Current through Register Vol. 35, No. 6, March 26, 2024
A.
Annual
revenue and state funded capital outlay expenditures determine 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.
(1)
The annual revenue of a local public body shall be calculated on a cash basis
as follows:
(a) Revenue shall exclude capital
outlay funds. OSA defines capital outlay funds as funds expended pursuant to
the Property Control Act definition of a capital outlay project. Per Section
15-3B-2 NMSA 1978 "Capital outlay
project" means the acquisition, improvement, alteration or reconstruction of
assets of a long-term character that are intended to continue to be held or
used, including land, buildings, machinery, furniture and equipment. A "capital
outlay project" includes all proposed expenditures related to the entire
undertaking.
(b) Revenue shall
exclude federal or private grants. For the purpose of
2.2.2.16 NMAC "private grant" means
funding provided by a non-governmental entity.
(2) For the purposes of
2.2.2.16 NMAC "state funded capital
outlay expenditures" are expenditures made pursuant to any funding provided by
the New Mexico legislature for a capital outlay project as defined in the
Property Control Act, Section
15-3B-2 NMSA 1978, either received
directly by the local public body or disbursed through an administering
agency.
B.
Determination of revenue and services: Annually, following the
procedures described in Subsection F of
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
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
2.2.2.16 NMAC (tier one);
(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
2.2.2.16 NMAC (tier two);
(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 more of, a single capital outlay award
during the fiscal year, then the local public body shall procure the services
of an IPA for the performance of a tier three AUP engagement in accordance with
the audit contract for a tier three AUP 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 AUP
engagement in accordance with the audit contract for a tier four AUP
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 during the fiscal year, then the local public
body shall procure the services of an IPA for the performance of a tier five
AUP engagement in accordance with the audit contract for a tier five AUP
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
AUP engagement in accordance with the audit contract for a tier six AUP
engagement; the report shall include at a minimum, a compilation of financial
statements and a financial report consistent with the agreed-upon
procedures;
(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)
notwithstanding 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
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 during the
fiscal year.
(3) The OSA will not
accept the certification of exemption from financial reporting for the current
year until the prior year certifications or AUP reports (whichever is
appropriate) have been submitted.
D.
Procurement of IPA services:
A local public body required to obtain an AUP engagement shall procure the
services of an IPA in accordance with Subsection F of
2.2.2.8 NMAC.
E.
Access to Records and
Documents: For any AUP the agency should produce all documents necessary
to conduct the engagement.
F.
Requirements of the IPA selected to perform the AUP:
(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
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. The entrance and exit
conference shall occur in the forum agreed to by the local public body and the
IPA, to include virtual or telephonic options. The OSA reserves the right to
require an in-person entrance or exit conference. 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 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
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 AUP 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 AUP 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.
G.
Progress payments:
(1) Progress payments up to ninety-five
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-five percent
to one hundred percent may be made by the local public body pursuant to either
of the following:
(a) stated in the letter
accompanying the release of the report to the agency, or
(b) in the case of ongoing law enforcement
investigations, stated in a letter prior to the release of the report to the
agency. In this situation a letter releasing the report to the agency will be
issued when it is appropriate to release the report.
H.
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 AUP report or certification no later than five months
after the fiscal year-end. Late AUP reports (not the current reporting period)
are due not more than six months after the date the contract was executed. An
electronic copy of the report shall be submitted to the OSA. AUP 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 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.
(2) As soon as the
IPA becomes aware that circumstances exist that will make the local public
body's AUP report be submitted after the applicable due date, the auditor shall
notify the state auditor 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. The late AUP notification letter is
subject to the confidentiality requirements detailed at Subsection M of
2.2.2.10 NMAC. This does not
prevent the state auditor from notifying the legislative finance committee or
applicable oversight agency pursuant to Subsections F and G of Section
12-6-3 NMSA 1978. There shall be a
separate notification for each late AUP 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 AUP 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 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 AUP engagement until the
report is released and has become a public record pursuant to Section
12-6-5 NMSA 1978. At all times
during the engagement and after the AUP report becomes a public record, the IPA
shall follow applicable professional standards and 2.2.2 NMAC regarding the
release of any information relating to the AUP engagement.
I.
Findings: All AUP engagements
shall report as findings any fraud, illegal acts, non-compliance or internal
control deficiencies, consistent with Section
12-6-5 NMSA 1978. The findings
shall include the required content listed at Subparagraph (d) of Paragraph (1)
of Subsection L of
2.2.2.10 NMAC.
J.
Review of AUP reports and related
workpapers: AUP 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 AUP 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 AUP report
for compliance with professional standards and the professional services
contract, the OSA shall authorize the IPA to print and submit the final report.
An electronic version of the AUP report, in PDF format, as described at
Subsection B of
2.2.2.9 NMAC, shall all be
delivered to the OSA within five business days. The OSA shall not release the
AUP 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. 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 AUP 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
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.
K.
IPA independence: IPAs shall
maintain independence with respect to their client agencies in accordance with
the requirements of the current government auditing standards.
