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Hector H. Balderas Audit Rule 2009 2.2.2 NMAC. Agenda  Opening Remarks Hector H. Balderas, State Auditor  Overview of State Auditor’s Office  Contracting.

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Presentation on theme: "Hector H. Balderas Audit Rule 2009 2.2.2 NMAC. Agenda  Opening Remarks Hector H. Balderas, State Auditor  Overview of State Auditor’s Office  Contracting."— Presentation transcript:

1 Hector H. Balderas Audit Rule NMAC

2 Agenda  Opening Remarks Hector H. Balderas, State Auditor  Overview of State Auditor’s Office  Contracting for Audit Services Frank Valdez, Management Analyst  Special Investigations Division Patrick P. Stewart, Chief Investigator

3 Agenda  Break  Financial Audits and Changes in the 2009 Audit Rule Steve Archibeque, CPA, Senior Audit Manager  Question & Answer Session OSA Staff

4 Overview of State Auditor’s Office

5 1State Auditor 1Deputy State Auditor 1Chief of Staff 1Chief Counsel 1Director of Constituent Services 8Audit Managers 7Audit Supervisors 4Audit Seniors 3Audit Staff 2Investigators 3Administrative Staff 1 Information Systems Support 33Allotted FTE How to contact us Telephone (505) Fax (505) Web Site

6 Statutory Authority of Office  Annual Financial Audit - The financial affairs of every agency shall be thoroughly examined and audited each year by the state auditor, personnel of his office designated by him or by independent auditors approved by him (Section (A) NMSA)  Special Audits - 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 (Section12-6-3(B) NMSA)

7 Statutory Authority of Office  State law requires the State Auditor to issue regulations necessary to carry out the duties of his office ( NMSA 1978).  The Audit Rule is updated annually to reflect significant changes in auditing, accounting and financial reporting standards, and related laws, regulations and State Auditor policies and procedures.

8 Financial Audits  More than 600 Government Agencies require annual audits  Over $60 billion dollars in assets audited annually.  More than sixty-five audit firms approved to perform audits  Manage over $15 million in private audit contracts

9 10/11/2014 New Mexico Government Agencies

10 10/11/2014 Audit Firms Performing Governmental Audits (within a seven year period)

11 10/11/2014 Audit Fee History AVERAGEIPA'S PERIODAUDITSCONTRACT AMOUNT/ % INCREASEHOURSPER AUDITPER HOURTOTALREC'D CONTCONT/ IPA June 30, $6,700, ,859$15,439.32$ Fee Increase $346, % $ June 30, $6,994, ,096$15,861.48$ Fee Increase $294, % $ June 30, $8,169, ,762$19,779.91$ Fee Increase $1,175, % $3, June 30, $8,939, ,114$20,936.70$ Fee Increase $770, % 1, June 30, $9,412, ,906$23,531.71$ Fee Increase $472, % $2, June 30, $11,001, ,577$26,899.00$ Fee Increase $1,588, % $3, June 30, $12,006, ,956$29,646.00$ Fee Increase $1,005, % $2, June 30, $14,023, ,554$31,514.16$ Fee Increase $2,017, % $1, June 30, $15,435, ,733$34,608.75$ Fee Increase $1,411, % $3,094.59

12 10/11/ Audit Rule CD

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15 10/11/2014 Contracting for Audit Services Frank Valdez

16 10/11/2014 Basic Overview of the Financial Audit Process  Submission of Firm Profiles  Develop the list of Audit Firms  State Auditor’s Office will select which audits they will perform.  Finalize audit rule, audit rule trainings & update financial compliance audit contracts.  Send notification letters to Agencies/IPA’s.  Agencies must submit auditor recommendation by June 1,  IPA’s to Conduct Financial Audit  Submit Audit Reports to OSA

