Financial Reporting and Audits Workshop 2013In May, Governor Susana Martinez issued an executive order (2013-006) specifying that local governments need to be up to date on financial reporting – and acequias are no exception. With some 800 acequias in New Mexico, the state clearly doesn’t have the resources to track every acequia; but when acequias request state funding, the accountability is then established. These laws have been in place for quite some time, but compliance with these laws which haven’t been enforced in the past, is now required.

The New Mexico Acequia Association hosted a workshop on the topic of financial reporting requirements for acequias. The purpose of the workshop was to help to clarify how to organize all your acequia's documents in a way that will fulfill requirements for DFA budgets and audits.  

NMAA Executive Director, Paula Garcia, opened the workshop by giving an overview on the acequia perspective of financial reporting. Many attendees acknowledged that they have old ledgers for their acequias. “Acequias have a long history of record-keeping," Garcia said, "In the acequia culture, there’s a high emphasis placed on trust to take care of finances of the acequia. Community members want to know that things are taken care of.” Considering these historic ledgers, in the past it wasn’t money that was being tracked, but peones (laborers) and many acequias kept records on that. Nowadays, keeping financial records for internal use within the acequia isn’t enough, as there are now more responsibilities necessary to comply with state laws.  

Workshop attendees were shown an example of a parciante list, which included components such as who is eligible to vote, who has how much water, etc. Garcia emphasized that NMAA is “open to receiving information from acequias to see how they do it, with hopes that they’re willing to share with others."

Examples were given from Acequia de la Plaza de Dixon which has a color coded spreadsheet system for tracking information related to parciantes. Acequia de la Otra Banda and Acequia de la Isla also provided samples for workshop attendees. For example, the Acequia de la Isla shared a report on two different capital outlay balances and how the money was spent. It’s recommended that each acequia keep a journal/ledger – reports will be much easier to generate if you do keep this information handy.      

“Public money is scarce,” Garcia said, “and the state needs to make sure that the money is spent wisely and these reports can be more manageable if you have a clean bookkeeping system.” She showed an example of one acequia’s simple budget which included $12,000 in income that included mayordomo assessment, expenses, labor (peones, limpia), office supplies, etc. She then showed an example of a journal/ledger which is a basic listing of different transactions with running totals on a quarterly basis. It’s a key responsibility for acequias to keep track of their expenses and budgets.      

Following NMAA’s overview, Evan Blackstone, Office of the State Auditor (OSA) Chief of Staff, offered his take on the financial process at it relates to acequias. Blackstone said, “We’re available and willing to help out in any way we can.” He acknowledged that it’s not a perfect system because the Audit Act was structured in a way that required auditing across the board for all governmental entities in the state. They noticed the inherent inequity among some local governments and, as a result, created the current tiered system. Acequias, as local governments, are required to report on public dollars. Blackstone said, “There are a lot of challenges with the recent executive order, and we only have oversight on the reporting process.”

Blackstone stated that if you’re a state agency or subdivision that receives or expends public funds, you must account for and report on that for transparency and to reduce risk of fraud. “The Audit Act requires us [OSA] to oversee such expenditures,” he said, “and auditors make recommendations that can improve the acequia’s protection over the use of public funds.” He made clear that consequences of not complying can jeopardize the ability and/or eligibility to get funds. The OSA’s main message to acequias is that the tiered system reduces costs for acequias because most don’t have to do full audits. Full blown audits are for those entities with budgets and expenditures over $500,000 which doesn’t apply to the majority of acequias.

Natalie Cordova, OSA staff reviewed tiers 1-3 in more detail and emphasized that, “It’s not based on budget, it’s based on cash that comes through the door.” The following describes the key characteristics of tiers 1 – 3 (which most acequias fall under):

Tier 1: Less than ten thousand dollars ($10,000) and does not directly expend at least fifty percent of, or the remainder of, a single capital award. Require the acequia to submit a certification which includes the local public body’s revenue and that the body did not spend 50% or the remainder of any capital outlay award. Certification Form is located at http://osanm.org/tiered_system_reporting. Under this tier, acequias are exempt from submitting and filing quarterly reports and final budgets for approval by FA.  

