Eric Vasquez, current executive director of the Regional Coalition of LANL Communities, reads the findings of the FY2013-2018 audits and the RCLC responses to recommendations of auditors Kubiak Melton & Associates. Photo by Maire O’Neill/losalamosreporter.com
BY MAIRE O’NEILL
Six years of audits of the Regional Coalition of LANL Communities were made available to the public Friday afternoon by the Office of the State Auditor (OSA) and the RCLC on their respective websites.
Although not on the agenda for the RCLC board meeting Friday afternoon at City Hall in Espanola, the audits were discussed under executive director Eric Vasquez’s report. On Thursday, the OSA sent the RCLC its auditor Kubiak Melton release letters for all six years and noted that the audits would become public after the statutorily required five-day waiting period. The RCLC sent a letter to the OSA asking them to waive the five-days and that waiver was granted Friday afternoon. Vasquez told the board that the audits were online so the board could talk about them at that point.
The RCLC contracted with Kubiak Melton to perform the audits which were submitted to the OSA the first week of September. The OSA responded Oct. 8 with identical notes for each year requesting four amendments to the audit. The audits with the amendments were submitted to the OSA Oct. 16.
Vasquez provided a very quick summary of the audits reading which consisted of two pages in his report. He said Kubial Melton conducted separate reviews of each year in question and per OSA direction also included findings from the 2018 OSA audit ordered by former state auditor Wayne Johnson in the specific years where they were identified.
“In total, KMA identified 13 unique findings, some of which occurred over multiple years resulting in 36 individual occurrences,” Vasquez said.
State auditor Brian Colon noted in the audits release letters that “it is critical that RCLC implement internal controls to address the results of the AUP and protect funds disbursed”.
“Expenditures of RCLC funds must be in support of its mission, which never includes purchases of alcohol. It is ultimately the responsibility of the governing authority of the agency to take corrective action on all findings and comments,” he said.
Espanola City Councilor Peggy Martinez who was sitting in for Mayor Javier Sanchez noted that in looking at the findings the thing that popped out at her the most is that there were 13 different findings 36 different times.
“That just shows you the need for us to stay on top of the annual audits. Had this been audited at the time when the first occurrence happened, we would have been having clean audits from that time forward. The fact that it took us six years to catch up is very disturbing and I really feel it’s up to the board members to make sure these audits are coming in a timely manner and asking the questions that need to be asked when they need to be asked. If we’re not, we’re not doing our due diligence to the public trust vested in us. This board has a lot of work to do in rebuilding that trust,” she said.
RCLC chair and Santa Fe County Commissioner Henry Roybal said the board will have a special meeting Dec. 13 to discuss the audits.
Vasquez told the board that a formal request had been made to the OSA to authorize Kubiak Melton to serve the RCLC for FY2019 and received a response that for FY2019 the RCLC would need to conduct a full compliance audit as opposed to the Tier 4 Agreed Upon Procedures.
Below are the findings listed in the audits and beneath them in italics are the RCLC responses. Many of the findings were repeated during multiple fiscal years.
FY 13-18: Contractual Agreements between RCLC and contract Executive Director does not adequately define allowable reimbursements in the contract.
This finding was related to a condition in a contract with MVM Group, LLC for executive director services which allowed for reimbursement of expenses without any specific budget amount. The clause in the contract was open-ended and could have allowed for abuse.
Kubiak Melton recommended that all professional services contracts entered into
by the RCLC contain a clause that specifically addresses what costs are allowed and not allowed to be reimbursed and also that requests above a certain dollar limit be considered by the Board in full session. They also recommended that budgeted limits be associated with all allowed amounts and that they be tracked regularly.
The RCLC concurs with the recommendation and has changed its policies and procedures
regarding allowable reimbursements to include a review by the treasurer, and independent accountant, and the board. In addition all contractual services no longer permit reimbursements, as well as tracking budget limits.
FY 13: Out-of-state lodging payment had no evidence that RCLC attempted to obtain the least expensive of acceptable options.