17 10/11/2014 Common Errors Found on Firm Profiles  Incomplete checklist  Missing peer review documents  Not including the peer reviewers’ quality review letter on their peer review  Incomplete professional service contracts form  Incomplete list of outstanding audit reports

18 10/11/2014 Reasons for Limitations or Restrictions on Firms  Non-compliance with the Audit Rule  Late audit notification was not received prior to the audit report due date  No current peer review in place  Non-compliance with CPE requirements

19 10/11/2014 When Selecting an Auditor Audit Rule - Sample Audit Contracts - List of approved audit firms - Contract logs - Cover letter (Appendix A) - Auditor Rotation Rule - Evaluation form (Appendix B)  Agency must receive written notification from the State Auditor before beginning the selection process  All required documents can be found at  Documents are in a PDF format

20 10/11/2014 When Selecting an Auditor (Website Sample)

21 10/11/2014 When Selecting an Auditor (Website Sample)

22 10/11/2014 Required Forms (Appendix A – Cover Letter)

23 10/11/2014 Common Errors Found on the Cover Letter (Appendix A)  Cover letter is incomplete  Improper use of the check box for multi- year proposal.  Cover letter is not printed on agency letterhead.

24 10/11/2014 Required Forms (Appendix B – Evaluation I & II)

25 10/11/2014 Common Errors on Part 2 of Evaluation Form (Appendix B)  Appropriate box(s) are not checked in the breakdown section  Hours are not added to the cost portion of the form.  Fiscal year ending is not added to breakdown section.  Evaluation Process

26 10/11/2014 Common Errors Found on Audit Contracts  Using a different audit contract or re-typing the audit contract  Recommendation of on-site manager does not match on-site manager on contract  Contract is incomplete Failure to fill out date contract was entered Enter the number of copies of the report the agency is requesting Insert the name of the audit manager from the recommended firm

27 10/11/2014 Required Documents on Contracts Requiring DFA Approval  Need 4 copies of the contract with original signatures  Approved requisition form  Contract brief  DFA Agency Certification (New form requirement) (Forms can be download from the DFA website.) egoryKey=199454&pn=Page&DomName=program.nmdfa.state.nm.us

28 10/11/2014 Additional Information

29 10/11/2014 Progress Payments (I)  Up to 69% of the contract amount without State Auditor Approval Provided the Agency Certifies Receipt of Services Be able to provide a copy to the State Auditor only if requested  Progress payments from 70% to 90% require State Auditor approval after being approved by the agency.

30 10/11/2014 Final Payment (I)(5)  Approval for final payment will be in the release letter. Final payment to the IPA by the agency prior to review and release of the audit report by the State Auditor is considered a violation of Section B, NMSA 1978, of this rule and will be reported as an audit finding of the agency.

31 10/11/ (J)(3)  Neither the IPA nor agency personnel shall release any information to the public relating to the audit at the time of the exit conference or at any other time until the audit report becomes public record.

32 10/11/2014 Summary of Audit Rule Changes

33 10/11/ Definitions Agency definition expanded to include land grants, domestic water consumer associations and public improvement districts (B)(5) Procuring an Independent Public Accountant Language is changed to allow agencies some flexibility with the criteria used to select an auditor. Agencies are strongly encouraged to consider the following criteria when selecting an auditor (a) the capability of the IPA (b) the work requirements and audit approach of the IPA and (c) the IPA’s technical experience.

34 10/11/ (B)(6) Deadline for selection of an IPA The agency must submit to the Office of the State Auditor a cover letter, signed evaluation form, list of professional service contracts and approval from its oversight committee, if applicable, by June 1, The deadline was changed from June 2, in 2008.

