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.
4
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.
9
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.
13
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)