Out of five transactions tested by Kubiak Melton, one reimbursement included a payment of $6,468 was made to a Washington D.C. hotel without any documentation to demonstrate RCLC sought and received the best possible price. Kubiak Melton’s report said best practices prescribe that expenditures of public dollars should be done in an effort to get the least expensive of acceptable options and that if there is any deviation from best practices, it should be substantiated and documented.
The report said payment for the travel and lodging was approved by a board member and contract executive director approximately two weeks in advance of the trip but there is no documentation that RCLC received quotes in order to demonstrate they sought and received the best value. It said the RCLC is not following best internal control practices to engender the public’s trust.
Kubiak Melton recommended that the RCLC seek multiple price quotes in an effort to
receive the least expensive of acceptable options and should document their
process to support the expenditure.
The RCLC concurs with the recommendation to implement best practices and although state law does not mandate this recommendation, the RCLC will implement a policy to seek multiple quotes.
FY 13-18: Late submission of report
The audit found that the Tier 4 Agreed Upon Procedures report for the year ended June 30, 2013, was not submitted to the OSA by the due date of December 15, 2013 due to the fact that the board did not contract with an IPA to conduct a Tier 4 for 2013 until 2019. Kubiak Melton recommended that the board contract with an IPA on a yearly basis to ensure that the required annual report is submitted timely to the OSA.
The RCLC concurs with the recommendation and has implemented policies to become current on all previous required reports and to remain current by contracting with an IPA on a yearly basis.
FY 14: RCLC had no approved budget for the fiscal year 2014
The report for FY2014 states the RCLC could not provide Kubiak Melton CPAs with evidence that they approved a budget for fiscal year 2014. nding in fiscal year 2014. It says budget amounts were provided that were used to construct the Schedule of Revenues and Expenditures – Budget to Actual but that there was no substantiation that these budget amounts were ever approved by the board.
The Joint Powers Agreement creating RCLC did not specifically require and annual
approved budget and monitoring of that budget, the report states. It says that although Los Alamos County provided Kubiak Melton with a budget amount of $276,220 for RCLC for that year, there was no evidence that this amount was approved by the board and that the board could be perceived to not be demonstrating accountability and transparency without evidence of an approved budget.
The RCLC concurs with the recommendation and the Board is moving to adopt a formal
timeline for approval of annual budgets, and to ensure minutes accurately reflect all business actions.
FY 15: Actual expenditures for FY 2015 exceeded the Board-approved budget by $48,921
The audit found that the approved budget for FY 2015 was $139,788. Actual expenditures were $188,709. This is new finding in fiscal year 2015. It found that the board did not monitor and where applicable, adjust the budget properly with the result that actual expenditures exceeded the approved budget by $48,921. Kubiak Melton recommended that the board should review the budget and the year to date actual
expenditures at each meeting in order to identify projected shortfalls.
The RCLC concurs with the recommendation and has implemented a practice of reviewing the treasurer’s report at each meeting including all expenditures, and the RCLC has contracted with an independent accountant to help track actual budget expenditures and to report their findings to the board.
FY 15-17: Reimbursements made for restaurant bills without itemized receipts
In the FY2015 audit, Kubiak Melton’s testwork revealed one instance in which a restaurant bill was charged through contract reimbursement involving a receipt that was not itemized. Out of the five transactions tested totaling $66,255, one instance was identified of $36 that was reimbursed without an itemized receipt submitted by the contract executive director. The report stated that this is the same $36 indicated on another finding and that there could potentially been items reimbursed strictly prohibited by RCLC’s Travel Policy that the accountants could not determine. This situation also occurred in FY2016 and FY2017. Kubiak Melton recommended that the board and/or board member responsible for approving reimbursements be thoroughly knowledgeable in allowable and unallowable expenses as permitted by law and policies prior to approving reimbursements.
The RCLC concurs with the recommendation and has adopted a policy eliminating
reimbursments to contractors and board members. In addition, in collaboration with the
independent accountant, the RCLC will develop a training for staff and board members on allowable and unallowable expenses, pursuant to NMAC 2.42.2.
