U.S. ELECTION ASSISTANCE 

COMMISSION 

OFFICE OF INSPECTOR GENERAL

FINAL REPORT: 

ADMINISTRATION OF PAYMENTS 

RECEIVED UNDER THE HELP AMERICA 

VOTE ACT BY THE NEW MEXICO 

SECRETARY OF STATE

APRIL 1, 2003 THROUGH DECEMBER 31, 2006 

Report No. 

E-HP-NM-01-07 

May 2008
 U.S. ELECTION ASSISTANCE COMMISSION

 OFFICE OF INSPECTOR GENERAL

 1225 New York Ave. NW - Suite 1100 

 Washington, DC 20005

May 27, 2008 

Memorandum 

To: Thomas Wilkey 

 Executive Director 

From: Curtis Crider 

 Inspector General 

Subject: Final Audit Report on the Administration of Help America Vote Act Funds by 

the New Mexico Secretary of State (Assignment No. E-HP-NM-01-07) 

 This report presents the results of the subject audit. The objectives of the audit 

were to determine whether New Mexico (1) expended Help America Vote Act (HAVA) 

payments in accordance with HAVA and related administrative requirements and (2) 

complied with the HAVA requirements for replacing punch card or lever voting 

machines, for appropriating a five percent match for requirements payments, for 

establishing an election fund, and for maintaining state expenditures for elections at a 

level not less than expended in fiscal year 2000. 

 

The report identified the following issues needing management attention: 

9 The Office of the Secretary of State paid a contractor $6,271,810 to create a 

public education campaign on voting matters. Because of uncertainty over 

the basis for paying the contractor, the lack of contractor support for all costs 

billed, and the payment for services billed but not performed, we questioned 

all contract payments. 

9 The Office of the Secretary of State used HAVA Section 101 funds of 

$36,540 to pay for costs that were incurred prior to the period for which funds 

were available. 

9 Equipment purchased with HAVA funds was not adequately accounted for. 

9 New Mexico did not meet its five percent matching requirement of $751,568 

to qualify for HAVA Section 251 funds of $14,279,790. 

9 Interest of $147,799 earned on HAVA funds was not deposited timely into the 

state election fund. 
9 Program income realized from the use of equipment purchased with HAVA 

funds was not properly accounted for by the Office of the Secretary of State 

and county election offices. 

 In an April 30, 2008 response to the draft report (Attachment 1), the State 

generally agreed with our findings and recommendations and indicated that corrective 

actions had been completed or was underway. 

 Please provide us with your written response to the recommendations included in 

this report by August 1, 2008. Your response should contain information on actions 

taken or planned, including target dates and titles of Election Assistance Commission 

officials responsible for implementing the recommendations 

 Section 5(a) of the Inspector General Act (5 U.S.C. § App.3) requires the Office 

of Inspector General to list this report in its semiannual report to Congress. 

 If you have any questions regarding this report, please call me at (202) 566-3125. 
BACKGROUND

The Help America Vote Act of 2002 (HAVA or the Act) created the 

U.S. Election Assistance Commission (EAC or Commission) to assist 

states and insular areas with the administration of Federal elections and 

to provide funds to states to help implement these improvements. 

HAVA authorizes payments to states under Titles I and II, as follows: 

HELP AMERICA 

VOTE ACT

9 Title I, Section 101 payments are for activities such as 

complying with Title III of HAVA for uniform and 

nondiscriminatory election technology and administration 

requirements, improving the administration of elections for 

Federal office, educating voters, training election officials and 

poll workers, and developing a state plan for requirements 

payments. 

9 Title I, Section 102 payments are available only for the 

replacement of punchcard and lever action voting systems. 

9 Title II, Section 251 requirements payments are for complying 

with Title III requirements for voting system equipment; and 

for addressing provisional voting, voting information, statewide 

voter registration lists, and voters who register by mail. 

Title II also requires that states must: 

9 Have appropriated funds “equal to 5 percent of the total amount 

to be spent for such activities [activities for which requirements 

payments are made].” (Section 253(b) (5)). 

9 “Maintain the expenditures of the State for activities funded by 

the [requirements] payment at a level that is not less than the 

level of such expenditures maintained by the State for the fiscal 

year ending prior to November 2000.” (Section 254 (a) (7)). 

9 Establish an election fund for amounts appropriated by the state 

“for carrying out the activities for which the requirements 

payment is made,” for the Federal requirements payments 

received, for “such other amounts as may be appropriated under 

law,” and for “interest earned on deposits of the fund.” (Section 

254 (b) (1)). 

1 
HAVA funds received and expended by New Mexico are as follows: FUNDING FOR 

NEW MEXICO TYPE OF AMOUNT OUTLAYS 

FINANCIAL 

MANAGEMENT 

REQUIREMENTS

PAYMENT RECEIVED AMOUNT AS OF1

101 $5,000,000 $8,121,734 12/31/06 

251 14,279,790 6,001,737 9/30/06 

Totals $19,279,790 $14,123,471 

To account for the payments, HAVA requires states to maintain 

records that are consistent with sound accounting principles, that fully 

disclose the amount and disposition of the payments, that identify 

project costs financed with the payments and with other sources, and 

that will facilitate an effective audit. 

In addition, the Commission notified states of other management 

requirements. Specifically, the Commission required that states must: 

9 Comply with the Uniform Administrative Requirements for 

Grants and Cooperative Agreements with State and Local 

Governments (also known as the “Common Rule” and 

published in 41 CFR 105-71). 

