An emergency meeting of the board at the New Mexico Finance Authority (NMFA) on Monday (July 16) didn’t provide many answers to: 1) how far off the numbers are after the agency ended up submitting a fraudulent audit to the State Auditor’s Office, 2) if the bogus document was solely the work of one rogue employee at the NMFA and 3) exactly how the NMFA should proceed to get the bottom of the whole mess.

Monday’s meeting was the first in which all members of the board were on hand since the story broke last Thursday.

Emergency meeting of the NMFA board, 7/16/12

Since that time, reports from Jim Scarantino of the New Mexico Watchdog have disclosed that the Moody’s ratings agency announced it is placing $1.26 billion of New Mexico’s public debt on review for downgrade in the wake of revelations that the 2011 fiscal year audit was forged. New Mexico Watchdogalso disclosed the identity of the controller whom many suspect was responsible for the bogus filing — Greg Campbell, who no longer works at NMFA and, according to sources, has not been located.

Rick May, the chief executive officer at NMFA, refused to talk about Campbell to reporters after the emergency meeting and when asked if Campbell is the man chiefly responsible for the forged documents, May said, “I think it would be inappropriate to comment on that as the investigation is underway.”

Capitol Report New Mexico asked May how big a deal this is for New Mexico taxpayers, considering that the NMFA essentially acts as a bank for agencies across the state:

May and other officials at the NMFA have already hired an outside legal investigator, Steptoe and Johnson, an internatioanl law firm based in Washington DC, to act as an independent investigator. May told board members a point man for the group “starts first thing in the morning,” and revealed the NMFA will pay up to $750,000 maximum for Steptoe and Johnson to look into how and why this happened.

But a number of board members said they think a third-party investigation might be unnecessary and could interfere with the state auditor’s investigation led by Hector Balderas as well as the New Mexico Securities Division.

“I see us creating duplication,” John Bemis, the secretary of Energy, Minerals and Natural Resources said. “We’re going to be stepping all over ourselves … I have grave concerns.”

“I think we need to step back on Steptoe, so to speak,” Tom Clifford, the secretary of the Department of Finance and Administration, said.

But May and acting board chairman Bill Fulginiti disagreed.

“We’re very concerned about a downgrade,” May said afterwards, adding that “any retreat that may occur regarding that investigation [by Steptoe and Johnson], I think is problematic.”

Balderas told the board that his office’s role “takes precedence and priority over any internal review or investigations.”

The board will meet again on Wednesday (July 18) to discuss whether to go ahead with the Steptoe and Johnson investigation as well as discussing its possible scope.

Just as the emergency meeting was starting, Gov. Susana Martinez talked to reporters about the NMFA audit flap:

Here’s some background on the incident:

Antonio Corrales, public information officer for the State Auditor, told New Mexico Watchdog that after the 2011 audit was not received on time, NMFA was placed on the “at risk” list. Thereupon, an official with NMFA contacted the Auditor for an explanation. When the Auditor’s office told NMFA that the audit had not been received, the official responded that NMFA had been under the impression the audit had been submitted and even approved by the Auditor. A check of NMFA’s files revealed an audit bearing the cover and signature pages of the Clifton accounting firm (now Clifton Gunderson after a recent merger). But the work product in between those pages had not been performed by the accounting company. Apparently, this fake audit had been provided to credit agencies and lenders, but not to the State Auditor.

The audit is relied upon by investors to determine the quality of New Mexico’s debt and set interest rates for public borrowing. A downgrade by Mooody’s could trigger other downgrades and escalate New Mexico’s borrowing costs, making every financed public project more costly. Last July, Moody’s placed New Mexico and four other states on a possible downgrade list from its highest grade because of their dependence on federal funds that may be cut back. Moody’s assigned an Aa1 rating to NMFA bonds issued in August 2011.

In February 2011 Fitch Ratings withdrew its coverage on NMFA public project revolving bond funds because of insufficient information being provided by NMFA. This time last year Standard & Poor’s raised its credit rating for NMFA bonds and called NMFA’s outlook “stable.”