35 10/11/ (C)(1)(b) Rotation of an IPA The auditor rotation requirement has been modified. An IPA is prohibited from conducting an agency audit for a period of two years because the IPA conducted the agency audit for a period of (a) six consecutive years and for at least one of those years, the audit fees exceeded $50,000 excluding gross receipts tax; (b) ten consecutive years and each year the audit fees did not exceed $50,000, excluding gross receipts tax. (WEB Site / Copy attached to your handout)

36 10/11/ (C)(2)(k) Denial of an audit contract recommendation This subsection was added to allow the State Auditor discretion to disapprove an audit contract recommendation of an IPA that releases an audit report to an agency or the public before the audit report is released by the OSA.

37 10/11/ (H)(1) and (H)(2) Professional Service Contracts If an IPA performs an agency’s financial audit, they shall not enter into any special audit or nonaudit service contract without the prior written approval of the State Auditor. An IPA that does not perform an agency financial audit shall submit a copy to State Auditor of each professional services contract entered into between the agency and the IPA. The contract shall not require approval by the State Auditor but shall be submitted to the State Auditor within 30 days of execution. This is a change from previous years which required all professional service contracts to be approved by the State Auditor.

38 10/11/ (M) Contract Amendments Language was added that contract amendments for audit services and nonaudit services shall be approved in writing by the State Auditor if the original contract requires State Auditor approval pursuant to NMAC. Additional language was added that contract amendments submitted for State Auditor approval shall include a detailed explanation of: (a) the work to be performed and estimated hours and fees required for completion of each separate professional service contemplated by the amendment; (b) how the work to be performed is beyond the scope of work outlined in the original contract; and (3) when the auditor became aware of the work needed to be performed.

39 10/11/ (M) Contract Amendments Continued Contract amendments will only be approved for extraordinary circumstances or a significant change in the scope of an audit. This section does provide examples of what will be considered a change in scope. This section also provides examples of what will not be approved. The section further provides language that contract amendments received by the 5th of each month will be responded to by the OSA on the 25th of the month. If contract amendments are received after the 5th, then the OSA will respond on the 25th of the following month.

40 Special Investigations Division Patrick P. Stewart

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42 Fraud Hotline Statistics  The hotline was initiated by Auditor Balderas in the Summer of  Since its’ inception, the OSA has received 194 cases through the hotline.  Of those, 74 have been processed, investigated or properly referred.  19 were found to be out of the jurisdiction of the OSA  The remaining are currently under review or investigation  The hotline has proven to be an effective tool and a valuable resource for the taxpayers of New Mexico.

43 Special Investigations Division  The OSA receives cases in many different ways: In person, phone calls, US Mail, and via the Hotline  134 cases outside of the hotline: correspondence, telephone, & in person  In 2008, 64 of these cases were properly referred, 16 were out of the jurisdiction of the OSA, the remaining are under review, investigation or are the subject of ongoing special audits.

44 Special Investigations Division The OSA received over 328 cases since the beginning of  42% referred (DA, IPA, Agency, AG, other)  11% outside the jurisdiction of the OSA  45% remain under review/investigation  2% resulted in special audit

45 Regional Housing Authorities  SID completed a special audit of the Region III Housing Authority. This special audit uncovered more than one hundred thousands dollars in alleged fraud waste and abuse.  SID discovered and reported numerous violations of the Per Diem and Mileage Act, the Governmental Conduct Act, as well as the RHA’s own policies and procedures.

46 Regional Housing Authorities  The OSA confidentially referred this information to the New Mexico Attorney General’s Office and the FBI.  It has been reported that the AG intends to indict, and has or will soon be seating a grand jury.  The NM Legislature has passed legislation regarding the overhaul of the Regional Housing Authorities.

47 Investigators Discovered:  Employees and board members received multiple reimbursements for the same meeting, reimbursements for meetings not attended and mileage not traveled.  Employees and board members were reimbursed for designer handbags, flower deliveries and private club dues.  Staff were reimbursed for multiple alcohol purchases and a weekend trip to Las Vegas, Nevada for themselves and their spouses.