Tier 2: If entity has at least $10,000 but less than $50,000. If your acequia falls under this tier, it is required to submit a certification which includes the local public body’s revenue and that the body did not spend 50% or the remainder of any capital outlay award. The certification Form is located at http://osanm.org/tiered_system_reporting. Under this tier, it’s required that local public bodies comply with DFA financial reporting.   

Tier 3: Less than fifty thousand dollars ($50,000) and directly expends at least fifty percent of, or the remainder of, a single capital outlay award. In this case, it’s require by the local public body to procure an independent public accountant (IPA) for the performance of a Tier 3 Agreed-Upon Procedures (AUPs) engagement, which tests state-appropriated capital outlay expenditures and compliance with award requirements. The Tier 3 AUP report must be submitted by the due date provided in the Audit Rule. The required Tier 3 AUP is located on the OSA’s website at http://osanm.org/tiered_system_reporting. Blackstone urged acequias to contact the OSA if they need to submit a Tier 3 report.     

Acequias must submit these forms for records going back to 2010, one for each year, and should submit them no later than 5 months from the end of the acequia’s fiscal year. For example, if your acequia had infrastructure improvements completed in 2009 but didn’t receive an invoice from the contractor until 2010, the acequia is still liable for compliance – it’s the date on the check that determines the need for compliance regardless of when the actual work took place.  

Frank Valdez, OSA staff, covered the tiered system certification and contracting process. “It’s helpful to know this form, it takes you step by step,” he said, regarding the forms for determining types of reporting requirements. He noted that acequias must use the services of an IPA to perform the AUP engagement for Tiers 3-6.  

Acequias are strongly encouraged to contact an IPA listed on their website, if possible, but can also choose one that has the following: a New Mexico firm permit to practice, current liability insurance, and a current peer review, if applicable.  

According to some acequia officials, it's been a challenge to get auditors out to their communities, and the few that are willing attach a steep price for doing so. Blackstone said they’re currently working on that issue and that, for the time being, the OSA will complete audits for those acequias that fall under Tier 3. “We’re trying to make the effort and are dedicating staff to do 17 or 18 reports for 11 acequias,” he said, “We understand the challenges for acequias and want to help get you in compliance.” He also said the OSA is willing to talk to CPAs that have turned down acequias. In addition, they’re talking with DFA and others about future potential funding options to have a special legislature appropriation to the OSA for completion of acequia audits. “Hopefully, moving forward the policies could change,” he said, “but for now we’re trying to work on things that are feasible for you, financially.”  

Yolanda Jaramillo, Commissioner of the Acequia de la Plaza de Dixon, thanked the OSA staff for their efforts. She said, “We have nothing to hide, we do keep financial records and realize it’s only fair that acequias are audited. What we feared was the cost to do so.” 

For the first time, the Department of Finance and Administration (DFA) is asking if acequias are up to date on audits (or financial reports) and their required DFA reporting. A few acequias have completed their DFA reports already, but most have not. DFA has a different set of financial reporting requirements from the OSA. Similar to OSA, DFA goes by state statute that says acequias are local bodies, and are therefore required to comply with financial reporting. Isaac Montoya of DFA summarized their requirements. Certifications are also required by DFA in addition to the OSA. “We need to make sure dollars are used wisely and in the most efficient way,” he said.  

According to DFA, acequias must keep annual budgets. Montoya reviewed a sample with different components of a budget and cautioned acequias that DFA needs to start receiving budget forms, but ensured that DFA will be in better communication with acequias about necessary reporting. Additionally, according to Montoya it is ok to adjust budgets if necessary. For example, budget numbers might change after flooding events that result in the need to make repairs to the acequia. Acequias just need to be clear on how and why the budget changed.  

