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Richard May - Memorandum to NMFA Board - September 7, 2012

Richard May - Memorandum to NMFA Board - September 7, 2012

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Published by Rob Nikolewski
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Categories:Types, Letters
Published by: Rob Nikolewski on Sep 07, 2012
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07/24/2014

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Memorandum
TO:
All New Mexico Finance Authority Board Members
FROM:
Rick May
RE:
Material for Special Board Meeting on September 10, 2012
DATE:
September 7, 2012I have noticed on the
Finance Authority’s
web site that a Special Board meeting has beenscheduled for Monday, September 10 to consider my employment status. At a time whenseveral forensic and management reviews are just getting underway, it is unclear as towhat criteria the Board may be utilizing to make these types of decisions. Therefore, Iwould respectfully request that any determination of my employment status not be madeuntil all of the facts are known and there is a full understanding of the fraudulent auditsituation. To do otherwise, in my view, would result in a decision making process that isarbitrary and unjustified.Since neither I nor other senior management was given an opportunity to fully brief theBoard regarding our immediate and prudent responses involving the fraudulent audit (forexample, an executive session for such a briefing was scheduled for July 16, although theBoard voted not to go into executive session), I would like to take this opportunity toidentify for the Board numerous important facts associated with the fraudulent audit ---most of which the Board may not be aware. I believe these important facts highlight myand
senior management’s dedication to maintaining the Finance Authority’s excellentcredit ratings and it’s highly regarded national reputation
.These facts also summarize how I and senior management discovered the fraudulentaudit; why it was essential to initiate an independent investigation headed by a formerfederal prosecutor; and who the various parties are that failed to notify seniormanagement that the Fiscal Year 2011 audit was never properly completed. These factsalso provide needed context to assist the Board in improving its understanding of a verycomplex series of events.
In preparation for Monday’s Special Board meeting, I
hope these important and crucialfacts are helpful to the Board in gaining a better appreciation of my and senior
management’s actions involving the fraudulent audit.
These facts are:
 
T
he Finance Authority’s senior management team
and I discovered the existenceof the fraudulent audit and I was the first person to report the situation to the
Governor’s Office, the State Auditor’s Office, and the State Police.
Thisdiscovery was based on an internal investigation that included emails anddiscussions with staff from the Legislative Finance Committee, the State
Auditor’s Office, and Clifton Gunderson, LLC.
 
 
The action plan created by me and senior management to quickly begin anindependent investigation headed by a former federal prosecutor and a respectednational law firm was based on the
 best advice available and is the “industrystandard” for such events. Equally important, senior management’s actionscalmed the financial markets and resulted in the Finance Authority’s credit
ratings not being lowered immediately.
 
After senior management cooperatively developed the original plan to conduct anindependent investigation headed by a former federal prosecutor, the Board wasprovided a quick overview of the action plan and no objections were initiallyexpressed.
 
The independent investigation, utilizing the services of the national law firm of 
Steptoe and Johnson and KPMG’s
nationally recognized forensic team, was inplace and ready to start work on July 17.
 
From various staff discussions, I was informed in mid-December 2011 that theFiscal
Year 2011 audit had been filed with the State Auditor’s Office and in mid
-
March I was informed the State Auditor’
s Office had approved the Fiscal Year2011 audit without any adverse findings. In good faith, I reported thisinformation to the Board on March 22, 2012. At that time, Mr. Campbell, the
Finance Authority’s Controller,
in response to my question, verified to the Boardat the March 22 meeting that the State Auditor
’s Office had approved our Fiscal
Year 2011 audit prior to the release of the Preliminary Official Statement (POS)for the March 2012 bond sale.
 
I was never notified by the external auditor (Clifton Gunderson, LLC) that theFiscal Year 2011 was not completed on time. In fact, it was not until seniormanagement inquired on July 10, 2012 with Clifton Gunderson that the auditfirm acknowledged the Fiscal Year 2011 audit was never submitted to the State
Auditor’s Office. No explanation was ever given as to why the audit firm failed
to tell senior management prior to that time no audit was filed. It should also benoted that during the July 10, 2012 inquiry the Clifton Gunderson staff stated that
“they may have fumbled the ball” regarding the audit. In addition, under the audit
rules of the State Auditor, it is the responsibility of the external auditor toschedule an exit conference.
 
During the week of June 25, 2012, Finance Authority staff conducted aconference call with the auditors from Clifton Gunderson regarding the FiscalYear 2012 audit, and at no time during this conversation did Clifton Gundersonmention that the Fiscal Year 2011 audit was not completed.
 
The Audit Committee was misled by Mr. Campbell on April 23, 2012 and the
full Board accepted on April 27, 2012 the Audit Committee’s report on the Fiscal
Year 2011 audit based on the misleading information provided by Mr. Campbell.
 
I was not informed until around May 23, 2012 by the State Auditor’s Office that
there may be an issue with the Fiscal Year 2011 audit and it was at that time Mr.Campbell informed senior management
that the State Auditor’s Office was
mistaken.
 
Under the organizational structure of the Finance Authority, the accounting andfinancial management functions were the responsibility of the Chief OperatingOfficer and the Controller. Further, this organizational structure or system was

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