oversight

Allegations Against Clare View Seniors Apartments, LP, Had Been Corrected or Did Not Violate HOME Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-02-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

  OFFICE OF AUDIT
  REGION 10
  SEATTLE, WA




               Clare View Seniors Apartments, LP
                         Spokane, WA

          HOME Investment Partnerships Program




2014-SE-1001                                 FEBRUARY 4, 2014
                                                                    Issue Date: February 4, 2014

                                                                    Audit Report Number: 2014-SE-1001




TO:           Jack Peters, Director, Community Planning and Development, Seattle Office, 0AD

              //signed//
FROM:          Ronald J. Hosking, Regional Inspector General for Audit, 0AGA


SUBJECT:       Allegations Against Clare View Seniors Apartments, LP, Had Been Corrected or
               Did Not Violate HOME Requirements


    Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our audit of Spokane Housing Ventures, Clare View
Seniors Apartments, LP (hotline complaint number HL-2013-0804).

    HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. Please furnish us copies of any correspondence or directives
issued because of the audit.

    The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.

   If you have any questions or comments about this report, please do not hesitate to call me at
913-551-5870.




                                               Office of Audit Region 10
                                   909 First Avenue, Suite 126, Seattle, WA 98104
                                      Phone (206) 220-5360, Fax (206) 220-5162
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
                                            February 4, 2014

                                            Allegations Against Clare View Seniors Apartments, LP,
                                            Had Been Corrected or Did Not Violate HUD
                                            Requirements


Highlights
Audit Report 2014-SE-1001



 What We Audited and Why                     What We Found

We reviewed a complaint	against a           Clare View Seniors Apartments, LP, did not always
project that was partially funded by the    pay and certify Davis-Bacon Act wages
Office of Community Planning and            appropriately. However, this deficiency was
Development’s HOME Investment               corrected before our review. We also determined
Partnerships program. Our objective         that the developer did not use a competitive
was to determine whether the                procurement process and was also the general
allegations in hotline complaint number     contractor on this project. However, although other
HL-2013-0804	were valid. The                HUD programs require a competitive procurement
complainant alleged that while Clare        process, HOME regulations do not require that the
View Seniors Apartments, LP, was in         developer use a competitive procurement process,
the process of obtaining HOME funding       nor do they prohibit the developer from also being
through the State of Washington and the     the general contractor.
City of Spokane, it demolished two
buildings on the site without paying or
certifying Davis-Bacon Act wages, did
not use a competitive procurement
process, and had a conflict of interest
with the general contractor.

 What We Recommend

This report contains no
recommendations, and no further action
is necessary with respect to this report.




                                                  
                           TABLE OF CONTENTS

Background and Objectives                                                          3

Results of Audit
      Allegations Against Clare View Seniors Apartments Either Had Been Corrected
      or Did Not Violate HUD Requirements	      	      	       	     	      	     		4

Scope and Methodology                                                              6

Internal Controls                                                                  8

Appendixes
A.    Auditee Comments and OIG’s Evaluation                                       10




                                           2
                     BACKGROUND AND OBJECTIVE

The HOME Investment Partnerships Program allocates 15 percent of HOME set-aside funds to
eligible community housing development organizatons (CHDO) for HOME projects. In
February 2013, the City of Spokane and the State of Washington together loaned a total of $1.9
million in HOME set-aside funds to Spokane Housing Ventures, a Spokane-approved CHDO, for
the development of Clare View Seniors Apartments. Other funds for the project were obtained
through the U.S. Internal Revenue Service Low Income Housing Tax Credit Program.

Clare View Seniors Apartments is a 61-unit multifamily project that was codeveloped by
Spokane Housing Ventures, the general partner, and Whitewater Creek, the special limited
partner. Whitewater Creek was also the general contractor of the project.

A hotline complaint alleged that while Clare View Seniors Apartments, LP was in the process of
obtaining HOME funding through the State of Washington and the City of Spokane, it

      Demolished two buildings on the site without paying or certifying Davis-Bacon Act
       wages,
      Did not use a competitive procurement process, and
      Had a conflict of interest with the general contractor.

Our objective was to determine whether the allegations in hotline complaint number HL-2013-
0804 were valid.




                                              3
                                RESULTS OF AUDIT


Allegations Against Clare View Seniors Apartments Either Had Been
Corrected or Did Not Violate HUD Requirements
The alleged complaints either had been corrected by Whitewater Creek, the special limited
partner, co-developer, and general contractor, or did not violate HUD’s HOME program
requirements.


 Davis-Bacon Wages


              Whitewater Creek’s subcontractor demolished two buildings on site without
              paying or certifying Davis-Bacon Act wages. However, Whitewater Creek paid
              the subcontractor employee the difference between the amount previously paid
              and the required Davis-Bacon wages. The subcontractor then retroactively
              certified that the appropriate Davis-Bacon wages had been paid.

