AUDIT CHANGES

SB0145

SENATE BILL 145

57th legislature - STATE OF NEW MEXICO - second session, 2026

INTRODUCED BY

George K. Muñoz
and
Pamelya Herndon
and
Cynthia Borrego

AN ACT

RELATING TO AUDITING; PROVIDING FOR FEDERAL SINGLE AUDITS;
AMENDING THE AUDIT ACT; RESTRUCTURING AUDIT REQUIREMENTS;
AMENDING LOCAL PUBLIC BODY AUDIT THRESHOLDS; AMENDING
DEFINITIONS; UPDATING TERMS; AMENDING AUDIT REPORTING
REQUIREMENTS; AMENDING THE AUDIT FUND; MAKING AN APPROPRIATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1.
Section 12-6-2 NMSA 1978 (being Laws 1969,
Chapter 68, Section 2, as amended) is amended to read:

"12-6-2. DEFINITIONS.--As used in the Audit Act:

A. "agency" means:

(1) any department, institution, board,
bureau, court, commission, district or committee of [
the
government of
] the state, including district courts, magistrate
or metropolitan courts, district attorneys and charitable
institutions [
for which appropriations are made by the
legislature
]
funded by appropriation
;

(2) any political subdivision of the state,
created under either general or special act, that receives or
expends public money from [
whatever source derived
]
any source
,
including counties, county institutions, boards, bureaus or
commissions [
municipalities; drainage, conservancy, irrigation
or other special districts
] and school districts;

(3) any entity or instrumentality of the state
specifically provided for by law, including the New Mexico
finance authority, the New Mexico mortgage finance authority
and the New Mexico lottery authority;

(4) any organization subject to the
requirements of Section 6-5A-1 NMSA 1978 that supports a public
post-secondary educational institution;
and

[
(4)
]
(5)
every office or officer of any
entity listed in Paragraphs (1) through [
(3)
]
(4)
of this
subsection; and

B. "local public body" means a mutual domestic
water consumers association, a land grant, an incorporated
municipality,
an acequia
or a special district,
including:

(1) a drainage district;

(2) a conservancy district;

(3) an irrigation district;

(4) a sanitation district;

(5) a solid waste district;

(6) a transit district;

(7) a zoning district;

(8) a utility district;

(9) a communication district;

(10) a public improvement district; or

(11) a tax increment development district
."

SECTION 2.
Section 12-6-3 NMSA 1978 (being Laws 1969,
Chapter 68, Section 3, as amended) is amended to read:

"12-6-3. ANNUAL AND SPECIAL AUDITS--FINANCIAL
EXAMINATIONS.--

A. Except as otherwise provided in Subsection B of
this section, the financial affairs of every agency shall be
thoroughly examined and audited each year by the state auditor,
personnel of the state auditor's office designated by the state
auditor, [
or
] independent auditors approved by the state
auditor
or personnel of the state auditor's office designated
by the state auditor working jointly with independent auditors
approved by the state auditor
. The
annual
comprehensive
[
annual
] financial report for the state shall be thoroughly
examined and audited each year by the state auditor, personnel
of the state auditor's office designated by the state auditor,
[
or
] independent auditors approved by the state auditor
or
personnel of the state auditor's office designated by the state
auditor working jointly with independent auditors approved by
the state auditor
. The audits shall be conducted in accordance
with generally accepted auditing standards,
generally accepted
government auditing standards
and rules [
issued
]
promulgated
by
the state auditor;
provided that for fiscal year 2028 and each
fiscal year thereafter, in accordance with Section 6-5-4.1 NMSA
1978, the financial control division of the department of
finance and administration shall conduct an annual agency
federal single audit in accordance with the Federal Single
Audit Act (31 U.S.C. 7501 through 7507), as amended, and Title
2, Subtitle A, Chapter II, Part 200, Subpart F, as amended
.

