A potential conflict of interest, financial mismanagement and questions surrounding the relationship between the Mobile Housing Board and its non-profit arm, Mobile Development Enterprises, were highlighted in a scathing audit report released this week by the U.S. Department of Housing and Urban Development’s Office of Inspector General.
Mayor Sandy Stimpson, who just appointed his third member to the five-member board last week, said in a statement released shortly after the report that it was time for reform.
“This report raises serious questions about the leadership of the Mobile Housing Board and their management of federal funds,” Stimpson said. “These questions must be answered as quickly and as completely as possible so we can take corrective action. “We have a responsibility to ensure that low-income families have access to decent, safe and sanitary housing.”The report states MHB did not comply with HUD rules for financial operations because it did not disclose to the government agency a specific conflict of interest when the step-brother of State Rep. Adline Clark, MDE vice president, was awarded federal funds for work associated with the housing board.
“The Housing Board did not notify HUD of the relationship that resulted in payments of more than $1.2 million from August 1, 2013, to October 31, 2015, to the owner of a construction contractor who is the half-brother of the senior vice president of the Housing Board’s nonprofit,” the report stated. “This failure prevented HUD from identifying an apparent or an actual conflict of interest.”
The possible conflict dates back to rehabilitation work awarded to Superior Masonry from Aug. 1, 2013 to Oct. 31, 2015. During this time, the board was made up of a majority of members either appointed or re-appointed by former Mayor Sam Jones.
“In addition, the Housing Board may have violated its consolidated annual contributions contract conflict-of-interest provision when it entered into the contract with the senior vice president of its nonprofit’s half-brother,” the report states. “The annual contributions contract states that a Housing Authority may not enter into any contract or arrangement in connection with a project under the annual contributions contract in which any employee of the Housing Authority who formulates policy or who influences decisions with respect to the project(s), or any member of the employee’s immediate family, or the employee’s partner.”MHB Executive Director Dwayne Vaughn has previously stated that the relationship between Clarke and her half-brother was disclosed and any agreement was only entered into after the “understanding that no MHB or MDE employee would benefit from the award in a (financial) manner.” During her first election the issue of whether Clarke worked for MHB or MDE became a topic because state law would have kept her from holding office and “double dipping” with the publicly owned housing board. Clarke and Vaughn repeatedly argued that MDE was a separate entity and therefore Clarke could hold the office.
The report states the relationship between Clarke and Superior Masonry was disclosed to then-MHB Chairman Clarence Ball who determined there was no conflict. Ball did not return a message seeking comment, as of press time Monday evening. Ball donated heavily to Jones’ campaigns and the former mayor now works for Ball Healthcare Services as Director of Programs and Community Outreach, according to the company’s website.
In a phone interview Monday evening, Vaughn said the rule cited by the OIG in its report doesn’t apply to maintenance contracts, which describes the agreement with Superior Masonry.
“Unfortunately, they don’t agree,” Vaughn said.
At issue is that the board informed HUD MDE was an affiliate, or third-party contractor for them, when Internal Revenue Service documents show MHB referred to the entity as an instrumentality or part of the larger entity.
Vaughn has previously told Lagniappe that MDE, which was created in 2003, is a third-party contractor, despite sharing office space, phone lines and having the majority of MDE assets come from the MHB. In addition, as the report states, the positions of MDE’s board president, vice president and secretary/treasurer are held by MHB’s board chairman, vice chairman and executive director, respectively.
Vaughn has said MDE handles program management, resident empowerment, construction management, grant development, daycare and public relations services for MHB. He added that the entity also provides operational leadership in some roles.
In addition, the report stated the board did not use its capital funds to rehabilitate 1,194 housing units and instead the board left 824 units vacant for “1 to 16 years.”
In January of 2011, MHB submitted a plan to HUD start to fill its 1,071 vacancies.
“In its plan, the Housing Board stated that its vacancies were a result of a systemic lack of critical oversight and strategy for its housing operations,” the report states. As a result of this deficiency, the Housing Board lost rental revenue and its ability to generate adequate funding to staff its properties and provide resources necessary to maintain a decent, safe, sanitary community.”
