The New Mexico Finance Authority has discovered that a former controller claimed its financial statements for 2011 had been audited by outside auditor Clifton Gunderson when in fact they were not.

NMFA senior management said Thursday they were alerted to the issue by the State Auditor’s Office. The NMFA management and board investigated and determined that the authority’s former controller, who left his position early last month before the issue was discovered, had misrepresented to senior management the status of the audit and provided financial statements for use with third parties that he falsely represented as “audited” by NMFA’s outside auditing firm Clifton Gunderson LLP.

The NMFA acknowledged that the financial results for the fiscal year ended June 30, 2011 were not completed properly. As a result, the financial results have been presented erroneously as “audited” since earlier this year. NMFA has now withdrawn the 2011 financial statements.

The NMFA said it is taking all necessary actions to rectify the issue as quickly as possible. As soon as it became aware that the financial statements had been misrepresented, NMFA retained Steptoe & Johnson LLP as independent legal counsel to conduct a thorough investigation to determine how the misrepresentation occurred and to recommend steps for strengthening financial reporting procedures.

KPMG is being retained to complete the audit of the NMFA’s financial results for the period and to conduct a full forensic investigation on the results to ensure their integrity. The NMFA said it would reissue fully audited financial results for the fiscal year ended June 30, 2011 after KPMG has completed its work.

“This matter is deeply concerning, but it will have no effect on NMFA’s ability to meet its financial obligations,” said NMFA CEO Richard E. May in a statement. “NMFA remains financially strong and has ample resources to meet all scheduled bond payments and other expenses. In addition to communicating with ratings agencies, investors and public officials, we have, in accordance with New Mexico law, notified the appropriate law enforcement authorities. We are committed to the absolute integrity of our operations.”

The announcement from the NMFA came after New Mexico State Auditor Hector Balderas said his office had designated the NMFA for a special audit upon uncovering the existence of a fraudulent audit report.

In May, his office had designated the NMFA as “at risk” for fraud, waste and abuse for failing to submit a fiscal year 2011 financial audit report to the State Auditor as required by law.

When questions were raised about the NMFA’s compliance with the audit requirement, Balderas said he discovered that a fraudulent audit report had been produced to create the appearance that the agency had received an independent audit for that fiscal year.

However, the fraudulent report was never submitted to the state auditor and Balderas has confirmed with the independent auditing firm, which is now known as CliftonLarsonAllen following Clfton Gunderson’s merger with LarsonAllen, that the report is not its work product.

The firm declined to comment. "Our company policy is to maintain client confidentiality," said CliftonLarsonAllen spokesperson Jennifer Dirks. "We are precluded to provide comment at this time."

“I am moving aggressively to determine the full extent of this fraud perpetrated against New Mexico’s taxpayers,” said Balderas. “I’m extremely concerned that a report was fraudulently created in order to misrepresent the authority’s financial condition to agencies, investors and the public.”

Balderas noted that the already significant risk to taxpayer dollars is exacerbated by the fact that the NMFA has not been independently audited for fiscal 2011. The NMFA provides billions of dollars in loans to help various government entities finance their capital equipment and infrastructure projects. In fiscal year 2010, the NMFA’s total operating expenses were over $127.8 million, and its total liabilities and net assets exceeded $1.8 billion.

Balderas’s office has notified law enforcement authorities and is working closely with NMFA officials and independent auditors to prepare for the special audit of the agency’s finances.