B. The examination of the financial affairs of a
local public body shall be determined according to its
cash and
investments assets
, annual revenue
or federal expenditures
each
year. All examinations and compliance with agreed-upon
procedures
engagements
shall be conducted in accordance with
generally accepted auditing standards,
generally accepted
government auditing standards
and rules issued by the state
auditor. If a local public body has an annual revenue,
calculated on a cash basis of accounting, exclusive of capital
outlay funds, federal or private grants or capital outlay funds
disbursed directly by an administrating agency, of:

(1) less than [
ten thousand dollars ($10,000)
]

one hundred thousand dollars ($100,000)
and does not directly
expend at least fifty percent of, or the remainder of, a single
capital outlay award, it is exempt from submitting and filing
quarterly reports and final budgets for approval to the local
government division of the department of finance and
administration and from any financial reporting to the state
auditor;

[
(2) at least ten thousand dollars ($10,000)
but less than fifty thousand dollars ($50,000), it shall comply
only with the applicable provisions of Section 6-6-3 NMSA 1978;

(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, it shall submit to
the state auditor a financial report consistent with agreed-upon procedures for financial reporting that are:

(a) focused solely on the capital outlay
funds directly expended;

(b) economically feasible for the
affected local public body; and

(c) determined by the state auditor
after consultation with the affected local public body;

(4) at least fifty thousand dollars ($50,000)
but not more than two hundred fifty thousand dollars
($250,000), it shall submit to the state auditor, at a minimum,
a financial report that includes a schedule of cash basis
comparison and that is consistent with agreed-upon procedures
for financial reporting that are:

(a) narrowly tailored to the affected
local public body;

(b) economically feasible for the
affected local public body; and

(c) determined by the state auditor
after consultation with the affected local public body;

(5) at least fifty thousand dollars ($50,000)
but not more than two hundred fifty thousand dollars ($250,000)
and expends any capital outlay funds, it shall submit to the
state auditor, at a minimum, a financial report that includes a
schedule of cash basis comparison and a test sample of expended
capital outlay funds and that is consistent with agreed-upon
procedures for financial reporting that are:

(a) narrowly tailored to the affected
local public body;

(b) economically feasible for the
affected local public body; and

(c) determined by the state auditor
after consultation with the affected local public body;

(6) at least two hundred fifty thousand
dollars ($250,000) but not more than five hundred thousand
dollars ($500,000), it shall submit to the state auditor, at a
minimum, a compilation of financial statements and a financial
report consistent with agreed-upon procedures for financial
reporting that are:

(a) economically feasible for the
affected local public body; and

(b) determined by the state auditor
after consultation with the affected local public body; or

(7) five hundred thousand dollars ($500,000)
or more, it shall be thoroughly examined and audited as
required by Subsection A of this section
]

(2) less than one hundred thousand dollars
($100,000) and directly expends at least fifty percent, or the
remainder, of a single capital outlay award, the local public
body shall submit to the state auditor a financial report
consistent with agreed-upon procedures for the financial
reporting that are:

(a) focused solely on the capital outlay
funds directly expended;

(b) economically feasible for the
affected local public body; and

(c) determined by the state auditor
after consultation with the affected local public body;

(3) more than or equal to one hundred thousand
dollars ($100,000) but less than one million dollars
($1,000,000), the local public body shall submit to the state
auditor, at a minimum, a financial report that includes a
schedule of cash basis comparisons and a test sample of any
expended capital outlay funds and that is consistent with
agreed-upon procedures for financial reporting that are:

(a) narrowly tailored to the affected
local public body;

(b) economically feasible for the
affected local public body; and

(c) determined by the state auditor
after consultation with the affected local public body; or

(4) one million dollars ($1,000,000) or more,
the local public body shall be examined and audited as required
by Subsection A of this section
.

C. 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.

D. If a local public body is required to be
examined and audited pursuant to Subsection A of this section,
the local public body shall not be eligible for the reporting
requirements provided pursuant to Paragraphs (1) through (4) of
Subsection B of this section and shall be required to be
examined and audited each year.

[
D.
]
E.
Annual financial and compliance audits of
agencies under the oversight of the financial control division
of the department of finance and administration shall be
completed and submitted by an agency and
an
independent auditor
to the state auditor no later than sixty days after the state
auditor receives notification from the financial control
division [
to the effect
] that an agency's books and records are
ready and available for audit. The local government division
of the department of finance and administration shall inform
the state auditor of [
the
]
any
compliance or [
failure to
comply
]
noncompliance
by a local public body with the
provisions of Section 6-6-3 NMSA 1978.