In its plan, the board stated it would need $7 million to rehabilitate vacant units. The report states the board anticipated using a mixture of capital funds, operational reserves, bond and insurance proceeds, as well as private funding and funds from its central office cost center. The board also asked HUD to allow it to use funds from the American Recovery and Reinvestment Act.
Since that submission in 2011, the report states, the board’s vacant units have increased from 1,057 to 1,194 in late 2015. These vacancies include 100 percent of Josephine Allen Homes, which HUD gave permission this year for MHB to sell and 73 percent of Roger Williams Homes, which was given a grant to begin revitalization efforts. From 2011 to 2015, according to the report, the board had also increased the number of families on its waiting list from 2,432 to 9,987.
Vaughn said the capital money was not spent at Roger Williams, or Josephine Allen because it was the board’s belief that the two complexes would need to be demolished. Instead of putting good money toward those complexes, Vaughn said the roughly $5 million per year in capital money was spent elsewhere. For instance, he said some of it was used to replace elevators at MHB’s senior facility at Central Plaza Towers. Another $2 million was spent each year to pay down a bond issue from 2003. Vaughn was brought on in 2009 on an interim basis and was hired full-time in 2010.
While Vaughn said MHB was saddened by the report, he noted that OIG officials did not find that any money was misspent, but rather was spent in different areas than they would recommend.
After being designated with “substandard” management rating in 2012, MHB submitted a recovery plan in 2014, following HUD recommendations, according to the report.
“In its plan, the Housing Board stated that it had instituted a vacancy reduction plan and was engaged in an occupancy initiative,” the report states. “Both plans sought to renovate its least costly long-term vacant units using third-party contractors and its own internal workforce.”
The report states that the program failed, according to MHB, because of 1,426 move outs from 2011 to 2013. However, the waiting list remained at roughly 9,000 names, according to the report.
Since MHB submitted its initial vacancy reduction plan in 2011, it has received more than $18.4 million in capital funds and $3.2 million in recovery act funds, according to the report.
“From 2011 to 2015, it paid its nonprofit more than $5.3 million for services directly related to its vacancy reduction plans and paid the half-brother of the nonprofit’s senior vice president, who is the owner of Superior Masonry, more than $3.6 million for capital improvement construction services,” the report states. “Although it had received and spent substantial funding for capital improvements, the Housing Board had 1,194 vacant units or one-third of its 3,409 low-income public housing units.”
As a result of the Housing Board’s failure to renovate its units in a timely manner, it was forced to substantially vacate two of its largest public housing developments so that they could be demolished or sold.
In the statement, Stimpson called for a full, independent audit of MHB’s financial activities.
“We need an in-depth review to provide answers to the questions raised by the OIG, and to ensure that the appropriate corrections are made,” Stimpson said.
The report also calls into question the future of MHB’s portfolio-wide Rental Assistance Demonstration conversion. Entrance in the RAD program, which gives MHB more financial flexibility in rehabilitating units and allows public housing to be added alongside market-rate housing, can be revoked by HUD at any point before a property closes. So far, the report states, MHB has failed to show it can operate and improve unit conditions with RAD implementation. RAD conversion is at the heart of MHB’s revitalization plans, including the addition of new, mixed-income complexes on both the southside corridor and at Roger Williams.
The report lists several recommendations for HUD’s Birmingham office to take in reference to the MHB failures, as a response to the findings. The OIG recommended that MHB provide documentation showing that a conflict of interest “did not exist between Mobile Development Enterprises and Superior Masonry.
If a conflict did exist, OIG suggests the director of HUD’s Departmental Enforcement Center, along with the Birmingham field office “take appropriate enforcement action against the Housing Board’s management staff for failing to disclose the instrumentality relationship between the Housing Board and the Mobile Development Enterprises.”
In addition, the OIG recommends requiring the MHB to update its books, records and policies to identify MDE as an instrumentality to “prevent, actual, or apparent conflict of interest between MHB, its nonprofit and other contractors.
Also, the OIG suggested requiring MHB to work with HUD to ensure it meets the conditions of its Rental Assistance Demonstration conversion.