Audit: State agency failed to collect millions in student loans

The New Mexico Higher Education Department failed to collect about $6.9 million in private student loans that were in default beyond the state’s statute of limitations, according to a new audit, and workers in the department reported some $3 million in funds available for the Legislative Lottery Scholarship program in the wrong year.

The audit report, released Tuesday by the State Auditor’s Office, said many problems in the agency’s finances were caused by a staffing shortage in the Administrative Services Division, including the lack of a chief procurement officer for about eight months.

State Auditor Tim Keller told The New Mexican in an interview that the audit cites some basic financial reporting failures that have troubled the Higher Education Department for seven years. A series of problems at the agency have been “festering for several years … and continue not to be addressed,” he said Tuesday.

The audit follows approval of a state budget that reduces higher education funding for the new fiscal year, which begins Saturday. The cuts have led many colleges and universities to raise tuition rates and trim programs and staff. Gov. Susana Martinez initially vetoed all higher education funding in a budget that passed both chambers of the Legislature, but that funding was restored during a special legislative session, when the governor and lawmakers agreed on a budget.

Still, two months of financial uncertainty put a strain on colleges and universities as they worked to finalize their own budgets for the coming school year.

The new audit cited a total of 18 findings at the Higher Education Department for fiscal year 2016 — most of them minor and some of them technical — up from just five minor findings the previous year.

Among the findings in Tuesday’s report: The Higher Education Department overspent its budget by about $383,000 in fiscal year 2016, did not have a documented disaster recovery system in place to ensure its data is secure in the event of a technical failure and did not always provide supporting documentation for an expenditure.

“The department is having a lot of minor issues that can become big issues,” Keller said. “We are trying to send a signal that they should right the ship now.”

Lida Alikhani, a spokeswoman for the Higher Education Department, said in an email that the agency “takes these issues very seriously and is always looking to work to make the department better.”

The misreporting of more than $3 million in lottery money — listing it under the available funds for fiscal year 2015 instead of 2016, where it belonged — did not affect financial aid for any students who rely on the popular scholarship program for New Mexico high school graduates who attend state colleges and universities.

Similarly, a transfer of investment funds totaling $80,000 was placed in the wrong account, the report said.

Such financial errors could affect state and federal funding down the line, Keller said. “In this fiscal environment, we have to be extra careful about anything that would put funding streams at risk, be they state or federal.”

Keller said the agency has been cooperative in addressing the issues cited in the report.

In its responses to the findings, the Higher Education Department indicated that officials are putting procedures in place to improve oversight and ensure compliance. For instance, the agency said it will put in place a more rigorous collections process this year for outstanding or defaulted student loans to ensure the money owed on a loan is collected before its statute of limitations expires.

Because it doesn’t have the resources to handle such collections, it will contract with a collections vendor, the agency said.

The agency also said its disaster recovery plan is awaiting approval by the state Department of Information Technology.