9 Expend payments in accordance with cost principles for 

establishing the allowability or unallowability of certain items 

of cost for federal participation issued by the Office of 

Management and Budget (OMB) in Circular A-87. 

9 Submit annual financial reports on the use of Title I and Title II 

payments. 

The objective of our audit was to determine whether New Mexico 

(1) expended HAVA payments in accordance with the Act and related 

administrative requirements and (2) complied with the HAVA 

requirements for establishing an election fund, meeting its matching 

share requirement, and maintaining state expenditures for elections at a 

level not less than the level expended in fiscal year 2000. 

OBJECTIVE 

Specifically, we audited expenditures made from April 1, 2003 to 

December 31, 2006 and reviewed controls to assess their adequacy 

over the expenditure of HAVA funds. We also evaluated compliance 

 

1

 EAC requires states to submit annual reports on the expenditure of HAVA Sections 101, 102, and 251 

funds. For Sections 101 and 102, reports are due on February 28 for the activities of the previous calendar 

year. For Section 251, reports are due by March 30 for the activities of the previous fiscal year ending on 

September 30. 

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with certain HAVA requirements for the following activities: 

9 Accumulating financial information reported to EAC on the 

Financial Status Reports (Standard Forms number 269). 

9 Accounting for property. 

9 Purchasing goods and services. 

We also determined whether New Mexico had complied with the 

requirements in HAVA applicable to Section 251 requirements 

payments for: 

9 Establishing and maintaining an election fund. 

9 Appropriating funds equal to five percent of the amount 

necessary for carrying out activities financed with Section 251 

requirements payments. 

9 Sustaining the State’s level of expenditures for elections. 

The Appendix contains information on the audit scope and 

methodology. 

RESULTS OF AUDIT

The audit identified the following deficiencies: SUMMARY

1. The Office of the Secretary of State awarded a contract 

for a voter education campaign without following State 

procurement procedures for the award of professional 

services. The Office of the Secretary of State also paid 

the contractor $6,271,810 on the basis of an 

understanding reached with the contractor that was not 

incorporated into the contract and which was different 

than the basis upon which the contract was awarded. 

Consequently, we questioned all contract payments. 

2. The Office of the Secretary of State used HAVA 

Section 101 funds of $36,540 to pay for costs that were 

incurred prior to the period for which funds were 

available. 

3. Equipment purchased with HAVA funds was not 

adequately accounted for. 

 

4. New Mexico did not meet its five percent matching 

requirement of $751,568 to qualify for HAVA Section 

251 funds of $14,279,790. 

3 
5. Interest of $ 147,799 earned on HAVA funds was not 

deposited timely into the state election fund. 

6. Program income realized from the use of equipment 

purchased with HAVA funds was not properly 

accounted for by the SOS and county election offices. 

During our audit, the Office of the Secretary of State took action to 

address some of these issues. 

Our analyses of the award of and payments under the contract for voter 

education are presented in the following paragraphs. VOTER 

EDUCATION 

CAMPAIGN 

CONTRACT

Background 

2 The Office of the Secretary of State used HAVA funds to award a 

professional services contract to A. Gutierrez and Associates, Inc. 

(Gutierrez or Contractor) for a public education campaign on voting 

matters. An advertisement requesting proposals ran from August 8 

through August 17, 2004 in the Albuquerque Journal. The Office of 

the Secretary of State evaluated two proposals and on August 24, 2004 

informed Gutierrez that it would be awarded a contract. The contract 

became effective on September 9, 2004 after Gutierrez, the Secretary 

of State, and representatives of the Attorney General’s Office, the 

Taxation and Revenue Department, and the Department of Finance and 

Administration signed the contract. 

On August 26, 2004, the Office of the Secretary of State signed a letter 

from Gutierrez agreeing to change the basis of contract payment from 

services, charges, and time (based on agreed-upon hourly rates of $75) 

to a 17 percent administrative fee. The August 26, 2004 letter did not 

specify the base to which the fee was applicable. Gutierrez included 

the administrative fee in billings that were based on forecasted costs. 

The scope of the contract included planning, executing and managing 

media buys and producing voter education materials. The Office of the 

Secretary of State amended the contract twice, increasing the contract 

amount to $5,948,750. Amendment 1, dated May 18, 2006, required 

 

2

 Gutierrez was paid $6,271,810 from the state election fund (Fund 903). HAVA Sections 101, 251, and 

261 funds and interest earned on HAVA Section 101 and 251 funds were maintained in Fund 903. 

However, a separate accounting of the expenditures by source of funding was not available at the beginning 

of our audit. On May 14, 2007, New Mexico filed financial reports with EAC on the expenditure of 

HAVA Sections 101 and 251 funds. The Section 101 report included $6,085,060 in HAVA Section 101 

expenditures for the Gutierrez contract. The remaining contract payment of $186,750 was recorded as a 

HAVA Section 261 expenditure. 

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Gutierrez to continue the public education campaign and produce a 

training video. Amendment 2, dated October 6, 2006, required 

Gutierrez to continue the public education campaign and produce a 

poll worker training video. The amendments did not extend the period 

of performance (September 9, 2004 through December 30, 2006). 

3 Media buys included the purchase of 30-second spots and half-hour 

spots on television channels and cable television, 60-second spots on 

radio stations, and a newspaper insert and other advertising. The spots 

and the newspaper insert and advertising presented voter education 

information, such as material about registering to vote, early voting, 

absentee voting, voter identification requirements, and bilingual ballots 

to the media viewers, listeners, and readers in New Mexico. The 

scripts for the spots and the insert were prepared or contracted for by 

Gutierrez. Spots were presented in English, Spanish, and Navajo. 

