In November, New Mexico State Auditor Hector Balderas announced that his office had launched a formal investigation into possible fraud and collusion between former New Mexico Corrections Department (NMCD) employees and a handful of construction companies. Elements of the ongoing investigation preclude the mention of some specific information; Balderas, nevertheless, recently granted Correctional News an exclusive interview concerning the probe's progress.
CN: Can you tell us, specifically, what your investigation entails and who's involved?
Balderas: We're specifically focused on potential conflicts of interest, collusion, excessive billing and kickbacks between former NMCD employees and 3 to 4 construction companies that we've deemed high risk. We want to independently verify, of course, whether or not that bid rigging or excessive billing took place - and we want to see if the NMCD paid any taxpayer expenditures without receiving a return benefit. In other words, we have knowledge that this may have happened - that [several parties] were manipulating the fair-bid process and engaging in kickbacks once the bids were secured.
CN: How did you come about that knowledge - what was the catalyst for the investigation?
Balderas: Two things. First, we set up a fraud hotline about a year and a half ago, and news relevant to the current investigation was called in as an anonymous tip. My special investigations unit promptly opened a file. Not long after, the NMCD secretary expressed reservations about one of NMCD's former employees. They did the right thing and referred the matter to us for further review.
CN: So it was a very above-board move by the NMCD to report the potential fraud?
Balderas: Yes. You really hope that issues of corruption are addressed like this, that industries and organizations are able to self-identify possible fraud. They may not be able to verify it - that's where we come in - but they can report suspicious behavior and transactions.
I should add that the hotline has been invaluable for us. In many ways, it's a better means to catching fraud than some of the financial audit reports, which are documents that not many people know how to read.
Anyway, those two things triggered the first control check. Additional red flags have since been raised after meeting with independent auditors that had audited the NMCD in the past, studying expenditure patterns and meeting with management at the NMCD. We've identified at least $10 to $11 million worth of contracts that need to be tested for compliance.
CN: Can you explain, more specifically, an example of the illegal behavior?
Balderas: I can say generally that laws and regulations are in place to ensure that states and taxpayers receive the best possible services for the money they spend. It doesn't mean the cheapest, it just means that there's a competitive bid process that has integrity and the goal of that process is absolutely to hire the best vendor for a given job.
If there's a manipulation of that process, the end result could be that some of the better firms are not getting the work they should be getting, forcing an outcome which may not be in the best interest of the taxpayers.
When you hear bid rigging, that's where you typically get the collusion. You get an internal state or federal professional whose primary goal is to have no bias or attachment to any of the external vendors, and all of a sudden that official manipulates things to benefit a particular vendor and not the agency [he's supposed to represent].
Not only is it illegal for a vendor to engage in bid rigging, of course, but it's also illegal for a public official to receive any type of personal gain throughout the process. So we are going to be making sure that no one benefited from this, that there was no personal gain achieved by any officials.
We're also concerned that there may have been excessive billing once contracts were awarded. Say, for example, the max contingency for a service is $20,000: it looks a little too convenient when someone has billed exactly that amount for a service, especially when there may not be proof that that service was rendered.
CN: So beyond the anonymous tip and the note filed by the NMCD, you've already identified very specific areas where fraud allegedly occurred?
Balderas: All I can say is that we've since noticed suspicious expenditure patterns. We'll be testing whether or not services that were contracted were in fact performed. In addition, we'll be asking whether an official conducted overrides: Something like, "Hey, why don't you just bill me the $1.7 million instead of $1.5 million?" - and then there is no documentation or justification for why. In some cases, your grocery store list might have more justification than some of the things we see.