DALLAS — With its ability to issue debt limited by the recent discovery that a phony audit was used in an official statement for bonds it issued, the New Mexico Finance Authority is proceeding with an investigation to try and clear up the debacle.

Local governments in New Mexico are facing new limits on their access to credit due to the uncertainty created by the audit news. The NMFA issues debt to make low-cost loans to local governments and it is now limited to making loans from its $37 million of cash reserves.

Larger deals, such as Albuquerque's $27.2 million of bond-backed projects, are on hold until the state can produce a valid audit of the agency. Albuquerque officials told the NMFA that construction bids on the project will lapse in November if no funding is available.

The State Auditor's Office, which reported the fake audit, is working to produce a correct version of the fiscal 2011 audit while investigating how the incorrect audit was created.

The NMFA earlier this month hired law firm Steptoe and Johnson and accounting firm KPMG to conduct a third-party investigation, but the contract was rescinded after board members wanted to rewrite the agreements to make sure third-party investigators defer to law enforcement.

"We have a responsibility to report to the credit markets what the board's preference is," said the agency's chief executive, Rick May.

The state securities division is also looking into criminal charges regarding the faked audit.

When the phony audit was announced, rating agencies put the NMFA on their watch list for possible downgrades.

Former authority Comptroller Greg Campbell told Albuquerque television station KOB 4 that there was "no criminal intent" in vouching for the audit that was discovered to have been faked. Campbell left the NMFA in June after submitting the 2011 audit. In an interview with the station, he said he did put the audit together without full care. He said the process was "probably" negligent but not criminal in intent. Campbell said officials mistook his "draft" report for the "final" report.

Securities division director Daniel Tanaka said that potential fraud within the NMFA extended beyond the faked audit.

NMFA board member Paul Gutierrez said the audit problem was caused by management and the board failing to carry out their responsibilities. He pointed out there was never an "exit conference" between authority officials and the agency's outside auditor.

However, the fraudulent documents included a faked letter from the auditor and a statement that an exit conference had been held last December — on a date that was a Saturday.

The audit and its financial statements were included in a preliminary official statement for an NMFA bond issue in March.

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