Summary:

 Senate Bill 511 (SB 511) restructures the audit requirements under the Audit Act, expands the definition of “agency,” revises local public body audit thresholds, establishes provisions for statewide single audits, updates terminology, and modifies the Audit Fund. The bill increases the revenue threshold for local public bodies required to undergo audits, changes financial reporting requirements based on revenue and expenditure levels, and requires a statewide single audit for compliance with federal regulations. SB 511 takes effect on July 1, 2025. 

Legislation Overview:

 Senate Bill 511 (SB 511) amends the Audit Act by expanding the definition of “agency” to include organizations that support public post-secondary institutions, bringing them under state audit requirements. The bill revises the audit threshold for local public bodies, increasing the exemption from audits for those with annual revenues of less than $100,000, up from the previous $50,000 threshold. It also establishes a tiered audit and financial reporting structure for local public bodies based on revenue, cash and investment balances, and federal expenditure levels.

Under SB 511, the financial affairs of agencies must be examined annually, with audits conducted by the State Auditor, designated personnel, or approved independent auditors. Beginning in fiscal year 2028, a statewide federal single audit will be required to ensure compliance with federal laws governing the receipt and use of federal funds. Funding for the statewide audit will be allocated to federal programs in accordance with federal compliance requirements.

The bill modifies audit requirements for local public bodies by differentiating reporting obligations based on financial size. Local public bodies that expend federal funds above the federal audit threshold must undergo a full audit, while those expending lower amounts must maintain records for audit review. Entities with cash or investments exceeding $250,000 must undergo annual audits, and those with revenue between $100,000 and $1 million are required to submit financial reports with varying levels of examination. Entities with revenue below $100,000 are exempt from submitting quarterly reports to the Local Government Division of the Department of Finance and Administration and from state audit reporting requirements unless they directly expend at least 50% of a capital outlay award.

The bill also revises audit reporting procedures, requiring the State Auditor to notify the Legislative Finance Committee and oversight agencies when a school district, charter school, municipality, or county fails to submit a required audit within 90 days of the deadline. It modifies the Audit Fund, establishing it as a non-reverting fund in the state treasury and allowing it to receive appropriations, gifts, grants, and fees from audited agencies. Fees and costs for audits will be determined by the State Auditor to recover audit-related expenses.

SB 511 also updates contracting procedures for independent auditors, allowing the State Auditor to select an auditor if an agency or local public body fails to do so within 60 days. It mandates that all contracted audits be reviewed for compliance before payment is issued and clarifies that state-chartered charter schools must receive approval from the Public Education Department before selecting an auditor. The bill also standardizes audit oversight for local public bodies with substantial federal expenditures, ensuring compliance with federal requirements while maintaining flexibility for smaller entities.

Implications

SB 511 updates the audit framework in New Mexico by modernizing financial reporting requirements, increasing efficiency, and aligning state audits with federal standards. Raising the audit exemption threshold for small local public bodies reduces the administrative burden on entities with limited financial activity while maintaining transparency for larger organizations. The introduction of a statewide single audit enhances oversight of federal funds, ensuring compliance with federal regulations and reducing redundancy in agency audits.

The bill streamlines reporting requirements for local public bodies by tailoring financial reporting obligations to revenue and expenditure levels. Entities with substantial cash reserves or capital outlay expenditures will still be subject to audits, ensuring accountability while reducing unnecessary reporting for smaller organizations. The reclassification of the Audit Fund as a non-reverting fund strengthens financial stability for audit-related activities and ensures funding availability for required examinations.

By requiring timely audit submissions and granting the State Auditor the authority to intervene when audits are delayed, the bill promotes accountability and reduces the risk of financial mismanagement. The revised contracting procedures for independent auditors provide a mechanism to ensure that audits are conducted efficiently and in compliance with professional standards. The provisions requiring state-chartered charter schools and other agencies to receive approval before selecting an auditor add an additional layer of oversight.

The fiscal impact of SB 511 will depend on the cost of implementing a statewide single audit and the administrative adjustments required to accommodate the new tiered reporting system for local public bodies. While reducing audit requirements for smaller entities may decrease costs for local governments, the additional oversight responsibilities for the State Auditor’s Office could necessitate increased funding or personnel. 

Current Law:

 Under current law, all agencies and local public bodies are subject to annual audits, regardless of financial size. The existing threshold for audit exemptions applies only to entities with annual revenue below $50,000, exclusive of capital outlay funds, grants, or private donations. Local public bodies with revenue between $50,000 and $250,000 must submit financial reports with agreed-upon procedures, while those exceeding $500,000 must undergo full audits. Federal expenditure reporting requirements are currently handled on an agency-by-agency basis rather than through a statewide single audit. The Audit Fund currently operates under a reverting model, limiting long-term financial planning for audit activities.