48 Changes to the Audit Rule Regarding Special Audits and Examinations NMAC A, B & C

49 Special Audits and Examinations:  A – (1) The State Auditor may initiate a special audit or examination based on information or a report received from an agency, IPA or member of the public. (2) The State Auditor may conduct fact finding procedures in connection with reports of financial fraud, waste and abuse in government

50 Special Audits and Examinations:  A – (3) Every agency and IPA shall immediately notify the OSA upon discovery of any violation of a criminal statute in connection with financial affairs. In addition the OSA shall immediately report such information to the proper prosecuting officer (4) reports may be submitted via traditional methods, or by utilizing the fraud waste and abuse hotline, telephonically and electronically.

51 B:  Confidentiality – (1) The identity of a person making a report will remain confidential, unless the person making the report agrees to disclose their name. (2) Reports of alleged fraud, waste and abuse received by the OSA via any means, and any resulting special audits are confidential and may not be disclosed except as provided in paragraph 3.

52 B:  Confidentiality – (3)The OSA may disclose confidential information under this section. (a.) To the proper prosecuting authority; (b.) To refer to the appropriate agency a report of fraud, waste and abuse;

53 B  Confidentiality – (3)The OSA may disclose confidential information under this section. (c.)Ensure coordination between agencies regarding financial fraud, waste and abuse. (d.)After a report of a special audit is released it becomes public, provided its’ disclosure is consistent with IPRA

54 Special Audits and Examinations C: Reports of special audit or agreed upon procedures relating to fraud, waste or abuse in government: (1)An agency or IPA shall not enter into a professional services contract for a special audit or agreed upon procedures without the prior written approval of the State Auditor. The proposed contract must be signed by each party and include the: fee, completion date and specific scope of services.

55 Special Audits and Examinations C: (2)All reports of special audit or agreed upon procedure are subject to review of the State Auditor. Upon completion, the IPA shall deliver the bound report to the Auditor with a copy of a signed engagement letter (if not previously submitted) and a copy of a signed management representation letter.

56 Special Audits and Examinations C: (3)The IPA is required to respond to all review comments as directed by the office. After review, the office will authorize the IPA to print and submit the final report. The number of hardcopies specified in the contract and an electronic version of the report, in PDF format, must be delivered to the State Auditor within the time specified by the office.

57 Special Audits and Examinations C: (4)The IPA shall deliver to the agency the number of copies in the contract only after the State Auditor has officially released the audit report with a ‘release letter.’ (5) Neither the IPA nor agency personnel shall release information to the public relating to the Special Audit or agreed upon procedures until the report has been officially released by the State Auditor and becomes public record.

58 Financial Audits Audit Rule Changes Steve Archibeque, CPA

59 Financial Audits - Major Changes in the 2009 Audit Rule  New Governmental Accounting and Financial Reporting Standards (GASB)  New Auditing Standards (GAO and AICPA)  Delivery and Review of Audit Reports  Audit Findings  Miscellaneous Changes

60 New Governmental Accounting and Financial Reporting Standards  GASBS 49 – Accounting and Financial Reporting for Pollution Remediation Obligations, effective for periods beginning after December 15, 2007 (FY09).  This Statement addresses accounting and financial reporting standards for pollution remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution activities such as site assessments and cleanups (spills of hazardous waste or substances, removal of contamination such as asbestos, underground storage tanks, etc.).

61 New Governmental Accounting and Financial Reporting Standards  Five specified obligating events include:  Imminent endangerment;  Violation of a pollution prevention related permit or license;  Named by a regulator as a responsible party or potentially responsible party for remediation or sharing costs;  Named in a lawsuit to compel participation in pollution remediation; or  Government commences or legally obligates itself to commence pollution remediation.

62 New Governmental Accounting and Financial Reporting Standards  Does not include prevention and control obligations, and future pollution remediation activities required upon retirement of an asset (landfill closure and post-closure care).  Should accrue expenses and liabilities or capitalize expected outlays (not common) when reasonably estimable or when goods or services are received.  Disclose the following information in the notes to the financial statements: nature/source of obligations, amount of estimated liability, methods and assumptions used, estimated recoveries, and description of liabilities for pollution remediation activities that are not reasonably estimable.

