Another Housing Authority Scandal: This Time It’s Taos [Updated to Include Auditor Interview]
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Criminal charges may come as soon as next week in the Federal investigation of the Taos County Housing Authority. In December 2011, the FBI seized documents and computers in a probe of allegations that the executive director, Carmella Martinez, had been embezzling federal Section 8 housing assistance funds since 2000. A grand jury has been investigating the matter and indictments are expected.
While the criminal case has unfolded, the Taos County Housing Authority has been managed by the Eastern Regional Housing Authority of Roswell. At the end of August ERHA issued a scathing report of what it found. “Chaotic” was the word most frequently used to describe an agency plagued with political nepotism, untrained workers, and poor service for its needy clients.
Further south, trial is set next month in Albuquerque’s Second Judicial District Court for Vincent “Smiley” Gallegos, a former five-term Democratic State Representative from Clovis and close friend of former House Speaker Ben Lujan. He faces felony charges of fraud, embezzlement and money laundering that arose from Gallegos’ work as director of the Region III Housing Authority. Gallegos is scheduled for trial before Judge Reed Sheppard starting October 22, 2012.
Gallegos has another trial on related charges in January 2013 before Judge Ross Sanchez, also of the Second Judicial District Court in Albuquerque. In that case, Gallegos faces charges of securities fraud, money laundering and fraud along with co-defendants bond lawyer Robert Strumor, and former Region III employees Dennis Kennedy. Attorney David Hernandez was charged in the original filing with tampering with evidence. His case has been severed from the other defendants. [The original version of this report omitted this development]
Gallegos has been represented in both cases by Paul Kennedy, who was recently appointed to the New Mexico Supreme Court by Governor Susana Martinez. According to Judge Sheppard’s office, the case before him is still set for trial in October, but may be continued to find counsel to replace Kennedy.
Under Gallegos, the housing authority became embroiled in an unusual bond financing scheme that the IRS stripped of its tax exemption. The authority also became intertwined with a complex criminal prosecution of CDR Financial Products of Los Angeles and its founder, David Rubin. Additionally, the State Investment Council sued Gallegos for “fraud and deceit” in another $5 million bond deal gone very wrong.
If you need a refresher on this scandal, here it is, courtesy of Heath Haussamen at New Mexico Politics.
The Taos Mess
J.R. Logan of The Taos News has provided the most in-depth and comprehensive coverage of the growing criminal problems at the Taos Housing Authority. The following account is taken from his reports which we link at the bottom of this page.
It began on December 7, 2011 with a raid by the Federal Bureau of Investigation and the Office of Inspector General of the U.S. Department of Housing and Urban Development. Federal authorities served a search and seizure warrant on the Taos County Housing Authority offices and two storage units. The warrant’s affidavit stated there was probable cause to believe that the executive director, Carmella Martinez, had been embezzling federal housing funds since 2000, without specifying how much money she is suspected of taking.
Logan reported: “According to the affidavit, bank records from four separate financial institutions show that Martínez held multiple joint bank accounts with her husband, Paul G. Martínez, and one joint account with her father, Rogerio Archuleta. The special agent reported that there were ‘numerous deposits of Section 8 HAP checks into these bank accounts.’ The agent stated that the checks were made payable to all three family members.” HAP checks are federal funds paid to landlords to cover the difference between what tenants can afford and the going rate for rentals.
Martínez, a resident of Arroyo Seco, was first hired as a temporary county employee in 1989. She has held various positions at the Taos County Housing Authority since 1991. She was appointed interim executive director in 2008, and hired as executive director in 2009. She resigned within a week after the federal search warrant was executed.
Deputy County Manager Rick Bellis took over for Martinez. In April 2012, the Eastern Regional Housing Authority out of Roswell was brought in to assist, assess and oversee the Taos County Housing Authority.
The scandal widened. Taos County Commissioner Niklos Jaramillo had been sitting as a non-voting member on the Board of the housing authority while his brother was receiving payments as a Title 8 landlord since 2006. Jaramillo, who lives next door to his brother in Arroyo Seco, denied knowing about his brother’s rental business. The Eastern Regional Housing Authority report concluded that Jaramillo’s non-voting status on the board was “in direct violation of New Mexico law.”
