NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC files

Office of the State Auditor, Public Defender, Tourism Department, Economic Development Department, Border Authority, Regulation and Licensing Department, Office of Cultural Affairs, Department of Game and Fish, Energy, Minerals and Natural Resources Department, State Agency on Aging, Developmental Disabilities Planning Council, New Mexico Health Policy Commission, Children, Youth and Families Department, State Highway and Transportation Department, Commission on Higher Education, and Association of Counties

SUMMARY

Synopsis of Bill

The bill creates a Legislative General Accounting Act and a "general accounting committee", a continuing joint committee of the legislature, comprised of eight members serving two-year terms as follows:

Senate majority leader

Senate member appointed by the senate majority leader

Senate minority leader

Senate member appointed by the senate minority leader

House majority leader

House member appointed by the house majority leader

House minority leader

House member appointed by the house minority leader

The senate majority leader serves as chairman in odd-numbered years and the house majority leader serves at chairman in even-numbered years.

The committee is responsible for determining what special audits are done and for providing competent, fair, nonpartison special audits of agencies (state and local) and reporting on: 1) ways agencies can improve services to New Mexico citizens; 2) whether agencies are complying with laws and rules, including appropriations; 3) economy, efficiency and effectiveness of agency operations; and 4) whether agencies are effectively accomplishing legislatively mandated duties. Annual reports to the legislature are required. The special audits are to be conducted in accordance with generally accepted auditing standards and standards for audit of governmental organizations, programs, activities and functions.

The position of "legislative auditor" is established, appointed by the committee for a term of six years and serves as executive secretary to the committee. The legislative auditor is required to be a certified public accountant, a registered public accountant or a certified internal auditor, with demonstrated experience in governmental accounting, governmental auditing and performance auditing. The legislative auditor may be removed by a 2/3 vote of the elected members of both houses of the legislature. The auditor may hire staff as necessary to carry out the provisions of the act.

The bill also provides for:

• •selection of special audits (Section 9),



• •content of audit reports (Section 9),



• •distribution of preliminary copies (the act provides the agency 20 days to respond in writing) (Section 9),



• •review of the final report by the committee (Section 9),



• •distribution of the final report (report becomes a public record ten days after adoption) (Section 9),



• •follow-up action taken by the agency 180 days after the report is received by the agency (Section 9),



• •subpoena power to the committee (Section 12),



• •penalties for non-cooperation (Section 12),



• •depositories of public money to furnish certain information (Section 13), and



• •reasonable rules to be promulgated by the committee (Section 14).

The effective date of the act is July 1, 1999.

Significant Issues

Recently, members of the legislature have expressed an interest in a legislative general accounting office function that would provide independent objective analyses of government operations. Legislators rely on reports and testimony to determine whether or not agencies are meeting their mandated goals and objectives. This proposal may give the legislature more information about how efficiently and effectively agencies are managing their programs. This proposed function would be in addition to, and possibly duplicative of the following audit functions already being performed in the state:

• •The Audit Act, Sections 12-6-1 through 12-6-14 NMSA 1978 requires that " the financial affairs of every agency shall be thoroughly examined and audited each year by the state auditor, personnel of his office designated in accordance with generally accepted auditing standards . . . 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." The annual audits performed by the state auditor are usually referred to as post financial and compliance audits. The other audits are usually referred to as "special audits" and can include fraud investigations, economy and efficiency audits, and compliance audits.



• •Many agencies, including Taxation and Revenue Department, the Human Services Department, the Department of Health, the Environment Department, the Children, Youth and Families Department, the Corrections Department, the State Highway and Transportation Department, and the State Department of Public Education, have an internal audit function and/or an inspector general function.



• •Since 1989, the Legislative Finance Committee (LFC) has funded a performance audit function through a joint powers agreement with the State Auditor's Office (1989-1991) and by hiring its own staff (1991-present). The work of the LFC performance audit unit is currently directed by the LFC Audit and Computers Subcommittee. Every interim, a performance audit work plan is approved by the subcommittee and the performance audit staff provides written reports of its work to the full committee. Section 2-5-3(B) NMSA 1978 provides that the LFC examine the laws governing the finances and operation of departments, agencies and institutions of New Mexico and all of its political subdivisions, the effect of laws on the proper functioning of these governmental units, the policies and costs of governmental units as related to the laws.

In January 1998, the Office of State Auditor and the LFC entered into a memorandum of understanding to establish a joint performance audit program. The intent of the agreement is to capitalize on the strengths of the two audit functions and eliminate a duplication of effort. The audit projects under the joint audit program effort will be directed by the LFC Audit and Computers Subcommittee.

There is also a proposal to create an Accountability in Government Act (House Bill 37 and Senate Bill 111). This proposal requires the use of performance-based program budgeting and is intended to provide the legislature and executive with information on how well agencies are performing. A legislative general accounting office could provide independent verification of performance measures reported by agencies. This function could also be performed by the LFC performance audit staff.

Many states have audit and evaluation agencies. A listing of them can be found in the attachment.

FISCAL IMPLICATIONS

The bill appropriates $800.0 to the Legislative Council Service from the general fund for expenditure in FY2000 to establish the committee and auditor. The auditor is authorized to hire staff to carry out the provisions of the act. Unexpended and unencumbered balances remaining at the end of FY2000 revert to the general fund. The cost of all special audits are to be borne by the committee unless an agency agrees to assume the cost.

ADMINISTRATIVE IMPLICATIONS

The committee is required to promulgate reasonable rules to carry out the provisions of this act. The state auditor is required to submit a copy of each agency's annual audit to the legislative auditor. The auditor is authorized to hire staff to carry out the provisions of the act.

Several agencies were concerned about the resources they would be required to provide for this audit effort.

TECHNICAL ISSUES

1. Section 6, Paragraph A (page 6, lines 7 and 8) require that the legislative auditor be a certified public accountant, a registered public accountant or a certified internal auditor. However, the registered public accountant designation no longer exists in the state of New Mexico.

2. Section 7, Paragraph B (page 7, lines 6 through 8) refers to standards for audit of governmental organizations, programs, activities and functions published by the U.S. General Accounting Office (GAO). That publication no longer exists. The appropriate reference should be the government accounting standards published by the GAO, commonly referred to as the "Yellow Book".

3. The state auditor analysis reports that the proposal could be viewed as infringing on the powers and duties of the constitutionally created Office of the State Auditor.

4. The bill does not require that reports be distributed to the governor. Perhaps this requirement should be added to Section 9, Paragraph D (page 9, between lines 14 and 15).

5. LFC performance audit indicated that confidentiality issues regarding audit work papers, staff reports to the committee and access to agency records to verify information, such as those maintained by the Taxation and Revenue Department are not addressed by this bill.

OTHER ISSUES

Other states, such as South Carolina, have included public member. Should this be considered for New Mexico?

POSSIBLE QUESTIONS

1. Does the sponsor intend that the LFC performance audit function be abolished?

2. Housing the performance audit function with the LFC has given both audit staff and fiscal analyst staff a broader perspective on different projects. Does the sponsor intend that the general accounting function continue to use the expertise of the fiscal analysts and vice-versa?

DKB/prr

Attachment