NEW MEXICO HIGHER EDUCATION DEPARTMENT
Fiscal Watch Policy
The legislation creating the New Mexico Higher Education Department, the Higher Education Department Act, assigns to the Department a number of key responsibilities involving oversight over the post-secondary institutions in the state. Section 15 of the Act specifically states that “The higher education department shall be concerned with the problems of finance of those educational institutions designated in Article 12, Section 11 of the constitution of New Mexico and other public post-secondary educational institutions in the state.” Among the responsibilities this section goes on to enumerate include “be concerned with the adequate financing of these institutions” and “receive, adjust and approve the budgets submitted by these institutions.” Section 18 of the Act defines the “verification function” of the department, and the areas of such verifications include fund balances, with reports on such verifications to be made to the Department of Finance and Administration and the Legislative Finance Committee.
For state government to run efficiently, we need to avoid duplication of functions yet make sure that there is close coordination among those with related functions. The Department does not have the staff to engage in the actual verification of fund balances, for instance, nor does it need to, given the existence of the Office of the State Auditor and the statutory obligation of all state agencies, including post-secondary institutions, to complete audits and send them to the OSA. Our role in this respect comes in when this well established process identifies issues through the audit process.
Speaking generally, audit opinions fall into three broad categories: the best is an unqualified opinion, a qualified opinion identifies substantial concerns, while a disclaimer is the most serious, indicating in the opinion of the person conducting the audit either a serious problem in the financial condition of the institution or in its business systems and financial controls. In addition to these broad categories, audits are made up of a series of findings, some of which may indicate material weaknesses or reportable conditions. All findings need to be addressed by management and cleared in subsequent audits. Since New Mexico runs on a fiscal year from July 1 to June 30, audits need to be completed and submitted to the OSA by November 15 for the preceding fiscal year; the late submission of an audit itself leads to a finding.
In order to fulfill our responsibilities concerning the finances of post-secondary institutions, the New Mexico Higher Education Department is adopting a formal policy concerning putting institutions with significant audit findings on a fiscal watch. This has been done by the Commission on Higher Education in the past, so does not represent a new practice, but we consider it important to put the practice in a formal policy, described in this document. This does not constitute administrative code, as it simply describes what the Department will do in order to fulfill its administrative responsibilities.
If the Department has serious and demonstrated concerns about the financial condition of a post-secondary institution or about its financial systems, it will put that institution on Fiscal Watch, a formal action of the Department which will be communicated in writing to the President and governing Board of the institution as well as the Department of Finance and Administration and the Legislative Finance Committee. Any institution with an audit disclaimer or whose audit submissions to OSA is more than 90 days in arrears will be put on Fiscal Watch, while institutions with a qualified opinion, a large number of material weaknesses or other reportable conditions, or other demonstrated serious financial issues may be put on Fiscal Watch. The Secretary and the Director of Institutional Finance will meet with the President and CFO of the institution before putting it on Fiscal Watch.
Any institution put on Fiscal Watch needs to submit an action plan to the Department with responsible parties identified and a clear timeline with deadlines on how it will addressthe audit findings or other issues identified by the Department which have led to the institution being put on Fiscal Watch. This action plan is due no later than 30 days after the institution is notified that it is on Fiscal Watch. The Department may wish to meet with the institution on receipt of this plan and may reject the plan or ask for revisions if in its judgment, the action plan is not adequate to address the issues that have been identified. The Department will then expect monthly, or less frequent as approved, updates to be submitted to the Department, and the Department reserves the right to ask for meetings to review these updates and the overall progress on the plan on a regular basis if it feels this is needed. Any institution put on Fiscal Watch should expect to remain in that status at least until the next annual audit, and progress from one annual audit to another will be evaluated very closely.