Approximately 44,000 total spots were aired on or before the 2004 

general, the 2006 primary, and the 2006 general elections. 

The Office of the Secretary of State paid Gutierrez $6,271,810 under 

the contract. 

Contract Award 

Under the regulations for professional services contracts, New Mexico 

agencies may contract for professional services without using the State 

centralized procurement office. According to the request for 

proposals, a professional services contract was to be award in 

accordance with the New Mexico procurement code regulations for 

competitive sealed proposals (1NMAC 5.2). A Request for Proposal 

(RFP) was issued on August 8, 2004, which required proposals to be 

submitted by August 20. Two proposals were evaluated and the 

Secretary of State notified Mr. Gutierrez of his firm’s selection on 

August 24. However, we believe that the Secretary of State should 

have informed the State’s centralized procurement office of the 

planned purchase and provided it with a copy of the RFP as provide for 

in the regulation (1NMAC 5.2 Section 29.3). 

By not following the aforementioned requirements, competition may 

have been limited because the state purchasing agent was precluded 

from determining whether there were qualified firms available to 

submit proposals for this work. 

 3

 Spots are air time purchased from the television or radio stations or cable television companies in which 

the stations or companies agree to run the video and/or audio advertisement produced and provided by the 

contractor. 

5 
Questionable Payments 

Differing payment provisions and unsupported billings resulted in 

questionable payments to Gutierrez. The contract required Gutierrez to 

submit a detailed and certified statement of services, time, and charges 

to the Secretary of State supplemented by receipts for expenses within 

thirty days after the end of the month during which the services were 

performed. 

Gutierrez, however, submitted the first invoice on September 10, 2004, 

one day after the effective date of the contract. The invoice was based 

on a plan and budget for $2 million for the voter education campaign. 

The plan was to purchase television and radio spots and billboard 

space; to produce those advertisements; and to manage the voter 

education campaign. The invoice did not identify the period of time it 

covered, such as the November 2004 general election, but did specify 

that the billboard advertising would be for 6 months. Gutierrez, 

however, could not relate amounts billed to costs incurred and said that 

billboard advertisements were not obtained. Furthermore, the 

$2,000,000 invoice included an administrative fee of $365,000. The 

$365,000 equals 22.3 percent of the $1,635,000 (costs excluding fee) 

and is a higher rate than the 17 percent negotiated with the Secretary of 

State. Not only was the rate incorrect, but it was applied to the wrong 

amount. That is, the rate was applied to the $2,000,000, which already 

included the $365,000 fee. Thus, the rate was applied to both fee and 

forecasted costs. 

Gutierrez submitted another invoice on July 15, 2005 for $2 million. 

The invoice consisted of a media fee of $1,485,000 for commercial 

airtime, video and CD ROM production, an administrative fee of 

$365,000 for management services, and $150,000 for creative services. 

The invoice did not identify the period of time that it covered nor was 

it substantiated by receipts or time charges. Instead, a one-page 

memorandum from Gutierrez dated May 11, 2006 was attached which 

indicated that $2 million had been spent to date. We could not 

determine why an invoice dated July 15, 2005, was supported by a 

May 2006 list of expenditures. 

The Office of the Secretary of State paid $1,712,000 to Gutierrez on 

May 26, 2006, which was 8 days after Amendment 1 added $1,762,000 

to the contract. The payment was supported by a “2006 General 

Election Supplemental Activities Budget” for $1,712,000. Included in 

the budget was $330,000 to send a newspaper-type of mailer to 1.1 

million plus registered voters. Gutierrez advised, however; that instead 

6 
of a mailer his firm placed ads in newspapers about voting rights. 

Included in the $1,712,000 payment was $185,000 for a training video. 

In that regard, we noted that Gutierrez submitted and was paid 

$186,750 for an invoice dated October 10, 2006. The payment was 

made 14 days after Amendment 2 added $186,750 to the contract for 

training video and for continuing the public education campaign. 

Since we were only provided one video, it appears that Gutierrez may 

have been paid twice for producing the same video. 

Payment provisions for gross receipts taxes were imprecise. For 

example, Gutierrez claimed $135,000 on April 19, 2005, or 6.75 

percent of the $2 million he received from the SOS in September 2004. 

The contract identified the gross receipts tax rate as 6.125 percent, not 

6.75 percent. Furthermore, the contract covered three State fiscal years 

and the State issues new tax rates schedules semiannually. Based on 

the records Gutierrez provided to us, his firm paid gross receipts taxes 

to the Department of Taxation and Revenue for this contract of 

$55,370. In comparison, Gutierrez billings included $373,060 for 

gross receipts taxes. 

In total, Gutierrez was paid $6,271,810 which included $1,029,540 in 

administrative fees and $373,060 in gross receipts taxes. The amount 

paid for the voter education campaign exclusive of the management fee 

and taxes (i.e., for the production of scripts, tapes, compact discs and 

newspaper inserts and the purchase of air time) was $4,869,210. If one 

were to assume that Gutierrez actually incurred $4,869,210 in costs, it 

would have been reasonable then to calculate the administrative fee by 

multiplying $4,869,210 times 17 percent. The product of this 

calculation is $827,766; which is $201,774 less than the amount billed 

for administrative fees. However, because the August 26, 2004 

agreement does not identify the base(s) to which the rate should be 

applied, it is not clear how the fee should be determined. 

