State Auditor Hector Balderas has completed and is asking prosecutors to take a look at a long-awaited special audit of the state’s scandal-plagued regional housing authority system.

Balderas is also releasing the special audit and other reports to the public today. The move follows a two-year investigation that began when the state Legislature asked him to take a look at the state’s affordable housing system in early 2007. Balderas says his work confirms previous reports detailing widespread problems with the system.“In my opinion, the five regional housing authorities audited by my office were plagued by weak internal controls and a lack of adequate oversight,” Balderas said today in a news release. “The poorly managed fiscal operations were a colossal failure to low-income citizens and the state of New Mexico.”

The attorney general’s office has already been investigating — most of the housing authority system collapsed in 2006 — and plans to take its case before a grand jury next month. How the auditor’s work might affect the attorney general’s plans is not immediately clear, and the AG’s office does not comment on or even confirm grand jury proceedings because they are secret.

In addition to referring the audit to the AG, Balderas is referring it to the FBI.

The scandal began when one of seven regional housing authorities in New Mexico, the Albuquerque-based Region III authority, defaulted on $5 million in bonds it owed the state in mid-2006. Soon thereafter, the State Investment Council released a report that found widespread misuse of the bond money, which was supposed to be spent on houses. Instead, almost $600,000 went to former Region III Director Vincent “Smiley” Gallegos as salary and benefits. Almost $700,000 was loaned to the Las Cruces-based Region VII authority, which did little to provide affordable housing and has since shut down.

Perhaps the most intriguing misuse of money revealed in the investment council report was a $300,000 loan the housing authority made to a private company owned by Gallegos under the guise of purchasing more than 30 lots in Las Cruces lots that had already been purchased by the authority.

In 2007, the Legislature gave Balderas’ office $200,000 to perform an accounting of all Region III assets, because the situation was such a mess that it was difficult to even determine what had happened and how much was lost. Last year, the Legislature extended the appropriation and asked Balderas to conduct a special audit.

Balderas’ office had to conduct 15 financial audits for the regional authorities that had never been completed before conducting its larger, special audit of the system.

In today’s news release, Balderas said his office found that two of the seven regional authorities are current with their audits and fiscally sound. He referred in the release to the other five, including regions III and VII, as “troubled.” Most have shut down since the scandal began.

Meanwhile, Lt. Gov Diane Denish and Sen. Mary Kay Papen, D-Las Cruces, are pushing a bill in the 60-day legislative session that begins Tuesday that would reform the housing authority system to restructure them and expand oversight.

NMI hopes to have a more detailed report on the audit findings later today.