[
E.
]
F.
In order to comply with United States
department of housing and urban development requirements, the
financial affairs of a public housing authority that is
determined to be a component unit in accordance with generally
accepted accounting principles, other than a housing department
of a local government or a regional housing authority, at the
public housing authority's discretion, may be audited
separately from the audit of its local primary government
entity. If a separate audit is made, the public housing
authority audit shall be included in the local primary
government entity audit and need not be conducted by the same
auditor who audits the financial affairs of the local primary
government entity.

[
F.
]
G.
The state auditor shall notify the
legislative finance committee and the public education
department if:

(1) a school district, charter school or
regional education cooperative has failed to submit a required
audit report within ninety days of the due date specified by
the state auditor; and

(2) the state auditor has investigated the
matter and attempted to negotiate with the school district,
charter school or regional education cooperative but the school
district, charter school or regional education cooperative has
not made satisfactory progress toward compliance with the Audit
Act.

[
G.
]
H.
The state auditor shall notify the
legislative finance committee and the secretary of finance and
administration if:

(1) [
a state
]
an
agency, state institution,
municipality or county has failed to submit a required audit
report within ninety days of the due date specified by the
state auditor; and

(2) the state auditor has investigated the
matter and attempted to negotiate with the [
state
] agency,
state institution, municipality or county but the state agency,
state institution, municipality or county has not made
satisfactory progress toward compliance with the Audit Act."

SECTION 3.
Section 12-6-5 NMSA 1978 (being Laws 1969,
Chapter 68, Section 5, as amended) is amended to read:

"12-6-5. REPORTS OF AUDITS.--

A. The state auditor shall cause a complete written
report to be made of each annual or special audit and
examination made. Each report shall set out in detail, in a
separate section, any violation of law or good accounting
practices found by the audit or examination. Each report of [
a
state
]
an
agency shall include a list of individual deposit
accounts and investment accounts held by each [
state
] agency
audited. A copy of the report shall be sent to the agency
audited or examined
and the secretary of finance and
administration
; five days later, or earlier if the agency
waives the five-day period, the report shall become a public
record, at which time copies shall be sent to [
(1) the
secretary of finance and administration; and (2)
] the
legislative finance committee.

B. The state auditor shall send a copy of reports
of [
state
] agencies to the department of finance and
administration.

C. Within thirty days after receipt of the report,
the agency [
audited
]
auditor
may notify the state auditor of
any errors in the report. If the state auditor is satisfied
from data or documents at hand, or by an additional
investigation, that the report is erroneous, the state auditor
shall correct the report and furnish copies of the corrected
report to all parties receiving the original report."

SECTION 4.
Section 12-6-13 NMSA 1978 (being Laws 1969,
Chapter 68, Section 13) is amended to read:

"12-6-13. AUDIT FUND--PAYMENT FOR AUDITS--EXPENSES OF
AUDITOR.--

A. [
There
]
The "audit fund"
is created
as a
nonreverting fund
in the state treasury [
the "audit fund" into
which the state auditor shall deposit all
].
The fund consists
of earmarked revenue, appropriations, gifts, grants, donations
and
fees and costs received from agencies audited by [
him
]
the
state auditor. The state auditor shall administer the fund,
and money in the fund is appropriated to the state auditor for
the purposes of carrying out the Audit Act. Disbursements from
the fund shall be made by warrant of the secretary of finance
and administration pursuant to vouchers signed by the state
auditor or the state auditor's authorized representative.

B. Fees and costs pursuant to Subsection A of this
section shall be determined by the state auditor to recover all
fees and costs of the state auditor for performing an
engagement in accordance with professional standards.

[
B.
]
C.
Payments for salaries and expenses of the
state auditor shall be made from the audit fund [
and the fund
shall not revert at the end of any fiscal year
]."

SECTION 5.
APPROPRIATION.--Fifty thousand dollars
($50,000) is appropriated from the general fund to the office
of the state auditor for expenditure in fiscal year 2027 to
purchase computer software to administer statewide single
federal audits. Any unexpended balance remaining at the end of
fiscal year 2027 shall revert to the general fund.

- 12 -