of the following reports, on
dates set by the department:
(1) year-to-date
revenue and expenditure results;
(2) monthly revenue and expenditure results;
(3) budget comparisons;
(4) cash position;
(5) associated bank
reconciliations;
(6) projected monthly cash flows for the remainder of the fiscal
year;
(7) projected monthly cash flows for the following twelve-month
period;
(8) monthly financial reports; or
(9) control gap closure report to include:
(a) listing of each control concern;
(b) action plan to correct concerns;
(c) expected gap closure date; and
(d) responsible party to ensure closure.
D. EFOP
reports shall be issued to other entities, in accordance with the department’s
determination. The department shall
determine the frequency in which other entities receive ongoing reports and
which of the ongoing reports shall be sent.
Other entities that may receive ongoing EFOP reports, based on the
determination of the department, include, but are not limited to:
(1) the legislative finance committee;
(2) the department of finance and administration;
(3) any accrediting agency of the institution;
(4) the United States department of education;
(5) OSA;
(6) the attorney general; or
(7) other entities, as determined by the department, that may be
concerned with any identified risk factor(s).
[5.3.11.15 NMAC - N,
12/11/2018]
5.3.11.16 CAMPUS VERIFICATION VISITS:
A. An on-site verification visit may be
scheduled at any campus location of an institution on EFOP status. During its on-site verification visit, the department
may:
(1) seek to verify any information reported by the institution;
(2) determine
the institution’s compliance with EFOP reporting requirements;
(3) verify the institution’s compliance with its corrective
action plan; and
(4) verify progress toward completion of the corrective action
plan and substantial mitigation or elimination of risk factor(s).
B. Prior to an
on-site verification visit, the department shall issue notice to the
institution of its intent to conduct a verification visit no less than 10 days
prior to the visit. The department shall
coordinate the verification visit with the institution and provide information
to be used by the department during the verification process.
C. The department
shall conduct meetings with institutional representatives at the beginning and
end of the verification visit to discuss objectives, procedures, time frame and
post-visit follow-up. A preliminary and
final report of the visit shall be shared with the institution for review and
comment. In its report, the department
may offer suggested remedies to cure any deficiencies discovered through the
verification process.
[5.3.11.16 NMAC - N,
12/11/2018]
5.3.11.17 ONGOING
COMMUNICATION:
A. An institution on EFOP status shall keep the department informed of any
new risk factor or risk factors that develop at the institution. The institution shall report any new risk
factor(s) immediately upon gaining actual knowledge of the new risk factor(s),
but no more than 10 days after gaining actual knowledge. The institution’s failure to report any new
risk factor(s) while on EFOP status may result in the department extending the
length of the EFOP status or additional reporting requirements. The institution may be required to submit an
updated corrective action plan addressing the new risk factor(s). Action taken to extend EFOP, modify EFOP reporting
requirements, or amend the corrective action plan will be based on the type of
new risk factor(s), at the discretion of the department. The department shall make careful
consideration of the severity, frequency, and the potential impact of the newly
identified risk factor(s) to the institution’s financial stability and the
institution’s demonstrated diligence in reporting the risk factor(s). If the institution is required to submit an
amended corrective action plan, the department
may either accept the amended plan as proposed, request additional information
to accompany the amended plan, or reject the amended plan as proposed. If the department rejects the amended plan as
proposed, the department shall issue its reasoning in writing to the
institution and the institution shall submit a new or revised amended plan
within 15 days of issuance of the rejection.
B. An institution
on EFOP status and the department may engage in periodic meetings. Meetings may be convened to identify reporting problems, clarify reporting requirements
and procedures, solicit information or assistance, ensure ongoing progress
toward completion of the corrective action plan, discuss current operating
results, discuss pending or proposed budget adjustment requests, or any other potential
issues related to EFOP.
C. If during the
course of implementing the corrective action plan, the institution determines
that all or part of the plan cannot be implemented as originally approved, the
institution must work with the department to submit an amended corrective
action plan. The department may either accept the amended
plan as proposed, request additional information to accompany the amended plan,
or reject the amended plan as proposed.