If an acequia’s budget is under $10,000 they are not required to submit a budget to DFA. However, an acequia will still need to submit a certification form attesting to the fact that their budget is less than $10,000. One clear distinction to be made between DFA and OSA requirements is that, for DFA, budgets are for revenue only (acequia dues, for example), which means it excludes Capital Outlay. NMAA Concilio member, Jackie Powell, noted the confusion about budgets as they relate to receiving emergency funding such as FEMA. Montoya said that DFA will work with acequias that receive emergency funding that might require a budget.  

Following Montoya's presentation, Jimmy Rodriguez of DFA gave an overview of Executive Order 2013-006. He said, “It doesn’t prevent acequias from receiving Capital Outlay, but it prevents bonds from being sold if they aren’t compliant.” From the capital appropriation bill, there are two years to get the bond sold. “We’re enforcing existing statutes that are already in place,” he said. He added that there are exceptions in the executive order. For instance, if an acequia is unable to comply for some reason, it can work with the state agencies to make sure it has proper procedures in place or establish special grant agreements. Additionally, acequias can also find an alternate fiscal agent such as a COG (council of government) or county. Acequias still have to meet tax bonds requirements though, and state agencies must work with local governments to make sure they’re up to speed on requirements. “This isn’t a one-time review,” he cautioned, “acequias must continue to meet OSA and DFA requirements on a regular basis. Capital outlay could be canceled if you’re not in compliance.”  

Finally, the workshop attendees heard from the staff at the Interstate Stream Commission (ISC) who gave an explanation of how the ISC administers Capital Outlay when funds are made available to an acequia. There has been a lot of confusion about the process and requirements. Kim Abeyta of the ISC summarized their end of the process – ISC provides input into the bond certification process, so they report to DFA on finances. The ISC must determine that acequias are in compliance before the remaining bonds are certified. If acequias need a review/report, they must start working with the appropriate agencies right away. 

The NMAA that realizes that the above requirements for the OSA, DFA, and ISC can be confusing. Please contact us at (505) 995-9644 if you have any questions about the process and/or information presented at the workshop. You can also find a number of general information handouts that were passed out at the workshop, including the required forms below.

The table below lists requirements of the Office of the State Auditor (OSA) and the Department of Finance and Administration (DFA). Following the table are some forms and examples available to download.

Tier OSA Requirements DFA Requirements

Tier 1

  • Under $10,000
  • No Capital Outlay
  • Copy of OSA Tier 1 Certification Letter

Tier 2

  • $10,000 to $50,000
  • No Capital Outlay
  • Copy of OSA Tier 2 Certification Letter
  • Budget Approval
  • Quarterly Reports

Tier 3

  • Capital Outlay Appropriation
  • Copy of AUP Financial Report
  • Budget Approval
  • Quarterly Reports

Tier 4

  • $50,000 to $250,000
  • Financial Report by Independent Public Accountant (IPA) using Tier 4 Agreed Upon Procedures (AUP)
  • Copy of AUP Financial Report
  • Budget Approval
  • Quarterly Reports

Tier 5

  • $50,000 to $250,000 and expend any Capital Outlay funds
  • Financial Report by Independent Public Accountant (IPA) using Tier 5 Agreed Upon Procedures (AUP)
  • Copy of AUP Financial Report
  • Budget Approval
  • Quarterly Reports

Tier 6

  • $50,000 to $250,000 and expend any Capital Outlay funds
  • Financial Report by Independent Public Accountant (IPA) using Tier 6 Agreed Upon Procedures (AUP)
  • Copy of AUP Financial Report
  • Budget Approval
  • Quarterly Reports

FORM FOR DETERMINING TYPE OF REPORTING REQUIREMENTS AND INDEPENDENT PUBLIC ACCOUNTANT (IPA) SERVICES NEEDED

OSA 2013 AGREED UPON PROCEDURES

OSA 2013 Certification Form for Tier 1 and Tier 2

DFA Budget and Reporting Requirements

OSA Audit Rule Compliane General Information