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TO: FROM: RE: DATE: All New Mexico Finance Authority Board Members Rick May Material for Special Board Meeting on September 10, 2012 September 7, 2012
I have noticed on the Finance Authority’s web site that a Special Board meeting has been scheduled for Monday, September 10 to consider my employment status. At a time when several forensic and management reviews are just getting underway, it is unclear as to what criteria the Board may be utilizing to make these types of decisions. Therefore, I would respectfully request that any determination of my employment status not be made until all of the facts are known and there is a full understanding of the fraudulent audit situation. To do otherwise, in my view, would result in a decision making process that is arbitrary and unjustified. Since neither I nor other senior management was given an opportunity to fully brief the Board regarding our immediate and prudent responses involving the fraudulent audit (for example, an executive session for such a briefing was scheduled for July 16, although the Board voted not to go into executive session), I would like to take this opportunity to identify 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 my and senior management’s dedication to maintaining the Finance Authority’s excellent credit ratings and it’s highly regarded national reputation. These facts also summarize how I and senior management discovered the fraudulent audit; why it was essential to initiate an independent investigation headed by a former federal prosecutor; and who the various parties are that failed to notify senior management that the Fiscal Year 2011 audit was never properly completed. These facts also provide needed context to assist the Board in improving its understanding of a very complex series of events. In preparation for Monday’s Special Board meeting, I hope these important and crucial facts are helpful to the Board in gaining a better appreciation of my and senior management’s actions involving the fraudulent audit. These facts are: The Finance Authority’s senior management team and I discovered the existence of 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. This discovery was based on an internal investigation that included emails and discussions 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 an independent investigation headed by a former federal prosecutor and a respected national law firm was based on the best advice available and is the “industry standard” for such events. Equally important, senior management’s actions calmed 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 an independent investigation headed by a former federal prosecutor, the Board was provided a quick overview of the action plan and no objections were initially expressed. The independent investigation, utilizing the services of the national law firm of Steptoe and Johnson and KPMG’s nationally recognized forensic team, was in place and ready to start work on July 17. From various staff discussions, I was informed in mid-December 2011 that the Fiscal Year 2011 audit had been filed with the State Auditor’s Office and in midMarch I was informed the State Auditor’s Office had approved the Fiscal Year 2011 audit without any adverse findings. In good faith, I reported this information 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 Board at 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 the Fiscal Year 2011 was not completed on time. In fact, it was not until senior management inquired on July 10, 2012 with Clifton Gunderson that the audit firm 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 be noted 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 to schedule an exit conference. During the week of June 25, 2012, Finance Authority staff conducted a conference call with the auditors from Clifton Gunderson regarding the Fiscal Year 2012 audit, and at no time during this conversation did Clifton Gunderson mention 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 and financial management functions were the responsibility of the Chief Operating Officer and the Controller. Further, this organizational structure or system was
based upon the reasonable expectation that key staff would fulfill their duties appropriately and lawfully. Prior to the discovery of the fraudulent audit, Mr. Campbell was considered to be an outstanding employee with a stellar reputation (both inside and outside the organization) in regards to the financial management of the Finance Authority. There was no history within the Finance Authority to indicate that there were any false or misleading financial statements. As a condition of the Finance Authority receiving excellent credit ratings, management and fiscal controls of the organization were deemed to be outstanding. In addition, past audits have confirmed the continuation of these excellent management and fiscal controls. There is currently still no evidence that any money is missing. Although no one knows the motivation of Mr. Campbell in creating the fraudulent audit, such an action should not become the rationale for fundamentally restructuring the mission and scope of the Finance Authority and for impacting the reputations of those who have helped make the organization an effective $500 million a year enterprise for the benefit of New Mexicans. The alleged misconduct regarding the accounting reclassification of the $42 million given to the State General Fund in FY 2010 and FY 2011 is based on events that occurred prior to me even being named as the Chief Executive Officer. In addition, contrary to various media reports, this accounting reclassification issue did not result in failing to report the transfer of $40 million to the State’s General Fund. The Finance Authority’s financial condition is sound. The Finance Authority staff cooperated fully with the investigation conducted by the Securities Division and that cooperation was a continuing commitment by senior management.
I shall pursue any legal and other options to preserve and protect my longstanding reputation for honesty and integrity. Thank you for your time and consideration.
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