While Northern New Mexico College was taken off of the Higher Education Department’s fiscal watch for the first time in seven years, the school’s finances have caused the U.S. Department of Education some hesitation.
In the Nov. 12 status report for Northern by the Higher Education Department’s Institutional Auditor Scott Eccles, a variety of financial difficulties the college is currently facing is listed.
Eccles’ report states in September, the U.S. Department of Education Post Audit Group completed a program determination report. The Department of Education conducted such a report due to the 2010, 2011 and 2012 audit findings.
Eccles’ report states the DE (Department of Education) has serious reservation concerning the College’s future and also has concerns about the College’s ability to continue the implementation of corrective action. His status report also includes the summary of an interview he conducted with the Department of Education auditor John Gard.
“Mr. Gard stated that NNMC has improved their accounting processes, but that if NNMC were to sustain repeated audit findings, lacked corrective action or misappropriated Federal grants, the DE would place the institution on monthly reimbursement. This process would mean that every month, a Federal Auditor would have to ensure all costs are allowable prior to releasing funds for NNMC to draw down,” Eccles’ report states.
Higher Education Department Deputy Secretary Glenn Walters said in a Jan. 13 interview this report outlined a worst-case scenario and different options the federal government had. Walters said the possible action by the federal government would be rare.
“If the federal government gets involved, it’s through long-standing issues and many different significant findings in an audit report. In order for feds to get to that point, it would be based on very, very significant weaknesses in the internal audit report or misappropriations of federal grant funds,” Walters said.
The deputy secretary repeated the federal government had not exercised this option over Northern’s finances.
“They (federal government) would really need to have solid, substantial, significant proof something was going on before taking that action,” Walters said.
Northern Vice President of Finances and Administration Domingo Sanchez III said he agreed with Walters and said Eccles was presenting a worst case scenario situation, “and that’s ok.”
“If we stayed on the path we were on three years ago and had not been able to get our act together, it would have been,” Sanchez said during a Jan. 15 interview.
Eccles’ statement needed to be taken piece by piece, he said.
“Three years ago, we had what was called a qualified opinion on a federal audit. We had quite a few significant findings and material weaknesses for the last two years. We’ve had a lot to clean up,” Sanchez said.
Northern’s 2013 audit showed no repeat findings.
Eccles’ status report does include a recommendation to Higher Education Department Secretary José Garcia to approve the Northern fiscal year 2014 operating budget, nearly seven months after the first 2014 operating budget was submitted. The report highlights the positive changes Northern has made: contracting a certified public accounting firm to assist in preparing financial statements, contracting the same certified public accounting firm to perform internal audits, having a certified public accountant on staff, a 2013 audit with a reduction of significant findings and Northern’s Board of Regents being actively involved in oversight of financial activities. However, Eccles adds a note.
“It is important to note that my recommendation is based not only on the fact that NNMC has taken steps in the right direction in improving fiscal controls, but is also based on the fact that the college desperately needs operating funds,” Eccles’ report states.
Northern struggled to get its fiscal year 2014 budget approved, having to resubmit its budget twice. Operating budgets for all public higher education institutions were due May 1, 2013.
In an Oct. 21, 2013 email sent from former institutional finance director John Rush to Eccles, Rush details Northern’s application process. Northern submitted 2013 budget adjustment requests and the 2014 operating budget.
The Higher Education Department found errors in the documents and informed Northern. On May 17, Northern resubmitted the budget documents, but the Department still found errors, so on May 30, Northern representatives met with the Department’s institutional finance team for an explanation of the errors the Department was finding.
“The only excuse was that the person recently released from Northern — the comptroller had made all the errors and the current staff did not know how to explain the errors. Blame the missing person scenario,” Rush’s email states.
On June 4, Northern resubmitted its 2014 budget and once again, the Department found errors. Northern was given until Sept. 20 to resubmit a complete and revised budget.
On Aug. 8, the Department’s institutional finance team and the state Department of Finance and Administration’s budget analyst visited Northern’s Española campus.
On Aug. 12 and 15, Northern sent two finance staff members to the Higher Education Department for training on how to prepare a proper budget.
On Aug. 19, Northern executive and budget staff visited the Higher Education Department’s institutional finance staff to correct items from their June budget submission.
Northern missed the Sept. 20 deadline and resubmitted the budget Sept. 23 and again an error was discovered in the 2013 budget adjustment requests.
“The FY 2013 BARs (budget adjustment requests) tied the revenue beginning balance to the New Assets of the institutions from the FY 2012 comparison document,” Rush’s email states.
Eccles sent an email to Sanchez, detailing the major errors in the budget submissions. “Unrestricted BAR for FY13 shows $32,039,190 as beginning balance when it should be $4,975,717,” Eccles email states. “Again, net assets are non-monetary and therefore cannot be included. The correct figure is $4,975,717, which represents the ending fund balance for FY12.”
“We were having a dance back and forth,” Sanchez said. “A lot had to do with the jargon that we use and the understanding and types of topics we’re talking about.”
Rush came from an accounting background, Sanchez said. Accounting and budgeting are two different disciplines and utilize different vocabulary, he said.
“When I was younger and my hair was black, I was an accountant and then I became a budget analyst with the DFA (Department of Finance and Administration). They are two different disciplines,” Sanchez said.
This created difficulty in effectively communicating. Sanchez agreed with Rush and with Eccles the beginning balance should not have the fixed asset fund balance because it is not expendable money.
“I was trying to get them to understand we don’t budget an unexpendable fund balance,” Sanchez said.
When Eccles took over Rush’s position, Eccles understood and the confusion dissipated, he said.
As well as recommending approval of Northern’s 2014 operating budget, Eccles also recommended closely monitoring the college because of continued serious cash flow and financial difficulties, continued allegations of misappropriations of funds, overspending budgets, holding checks prior to releasing and misstating its net assets as a source of funds on 2013 budget adjustment requests in the amount of $30,847,455.
On Nov. 22, Garcia sent a letter to the college approving its 2014 budget. The letter acknowledges the progress Northern has made toward approving fiscal controls, but also includes reasons for the Higher Education Departments continuance to monitor Northern.
“It is important to note that although we acknowledge the enormous effort put forth by NNMC staff and officials to improve fiscal accountability, this institution still faces serious cash flow and financial difficulties. These problems are a barrier to sustainable quality higher education for the citizens of Northern New Mexico,” Garcia’s letter states.
Northern’s Vice President for Institutional Advancement Ricky Serna said Northern is past the problems of the audits.
“What we had to do was repay for the over-expenditures, that we’ve paid for in so many ways, of the poor accounting principles that pre-date this administration,” Serna said.
Even so, Eccles’ status report outlines how the Higher Education Department will continue to monitor Northern: site visits, limited scope reviews, reviews of annual single audit reports, measure corrective actions taken to mitigate audit findings, measure corrective actions taken to mitigate prior audit findings, communications with the U.S. Department of Education staff, communications with the independent external audit staff, communications with the certified public accountant who prepares Northern’s financial statements and attendance of Northern’s Board of Regents finance meetings.
Walters said he could not predict at this time how long the department will continue to monitor Northern’s finances so closely. Whether an increase in cash flow or fewer findings after the next audit cycle, Walters could not say what Northern would have to do for the Department to lessen its watch.
Sanchez said Northern will continue to do what is needed to ensure finances are in order.