 Competitive Procurement
 Process

              The CHDO (Spokane Housing Ventures) did not require Whitewater Creek, the
              general contractor, to use a competitive procurement process. Although other
              HUD programs require a competitive procurement process, HOME regulations do
              not require that the developer use a competitive procurement process.

              The City of Spokane and the State of Washington did include these procurement
              clauses in their contracts with the CHDO and its limited partnership. Since HUD
              was not a party to these contracts, it could not enforce them. These contract
              provisions would need to be enforced by the City or State.

 Conflict-of-Interest


              The CHDO allowed Whitewater Creek to be both co-developer and general
              contractor for the project. Although other HUD programs require a specific
              process for approving conflicts-of-interest, HOME regulations do not prohibit the
              developer from also being the general contractor, nor do they require approval for
              that relationship.




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Recommendation


         This report contains no recommendations, and no further action is necessary with
         respect to this report.




                                         5
                                           
                         SCOPE AND METHODOLOGY

We initially reviewed the complaint and information provided by complainant to determine
whether the allegations were valid. When we determined that they were valid, we expanded our
audit to include actions taken by the CHDO, developers, and general contractor.

To achieve our objective, we conducted interviews with

       The management and staff of HUD’s Seattle Office of Community Planning and
        Development and management of the HUD headquarters Office of Community Planning
        and Development, Washington, DC;
       The management and staff of HUD’s Office of Labor Relations, Seattle, WA, and Los
        Angeles, CA; 
       The management and staff of the Spokane, WA, and Los Angeles, CA, offices of the U.S
        Department of Labor;
       The management and staff of Spokane Housing Ventures, Spokane, WA;
       The owners of Whitewater Creek, Inc., Hayden, ID; and
       ZBA Architects, Spokane, WA and three Spokane area contractors that were awarded
        subcontracts by Whitewater Creek.

We reviewed regulations and notices, including Federal Labor Standards, HOME regulations
and administrative requirements for nonprofit organizations, and HUD guidance on CHDOs.

We also reviewed many documents provided by the auditee and the City of Spokane and State of
Washington, including

       Timesheets and other supporting documentation sent to the City of Spokane, compiled by
        Whitewater Creek;
       Clare View Seniors Apartments grant agreements from the City of Spokane and the State
        of Washington;
       Spokane Housing Ventures policies and procedures, Clare View Seniors Apartments
        partnership agreements, and a memorandum of understanding from Spokane Housing
        Ventures; and
       Clare View Seniors Apartments subcontractor bids and general construction contract
        from Whitewater Creek.

We did not rely on computer-processed data for this audit. Instead, we traced or verified
information for the allegations to supporting documentation, from which we drew our
conclusions.

Our audit covered the period June 2010 through May 2013. We performed our work at Spokane
Housing Ventures, 715 East Sprague Avenue, Suite 102, Spokane, WA, and the City of Spokane,
808 West Spokane Falls Boulevard, Spokane, WA, as well as HUD’s Seattle Office of


                                                6
                                                 
Community Planning and Development, located at 909 First Avenue, Seattle, WA, from May
through September 2013.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                7
                                                 
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objective:

                     CHDO procedures for ensuring compliance with Davis-Bacon Act wage
                      determinations.
                     CHDO procedures for ensuring compliance with written agreements with
                      respect to procurement and conflict-of-interest requirements.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

               We evaluated internal controls related to our audit objectives in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance regarding the effectiveness of the
               internal control structure as a whole. Accordingly, we do not express an opinion
               on the effectiveness of Clare View Seniors Apartments, LP’s or Spokane Housing
               Ventures’ internal controls.




                                                 8
                                                   
Separate Communication of
Minor Deficiencies

           We reported minor deficiencies to the auditee in a separate management letter.




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Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation                       Auditee Comments

                     Auditee (Spokane Housing Ventures) Comments to OIG Draft Audit Report 
                                     Received December 12, 2013 via email 
              
             Comment  1.   
              
             Under Highlights, page 1, What We Audited and Why/What We Found.   
Comment 1     
             We strongly object to the inclusion of last sentence in the section; “Complainant alleged 
             the development of Clare View Seniors Apartments was grossly mismanaged”.  This alleged 
             statement was not substantiated in the audit finding.  While we understand from the 
             auditors that the wording came directly from the complainant, it is completely unfounded 
             and therefore misleading and prejudicial to the report and damaging to Spokane Housing 
             Ventures and Whitewater Creek.    
              
Comment 2    Even more objectionable and misleading is the first sentence in the adjacent section 
             heading, (page 1) What We Found, when the report states “We determined that while all 
             of the alleged complaints against Clare View Seniors Apartment were valid, they were 
             either corrected …… or were not enforceable…..”    There is nothing in the draft audit 
             report that substantiates the alleged mismanagement.   At best the draft audit report finds 
             one minor discrepancy with respect to Davis‐Bacon wage rates and makes absolutely no 
             findings with respect to any other allegation. 
              