When asked about his invoicing practices, Gutierrez provided an 

August 26, 2004 letter (Attachment 2) signed by him and the former 

Secretary of State that said “We have negotiated a flat rate of 17% for 

administrative costs associated with the performance of our media 

services contract.” The Contractor told us that this 17 percent charge 

was more attuned to the advertising business. The former Secretary of 

State provided a memorandum dated September 2, 2004 (Attachment 

3) from Gutierrez that she said was the basis for her agreeing to 

substitute the 17 percent administrative fee for the three hourly rates 

contained in the contract proposal. These two letters were not in the 

contract file maintained by the Office of the Secretary of State. 

According to the former Secretary of State, in a June 25, 2007 letter to 

us (Attachment 4) the contractor filed detailed media run sheets with 

7 
her office, and she and her staff verified that the initial invoices 

matched the subsequent media run sheets. However, there was no 

evidence that anyone compared the radio and television station 

invoices to the “invoices” that Gutierrez submitted to the SOS. 

Further, we found no record of the SOS’s comparison of run sheets to 

Gutierrez’s “invoices” and payments in the Gutierrez contract file. The 

June 25, 2007 letter also states that the former Secretary of State 

expected to enter into a fixed-price contract with Gutierrez. In our 

opinion, however, payment of a contractor on the basis of a fee more 

resembles a cost reimbursement than a fixed price arrangement. 

To recap, the Secretary of State signed the contract on August 25, 

2004, Gutierrez and the Secretary of State signed the letter changing 

the payment provisions on August 26, 2004 and Gutierrez signed the 

contract on August 31, 2004. The contract became effective on 

September 9, 2004 after it was signed by other appropriate state agency 

representatives. Section 17 of the contract states that the contract 

“incorporates all the agreements, covenants, and understandings 

between the parties concerning the subject matter, and all such 

agreements, covenants and understandings have been merged into it.” 

The contract, however; did not incorporate the provisions of the 

August 26, 2004 letter. 

Because we were not sure of the effect of the August 26, 2004 letter on 

the contract, we asked the New Mexico’s Attorney General’s Office to 

review the letter and give us an opinion about whether the August 24, 

2004 agreement that it referred to was valid and binding, whether the 

Attorney General’s Office had reviewed it as part of its initial review 

of the Gutierrez contract, whether the agreement resulted in a costplus-percentage-of-cost contract, and whether the former Secretary of 

State had the authority to execute an agreement that changed a key 

factor that was used to solicit, evaluate, and select a contractor in a 

procurement competition. 

The Attorney General’s Office responded that New Mexico law 

authorizes it to provide legal advice to state organization and 

employees. However, the Office did advise that it had not reviewed 

the August 26 letter as a part of their review of the contract or the 

amendments. The letter also advised that the chronology of the signing 

of the documents : 

...raises three issues as to how this transaction may have 

transpired. These issues involve principles of: (a) 

contract merger; (b) contract amendment; and (c) 

renegotiation of proposed contract terms. Any legal 

assessment of the validity of this agreement requires 

8 
consideration of these principles and the specific facts 

regarding the conduct of the parties to the agreement, 

both prior to and after execution of the contract 

documents. 

Gutierrez’s Records of Contract Costs 

Financial records furnished by Gutierrez substantiated net costs of only 

$2,618,496 and did not support any costs for Gutierrez or his staff. 

We requested all records that pertained to this contract from the 

Contractor, copied them, returned the originals to Gutierrez, and 

scheduled the costs by activity. The records substantiated costs of 

$2,618, 496 related to the voter education campaign. Also, we noted 

that there were no payroll or other records identifying the time the 

Contractor and his staff may have worked on the contract. Therefore, 

we asked the Contractor if any other records existed that he had not 

given to us in response to our original request, such as time sheets, 

daily logs, or diaries. In response, he provided us with a binder of 

scripts for the voter education advertisements and invoices for each 

script. The binder contained 44 copies of scripts in English and 

Spanish and 7 scripts in Navajo for radio and television 

announcements. The scripts covered various voting subjects such as 

absentee voting, voter rights, registering to vote, provisional ballots, 

and bilingual ballots. The binder also contained invoices showing an 

amount for production and for gross receipt taxes. For example, the 

invoice price for production of a 30 second television spot was $7,500 

in 2004 and $8,500 in 2006. There were 189 invoices covering 

announcements for the 2004 general election, 2006 primary election, 

and the 2006 general election. Total price of the invoices was 

$1,212,440. 

We did not accept the invoices as valid proof of costs because they 

were not supported by evidence of costs incurred such as payroll, paid 

bills for production facilities, or cancelled checks. Furthermore, the 

Contractor told us that a television station in Albuquerque, New 

Mexico, permitted him to use the television studio facilities free of 

charge to record the video and audio compact disks (CDs). He said 

that the former Secretary of State stood in front of a blue screen and 

then he filled in the background behind her. The Contractor said that 

once the master video and audio CDs were made, he copied them and 

provided copies to the television, cable, and radio stations throughout 

New Mexico and El Paso, Texas. Thus, the activities covered by the 

invoiced amounts for production were not clear. 

Once more, we asked the Contractor whether he had any other records 

9 
associated with this contract. The Contractor said that he would check 

records in storage and advised that it would take several weeks for him 

to search for those records. We checked back with Gutierrez after 

several weeks and he said that he had not looked for any other records. 

Most of the records of actual costs were associated with advertising 

related to the 2004 general and the 2006 primary and general elections. 

The number of spots purchased was 44,588. Costs were also incurred 

for the production of a training video and a newspaper insert. The total 

costs of the goods and services Gutierrez purchased for the voter 

education campaign totaled $2,618,496, excluding payments for gross 

receipts taxes of $55,370. 