FY 15-16: Reimbursement of expenses for other guests, prohibited by the Mileage and Per Diem Act and the Travel Policy
Kubiak Melton recommended that the oard and/or board member responsible for
approving reimbursements thoroughly review the requests to determine if they are allowable under RCLC policy and/or New Mexico law.
The RCLC concurs with the recommendation and has changed policies to ensure it complies with the requirements of NMAC 2.42.2. The FY 2019 and 2020 budgets eliminated all travel reimbursements and assume that local governments will handle their respective travel directly. The new policy also mandates that all expenditures be reviewed for compliance with RCLCpolicy, local government procurement policy, and state regulations.
FY 13-14: Reimbursement of expenses of non-entitled personnel
The FY2013 finding pertained to reimbursement transactions involving travel and meals included expenses that were incurred by non-entitled persons (third parties). This occurred in one instance of five transactions tested and amounted to $464.
The FY2014 report notes that in two transactions, a total of $4,139 in airfare was submitted for reimbursement by JLH for two individuals – the contracted executive director at that time and the principal of JLH.
“We were unable to determine why the portion of the expenditure related to the principal of JLH ($1,804) was reimbursed since JLH was already receiving a monthly contract fee for the executive director,” the report states.
Kubiak Melton found that state law does not contain any provisions that allow for payment of travel and per diem rates to persons who are not public officers or employees and that the board gave insufficient scrutiny to reimbursement requests related to travel and meals prior to approving them for reimbursement.
The audit found that reimbursements may have been made for expenses incurred by non-entitled personnel – persons who were not board members or employees where allowable. The recommendation was that the board should review all reimbursement requests carefully to ensure that the related expenditures were incurred by eligible individuals on RCLC business.
The RCLC concurs with the recommendation and has implemented policies and contractual provisions that eliminate reimbursments to contractors and board members for travel purposes. Policies has also been adopted to require multi-tiered review of any reimbursement requests.
FY 18: Reimbursements made for purchases of alcoholic beverages
Kubiak Melton in identified an invoice of $1,851 for “16 person RCLC dinner” which
included a purchase of $380 in alcohol beverages. A total of four transactions totaling $32,713 were tested. The RCLC did not follow its own Travel Policy or the NMAC Rule in regard to the reimbursement in this case and the invoice should not have been submitted for reimbursement because it included purchase of alcohol beverages; review of the supporting documentation by the RCLC was insufficient. This resulted in public funds being used in this transaction for the purchase of alcohol beverages and there was no listing of attendees available to identify their association with RCLC the report stated.
Kubiak Melton recommended that invoices be scrutinized before submission for
reimbursement in order to eliminate the possibility of public funds being used for items that are not allowed under statute and regulation.
The RCLC concurs with the recommendation and changed its policies and procedures to
ensure that it complies with the requirements of NMAC 2.42.2. Ongoing budgets have
eliminated reimbursements to the executive director and contractors, and board members and their home communities are now responsible for their own travel. Any and all expenditures are now reviewed for compliance with RCLC policy, and state and local policies and regulations. All expenditures are now subject to review by the independent accountant, the treasurer, and then a full vote by the board prior to payment by the fiscal agent.
FY 14-15: JLH Media, LLC charged NM gross receipts tax on mileage and travel and per diem expenditures resulting in double taxation to the RCLC
In the FY2014 audit, Kubiak Melton found that invoices submitted by JLH included charges for gross receipts taxes on reimbursements mileage and reimbursements totaling $556 for three transactions. The total of the transactions tested was $45,216.
The cause is noted as JLH did not consider taxation regulations when compiling expenditures and mileage to be included in the monthly billing and the fiscal agent did not adequately review invoices prior to payment, “indicating that neither party understands NM taxation regulations”.
This meant JLH claimed state gross receipts tax on mileage and travel and per diem expenditures resulting in double taxation to the RCLC. Kubiak Melton recommended that invoices be scrutinized for clerical or application errors prior to payment by the fiscal agent.
