HOUSE BILL 524

52nd legislature - STATE OF NEW MEXICO - first session, 2015

INTRODUCED BY

Jimmie C. Hall

AN ACT

RELATING TO THE OFFICE OF THE STATE AUDITOR; AMENDING A SECTION OF THE AUDIT ACT TO PROVIDE FOR TRIENNIAL AUDITS OF STATE EXPENDITURES FOR HEALTH CARE COVERAGE AND HEALTH CARE SERVICES AND FOR EDUCATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     SECTION 1. Section 12-6-3 NMSA 1978 (being Laws 1969, Chapter 68, Section 3, as amended) is amended to read:

     "12-6-3. ANNUAL AND SPECIAL AUDITS--FINANCIAL EXAMINATIONS.--

          A. Except as otherwise provided in Subsection B of this section, 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. The comprehensive annual financial report for the state 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. The audits shall be conducted in accordance with generally accepted auditing standards and rules issued by the state auditor.

          B. The examination of the financial affairs of a local public body shall be determined according to its annual revenue each year. All examinations and compliance with agreed-upon procedures shall be conducted in accordance with generally accepted auditing standards and rules issued by the state auditor. If a local public body has an annual revenue, calculated on a cash basis of accounting, exclusive of capital outlay funds, federal or private grants or capital outlay funds disbursed directly by an administrating agency, of:

                (1) less than ten thousand dollars ($10,000) and does not directly expend at least fifty percent of, or the remainder of, a single capital outlay award, it is exempt from submitting and filing quarterly reports and final budgets for approval to the local government division of the department of finance and administration and from any financial reporting to the state auditor;

                (2) at least ten thousand dollars ($10,000) but less than fifty thousand dollars ($50,000), it shall comply only with the applicable provisions of Section 6-6-3 NMSA 1978;

                (3) less than fifty thousand dollars ($50,000) and directly expends at least fifty percent of, or the remainder of, a single capital outlay award, it shall submit to the state auditor a financial report consistent with agreed-upon procedures for financial reporting that are:

                     (a) focused solely on the capital outlay funds directly expended;

                     (b) economically feasible for the affected local public body; and

                     (c) determined by the state auditor after consultation with the affected local public body;

                (4) at least fifty thousand dollars ($50,000) but not more than two hundred fifty thousand dollars ($250,000), it shall submit to the state auditor, at a minimum, a financial report that includes a schedule of cash basis comparison and that is consistent with agreed-upon procedures for financial reporting that are:

                     (a) narrowly tailored to the affected local public body;

                     (b) economically feasible for the affected local public body; and

                     (c) determined by the state auditor after consultation with the affected local public body;

                (5) at least fifty thousand dollars ($50,000) but not more than two hundred fifty thousand dollars ($250,000) and expends any capital outlay funds, it shall submit to the state auditor, at a minimum, a financial report that includes a schedule of cash basis comparison and a test sample of expended capital outlay funds and that is consistent with agreed-upon procedures for financial reporting that are:

                     (a) narrowly tailored to the affected local public body;

                     (b) economically feasible for the affected local public body; and

                     (c) determined by the state auditor after consultation with the affected local public body;

                (6) at least two hundred fifty thousand dollars ($250,000) but not more than five hundred thousand dollars ($500,000), it shall submit to the state auditor, at a minimum, a compilation of financial statements and a financial report consistent with agreed-upon procedures for financial reporting that are:

                     (a) economically feasible for the affected local public body; and

                     (b) determined by the state auditor after consultation with the affected local public body; or

                (7) five hundred thousand dollars ($500,000) or more, it shall be thoroughly examined and audited as required by Subsection A of this section.

          C. 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.

          D. Annual financial and compliance audits of agencies under the oversight of the financial control division of the department of finance and administration shall be completed and submitted by an agency and independent auditor to the state auditor no later than sixty days after the state auditor receives notification from the financial control division to the effect that an agency's books and records are ready and available for audit. The local government division of the department of finance and administration shall inform the state auditor of the compliance or failure to comply by a local public body with the provisions of Section 6-6-3 NMSA 1978.

          E. In order to comply with United States department of housing and urban development requirements, the financial affairs of a public housing authority that is determined to be a component unit in accordance with generally accepted accounting principles, other than a housing department of a local government or a regional housing authority, at the public housing authority's discretion, may be audited separately from the audit of its local primary government entity. If a separate audit is made, the public housing authority audit shall be included in the local primary government entity audit and need not be conducted by the same auditor who audits the financial affairs of the local primary government entity.

          F. The state auditor shall notify the legislative finance committee and the public education department if:

                (1) a school district, charter school or regional education cooperative has failed to submit a required audit report within ninety days of the due date specified by the state auditor; and

                (2) the state auditor has investigated the matter and attempted to negotiate with the school district, charter school or regional education cooperative but the school district, charter school or regional education cooperative has not made satisfactory progress toward compliance with the Audit Act.

          G. The state auditor shall notify the legislative finance committee and the secretary of finance and administration if:

                (1) a state agency, state institution, municipality or county has failed to submit a required audit report within ninety days of the due date specified by the state auditor; and

                (2) the state auditor has investigated the matter and attempted to negotiate with the state agency, state institution, municipality or county but the state agency, state institution, municipality or county has not made satisfactory progress toward compliance with the Audit Act.

          H. In addition to the audits required pursuant to Subsections A through G of this section, by December 31, 2016, and every three years thereafter, the state auditor shall audit the state's expenditures for health care coverage, health care services and education.

          I. An agency or local public body that enters into a contract for health care coverage, health care services or education shall include in that contract:

                (1) a provision granting audit rights in favor of the agency or local public body, which shall cover all subcontracts, expenses and income of the contracting party;

                (2) a provision granting the state auditor the right to inspect all materials disclosed pursuant to these audit rights; and

                (3) a provision that allows the agency or local public body to terminate the contract immediately without further liability in the event of a breach of the audit rights provision or the discovery of any irregularity in the results of the audit.

          J. The state auditor shall have the right to require each agency or local public body to exercise its audit rights pursuant to this section and to deliver to the state auditor all materials and work papers related to the resulting audit.

          K. As used in this section:

                (1) "education" means an activity for which state funds are expended pursuant to Article 12, Section 11 of the constitution of New Mexico or Chapter 21, 22 or 32A NMSA 1978;

                (2) "health care coverage" means a system of payment for health care services, including self-insurance to cover health care service expenses, health insurance or third-party indemnification for health care service;

                (3) "health care service" means a service provided by a person licensed or otherwise authorized by law to provide health care services in New Mexico or outside of New Mexico; and

                (4) "work papers" means the record of audit procedures performed, relevant audit evidence obtained and conclusions the auditor reached."

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