SENATE MEMORIAL 8

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

INTRODUCED BY

Pete Campos

 

 

 

 

 

A MEMORIAL

REQUESTING THE STATE AUDITOR TO CONVENE A WORK GROUP TO STUDY FINANCIAL OVERSIGHT AND CAUSES OF DEFICIENCY APPROPRIATION REQUESTS AND MAKE RECOMMENDATIONS TO IMPLEMENT RECOMMENDATIONS OF THE STATE AUDITOR'S OFFICE RELATED TO DEFICIENCY APPROPRIATION REQUESTS.

 

     WHEREAS, during the 2024 regular session of the legislature of the state of New Mexico, the state auditor was asked to review state agency deficiency appropriation requests due to the increasing frequency and magnitude of those requests, which creates opportunity costs for the use of appropriated funds; and

     WHEREAS, following an informal work group meeting with legislative finance committee staff, the government accountability office of the office of the state auditor reviewed financial audits and collaborated with staff from the legislative finance committee and the department of finance and administration to gather additional information related to deficiency appropriation requests; and

     WHEREAS, a transparency report by the state auditor's government accountability office showed that state agency deficiency appropriation requests increased by one hundred thirty-seven million five hundred thousand dollars ($137,500,000) from 2014 to 2024, signaling a troubling trend in state agency financial management practices, including some that may require budgetary enforcement measures to prevent recurrence; and

     WHEREAS, the report also revealed that in some cases state agencies failed to provide justifications to the department of finance and administration for deficiency appropriation requests and some agencies bypassed the department's formal deficiency request process entirely; and

     WHEREAS, it was also noted that justifications offered by departments for deficiency appropriation requests were often linked to causes including over-expenditures, improper reversions, long-standing hidden deficits, failure to adhere to budget authority and unpaid expenditures from prior years; and

     WHEREAS, the increasing number of deficiency appropriation requests is a concern for all state financial oversight entities, including the state auditor, as it may signal noncompliance with laws and regulations; and

     WHEREAS, current statutes and rules do not adequately address modern fiscal concerns and there is a lack of clarity with respect to authority and responsibility over different aspects of budget management; and

     WHEREAS, several statutes that address warrants and overpayments; budgetary controls and penalties; and other budgetary controls conflict with other statutes, some of which date back to when New Mexico was not yet a state; and

     WHEREAS, most of these statutes became law before the state adopted the current SHARE financial management system, and workaround methods had to be developed to allow financial processes and payments to take place within that system; and     WHEREAS, key recommendations from the office of the state auditor's government accountability office's transparency reports include modernizing, clarifying and planning for the future of practices and budgetary framework statutes and include: 

          A. to improve transparency it is recommended that:

                (1) the department of finance and administration and the legislative finance committee collaborate to improve the transparency of deficiency appropriation requests during budget hearings;

                (2) in the absence of direct links between financial statements and deficiency appropriation requests, state agencies and oversight entities work together to provide clear explanations for the public on the reasons for shortfalls;

                (3) the department of finance and administration and the legislative finance committee require state agencies to provide more written details and supporting documents for deficiency appropriation requests in their annual budget submissions; and

                (4) if state agencies fail to submit the required information for review of deficiency requests, the legislature consider withholding funding for those requests;

          B. the addition of more audit procedures, which would provide for the office of the state auditor to require independent public accountants to conduct additional state law compliance procedures with respect to entities that submit deficiency appropriation requests, to allow public review of how the appropriations affect financial statements;

          C. to enhance review processes it is recommended that:

                (1) the legislature and governor consider whether to continue funding deficiency appropriation requests;

                (2) if deficiency appropriation requests are funded, a more formal process be used, which would include increased rigor, transparency, accountability and performance metrics related to budget and appropriation adherence; and

                (3) the department of finance and administration and state agencies prepare for the possibility that deficiency appropriation requests will not be granted by the legislature and develop strategies to address deficit balances when requests are not granted;

          D. required review of penalties for budget violations, including:

                (1) the legislature's, department of finance and administration's and independent accounting firms' review of Chapter 6, Article 10 NMSA 1978, related to expenditure of funds and penalties for violations of budgetary controls;

                (2) the legislature's and the department of finance and administration's review of whether additional measures are needed to enforce budgetary discipline, given the fact that current law only considers penalties for violations such as the failure to close the year with a positive fund balance; and

                (3) consideration of whether the state should update the SHARE financial management system and conduct a thorough review and update of all financial-related statutes before updating the system; and

          E. a required review of laws related to budget adjustments and oversight to improve state budgetary controls and to strengthen the effectiveness of the state's budgeting process;

     NOW, THEREFORE, BE IT RESOLVED BY THE SENATE OF THE STATE OF NEW MEXICO that in recognition of the need for more transparent, accountable and legally compliant fiscal management processes and budgetary oversight of operations that lead to deficiency appropriations, the senate support the implementation of the office of the state auditor's recommendations and support a comprehensive study to improve financial oversight and address the root causes of deficiency requests; and

     BE IT FURTHER RESOLVED that the office of the state auditor be encouraged to convene a work group, including representatives from the legislative finance committee, the department of finance and administration, the office of the state treasurer and other members of the executive branch, to draft legislation for the legislative finance committee's endorsement; and

     BE IT FURTHER RESOLVED that legislation proposed by the work group should be developed with consideration of the proposed reforms recommended by the state auditor and focus on increased transparency in budget hearings, the implementation of stronger compliance and enforcement mechanisms and inclusion of a more centralized department of finance and administration oversight function; and

     BE IT FURTHER RESOLVED that copies of this memorial be transmitted to the governor, the secretary of finance and administration, the director of the legislative finance committee and the office of the state auditor.

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