SANTA FE – The former controller at the New Mexico Finance Authority was able to fake a financial audit because of management and oversight failures as well as a “culture of complacency” at the agency, according to a report Monday by the state’s top securities regulator.
The Securities Division’s report came four days after ex-controller Greg Campbell pleaded guilty to felonies for faking the audit and misrepresenting the authority’s finances to investors who bought the agency’s bonds earlier this year.
The report said the fake audit went undetected for months because of a lack of oversight by top managers and the authority’s appointed governing board. Inadequate staffing in the authority’s accounting department, “antiquated” accounting practices and failures by the authority’s outside accounting firm also contributed to breakdowns that allowed the fake audit to happen, regulators said.
“The lack of internal and external controls was exacerbated by a culture of complacency at the NMFA that downplayed the importance of the audit to investors; over-emphasized and over-prioritized the importance of bond credit ratings,” the report said, and there was a “presumption that the external audit was a process that required little if any input from senior management, the audit committee or the board.”
Former authority CEO Rick May said the regulator was wrong in speculating about the “culture of complacency.”
May, who was fired in September, said in a statement that Campbell “repeatedly lied to me, other members of senior management, the board and the audit committee as to the legitimacy and status of the audit.”
May said it was “completely proper to delegate audit responsibilities to trusted and well-respected staff who had experience with the audit process” because he was not an accountant and had been appointed CEO only three months before last December’s deadline for submitting the audit to the state auditor’s office.
Former chief operating officer John Duff, who was Campbell’s supervisor, did not return a telephone message left at his home seeking comment.
The authority’s accounting firm was supposed to be responsible for the audit, but it failed to notify the state auditor that the NMFA audit was late, the report said in describing that as part of a “critical lapse in external controls” that could have prevented the fake audit.
Investigators found no email between the accounting firm and NMFA officials about preparation of the audit after September 2011. The report said the company contended there had been communication with the agency but investigators couldn’t corroborate those claims.
The authority uses bond proceeds to provide low-cost loans to cities, counties, schools and other governmental organizations for capital improvements. The NMFA operates independently from state agencies, and its employees are not state workers.
The Legislature created the authority as a public corporation. The NMFA can issue bonds and receives about $26 million a year in tax revenues to provide financing for government projects.
After the fake audit was disclosed in July, the authority replaced its top management and has been forced to scale back its lending because it still lacks an independent audit of its finances.