SB0511

SENATE BILL 511

57th legislature - STATE OF NEW MEXICO - first session, 2025

INTRODUCED BY

Pete Campos

AN ACT

RELATING TO AUDITING; AMENDING THE AUDIT ACT; RESTRUCTURING AUDIT REQUIREMENTS; EXPANDING THE DEFINITION OF "AGENCY"; AMENDING LOCAL PUBLIC BODY AUDIT THRESHOLDS; PROVIDING FOR STATEWIDE SINGLE AUDITS; UPDATING TERMS; AMENDING THE AUDIT FUND.

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

SECTION 1. Section 6-6-1 NMSA 1978 (being Laws 1957, Chapter 250, Section 1, as amended) is amended to read:

"6-6-1. DEFINITIONS.--"Local public body" means every political subdivision of the state that expends public money from whatever source derived, including counties, county institutions, boards, bureaus or commissions; incorporated cities, towns or villages; drainage, conservancy, irrigation or other districts; charitable institutions for which an appropriation is made by the legislature; and every office or officer of any of the above. "Local public body" does not include a mutual domestic water consumers association, a land grant, an incorporated municipality or a special district with an annual revenue [exclusive of capital outlay funds, federal or private grants or capital outlay funds disbursed directly by an administrating agency] of less than [fifty thousand dollars ($50,000)] one hundred thousand dollars ($100,000), nor county, municipal, consolidated, union or rural school districts and their officers or irrigation districts organized under Sections 73-10-1 through 73-10-47 NMSA 1978."

SECTION 2. Section 12-6-2 NMSA 1978 (being Laws 1969, Chapter 68, Section 2, as amended) is amended to read:

"12-6-2. DEFINITIONS.--As used in the Audit Act:

A. "agency" means:

(1) 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;

(2) 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;

(3) any entity or instrumentality of the state specifically provided for by law, including the New Mexico finance authority, the New Mexico mortgage finance authority and the New Mexico lottery authority;

(4) any organization subject to the requirements of Section 6-5A-1 NMSA 1978 that supports a public post-secondary educational institution; and

[(4)] (5) every office or officer of any entity listed in Paragraphs (1) through [(3)] (4) of this subsection; and

B. "local public body" means a mutual domestic water consumers association, a land grant, an incorporated municipality or a special district."

SECTION 3. 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 or personnel of the state auditor's office designated by the state auditor working jointly with independent auditors approved by the state auditor. The annual 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 or personnel of the state auditor's office designated by the state auditor working jointly with independent auditors approved by the state auditor. The audits shall be conducted in accordance with generally accepted auditing standards, generally accepted government auditing standards and rules [issued] promulgated by the state auditor; provided that for fiscal year 2028 and each fiscal year thereafter:

(1) an annual statewide federal single audit shall be performed for purposes of complying with 31 U.S.C. 7501 through 7507 pertaining to audit evaluation of the internal controls of this state and the state's compliance with material features of federal laws and regulations related to major federal assistance programs; and

(2) funding for the statewide federal single audit shall be allocated to federal programs based on a methodology that is in accordance with federal compliance requirements.

B. The examination of the financial affairs of a local public body shall be determined according to its cash and investments assets, annual revenue or federal expenditures each year. All examinations and compliance with agreed-upon procedures engagements shall be conducted in accordance with generally accepted auditing standards, generally accepted government 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

(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

(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

(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]; provided that for fiscal year 2026 and each fiscal year thereafter:

(1) if a local public body expends federal funds more than the current federal expenditure threshold requiring an audit pursuant to Title 2, Part 200 of the Code of Federal Regulations, the local public body shall be examined and audited pursuant to Subsection A of this section, and if a local public body expends federal funds less than the current federal expenditure threshold requiring an audit pursuant to Title 2, Part 200 of the Code of Federal Regulations, the local public body shall make these records available for review and audit;

(2) if a local public body has cash or investments that are more than two hundred fifty thousand dollars ($250,000), the local public body shall be examined and audited pursuant to Subsection A of this section; and

(3) if a local public body has revenue, calculated on the cash basis of accounting, of:

(a) less than one hundred thousand dollars ($100,000) and does not directly expend at least fifty percent of, or the remainder of, a single capital outlay award, the local public body is exempt from submitting and filing quarterly reports and final budgets to the local government division of the department of finance and administration and from any financial reporting to the state auditor;

(b) less than one hundred thousand dollars (100,000) and directly expends at least fifty percent of, or the remainder of, a single capital outlay award, the local public body shall submit to the state auditor a financial report consistent with agreed-upon procedures for financial reporting that are: 1) focused solely on the capital outlay funds directly expended; 2) economically feasible for the affected local public body; and 3) determined by the state auditor after consultation with the affected local public body;