In summary, records provided by Gutierrez evidenced costs incurred of 

$2,618,496. The invoices submitted to the Office of the Secretary of 

State by Gutierrez did not reflect actual cost incurred in the 

performance of the contract because Gutierrez submitted only plans 

and budgets as a basis for payment. This conflicts with the terms of the 

contract which required Gutierrez to submit receipts to the Office of 

the Secretary of State and certify that he incurred costs billed. 

Furthermore, according to the contract, any hours worked by Gutierrez 

and his staff would be payable at the rate of $75 per hour if submitted 

in a detailed and certified statement of services, time, and charges. 

 

Payments in Excess of the Contract Amount 

The Office of the Secretary of State paid Gutierrez $323,060 more than 

the amount allowed by the contract. We attributed the overpayment to 

misinterpretation of the wording in the contract amendments 

concerning reimbursement of New Mexico gross receipts taxes. 

Amendment 1 stated that total contract payments could not exceed 

$5,762,000 exclusive of gross receipts taxes. Amendment 2 said that 

the total amount of the contract could not exceed $5,948,750 inclusive 

of gross receipts taxes. Amendment 2 means that Gutierrez could not 

be paid more than $5,948,750, even though the initial contract and 

Amendment 1 provided for payment of contract amount plus gross 

receipts taxes. However, before Amendment 2 was executed, Gutierrez 

had already been paid $6,085,060. He subsequently billed $186,750. 

Payment of this amount resulted in total payments to Gutierrez of 

$6,271,810, which was $323,060 more than the contract ceiling. 

Comments From The Former Secretary of State and Gutierrez

We discussed the purchase of voter education services and this contract 

with the former Secretary of State, and with Gutierrez. 

10 
To clarify her position, the former Secretary of State provided us with 

a June 25, 2007 letter describing the procurement and her actions 

regarding the purchase of voter education services (See Attachment 4). 

In the letter, she said: 

...Since I wrote the contract with the help of the State of 

New Mexico Attorney General I am comfortable 

describing the intent of this contract. 

Upon receiving the HAVA funds, dedicated for the 

Public Education Campaign, I was concerned that the 

Office of the Secretary of State would be overwhelmed 

with the minutia of tasks that a “cost plus award fee 

contract” would entail. I understood that as Chief 

Elections Officer, I was solely responsible for the 

utilization of the [HAVA] funds. The Office and Staff 

are experts in elections, not advertising. Upon 

reviewing the task at hand I chose that the Contractor 

and the State would enter into a “fixed price contract.” 

The contractor would manage production, scheduling, 

scripts, the airtime purchases and all other work to be 

included within the “fixed price contract.” The 

Contractor would report to me regularly on their 

progress and seek my approval on all finished products. 

This relieved my staff from micro-managing the work 

performed within this contract. 

I sought the assistance of the State of New Mexico 

Attorney General’s Office in developing the contractual 

agreement that would meet my needs for a fixed price 

agreement that would direct the Contractor to meet all 

of our goals for one fixed price. As it turned out, the 

AG’s office had previously developed a flat fee media 

services contract template that they used with their own 

Contractor, which was easily modified to fit our needs. 

With regard to the total amount that Gutierrez received for his services, 

the former Secretary of State said: 

The Agreement between the State of New Mexico and 

“A. Gutierrez & Associates” was for approximately 

$5.9 million dollars plus the required gross receipts tax. 

The Contractor and my Office did not exceed the $5.9 

million dollars which paid for the verified completion of 

the New Mexico Public Education Campaign. The 

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Contractor provided a detailed report of airtime, 

distribution, identification of the media outlets where he 

aired the public education spots, and the amount of 

money that was to be paid to each station. I was 

assured the Contractor met his obligations by verifying 

his regular reports. This was especially critical to my 

Office as we were deeply involved in meeting all the 

other requirements of HAVA, along with New Mexico’s 

own election reforms. 

With regard to advance payments for services, she stated: 

Because the majority of work under this contract was 

media buys, the work was paid for in advance of the 

running of the media ads. Upon completion of the ads 

being run, the contractor filed a detailed media run 

sheet with my office to further document work 

performed. My staff and I verified that the initial 

invoices matched the subsequent media run sheets. 

She wrote further that: 

A. Gutierrez & Associates followed my explicit 

instructions throughout the Public Education 

Campaign, and met the intent and language of the 

Contract between the Office of the Secretary of State 

and the Contractor. They briefed and reported to me 

regularly on all details. I was completely satisfied with 

this Contractor. It is clear that the State of New 

Mexico benefited from the New Mexico public 

Education Campaign (as I defined it and contracted 

for) and I attest that the HAVA funds were spent within 

the boundaries of my Statutory Authority. 

It is a fact that the Contractor provided more than 

43,000 public education radio and television 

advertisement spots aired in New Mexico during the 

three election year cycle.... The value of the airtime 

was approximated at $22 million, far in excess of the 

cost of the agreement. 

The Contractor explained that he and the former Secretary of State 

agreed to modify the basis of contract payment. He provided a letter 

dated August 26, 2004. (See Attachment 2), that he had prepared and 

that was agreed to by the former Secretary of State. In part, the letter 

says: 

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As per our discussion on August 24, 2004, we have 

negotiated a flat rate of 17% for administrative costs 

associated with the performance of our media services 

contract. As a full-service advertising agency, I will be 

in charge of facilitating all costs associated with your 

non-partisan voter education programs in all forms of 

media. As you suggested, this will streamline the billing 

process with your office. 