The RCLC concurs with the recommendation and has contracted with an independent
accountant in July 2019. Components of controls and delineation of duties includes the
accountant reviewing all invoices for expenditures prior to review by the treasurer and
subsequent authorization for the fiscal agent to make payment.
FY 13-18: The RCLC Governing Board not exercising control over finances in accordance with the Joint Powers Agreement Act, § 11-1-5(D), NMSA 1978
The report notes that the RCLC board approved reimbursement requests for travel and per diem expenditures that did not appear to be adequately reviewed against the RCLC’s Travel Policy, the Per Diem and Mileage Act, and NMAC 126.96.36.199. FY2013 audit states that this occurred in five instances of five transactions tested and amounted to $68,703.
“Both the statute and the Agreement provide that the RCLC Board is ‘strictly accountable’ for all receipts and disbursements of the entity…. The RCLC failed to follow the requirements of the Joint Powers Agreement… The RCLC improperly expended public funds in violation of state law,” the report states,
Kubiak’s recommendation was that in order to ensure that each party is fulfilling its statutory duties and fiduciary responsibilities to the RCLC, the contract Executive Director and RCLC’s Board should implement and formalize policies and procedures for the processing of transactions and that the board should provide training to all members and contractors.
“Only payments reviewed in accordance with the policies and procedures and related laws and regulations should be approved by the board prior to processing by the fiscal agent,” the report states.
The RCLC concurs with the recommendation and will be formalizing and implementing
appropriate policies and procedures for the processing of transactions. Additionally the RCLC board should provide training to all members and contractors. Only payments reviewed in accordance with the policies and procedures and related laws and regulations should be approved by the Board prior to processing by the fiscal agent.
FY 15: Travel expenditures in excess of board approved budget
Of the four transactions tested by Kubiak Melton for fiscal year 2015, RCLC spent $23,709 on travel. The Board expended $3,709 more than their Travel Policy allows for. The RCLC Travel Policy limits the total authorization for travel purposes to $10,000 for contract staff and $10,000 for board members for a total of $20,000 a year. The amount for 2015
exceeded the amount allowed by the Travel Policy. The report states that this was caused by lack of oversight on the part of the contracted executive director and the board making it impossible to monitor expenditures on a timely basis. The recommendation was that the budget should be reviewed by the Board on an regular basis.
The RCLC concurs with the recommendation. The RCLC has adopted areas of control,
including that all current and future budgets assume that respective local governments handle all board member travel directly. In addition, the executive director service contract adopted in July 2018 also assumes that the executive director’s travel is handled directly by the vendor and not as a reimbursable expense. In addition, the RCLC has adopted policies and procedures for the processing of transactions so that the RCLC treasurer approves only appropriate transactions, voted on by the RCLC Board, and reviewed by an independent accountant prior to payment processing by the fiscal agent.
FY 13-16: Failure to comply with the State Constitutions Anti-Donation of Public Monies Act Article IX
The FY2013 audit report states that Kubiak Melton identified expenditures reimbursed to the contract executive director by the RCLC for meals, travel and/or entertainment on behalf of third parties, occuring in one instance of five transactions tested and amounted to $465. The Anti-Donation Clause prohibits any donation to or in aid of any person, association or public or a private corporation. The FY2014 report indicates another fell into this category.
The cause of this finding was that the contract executive director submitted to the fiscal agent previously paid invoices and receipts for reimbursement by the RCLC. Many of these reimbursement requests included payments for meals, travel and/or entertainment of third parties. The effect was that the improper payments may have constituted an unwarranted donation of public funds to private individuals in violation of the Anti-Donation Clause, the report says.
Kubiak Melton’s recommendation was that the RCLC should clearly identify and document acceptable items subject to reimbursement and review each reimbursement request against that specific criteria prior to reimbursement.
The RCLC concurs with the recommendation and has changed its policies and procedures to ensure that appropriate reviews and approval of invoices for compliance with all applicable regulations occur prior to authorizing the fiscal agent to make payment. Furthermore, the RCLC has adopted policy that no current or future contractors are allowed to receive reimbursements, resolving this weakness.
See below for letters of release and individual audit reports: