New MexicoOffice of the State Auditor Hector H. Balderas
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
Agenda • Break • Financial Audits and Changes in the 2009 Audit Rule • Steve Archibeque, CPA, Senior Audit Manager • Question & Answer Session • OSA Staff
1 State Auditor 1 Deputy State Auditor 1 Chief of Staff 1 Chief Counsel 1 Director of Constituent Services 8 Audit Managers 7 Audit Supervisors 4 Audit Seniors 3 Audit Staff 2 Investigators 3 Administrative Staff 1 Information Systems Support 33 Allotted FTE How to contact us Telephone (505) 476-3800 Fax (505) 827-3512 Web Site www.osanm.org
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 12-6-3(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)
Statutory Authority of Office • State law requires the State Auditor to issue regulations necessary to carry out the duties of his office (12-6-12 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.
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
Audit Firms Performing Governmental Audits (within a seven year period)
Frank Valdez Frank.Valdez@osa.state.nm.us
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, 2009. • IPA’s to Conduct Financial Audit • Submit Audit Reports to OSA 10/1/2014
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
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
When Selecting an Auditor • Agency must receive written notification from the State Auditor before beginning the selection process • All required documents can be found at www.osanm.org • - 2009 Audit Rule - Sample Audit Contracts • - List of approved audit firms - Contract logs • - Cover letter (Appendix A) - Auditor Rotation Rule • - Evaluation form (Appendix B) • Documents are in a PDF format
Required Forms (Appendix A – Cover Letter) 10/1/2014
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.
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
Common Errors Found onAudit 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
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.) http://program.nmdfa.state.nm.us/content.asp?CustComKey=199453&CategoryKey=199454&pn=Page&DomName=program.nmdfa.state.nm.us
Progress Payments 188.8.131.52 (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.
Final Payment 184.108.40.206 (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 12-6-14 B, NMSA 1978, of this rule and will be reported as an audit finding of the agency.
220.127.116.11 (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.
18.104.22.168 Definitions Agency definition expanded to include land grants, domestic water consumer associations and public improvement districts. 22.214.171.124(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. 10/1/2014
126.96.36.199(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, 2009. The deadline was changed from June 2, in 2008. 10/1/2014
188.8.131.52(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) 10/1/2014
184.108.40.206(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. 10/1/2014
220.127.116.11(H)(1) and 18.104.22.168(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. 10/1/2014
22.214.171.124(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 2.2.2 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. 10/1/2014
126.96.36.199(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. 10/1/2014
Patrick P. Stewart Patrick.Stewart@osa.state.nm.us
OSA HOTLINE WWW.OSAFRAUD.ORG 1-866-OSA-Fraud 1-866-672-3728
Fraud Hotline Statistics • The hotline was initiated by Auditor Balderas in the Summer of 2008. • 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.
Special Investigations Division • The OSA receives cases in many different ways: In person, phone calls, US Mail, e-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.
Special Investigations Division The OSA received over 328 cases since the beginning of 2008. • 42% referred (DA, IPA, Agency, AG, other) • 11% outside the jurisdiction of the OSA • 45% remain under review/investigation • 2% resulted in special audit
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.
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.
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.
188.8.131.52 Special Audits and Examinations: • 184.108.40.206 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
220.127.116.11 Special Audits and Examinations: • 18.104.22.168 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.