63 New Governmental Accounting and Financial Reporting Standards  GASBS 52 – Land and Other Real Estate Held as Investments by Endowments, effective for periods beginning after June 15, 2008 (FY09)  Includes permanent and term endowments, and permanent funds. Amends GASBS 31, paragraph 2.  The capital assets should be recognized on the financial statements at fair market value (FMV) using a certified appraisal or other method to estimate the value of the property (present value of expected future cash flows). The changes in fair value should be reported as investment income.  The notes to the financial statements should disclose the assumptions and methods used to estimate FMV.

64 New Governmental Accounting and Financial Reporting Standards  GASBS 51 - Accounting and Financial Reporting for Intangible Assets, effective for financial statements for periods beginning after June 15, 2009 (FY10).  The objective of this Statement is to establish accounting and financial reporting requirements for intangible assets and reduce inconsistencies among state and local governments (recognition, measurement, amortization and disclosure).  Intangible assets (easements, water rights, timber rights, patents, trademarks, internally generated computer software, etc.) should be accounted for as capital assets.

65 New Governmental Accounting and Financial Reporting Standards  Capitalization standards for intangible assets using the specified conditions approach for internally generated assets:  Expenses should only be capitalized upon the occurrence of all three items as follows: 1) the determination of the specific objective of the project and nature of service capacity; 2) demonstration of the technical feasibility for completion of the project; and 3) the demonstration of the current intention, ability and presence of effort to complete the project.  Outlays incurred prior to meeting this criteria should be expensed as incurred.

66 New Governmental Accounting and Financial Reporting Standards  Retroactive reporting is required for Phase 1 (total annual revenues of $100 million or more) and Phase 2 governments (total annual revenues of $10 million or more)  Retroactive reporting is required for intangible assets acquired after FY80 except assets with indefinite useful lives, internally generated assets, or Phase 3 governments (revenues less than $10 million)

67 New Governmental Accounting and Financial Reporting Standards  GASBS 53 – Accounting and Financial Reporting for Derivative Instruments, effective for financial statements for periods beginning after June 15, 2009 (FY10).  Derivative instruments are often complex financial arrangements used by governments to manage specific risks or to make investments.  Derivative instruments can expose governments to significant risks and liabilities.

68 New Governmental Accounting and Financial Reporting Standards  Common types of derivative instruments include interest rate and commodity swaps, interest rate locks, options (caps, floors, and collars), swaptions, forward contracts, and futures contracts.  May be applicable to many large agencies including pension funds (PERA, ERA), STO, SIC, universities, investment pools, and other state and local governments with large investment portfolios and account balances.  Requires governments to measure derivative instruments at fair value in their economic resources measurement focus financial statements.

69 New Governmental Accounting and Financial Reporting Standards  Disclosures in the notes to the financial statements must provide information necessary to assess the government’s objectives for derivative instruments, their significant terms, and the risks associated with the derivative instruments.  Required disclosures include: 1) a summary of derivative instrument activity during the period and balances at the end of the period; 2) organized by governmental activities, business-type activities, and fiduciary funds; 3) divided into the following categories – hedging derivative instruments and investment derivative instruments; and 4) within each category, derivative instruments should be aggregated by the specific type (GASBS ).

70 New Auditing Standards – GAO  Government Auditing Standards, July 2007 Revision, issued on July 27, 2007, effective for financial audits and attestation engagements for periods beginning on or after January 1, 2008 (FY09)  Revisions to the January 2007 edition were made to 1) address questions since the revision was posted; 2) for consistency regarding the use of “must” and “should” to define auditor requirements; and 3) for streamlining, consistency among chapters and to correct typographical errors.