There will, of course, be production costs. Additionally, 

there may also be costs associated with research, 

translation, duplication, postage, processing, travel as 

well as others that may arise as we proceed with this 

project. 

To further explain the change in the fee arrangement, the former 

Secretary of State provided us with the memorandum dated September 

2, 2004 from Gutierrez and signed by her (See Attachment 3). In it, 

the Contractor stated: 

It is my belief that if we stuck to the $75/hr. fee quoted 

in my agency’s response to the RFP, or if we charged 

New Mexico industry standards, the production costs 

would skyrocket beyond control. Most of our New 

Mexico film industry workers are unionized, which 

would mean a very high hourly rate, plus a range of 

peripheral costs that would add greatly to the final 

production costs. 

The former Secretary of State told us that she relied on the statements 

made by the Contractor that it would be better to agree to the 17 

percent fee arrangement because it would result in a lower overall cost 

to the state. 

When asked about the invoices that he submitted, the Contractor 

advised that he based his billings on budgets. When we asked the 

Contractor why he did not bill the SOS in accordance with the terms of 

the contract, the Contractor stated that he believed that the August 26, 

2004 letter was an amendment to the contract and that the Office of 

the Secretary told him how to bill. Furthermore, he explained that it 

was not practical to bill monthly within 30 days of the end of each 

month because the services were provided in three distinct periods 

around the general election of 2004 and the primary and general 

elections of 2006. 

13 
If the revised payment provisions provide for the contractor to be paid 

on the basis of costs plus a percentage of costs, it would appear to 

violate state procurement laws. Specifically Part 13-1-149 of the New 

Mexico Procurement Code states... “that the use of a cost-plus-apercentage-of-cost contract is prohibited except for the purchase of 

insurance.” 

Recommendations 

We recommend that the Election Assistance Commission require the 

New Mexico Secretary of State to: 

1. Obtain assistance from the New Mexico Attorney General’s 

Office on the applicable contract provisions for determining the 

basis of payment to Gutierrez. 

 

2. Based on the determination regarding the basis of payment to 

Gutierrez, calculate the amount that should be paid for the voter 

education services that were provided. 

3. Return to the state election fund (Fund 903) any difference 

between the amount Gutierrez should have been paid in 

recommendation 2 above and what he was actually paid. 

4. Calculate and pay interest into the election fund on the amount 

returned to the election fund in recommendation 3 for the 

period that it was missing from the fund. 

5. Establish and implement procedures to ensure that the SOS 

follows applicable procurement laws, regulations, policies and 

procedures, and contract provisions in the future. 

Secretary of State Response 

The Secretary of State indicated that the SOS was working with the 

New Mexico Attorney General’s Office to address the issues identified 

in the report. 

OIG Comments 

None. 

The State used Section 251 funds of $36,540 for costs that were 

incurred prior to the period of fund availability. The $36,540 was paid 

to San Juan County for costs incurred in 2000 related to implementing 

PREAWARD 

COSTS

14 
the Voter Registration and Election Management System (VREMS). 

Office of Management and Budget Circular A-87, Attachment B, 

Section 31, states that to be eligible as pre-award costs, costs must be 

incurred:

. . . prior to the effective date of award directly pursuant 

to the negotiation and in anticipation of the award where 

such costs are necessary to comply with proposed 

delivery schedule or period of performance. Such costs 

are allowable only to the extent that they would have 

been allowable if incurred after the date of the award and 

only with the written approval of the awarding agency. 

EAC has concluded that for costs to qualify as pre-award costs, they 

must be incurred pursuant to negotiation and in anticipation of grant 

award. That is, the cost must be included in a (later) approved state 

plan and incurred after Congress appropriated funding. 

The state paid San Juan County on the basis of an agreement between 

the County and the Office of the Secretary of State that was signed in 

May 2005. The County submitted its bill to the Office on June 1, 

2005. However, San Juan County incurred the costs in 2000, 2 years 

prior to passage of HAVA and thus, we concluded, before anticipation 

of award and the appropriation of Federal funds. Therefore, we 

questioned the $36,540 paid to San Juan County. 

Recommendation:

We recommend that the EAC require the Secretary of State to: 

6. Reimburse the state election fund for the $36,540 payment to 

San Juan County. 

7. Pay interest to the Election Fund on the $36,540 from the date 

it was received to the date it was returned to the Election Fund. 

Secretary of State Response 

The Secretary of State indicated that New Mexico would reimburse the 

HAVA fund for the $36,540 plus interest. 

OIG Comments 

None. 

15 
The Office of the Secretary of State did not notify its counties that title 

to the equipment purchased with HAVA funds and delivered to the 

counties was to be vested in the counties. As a result, neither the SOS 

nor the offices of the county clerks at the five counties that we visited 

adequately accounted for the equipment. The Code of Federal 

Regulations, 41 CFR 105-71.132(d)(1)stipulates that property records 

must be maintained that include a description of the property; a serial 

number or other identification number; the source of property; who 

holds the title; the acquisition date; cost of the property; percentage of 

Federal participation in the cost of the property; the location, use and 

condition of the property; and any ultimate disposition data including 

the data of disposal and sale price of the property. 

PROPERTY 

MANAGEMENTEQUIPMENT

The State purchased equipment and software for VREMS and for 

voting equipment with HAVA and state funds. Equipment in support 

of VREMS included servers, scanners, printers, and computers. 

Voting equipment, which was purchased from Election Systems and 

Software, Inc. (ES&S), consisted of M-100 optical scanners, M-650 

high speed scanners, AutoMark voting assistance machines, and 

supporting equipment such as tables and software licenses. Most of 

this equipment was delivered to New Mexico’s 33 counties. 

