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Balderas Says NMFA Never Started Audit

ALBUQUERQUE, N.M. — State Auditor Hector Balderas says the New Mexico Finance Authority never initiated the process to begin the agency’s fiscal 2011 audit — meaning the forged audit document NMFA showed to investors would have been rejected even if it had been submitted to his office.

Balderas said agencies must get approval from his office to have an audit done by an outside company — in NMFA’s case it was a national accounting firm. He said that since NMFA never sought permission, any audit generated would have been considered invalid and been rejected.

That, in turn, would have derailed a $25 million bond sale the Finance Authority held in April.

Meanwhile, a former NMFA accountant pleaded guilty Friday in an apparently unrelated case to stealing $59,000 from inactive NMFA accounts and was sentenced to probation.

The NMFA, which finances hundreds of millions of dollars in local public works projects around the state, has postponed a $40 million bond sale that was scheduled for next week. It has a $100 million sale scheduled for September.

A bond sale requires that investors be provided with a current audit to ensure the agency’s financial health.

Instead, investors were given a forged audit report allegedly drafted by former NMFA Controller Greg Campbell, who left the agency in June. State agencies are now investigating how the forgery went unnoticed and whether any money is missing.

Balderas told the Journal that communication between NMFA and his office ended after the NMFA 2010 audit was approved in March 2011, a red flag that something was wrong.

“It’s bizarre because NMFA was getting audited,” but should have known an unapproved audit was meaningless and they would have to start over, the state auditor said.

Balderas said that Campbell didn’t seek approval for an audit contract could mean he was planning a forgery on the 2011 report months before he allegedly drafted it.

The national firm under contract to perform the NMFA audit, Clifton Gunderson, has said it hasn’t completed the 2011 audit because it hasn’t received all financial documents it requested.

NMFA Chief Executive Rick May said the Baltimore-based auditor doing the work has been paid about $130,000.

“How would you pay out any auditor without making sure they’d been lawfully approved by our office?” Balderas asked.

Balderas’ office doesn’t allow agencies to fully pay their auditors until after the final report is approved each year.

May declined to comment on NMFA not seeking Balderas’ approval on the audit contract.

Questionable oversight

While NMFA managers are attempting to convince national credit agencies their internal controls are in order to retain the agency’s top-notch bond ratings, they were reminded this week the bogus audit was not the only instance of fraud in recent years.

Former NMFA accountant Valerie Sandoval admitted in state District Court to stealing $59,000 from idle NMFA accounts from August to December 2009, the state Taxation and Revenue Department said Friday.

The former NMFA employee pleaded guilty to felony tax evasion for repeatedly transferring money from NMFA to the bank accounts of a friend.

She was sentenced to five years’ probation. Santa Fe District Judge Michael Vigil demanded that Sandoval, of Bernalillo, repay the stolen money plus $3,500 in taxes.

NMFA officials say the 2009 theft, which occurred over a five-month period before it was investigated, is unrelated to the forged 2011 audit uncovered this month.

“That and this employee (incident) appears to be completely unrelated,” May said. “The time span is 2 1/2 years apart.”

The recent audit scam went undetected between March and July. The document was withdrawn last week after the Office of the State Auditor notified the agency no real audit had been filed for the 2011 fiscal year.

National credit rating agencies Moody’s and Standard & Poor’s have placed about $1.3 billion in outstanding NMFA debt on watch for downgraded credit ratings after the forged audit was discovered.

Standard & Poor’s wrote in a statement this week that it will review on behalf of bond investors whether NMFA can effectively catch fraud within its organization.

“The potential lack of oversight or fraud regarding the authority’s financial position could result in a lower rating,” Standard & Poor’s said.

A lower bond rating for NMFA could mean New Mexico municipalities and school districts will pay more to borrow money for capital projects.

NMFA Board Chairwoman Nann Winter, who was appointed this week, said she hopes the thorough, independent investigation being conducted at NMFA will determine the strength of the agency’s internal controls.

“All I can say is that we’ve put the process in place to get to the bottom of that,” Winter said.
— This article appeared on page A1 of the Albuquerque Journal