A second internal investigation has raised fresh concerns about lax oversight and administration of contracts awarded by the Department of Housing and Urban Development (HUD). The report was released last September as new allegations emerged about favoritism in choosing firms to do contract work for the agency.

HUD’s Office of Inspector General (OIG) examined a sample of 17 contracts and found that as much as 22 percent of the spending was wasted. The OIG’s report charges that HUD does not follow its own procedures for managing and evaluating contractors. As a result of these failings, the OIG said, “HUD paid about $8 million for services without obtaining the desired outcome and will spend $900,000 more than necessary by Sept. 30, 2007, for other services that are not needed.”

In a report released in 2006, the OIG unearthed several cases where HUD staffers alleged they were forced to approve contract renewals for certain contractors who claimed to have connections at the highest levels of HUD. (See AFFORDABLE HOUSING FINANCE June 2007, “HUD Contracting out of Control?”)

The OIG, though, said there was not “sufficient evidence” to conclude political favoritism affected the awarding of contracts.

HUD Secretary Alphonso Jackson said publicly in Dallas that year that the political loyalties of a firm’s principals are a key consideration in how he decides who gets contracts. He later recanted and told Congress in May 2007 that “I don’t touch contracts.”

Even so, AFFORDABLE HOUSING FINANCE has confirmed that a federal grand jury is investigating whether Jackson misled Congress and the OIG in testimony about his role in contracting.

In the most recent case to come to light, an Atlanta lawyer received contracts worth about $1 million to run the Virgin Islands Housing Authority (VIHA) for 17 months.

The contractor, Michael L. Hollis, is a personal friend of Jackson’s, according to a story by Edward Pound published in the National Journal, and confirmed by sources within HUD who declined to be named.

This follows a previous report by the National Journal saying the OIG is investigating at least one contract awarded to a Jackson friend for work at the Housing Authority of New Orleans.

Wasted spending

In its recent report, dated Sept. 19, 2007, HUD’s OIG found deficiencies in all 17 of the contracts it reviewed. Of the total value of $40 million for the contracts examined, $9 million, or 22 percent, was spent without obtaining the desired outcome, according to the OIG.

The office found that for 16 of the 17 contracts, “HUD either did not perform the required evaluations or did not perform them in a timely manner.” (Audit Report 2007-AT-0001 is available online at www.hud.gov/offices/oig/reports.)

The report states that staffers were aware of but did not follow the agency’s requirements that they evaluate contractor performance using the federal Contractor Performance System, and that those evaluations for contracts with option periods must be completed at least 120 days in advance of the end of the contract period.

The deficiencies included poor planning, inadequate contract statements of work, unnecessary services, inadequate assessments of the continuing need for some goods and services, inadequate review of contractor invoices, and failure to evaluate contractor performance, according to the OIG. The names of contractors involved were not released as part of the report.

In response to the OIG, Joseph Neurauter, the department’s chief procurement officer, said HUD was making improvements to its contracting procedures but that a shortfall in requested staffing made it “difficult, if not impossible, to maintain the level of performance we currently have, let alone improve it.”

From 2002 to 2005 alone, HUD awarded contracts totaling $4.2 billion. This is only the second time during the Bush administration that the OIG has looked at how HUD chooses and manages contractors. However, the September 2007 audit found deficiencies similar to those cited by the Government Accountability Office in its 2002 analysis of HUD contracting.

The Virgin Islands connection

In the case of the VIHA, HUD staffers—who asked to remain anonymous confirmed a report in the National Journal that the OIG is investigating HUD’s decision to award contracts for about $1 million, plus expenses, to Hollis to serve as executive administrator of the authority from February 2006 through May 2007. Hollis is an entrepreneur who is best known for starting an airline based in Atlanta that is no longer in business.

There was no bidding process for any of the multiple contracts he received, according to the federal procurement database. Documents obtained by AFFORDABLE HOUSING FINANCE through a Freedom of Information Act request said the first contract was awarded to Hollis without bidding due to “unusual and compelling urgency.” The document justifying the sole-source procurement for the second contract said no bidding was needed because there was “only one responsible source.”

According to the National Journal article, Hollis worked for Smith Real Estate Services, an Atlanta-based real estate firm that landed a $1 million nobid contract from HUD in 2005 to provide management and advisory services to stabilize the VIHA. Hollis did not return repeated phone calls. A spokesman for Smith Real Estate could not confirm that Hollis had worked with them in regard to VIHA. AFFORDABLE HOUSING FINANCE made repeated attempts to reach VIHA’s current officials and the territory’s congressional representative but received no substantive responses.

But two sources, one of whom is familiar with VIHA’s situation and another within HUD, said Hollis was hired directly by Jackson’s office with no involvement from HUD’s Office of Public and Indian Housing, the program office charged with overseeing troubled housing authorities.

In response, a HUD public affairs staff person said the agency would not comment due to an “ongoing investigation.”

Living on the taxpayers’ dime

In a related development, the OIG is in the final stages of investigating the payment of hundreds of thousands of dollars to Lily Lee for her living expenses in addition to her salary while she worked as a deputy assistant secretary for housing in Washington, D.C., according to a reliable source within the agency.

AFFORDABLE HOUSING FINANCE’s source said the OIG investigation looked at the justification for approval of Lee’s expenses.

The source noted that Lee was Frank L. Davis’ deputy when he headed the Office of Department Operations and Coordination (ODOC). ODOC provides staffing for the deputy secretary of HUD, who is the agency’s chief operating officer. Jackson served in that position from 2001 until he became HUD secretary in early 2004.

Lee recently left her post as deputy assistant secretary for housing to work in the agency’s Fresno, Calif., office. Before going to Washington, she had worked in the San Francisco and Santa Ana, Calif., HUD offices. Lee did not return a call requesting comment.

Calling Current, Former HUD Employees

If you have direct knowledge of corruption, favoritism in contracting, punishment of whistleblowers, and other illegal activities at the Department of Housing and Urban Development, please contact AFFORDABLE HOUSING FINANCE. We will not publish your name and will keep your identity completely confidential. Help expose the corruption now. E-mail us at ashashaty@hanleywood.comor call (415) 315-1241, ext. 301.