An information technology business analyst with the Office of the 

Secretary of State told us that the equipment belonged to the counties. 

County clerks at four of the five counties we visited said they believed 

that title to the property was vested with the Secretary of State because 

the state purchased the equipment and had not formally transferred title 

to the equipment to them. For that reason, the counties had not 

recorded the property in their accounting and property management 

systems. The other county clerk stated that she intended to add the 

equipment to the property management system of the county the next 

time their contractor completed a physical inventory of the county’s 

personal property. 

Two of the counties provided us with ES&S lists of the property that 

was delivered to their facilities. Two other counties gave us lists of 

equipment which county officials had prepared. One county did not 

prepare a list of HAVA equipment. An employee of the Information 

Systems Division of the Office of the Secretary of State also provided 

us with lists of the property for all counties in the State prepared by 

E.S. &S. When we compared the serial numbers on the lists to the 

serial numbers of the scanning machines and AutoMarks located at 

four of the five counties we visited, we found that the number of 

machines and the serial numbers of the machines did not agree in all 

cases. 

16 
During the audit, the SOS initiated the transfer of title to equipment 

located at the counties to the counties. The SOS has also initiated a 

procedure whereby SOS staff will perform random checks to ensure 

that the counties are complying with applicable requirements. 

Recommendations:

We recommend that the Executive Director of the EAC direct the 

Secretary of State to: 

 

8. Ensure that equipment located at the counties is properly 

recorded in accordance with 41 CFR 105-71.132(d) (1) of the 

Common Rule. 

9. Resolve with the differences between equipment purchased and 

equipment delivered. 

Secretary of State Response 

The Secretary of State indicated that that the Office of the Secretary of 

State was working with the Attorney General’s Office to complete the 

transfer of the property to the counties. In addition, the Office of the 

Secretary of State conducted a test and inventory project to document 

all serial numbers of equipment delivered by the vendor during the 

purchase of voting equipment. During this process, the SOS 

discovered that the vendor did not deliver all of the equipment that was 

purchased with HAVA funds. The SOS is currently working with the 

vendor to resolve the matter. 

OIG Comments 

Based on the actions being taken by the SOS, we consider 

recommendation 8 resolved but not implemented. In addition, based 

on the response, we added recommendation 9 to ensure that difference 

between equipment purchased and equipment delivered is adequately 

resolved. 

New Mexico did not deposit into the State’s HAVA fund state 

matching funds of $751,568 that were required as a condition to 

receiving HAVA Section 251 requirements payments of $14,279,790. 

STATE FIVE 

PERCENT 

MATCH

To receiving HAVA requirements payments, Section 253(b)(5) of 

HAVA requires states to have: 

. . . appropriated funds for carrying out the activities 

for which the requirements payment is made in an 

17 
amount equal to 5 percent of the total amount to be 

spent for such activities (taking into account the 

requirements payment and the amount spent by the 

State) . . . 

Based on this requirement, New Mexico’s matching requirement was 

$751,568.4

 Section 254 (b)(1)(A) of HAVA requires states to deposit 

the funds appropriated to match the requirements payment into a state 

election fund along with interest earned on deposits of the fund. 

However, an official of the Office of the Secretary of State said that the 

State is not permitted to commingle federal and State funds. 

Accordingly, the State matching funds were not deposited into the state 

election fund. 

The Secretary of State responded that it was her understanding that the 

previous administration intended to use a portion of an $11 million 

State appropriation for the purchase new voting machines as the State’s 

matching requirement. That appropriation was never deposited into 

Fund 903, but it was spent on new voting machines in October 2006. 

Recommendations:

10. We recommend that the Executive Director of the EAC direct 

the Secretary of State to specify the source of State matching 

funds of $751,568. 

Secretary of State Response

The Secretary of State indicated that the $536,604 has been transferred 

from the General Fund to the HAVA fund, and interest deposited totals 

$ 165,100. The Secretary of State indicated that the Office of the 

Secretary of State would work with the State Treasurer and the 

Department of Finance and Administration to determine the amount 

due to satisfy the match, plus interest. 

OIG Comments 

None. 

Interest that should have been earning on deposits into the state 

election fund was not accumulated correctly. This occurred because 

the New Mexico State Treasurer did not timely transfer some monthly 

interest earned on HAVA funds into the state election fund. In 

addition, interest was not earned on the state’s five percent matching 

INTEREST

 

4

 Federal Funds of $14,279,790 divided by 95 percent equals total program funds of $15,031,358. Funds of 

$15,031,358 multiplied by 5 percent equals a $751,568 matching requirement. 

18 
requirement of $751,568 because matching funds were not deposited 

into an interest-bearing account. We estimated that interest of 

$147,799 was owed as of December 31, 2006. HAVA requires that 

interest be deposited into the election fund of the State. 

The Secretary of State, in response to the finding, requested that the 

New Mexico State Treasurer review the finding. The Treasurer 

indicated that he generally agreed with the finding, and that the funds 

had been deposited into the Election Fund. 

Recommendations: 

We recommend that the Executive Director of the EAC direct the 

Secretary of State to: 

11. Confirm that the $147,799 has been deposited into the election 

fund. 

Secretary of State Response 

The State Treasurer indicated that the interest earned on the HAVA 

funds have now been deposited into the HAVA fund. 

OIG Comments 

None. 

Program income has not been properly computed or reported. 

