Corruption filled the headlines recently when the New Mexico Finance Authority came under scrutiny for allegedly faking its 2011 audit by failing to report $40 million in losses.

In July, State Auditor Hector Balderas designated the agency—which he calls "the people's bank of New Mexico"—as "at-risk" because it had yet to submit an internal audit for fiscal year 2011. What Balderas soon found, he says, is that NMFA Comptroller Greg Campbell had already submitted an internal audit that allegedly covered up the $40 million loss to Standard & Poor's. Balderas requested a copy.

"As soon as we tested the report, we knew it was a fraudulent report," Balderas tells SFR.

Since then, police have arrested Campbell and NMFA Chief Operating Officer John Duff. Balderas' office contracted with PricewaterhouseCoopers LLP for a special audit of NMFA, which is due in October. SFR recently caught up with Balderas to talk about what the scandal, which he characterizes as "a profound breach of public trust," means for New Mexico.

SFR: How is this important to the average New Mexican?

HB: If your community needs a project and is going to finance on the public finance market— because you are a New Mexican, because we’re now known for passing out fraudulent audit reports, you may pay higher long-term interest rates. We also may not be eligible for all the competitive financing opportunities that New Mexico needs.

How did this happen?

There are risks that we believe need to be verified based on the motives. The stakes for those risks [are] very high. You’re only dealing with a couple of scenarios that would motivate someone to ruin their career and illegally motivate someone to pass out this audit. The act is so egregious, I believe this initial fraudulent activity could be just a sign that it was used to cover up additional wrongdoings.

Is there anything this office could have done to prevent it?

We did, in the sense that it was our at-risk notification informing the agency and the public that we had never received an audit report for fiscal year 2011. The notification did its job. The notification system properly put out the facts that this agency is violating state law by not submitting a report. Even NMFA doubted my notification. They thought it was a mistake.

One suggestion I've heard for preventing this in the future is by streamlining state government more like Washington, DC, where many oversight agencies are appointed [by] the executive branch.

The lack of accountability in New Mexico is not going to be solved by political parties. Corruption is a problem all across government. There is just not enough investment and oversight. No one wants to increase funding for the state auditor’s office. Nobody wants to increase funding in white-collar investigators. But the reality [is that] those are the type of investments we need to reduce corruption in New Mexico.

Not enough of these agencies do internal audits. Most agencies don't even know how much furniture they own, much less have some kind of asset protection plan. In Santa Rosa our audit got delayed because they found new bank accounts. How do you find new bank accounts?

I also think universities don't train government finance officers. There are very few competent government finance officials that can truly run a complex government like the city of Española or the NMFA. I would bet over half the agencies we audit are struggling with poorly-trained finance departments.