State Auditor Hector Balderas on Thursday released a report that his office says found poor oversight and improper payments by the state's Human Services Department following its controversial decision to freeze Medicaid payments to more than a dozen of New Mexico's behavioral health providers in 2013.

According to the report, HSD even picked up the alcohol tab for employees of a Boston-based firm that the state paid to audit the New Mexico providers.

The irony: HSD froze the payments to those providers last June because the Boston contract auditors estimated they overbilled the Medicaid program a combined $36 million over a four-year period. Now the state auditor, a Democrat, alleges HSD engaged in inappropriate billing to that Boston auditing firm and five Arizona companies.

Feb. 27 update, 4:40 p.m. HSD spokesman Matt Kennicott writes that "This is just another sad example of an announced political candidate using his office to make politically motivated statements." (Balderas is campaigning to be the next state attorney general).

"The information released by the State Auditor is fraught with misstatements and inaccuracies," Kennicott writes. "HSD received a clean opinion by external auditors and the State Auditor is doing nothing more than making hay out of non-issue findings or old items from years past."

Following the audit by Public Consulting Group Inc., the state contracted with five Arizona organizations for more than $17 million in taxpayer money to take over services of the New Mexico providers pending the outcomes of investigations into the alleged problems.

State Auditor Balderas in Thursday's report says HSD "violated its state contracts with five Arizona behavioral health providers by approving payments for inappropriate costs that exceeded $620,000."

HSD disagrees with that finding. Kennicott writes that over two thirds of the $620,000 "were neither improper or inappropriate" but that the costs "were invoices that had been submitted late."

Balderas' office also says the department "improperly paid nearly $7,000 to [Public Consulting Group] for certain inappropriate costs incurred under HSD's professional services contract with PCG."

Those costs included $2,797 in "excess per diem reimbursements to PCG employees," says Balderas' office. "These billings were previously identified by HSD and will be taken out of PCGs final payment," Kennicott writes.

Balderas alleges that inappropriate costs paid to workers at the Boston firm included reimbursements for alcoholic beverages totaling $115; reimbursements of previously billed expenses in the amount of $3,315; and reimbursements for payment for State of New Mexico employee meals in the amount of $718.

"Per-diem rates were calculated for PCG and did not include reimbursement for alcohol," writes Kennicott.

He adds that the HSD required state staffers to attend on-site reviews with PCG employees. PCG paid for the state staffers, Kennicott writes, due to the "shortened time period given the urgency of the on-site visits and inability for state employees to obtain a travel advance pursuant to state policy" and that delays in on-site visits of the providers being probed might have given those providers advanced notice of the reviews.

The New Mexico providers say Republican Gov. Susana Martinez' administration has not let them see the allegations made against them in the PCG audit. Media outlets have sued for release of the full audit, but District Court judge ruled that the document can remain secret until the attorney general completes an investigation of his own.

Throughout the ordeal, there have been disruptions in services offered by the behavioral health organizations. The services include counseling and treatment of some of the state's neediest residents who require psychiatric care.

Attorney General Gary King, a Democrat running for governor, recently claimed PCG flagged billing issues by the providers by mistake.

Click here to read the full report released by Balderas today.

SFR will update this post once we get a response from HSD about the audit's findings.

Feb. 27 update, 4:30 p.m.

Here's an interview between Albuquerque-based freelance journalist Peter St. Cyr and State Auditor Hector Balderas about the findings of the HSD audit.