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State funds on hold over audit troubles

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SANTA FE – The Martinez administration is holding up nearly $24 million in funding for 91 projects around New Mexico because local governments are behind in their audits or haven’t corrected problems identified in audits, the Department of Finance and Administration said Wednesday.

The projects, authorized in a capital outlay bill signed by Gov. Susana Martinez, range from roadwork to animal shelter improvements to jail and courthouse upgrades.

The suspension of funding, which critics complain will delay and perhaps derail some projects, is an outgrowth of the governor’s executive order issued in May that capital outlay recipients must be up to date with the required annual audits of their finances.

The delayed funding amounts to about 11 percent of what was included in this year’s capital projects legislation, and nearly 12 percent of the projects in that bill are affected, according to the DFA.

“It will be a delay. We’re not eliminating funding for anything,” DFA Secretary Tom Clifford told the Journal . “We’re going to work with these communities.”

The state Board of Finance did not include the nearly $24 million in funding in the $218 million in bond sales it approved at its June meeting. Typically, there are two such bond sales each year; the next one is in December.

That means at least a six-month delay on the affected projects.

“A lot of projects are not ready to proceed anyway,” Clifford said. “It’s not like everything is shovel-ready on July 1.”

Local entities – cities, counties, towns, acequias – with suspended funding have two years to resolve the audit-related problems. After that, the administration could redirect the funding, or the Legislature could extend the funding for the local entity.

According to DFA documents, localities where funding is stalled because audit findings haven’t been fixed include Albuquerque, $783,000; Valencia County, $840,000; McKinley County, $735,000; Lovington, $850,000; Torrance County $210,000.

Findings can include a variety of problems. In Albuquerque, auditors found weaknesses in financial controls – for example, the way the city tracks federal grant spending, and accounting problems with the semi-independent housing authority.

Localities where funding is held up because audits haven’t been filed for the budget year that ended in June 2012 include Carlsbad, $575,000; Española, $500,000; Gallup, $535,100; Otero County, $587,850; Sunland Park, $410,000.

Clifford and State Auditor Hector Balderas said some audits for the 2012 budget year that were filed late are still being processed, and that could alter the list of governments that haven’t complied.

Senate Majority Leader Michael Sanchez, D-Belen, has criticized the delay, saying in a news release that the DFA’s actions “will hurt many small rural local communities desperate for jobs and economic boosts that capital outlay projects bring.”

He said local entities “are run on small and tight budgets with limited resources” and sometimes have difficulty complying with audit requirements. It would have been “helpful and less chaotic” if the administration had consulted with local entities and lawmakers before it developed the new requirements, he said.

Clifford countered that the administration has been cautioning communities for a couple of years that it’s unacceptable for them not to comply with state law.

“I think the fact that we found so many entities that were not compliant with the audit act shows the seriousness of the problem,” the administration official said.

Balderas estimates that, on average, 10 to 15 percent of local governments don’t submit audits on time each year.

He told the Journal the failure to submit audits can create a high risk for waste, fraud and abuse, and that he supports withholding capital funds from governments that have violated state law. By the same token, the state should be sure it relies on accurate, current information before it withholds funding, he said.

“I applaud DFA for embracing the oversight role, but it also needs to make sure there is a fair and thorough process to evaluate each case separately,” Balderas said.

The DFA didn’t send out letters telling local governments their funding would be stalled, and it was a surprise to some.

Juan Fuentes , city manager for Truth or Consequences, said he was aware audits had to be up to date to qualify for capital outlay.

“What caught a lot of us by surprise was the fact that the executive order went beyond that, and said you have to clear your findings,” he said. That could take time and money, he said.

“A lot of the small municipalities have to allocate some sort of financial resources to have the capacity to address some of these things,” he said.

TorC, which has an up-to-date audit but hasn’t resolved some findings, has had $100,000 delayed to plan and design an animal shelter that Fuentes said is badly needed.

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