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F I S C A L I M P A C T R E P O R T

SPONSOR Smith

ORIGINAL DATE

LAST UPDATED

1/21/08

HB

SHORT TITLE Small Cities Assistance For Audit Compliance

SB 171

ANALYST Propst

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Office of the State Auditor

SUMMARY

Synopsis of Bill

Senate Bill 171 amends the Small Cities Assistance Fund Distribution to require affected

municipalities to commit the first use of these funds towards compliance of all requirements of

the Audit Act in a timely manner.

SIGNIFICANT ISSUES

In October 2007, the State Auditor reported that six counties and 32 municipalities had yet to

complete their 2006 audits. Some municipalities are as many as three and four years delinquent

in completing audits. Counties and municipalities note the lack of budget to pay for audits. SB

171 would make audits a priority prior to receiving funding from the Small Cities Assistance

Fund. Without audits it is virtually impossible to determine the financial status of local public

bodies.

DFA notes that dedicating funds as directed in SB 171 could impact smaller NM municipalities

that are experiencing high audit costs by possibly limiting their ability to pay for other recurring

operation costs.

Senate Bill 171 – Page 2

DFA currently distributes the revenue to qualifying municipalities without any stipulations other

than being placed in the general fund of the municipality. As this bill stands it makes completion

of the statutorily required audits a priority condition for continuing to receive State funding and

places a priority on local public bodies being compliant with the Audit Act.

The Local Government Division (LGD) of DFA is currently trying to address this issue of local

governments’ compliance with the Audit Act with a proposed “Budget Certification Rule". A

public hearing is scheduled for February 18, 2008 in Santa Fe to address this new rule. This

proposed rule, developed by the LGD in conjunction with the State Auditor’s Office, stipulates

steps in which the LGD will address local governments’ lack of compliance to the Audit Act.

The rule is intended to address the issue of past due audits by working with local governments to

be current with their annual audits.

PERFORMANCE IMPLICATIONS

DFA also notes that requiring first use of these funds towards timely compliance with the Audit

Act might result in more fiscally responsible municipalities. Small municipalities with limited

funding sources might need to find other funds from the Legislature or possibly the State Board

of Finance in order to avoid a deficit in their general fund.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Local public bodies will continue to be delinquent in producing audit reports. Without such

reports it is impossible to determine the financial stability and integrity of local public bodies.

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