Second Opinion

Did a recent audit of Department of Health finances go the distance?

An audit of the New Mexico Department of Health's finances needs a second look. That's what State Auditor Hector Balderas tells SFR following the release of the audit last week.

SFR recently reported on a former DOH employee's allegation that the department improperly moved $1.7 million in federal funds. Nonetheless, the audit makes no mention of the $1.7 million transaction. That omission, according to Balderas, is enough to warrant additional review.

"We are right now reviewing that audit report's test work," Balderas says. ("Test work," in accountant-speak, basically means the process by which the auditors chose what to investigate.)

The DOH audit, performed for the fifth year by Meyners + Company, cost the state more than $210,000. But if Balderas now has to re-examine it, was that money well spent?

"That's been my beef for three years," Balderas says. "The state mandate minimum is that as long as an agency submits a financial audit, they're compliant with accountability and process. I beg to differ: I think the financial audit in and of itself is not completely an effective or efficient tool—and it's very expensive."

Last August, Bob Ortiz, a former deputy director in the DOH's Administrative Services Division, alleged that his DOH supervisors had ordered him to move $1.7 million in federal funds from one fiscal year to another on June 30, 2009—the last day of the 2009 fiscal year. The funds were from the federal WIC (Women, Infants and Children) nutrition program, with which Ortiz worked closely.

The problem, Ortiz maintains, is that the money belonged where it was and there was no basis for moving it other than management wanting to balance the books. Balancing them by shifting money around without cause, Ortiz alleges, constitutes fraudulent financial practices. (Ortiz still works for the DOH, but in a different division.)

But although Meyners was aware of Ortiz' allegations and says they were investigated as part of its audit of the DOH last fall, the allegations are not referenced in the audit. The only mention of the $1.7 million in question is a finding that the DOH had overdrawn its federal WIC grant by $231,000 in fiscal year 2008.

The $1.7 million end-of-year transaction "was not something that would be included on a final report," Georgie Ortiz, the lead auditor on the Meyners audit, tells SFR in an email.

Donna Trujillo, the deputy director of the DOH's Administrative Services Division, tells SFR there are several reasons for the $1.7 million transaction to have been omitted.

First, she says, it's a relatively small amount of money.

"Obviously our department is huge, and we've got $496 million of expenditures, [so] the $1.7 million really, from the audit perspective, wouldn't have been mentioned," Trujillo tells SFR.

Furthermore, Trujillo says, the DOH had already resolved the problem, so "it wouldn't need to be in there." And, she notes, the transaction dated to 2006.

(There were, however, other resolved issues mentioned in the audit, and the $1.7 million issue wasn't a closed case until the end of the 2009 fiscal year.)

Finally, she says Meyners' auditors found that "the allegation of fraud was made from somebody that they knew didn't have a really good understanding of the business. They just didn't feel that he had the understanding to be able to determine, based on the information, whether this was fraud or not," she says. "They didn't feel like he had the necessary knowledge to be able to have totally uncovered—figured out what was going on and then determine fraud."

While Bob Ortiz is not a certified public accountant, he says his 17 years of experience handling millions of dollars in federal grants at Los Alamos National Laboratory—prior to joining the DOH in 2008—definitely qualify him to judge the situation. And he stands by his allegation that the $1.7 million was improperly moved.

But according to Georgie Ortiz, "Only substantiated fraud gets put in an audit report, not allegations. We investigated the allegations and reached a different professional conclusion than Mr. Ortiz."

They also have different stories on how the audit interviews went.

Bob Ortiz says he "was prohibited by the auditors from talking about WIC at all"; Georgie Ortiz writes, "[W]e told him we had all his memos in regard to the allegations, and asked if there was anything he wanted to add in addition to WIC and he said, 'no.'"

Balderas says even allegations merit an auditor's attention.

"We're usually required—and I won't speak for [Meyners], but usually standards dictate that if there's some kind of allegation that an auditor would follow up on that with a skeptical view and test it," Balderas says. "That's my policy: When an allegation comes in, we try to follow up and verify that it's true or not true. And that's what we're doing now with [this] particular allegation."

Whether what happened with the $1.7 million in WIC funds last year is a simple accounting error, fraud or something in between, Balderas says the situation represents a deeper, more systemic problem in the way New Mexico's public finance system works.

"There is a huge deficiency in government finance if we just solely rely on [external] financial audits. Sometimes I find that I'm the only one following up on allegations," Balderas tells SFR.

Beyond that, he says, state agencies pick their own external auditors, and the state auditor may not even deal with state departments' finances unless there's a problem.

"So [the external auditors] can go in, do their audit, sit with management, do their exit conference and not even involve my agency—which I think is a potential system flaw that the Legislature really needs to look at," Balderas says. "I don't know that the auditors are really aggressively looking for the stuff that I'm looking for. They're just kind of looking to report the financial statements and then release the report, and it's for an annual compliance requirement, not necessarily following up on all kinds of whistle-blower tips."

Balderas says he'll have a work paper review—an analysis of how Meyners conducted its audit—within 30 to 60 days. Federal auditors will be here to test the DOH in March.
"We're not done with our oversight work," he tells SFR.

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