A public records request by The Taos News found that several local officials, including Taos Mayor Darren Cordova and State Representative Roberto “Bobby” Gonzales, were also receiving Section 8 payments from the Taos County Housing Authority.
In conducting oversight, the Eastern Regional Housing Authority encountered considerable employee performance problems. But employees felt they were untouhcable because of their political connections.
According to the ERHA report: “On numerous occasions [housing authority] staff has claimed to be connected to or know TCHA board members or members of the county commission personally….They have further stated that they cannot be fired or disciplined due to their connections with the County political system. This may impart to the staff a perceived level of immunity to being accountable for their actions and job performance.”
A complete copy of the ERHA can be read at this link.
The Audits [This Section Has Been Completely Updated and Revised]
Both Taos County and Regional III housing authorities received annual audits as required by state law. According to the State Auditor’s web site, TCHA since 2008 has been audited by Precision Accounting of Albuquerque. A review by New Mexico Watchdog of the audit reports for 2008 to 2011 revealed that the auditor found no material weakness or deficiencies in the authority’s financial controls and reporting except in 2010, when it reported the authority failed to comply with county’s purchasing policy by dating some invoices prior to the purchase order and in one case paying an invoice with an expired purchase order attached. The 2011 audit rated the authority a “low risk” auditee.
Melissa Santistevan, a principal in Precision Accounting, explained to us what her firm did and explained why their audit did not pick up evidence of embezzlement. First, Carmella Martinez apparently went to considerable lengths to hide payments to her husband by changing his name on the checks, using initials to disguise the payments or writing checks to a person with a feminized version of his name. With such a common surname as Martinez, it made it that much more difficult to pick up the payments.
The auditors did look specifically into transactions with Carmella Martinez’ father, but were unable to uncover the payments to him. When collusion is involved in hiding a fraudulent scheme, Santistevan explained, with the kind of audit they were contracted to conduct it makes it extremely hard to uncover wrongdoing.
Santistevan said that they inquired of employees of the Taos County Housing Authority, county representatives and members of the Board about any suggestions of fraud, and received no information back. She said the auditors did not simply take the word of Carmella Martinez about the authority’s financial affairs, but expanded their inquiries to other persons. It should be pointed out that the allegations of fraud that triggered the federal investigation came from a confidential informant who did not contact Precision Auditing. It is not known whether that informant was inside the Taos County Housing Authority.
Santistevan said they examined transactions with all related parties they could identify. Federal auditing guidelines focus principally on tenant transactions, and the fraud in this case appears to have been in false payments to putative landlords.
Santistevan pointed out that her firm did detect fraud in a 2011 audit conducted in Questa and referred that matter to the Attorney General and State Auditor.
Region III audits conducted by the former Meyners & Co. accounting firm proved dramatically ineffective in detecting wrongdoing on a far larger scale. None of the five Meyners audits for the Region III housing authority reported any of the malfeasance which is the subject of the upcoming criminal trials.
Meyners has defended its work, saying that the level of examination it was engaged to conduct did not reach into the financial records or involve the accounting tests that would have detected embezzlement and the other misfeasance involved in the criminal cases.
Controversy has followed the remains of the Meyners firm. In January 2011, the national accounting firm Clifton Gunderson acquired Meyners. In June 2011 Clifton Gunderson received $130,000 to conduct the 2011 audit of the New Mexico Finance Authority, but never completed the work. Instead, an employee of NMFA, its former controller, has admitted to forging the 2011 audit, leading to the agency’s current troubles and two criminal cases brought by the New Mexico Securities Division. The former CEO of the NMFA, Rick May, told the Albuquerque Journal Clifton Gunderson never informed the agency the audit had not been completed, even though it accepted NMFA’s payment.
[This story has been edited since first posting. Changes during the editing process did not make it into the original post and the problem was only found later]
J.R. Logan of The Taos News reporting:
Posted under News.
Tags: Camella Martinez, Clifton Gunderson, Eastern Regional Housing Authority, J.R. Logan, Paul Kennedy, Precision Auditing, Rick Bellis, Rick May, T, Taos County Housing Authority, The Taos News, Vincent Smiley Gallegos