According to the Uniform Administrative Requirements for Grants 

and Cooperative Agreements with State and Local Governments (41 

CFR 105-71.125), program income means gross income received by 

the grantee or subgrantee directly generated by a grant supported 

activity during the grant period and includes items such as fees from 

the use or rental of real or personal property acquired with grant 

funds. The Uniform Administrative Requirements also stipulates, in 

part, that the costs incident to the generation of program income may 

be deducted from gross income to determine program income, if 

authorized by Federal regulations or the grant agreement. 

PROGRAM 

INCOME

In the case of the HAVA program, the grant-supported activity was the 

acquisition of voting machines and the development of the statewide 

voter registration databases. Specifically, New Mexico counties and 

the Office of the Secretary of State generated program income from 

charging for statistics on registered voters (public service requests or 

PSRs) generated from using the HAVA provided statewide voter 

registration database and from leasing HAVA financed voting 

machines to local governments. At two of the five counties we visited, 

19 
the county clerks stated that they had charged local governments for 

the use of voting machines. In three of the five counties that we 

visited, the county clerks told us that they had received income for the 

PSRs. In addition, an employee of the Office of the Secretary of State 

provided us with a schedule of the income that the Office of the 

Secretary of State had received for PSRs. 

The county proceeds from the sale of PSRs and from the local 

governments’ use of voting machines have been deposited into the 

general funds of the counties. The proceeds from the sale of PSRs by 

the State have been deposited into the general fund of the State. 

We consider the revenue from the sale of PSRs and the use of voting 

equipment financed with HAVA funds to be program income. As 

such, it should be reported on the Financial Status Reports (SF-269s) 

submitted by the Office of the Secretary of State and disposed of in 

accordance with federal requirements. 

The Office of the Secretary of State and the county clerks that 

we visited were unaware that the revenue we identified was 

program income. Furthermore, they were unaware of the 

requirement regarding program income. 

When we notified the Secretary of State of this finding, she provided 

us with a listing of all program income generated using HAVA 

equipment. The listing also contained costs incurred by the counties to 

generate the program income. It disclosed that the costs associated 

with the generation of program income far exceeded gross program 

income received. 

Recommendations:

12. We recommend that the Executive Director of the EAC require 

the Secretary of State to continue to obtain from the County 

Clerks gross program income and the cost of producing that 

income. If any net income is reported, the SOS should direct 

the County Clerks to use the income for HAVA activities. 

Secretary Of State Response 

The SOS indicated that there was no program income for 2007and 

2008. In addition, the SOS has worked with all of the County Clerks 

on guidance in reporting program income on a yearly basis. 

OIG Comments 

None. 

20 
APPENDIX 

SCOPE AND METHODOLOGY 

To accomplish our objective, we reviewed: 

9 The prior single audit report and other reviews related to the 

Secretary of State’s financial management systems and the HAVA 

program for the last 2 years. 

9 Policies, procedures and regulations for the New Mexico Secretary 

of State’s management and accounting systems as they relate to the 

administration of HAVA programs. 

9 Inventory lists of all equipment purchased with HAVA funds. 

9 Major purchases. 

9 Supporting documents maintained in the accounting system for 

payments made with HAVA funds. 

9 Support for reimbursements to counties. 

9 Certain New Mexico laws that impacted the election fund. 

9 Appropriations and expenditure reports for State funds used to 

maintain the level of expenses for elections at least equal to the 

amount expended in fiscal year 2000 and to meet the five percent 

matching requirement for section 251 requirements payments. 

9 Information regarding source/supporting documents kept for 

maintenance of effort and matching contributions. 

We also interviewed appropriate Office of the Secretary of State 

employees about the organization and operation of the HAVA 

program. 

We conducted our review in accordance with Government Auditing 

Standards issued by the Comptroller General of the United States. As 

such, we included tests and procedures as considered necessary under 

the circumstances to evaluate the Division’s controls over the 

administration of HAVA payments. Because of inherent limitations, a 

study and evaluation made for the limited purposes of our review 

would not necessarily disclose all weaknesses in administering HAVA 

payments.

21 
Attachment 1

22
23
Exhibit 1 and Exhibit 2 withdrawn by the Office of Inspector General.

24
25
26
27
Attachment 2

28
Attachment 3

29
Attachment 4

30
31
32
OIG’s Mission 

The OIG audit mission is to provide timely, high-quality 

professional products and services that are useful to OIG’s clients. 

OIG seeks to provide value through its work, which is designed to 

enhance the economy, efficiency, and effectiveness in EAC 

operations so they work better and cost less in the context of 

today's declining resources. OIG also seeks to detect and prevent 

fraud, waste, abuse, and mismanagement in these programs and 

operations. Products and services include traditional financial and 

performance audits, contract and grant audits, information systems 

audits, and evaluations. 

Obtaining 

Copies of 

OIG Reports 

Copies of OIG reports can be requested by e-mail. 

(eacoig@eac.gov). 

Mail orders should be sent to: 

U.S. Election Assistance Commission 

Office of Inspector General 

1225 New York Ave. NW - Suite 1100 

Washington, DC 20005 

To order by phone: Voice: (202) 566-3100 

 Fax: (202) 566-0957 

To Report Fraud, 

Waste and Abuse 

Involving the U.S. 

Election Assistance 

By Mail: U.S. Election Assistance Commission 

 Office of Inspector General 

 1225 New York Ave. NW - Suite 1100 

 Washington, DC 20005

Commission or Help 

America Vote Act 

Funds

E-mail: eacoig@eac.gov

OIG Hotline: 866-552-0004 (toll free) 

FAX: 202-566-0957