71 New Auditing Standards – GAO  Ethics and Independence – Heightened emphasis on ethical principles as the foundation, discipline, and structure behind the implementation of the standards (Chapter 2)  Expanded the description of competence to emphasize its importance (Paragraph )  Incorporated the revised CPE requirements (24 and 80 hour requirements every two years) that were issued by GAO in April 2005 (Paragraph 3.46 and 3.47; GAO G)

72 New Auditing Standards – GAO  Added a requirement for an audit organization to include policies and procedures in its system of quality control that collectively address 1) leadership responsibilities for quality within the audit organization; 2) independence, legal, and ethical requirements; 3) initiation, acceptance, and continuance of audit and attestation engagements; 4) human resources; 5) audit and attestation engagement performance, documentation, and reporting; and 6) monitoring of quality (Paragraph 3.53).

73 New Auditing Standards – GAO  Added a requirement for audit organizations to analyze and summarize the results of its monitoring procedures at least annually, with identification of any systemic issues needing improvement, along with recommendations for corrective action (Paragraph 3.54)  Paragraph 3.20 was revised to state “Audit organizations that provide non-audit services must evaluate whether providing the services creates an independence impairment either in fact or appearance with respect to entities they audit.”

74 New Auditing Standards – GAO  Added a requirement that the audit organization establish information systems controls concerning accessing and updating electronically maintained audit documentation (Para. 4.22)  Aligned the standards with AICPA SAS No. 103 (Para. 4.19), 112 (Para and 5.12) and 114 (Para. 4.06).  Added requirements for reporting on the restatement of previously issued financial statements (Para ; AU Sec. 561)

75 New Auditing Standards – GAO  Added an appendix to provide supplemental guidance to assist auditors in the implementation of GAGAS:  Examples of deficiencies in internal control, abuse and indicators of fraud  Guidance for determining whether laws, regulations, or provisions of contracts or grant agreements are significant within the context of the audit objectives  The Role of Those Charged with Governance in Accountability  Management’s Role in Accountability

76 New Auditing Standards – GAO  Examples of non-audit services  Description of different types of evidence and the evaluation of its appropriateness in relation to the audit objectives  Guidance for establishing policies and procedures in the auditor’s system of quality control to address 1) audit and attestation performance, documentation and reporting; and 2) monitoring of quality.

77 New Auditing Standards – AICPA  No new standards effective for FY09  Statement on Auditing Standards (SAS) No. 115 – Communicating Internal Control Matters Identified in an Audit, effective for audits of financial statements for periods ending on or after December 15, 2009 (FY10)  Replaced SAS No. 112 to be consistent with SSAE No An Examination of an Entity’s Internal Control Over Financial Reporting That Is integrated With an Audit of its Financial Statements

78 10/11/2014 Audit Report Due Dates (A)(1) NMAC SEPTEMBER 30  Regional Education Cooperatives, Cooperative Educational Services and Independent Housing Authorities OCTOBER 15  Hospitals and Special Hospital Districts NOVEMBER 15  School Districts, Counties & Higher Education DECEMBER 1  Municipalities, Special Districts, Public Improvement Districts, Mutual Domestic Water Consumer Associations, Soil and Water Conservation Districts, Land Grants and Local Workforce Investment Boards

79 10/11/2014 Audit Report Due Dates (A)(1) NMAC The deadline cannot extend beyond December 15th December 15  Council of Governments, District Courts, and District Attorneys  State Agency Reports are due no later than 60 days after the Financial Control Division of the Department of Finance and Administration provides the State Auditor with notice that the agency’s books and records are ready and available for audit.

80 10/11/2014 Delivery of Audit Reports (C) NMAC  The audit report will not be considered received by the Office unless the following documentation has been received: Signed and dated engagement letter; Signed and dated management representation letter; A list of passed adjusting journal entries or reclassifications (or a memo stating there are none); and A completed and signed report review guide. The Office will not review the audit report until the documentation is received.