If the department rejects the amended plan as proposed, the department
shall issue its reasoning in writing to the institution and the institution
shall submit a new or revised amended plan within 15 days of issuance of the
rejection.
D. Representatives from the department may
request to address the governing board at scheduled governing board meetings.
[5.3.11.17 NMAC - N,
12/11/2018]
5.3.11.18 REMOVAL
OF EFOP STATUS:
A. The EFOP status of an institution shall remain in effect until the
department determines the risk factor(s) that led to the status have been
substantially mitigated or eliminated. Once
the department determines EFOP status may be removed, a letter issuing notice
of removal from EFOP status will be sent from the department cabinet secretary
to the president of the institution, the chair of the governing board, the
chief financial officer of the institution, and any other entity that was
previously notified when the EFOP status was initiated. The notice of removal from EFOP status will
include the specific criteria utilized by the department in its determination
to remove EFOP status. Examples of
conditions supporting removal of the EFOP status may include, but are not
limited to the following:
(1) material improvement in the fiscal stability of the institution
as documented in financial reports; or
(2) demonstration that fiscal controls have been implemented and
are functioning adequately as shown by:
(a) the institution’s ability to produce materially accurate and
complete financial statements and reports of account balances and transactions;
and
(b) audit opinions which are no longer modified, qualified,
adverse, or disclaimed.
B. The EFOP seeks
to ensure that potential problems of finance are substantially mitigated or
eliminated in a timely manner as demonstrated by fiscal liquidity, strong
internal controls and substantial mitigation or elimination of any risk
factor(s) that led to the EFOP status. In making its determination to remove an
institution from EFOP status the department will consider progress made toward
substantially mitigating or eliminating the risk factor(s), ability of the
institution to implement its corrective action plan, measures taken by the
institution to sustain efforts made through the corrective action plan, and the
fiscal outlook for the institution.
[5.3.11.18 NMAC - N,
12/11/2018]
5.3.11.19 FAILURE TO COMPLY WITH EFOP REQUIREMENTS:
A. The
following conditions shall constitute institutional non-compliance with EFOP:
(1) failure to schedule or attend the initial meeting pursuant
to 5.3.11.12 NMAC;
(2) failure to submit a corrective action plan pursuant to
5.3.11.14 NMAC;
(3) failure to obtain department approval of the proposed
corrective action plan or any amendments to the corrective action plan;
(4) failure to take steps to implement the corrective action
plan or any amendments to the corrective action plan;
(5) non-compliance with provisions of the corrective action plan
or any amendments to the corrective action plan;
(6) failure to submit EFOP reports in accordance with deadlines
set by the department;
(7) failure to report any new risk factor(s) while the
institution is on EFOP status pursuant to Subsection A of 5.3.11.17 NMAC; or
(8) failure to comply with any other aspect of the EFOP established
by the department within 5.3.11 NMAC.
B. If the
department finds that the institution has met one or more conditions of institutional
non-compliance with EFOP, the department shall issue notice stating the basis
of the non-compliance to:
(1) the president of the institution, the chair of the governing
board of the institution, and the chief financial officer of the institution;
(2) the legislative finance committee;
(3) the department of finance and administration; and
(4) any accrediting agency of the institution.
C. The department
shall provide a report regarding the risk factor(s) identified that led to the institution’s
EFOP status, the conditions that constitute institutional non-compliance, and any
relevant facts or circumstances surrounding the non-compliance to the
legislative finance committee during funding evaluations.
D. In
its discretion, the department may send notice of institutional non-compliance
with EFOP to:
(1) the United States department of education;
(2) OSA;
(3) the attorney general; or
(4) other entities, as determined by the department, that may be
concerned with any identified risk factor(s).
[5.3.11.19 NMAC - N,
12/11/2018]
HISTORY OF 5.3.11 NMAC: [RESERVED]