(c) more than or equal to one hundred thousand dollars ($100,000) but less than one million dollars ($1,000,000), the local public body shall submit to the state auditor, at a minimum, a financial report that includes a schedule of cash basis comparisons and a test sample of any expended capital outlay funds and that is consistent with agreed-upon procedures for financial reporting that are: 1) narrowly tailored to the affected local public body; 2) economically feasible for the affected local public body; and 3) determined by the state auditor after consultation with the affected local public body; or

(d) one million dollars ($1,000,000) or more, the local public body shall be 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. If a local public body is required to be examined and audited as required pursuant to Subsection A of this section, the local public body shall not be eligible for the reporting requirements provided pursuant to Paragraphs (1) through (3) of Subsection B of this section and shall be required to be examined and audited each year.

[D.] E. 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.] F. 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.] G. 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.] H. 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."

SECTION 4. Section 12-6-5 NMSA 1978 (being Laws 1969, Chapter 68, Section 5, as amended) is amended to read:

"12-6-5. REPORTS OF AUDITS.--

A. The state auditor shall cause a complete written report to be made of each annual or special audit and examination made. Each report shall set out in detail, in a separate section, any violation of law or good accounting practices found by the audit or examination. Each report of [a state] an agency shall include a list of individual deposit accounts and investment accounts held by each [state] agency audited. A copy of the report shall be sent to the agency audited or examined; five days later, or earlier if the agency waives the five-day period, the report shall become a public record, at which time copies shall be sent to:

(1) the secretary of finance and administration; and

(2) the legislative finance committee.

B. The state auditor shall send a copy of reports of state agencies to the department of finance and administration.

C. Within thirty days after receipt of the report, the agency audited may notify the state auditor of any errors in the report. If the state auditor is satisfied from data or documents at hand, or by an additional investigation, that the report is erroneous, the state auditor shall correct the report and furnish copies of the corrected report to all parties receiving the original report."

SECTION 5. Section 12-6-13 NMSA 1978 (being Laws 1969, Chapter 68, Section 13) is amended to read:

"12-6-13. AUDIT FUND--PAYMENT FOR AUDITS--EXPENSES OF AUDITOR.--

A. [There] The "audit fund" is created as a nonreverting fund in the state treasury [the "audit fund" into which the state auditor shall deposit all]. The fund consists of earmarked revenue, appropriations, gifts, grants, donations and fees and costs received from agencies audited by [him] the state auditor. The state auditor shall administer the fund, and money in the fund is appropriated to the state auditor for the purposes of carrying out the Audit Act. Disbursements from the fund shall be made by warrant of the secretary of finance and administration pursuant to vouchers signed by the state auditor or the state auditor's authorized representative.

B. Fees and costs pursuant to Subsection A of this section shall be determined by the state auditor to recover all fees and costs of the state auditor for performing an engagement in accordance with professional standards.

[B.] C. Payments for salaries and expenses of the state auditor shall be made from the audit fund [and the fund shall not revert at the end of any fiscal year]."

SECTION 6. Section 12-6-14 NMSA 1978 (being Laws 1969, Chapter 68, Section 14, as amended) is amended to read:

"12-6-14. CONTRACT AUDITS.--

A. The state auditor shall notify each agency or local public body designated for audit or agreed-upon procedures by an independent auditor, and the agency or local public body shall enter into a contract with an independent auditor of its choice in accordance with procedures prescribed by rules of the state auditor; provided, however, that a state-chartered charter school subject to oversight by the public education department or an agency subject to oversight by the higher education department shall receive approval from its oversight agency prior to submitting a recommendation for an independent auditor of its choice. The state auditor may select the auditor for an agency or a local public body that has not submitted a recommendation within sixty days of notification by the state auditor to contract for the year being audited, and the agency or local public body being audited shall pay the cost of the audit or agreed-upon procedures. Costs of the audit or agreed-upon procedures shall be determined by the contracting parties in accordance with applicable procurement law, policies and regulations to ensure competitiveness and fairness. Each contract for auditing entered into between an agency or a local public body and an independent auditor shall be approved in writing by the state auditor. Payment of public funds may not be made to an independent auditor unless a contract is entered into and approved as provided in this section.

B. The state auditor, [or] the personnel of the state auditor's office designated by the state auditor or a contractor with specialized expertise shall examine all reports of audits of agencies and local public bodies made pursuant to contract. Based upon demonstration of work in progress, the state auditor may authorize progress payments to the independent auditor by the agency [being audited under contract] or local public body for whom the auditor is providing services. Final payment for services rendered by an independent auditor shall not be made until a determination and written finding that the audit [has] or agreed-upon procedures have been made in a competent manner in accordance with the provisions of the contract and applicable rules by the state auditor."

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