81 Delivery and Review of Audit Reports  The Office does not accept ed or facsimile versions of the audit reports; bound hard copies of the audit report have to be submitted for review C (1) NMAC  If the Office is closed on the report due date because of inclement weather, the report is due the following workday by 5pm (hand delivered reports only) A (3) NMAC  The Office will review the audit reports submitted by the due date before the reports that are submitted after the due date – A NMAC

82 Delivery and Review of Audit Reports  Unfinished or excessively deficient audit reports will not be considered received; such reports will be returned to the audit firm and a copy of the rejection letter will be sent to the agency C (1) NMAC  If the Office rejects and returns a substandard audit report to the audit firm, the report will be considered late if the revised report is not submitted by the due date and a compliance finding must be included in the audit report – E NMAC

83 Delivery and Review of Audit Reports  After the Office notifies the audit firm to submit the final audit report, the required number of hardcopies specified in the audit contract and an electronic version of the audit report (in PDF format) must be delivered to the State Auditor within two business days C (3) NMAC  As soon as the auditor becomes aware that circumstances exist that will make an audit report late, the auditor shall notify the State Auditor and the oversight agency of the situation in writing A (5) NMAC

84 Late Audit Notifications  The IPA must submit a separate notification for each late audit report.  The notification must include a specific explanation and a concurring signature by the agency.  Must provide the written late audit notification to the applicable oversight agency.  Reminder – If an audit report is not delivered by the due date, the auditor must include a compliance audit finding in the audit report. If appropriate, the finding should also be reported as a significant deficiency A (2) NMAC

85 10/11/2014 Reasons For Late Audit Reports  Agency has not obtained quotes or proposals for auditing services  Contract not signed in a timely manner  Late prior year audit delayed current audit  Change in agency staff and/or vacancies  Books and records not ready for audit  Missing records, noncompliance with GAAP or numerous misstatements  Auditor neglected to comply with audit contract  Auditor had scheduling or staffing problems

86 Audit Findings  Findings must be fully developed and include the specific condition, criteria, effect, cause, recommendation and response – I (3c) NMAC and GAGAS Para , 5.22,  Additional information is required for federal award findings – name of federal grantor, name of federal program, CFDA #, and the amount of questioned costs including how they were computed – OMB Circular A

87 Audit Findings  Actual responses from the agency must be included after the recommendation  If the auditor disagrees with the agency’s response, the auditor must include their reasons for disagreement after the agency’s response  If a response is not obtained, the finding should explain the reasons why – I (3b) NMAC

88 Miscellaneous Changes in 2009 Rule  Public Improvement Districts, Mutual Domestic Water Consumer Associations and Soil and Water Conservation Districts were added to the list of audit reports due on December 1 st – A (1) (d) NMAC  Component Units - If an exemption to discrete presentation is requested, the request must include a detailed explanation, conclusion and supporting documentation – A (1) (a) NMAC

89 Miscellaneous Changes in 2009 Rule  Investments in the State Treasurer’s General Fund Investment Pool – the amounts in the pool should be reported as investments on the Statement of Net Assets and Balance Sheet instead of cash or cash equivalents  Agencies and auditors should not request bank confirmations from STO – N (3) (f) NMAC  The notes to the financial statements should disclose the standard information presented in A (14) NMAC

90 Miscellaneous Changes in 2009 Rule  Pledged Collateral – the FDIC increased deposit insurance from $100,000 to $250,000 through December 31, 2009 – N (4b) NMAC  Changes have also been made to other account types; visit for detailswww.fdic.gov  The notes to the financial statements or the Schedule of Pledged Collateral need to be revised accordingly

91 Miscellaneous Changes in 2009 Rule  Budgetary Comparisons – the notes should disclose the budgetary process, the legal level of budgetary control, the basis of accounting, and any excess of actual expenditures over budgeted expenditures – A (11) NMAC  Any excess of actual expenditures over budgeted expenditures at the legal level of budgetary control must be reported as an audit finding – O (2) NMAC  Generally, if budgeted expenditures exceed budgeted revenues, a finding should also be reported – P (1) NMAC