             We request that the phrase "grossly mismanaged " be deleted from the last sentence 
Comment 1
             under What We Audited and Why and that the allegation be revised using the same 
             language used to describe the three specific allegations of the complainant on pages 3 and 
             4 and throughout the remainder of the draft audit report.  Further, we request that the 
             draft audit report state that the allegations of mismanagement and the three alleged 
Comment 2    complaints about violations of HUD requirements were not supported by the audit and 
             were not valid. 
              
             Comment 2. 
              
             Page 4, Davis Bacon Wages/House Demolition 
              
             As indicated in the draft audit report, there were two structures that were demolished on 
             the site of the development and the demolition of these structures was the subject of the 
             Davis Bacon (DB) issue.  No other DB issues were found by the auditors.   We believe that  




                                              10
                                                 
Ref to OIG Evaluation                        Auditee Comments

               we have fully and satisfactorily addressed this issue in our response to the auditors’ 
               requests and believe that adequate precautions and due diligence on the part of the 
               Spokane Housing Ventures and Whitewater Creek to assure that DB requirements were 
               met should result in the conclusion that this alleged DB complaint was not valid.  At 
               worst, there was a minor deficiency with respect to one employee. 

               In early 2012, the two structures were vacant and deemed a safety hazard and liability 
               risk.  Construction on 300 apartments was just being completed next door and a majority 
               of the units were family apartments. The density of children in the area quadrupled and 
               the abandoned homes were playground targets. 
                
               During the Opening/DB/HOME Spokane City meeting and discussion in September of 
               2012, wage reporting for the previously demolished house on the CVS site was discussed 
               in detail.  These discussions were directly with the appropriate City personnel, including 
               staff and supervisors.  Conversations included the issues of not having a wage decision 
               for the development of the project at that point and all parties agreed that that as soon 
               as we received the wage decision we would file the appropriate DB paperwork 
               retroactively.   At the meeting, we discussed also that the demolition contractor had 
               completed larger DB demolitions in the area, worked on other DB jobs for us and was 
               proficient in the DB process.  Also at this meeting in Sept 2012, it was discussed that the 
               City of Spokane was checking with HUD to determine the appropriate start date of the 
               project.  City staff was uncertain if DB would even apply to the demolition.  
                
               Once WWC received the wage decision in late 2012, we forwarded the wage rates to the 
               demolition contractor and all necessary wages and benefits were paid and certifications 
               were filed.  One wage determination deficiency in one of the operators triggered an 
               approximate $600 reimbursement to the employee.  Again, there were no other DB 
               deficiencies reported by the audit and consequently we believe there was no validity to 
               the allegation. 
                
               Comment 3. 
                
               Page 4, Competitive Procurement Process. 
                
               The audit report concludes that Spokane Housing Ventures, as a CHDO is not subject to 
               HUD competitive procurement requirements and therefore there was no violation of 
Comment 3      HUD requirements.   Since the purpose of the HUD audit is to determine whether HUD 
               requirements were met, we believe that the audit report should conclude that this 
               allegation was not valid.  HUD does not have the expertise or authority to make findings 
               with respect to non‐HUD requirements.  
                
               We contend that the City of Spokane and State of Washington Housing Trust Fund were 
               imposing what they thought were HUD mandated procurement requirements, when in  



                                               11
                                                  
Ref to OIG Evaluation                       Auditee Comments

               fact there should have been exclusion in the agreement for CHDOs from this 
               requirement consistent with HUD regulations.  Consequently, to the extent the 
               complaint alleged violation of HUD requirements, it was not valid.  Further, although 
               procurement processes are clearly not required by HUD for CHDOs, the Clare View 
               Seniors project was appropriately bid in an open bid process by Whitewater Creek, Inc., 
               utilizing HUD standards and supervised by the project architect.   
                
               Comment 4. 
                
               Page 4, Conflict of Interest. 
                
               The audit report clarifies that HOME requirements do not require CHDOs to comply with 
Comment 3      procurement and conflict of interest requirements and states that the conflict of 
               interest requirement applies to the participating jurisdiction, not the CHDO.  
               Consequently, the complaint alleging conflict of interest is not valid either.   
                
               Although conflict of interest requirements did not apply to Spokane Housing Ventures, 
               the partnership between Spokane Housing Ventures and Whitewater Creek was in fact 
               disclosed to both the City and the State on numerous occasions throughout the 
               application and closing process.  In addition, third‐party cost estimates for acquisition 
               and construction expenses were provided to the City and State by Spokane Housing 
               Ventures, together with copies of all partnership and co‐developer agreements. 




                                               12
                                                 
                         OIG Evaluation of Auditee Comments


Comment 1   We changed the wording of the report to refer to the three specific issues included
            in the complaint instead of the generalized allegation of mismanagement.

Comment 2   We changed the wording of the report to more clearly state that the circumstances
            described in the complaint were correct but any noncompliance had already been
            corrected.

Comment 3   HOME regulations do not require the CHDO to comply with competitive
            procurement processes and conflict-of-interest requirements. Therefore, we
            rephrased our report to more clearly say that the circumstance existed but did not
            violate HOME requirements.




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