92 Miscellaneous Changes in 2009 Rule  Budgetary Comparisons for Multi-year Appropriations – DFA established new financial reporting guidelines – A (12)(b)(iv) NMAC  Generally, the remaining unexpended balance for the project at the end of the fiscal year should be reported as the budgeted revenues and expenditures in the subsequent year budget  Visit for detailshttp://fcdsu.dfa.state.nm.us/Forums

93 Miscellaneous Changes in 2009 Rule  Capital Outlay Appropriations – DFA changed its revenue recognition policy to account for these types of appropriations – A (12) (b) NMAC,  The revenues should be recognized when all of the eligibility requirements established by the State Board of Finance ( NMAC) have been met (GASBS 33)  The notes to the financial statements should disclose the specific revenue recognition policy for these transactions (GASB Cod. Sec )

94 Miscellaneous Changes in 2009 Rule  Pension and OPEB disclosures (GASBS 43, 45 and 50)  The standard notes disclosures on our website have to be used for the PERA, ERA and RHCA plans  The standard notes disclosures comply with GASBS 43, 45 and 50, and are updated annually – (FF) and (II) NMAC

95 Amendments to State Audit Act  Senate Bill 336 was passed on 3/5/09   Click Bill Locator  Scroll down to SB 336  Effective July 1, 2010  State Auditor will issue regulations to implement law by February 2010

96 Amendments to State Audit Act  SB 336 was passed to amend the State Audit Act for a tiered system of financial reporting as follows:  The tiered system is based on annual revenues excluding capital outlay appropriations and grants;  An agency with annual revenues less than $10,000 is exempt from the State Audit Act and DFA-LGD’s budgeting laws, regulations and financial reporting requirements (Section and NMSA 1978 and NMAC, Budget Certification Rule);  An agency with revenues less than $50,000 shall comply with DFA-LGD’s budgeting laws, regulations and financial reporting requirements;

97 Amendments to State Audit Act  An agency with revenues less than $50,000 and expends at least 50% or the remainder of a single capital outlay award shall have a CPA firm perform agreed upon procedures to audit the capital outlay expenditures and submit a report to the State Auditor;  An agency with revenues of $50,000 but not more that $250,000 shall have a CPA firm perform agreed upon procedures and submit to the State Auditor a financial report that includes a budgetary comparison (budgeted and actual revenues, expenditures, and variances);

98 Amendments to State Audit Act  An agency with revenues of $50,000 but not more that $250,000 and expends any capital outlay funds shall have a CPA firm perform agreed upon procedures to audit the capital outlay expenditures and submit to the State Auditor a financial report that includes a budgetary comparison (budgeted and actual revenues and expenditures) and the results of the audit procedures;  An agency with revenues of $250,000 but not more that $500,000 shall, at a minimum, have a CPA firm perform agreed upon procedures and submit to the State Auditor a compilation of financial statements and a financial report;

99 Amendments to State Audit Act  An agency with revenues of $500,000 or more shall be thoroughly examined and audited as required by Section A NMSA  All of the agreed upon procedures noted above will be determined by the State Auditor after consultation with the local public body.  The agreed upon procedures should be tailored to and economically feasible for the affected local public body.  The tiered system may be implemented retroactively for the FY07 - FY09 audits based on regulations issued by the State Auditor.

100 Future Training Coordinated with the NM State Society of Certified Public Accountants 1.May 18, 2009 Audit Documentation 2.May 19, Governmental Accounting and Auditing Update 3.May 20, 2009 Conducting Governmental Audits Under GAAS, GAGAS and The Single Audit Location: Sandia Resort and Casino CPE: 8 hours of governmental auditing per class


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