oversight

Intergovernmental Personnel Act Appointment Created an Inherent Conflict of Interest in the Office of Public and Indian Housing

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-01-20.

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

                                                         U.S. DEPARTMENT OF
                                      HOUSING AND URBAN DEVELOPMENT
                                                  OFFICE OF INSPECTOR GENERAL




                                                        January 20, 2015
                                                                                                       MEMORANDUM NO:
                                                                                                            2015-FW-0801

Memorandum
TO:              Nani A. Coloretti
                 Deputy Secretary, SD

                 Michael A. Anderson
                 Chief Human Capital Officer, A

                 Jemine A. Bryon
                 Acting Assistant Secretary for Public and Indian Housing, P

                 //signed//
FROM:            Gerald R. Kirkland
                 Regional Inspector General for Audit, 6AGA

SUBJECT:         Intergovernmental Personnel Act Appointment Created an Inherent Conflict of Interest in
                 the Office of Public and Indian Housing


                                          INTRODUCTION AND OBJECTIVE

Based on a hotline complaint and additional work by our Financial Audit Division and Office of Legal
Counsel, we reviewed whether a conflict of interest existed within the U.S. Department of Housing and
Urban Development (HUD) Office of Public and Indian Housing (PIH). Specifically, former PIH
Assistant Secretary Sandra B. Henriquez appointed Debra Gross, a former lobbyist and the deputy
director of the Council of Large Public Housing Authorities (CLPHA), 1 a housing industry group, to be
responsible for PIH’s Office of Policy, Program and Legislative Initiatives (OPPLI).



1
    The deputy director was appointed under the Intergovernmental Personnel Act. While serving in this capacity, she
    remained an employee of CLPHA.

                                                        Office of Audit (Region 6)
                                         819 Taylor Street, Suite 13A09, Fort Worth, TX 76102
                                               Phone (817) 978-9309, Fax (817) 978-9316
                                   Visit the Office of Inspector General Web site at www.hudoig.gov.
Our objectives related to this portion of a multifaceted assignment were to determine whether HUD
complied with requirements to obtain the services of the deputy director, whether a conflict of interest
existed under this arrangement, and whether HUD took appropriate actions to mitigate the conflict of
interest. 2

                                         METHODOLOGY AND SCOPE

To achieve our review objectives, we interviewed 3 the CLPHA deputy director; current and former
HUD employees, including legal staff; Assistant Secretary Henriquez; general deputy assistant secretary
for PIH Deborah Hernandez; the deputy assistant secretary for the Office of Public Housing and
Voucher Programs; and the associate deputy assistant secretary for Multifamily Housing. We also
reviewed the following information:

    •   Applicable statutory, regulatory, and policy requirements;
    •   Office of Inspector General (OIG) and Government Accountability Office (GAO) audit reports;
    •   Relevant HUD reports, budget requests, and clearance forms;
    •   Vacancy announcements, personnel files, human resource files, ethics disclosure forms, and
        salary and travel payments for pertinent positions and individuals;
    •   Subpoenaed employee and salary information from CLPHA;
    •   Email messages of pertinent HUD employees;
    •   Contents of HUD’s SharePoint site used by PIH’s streamlining committee;
    •   Lobbying reports from the Websites of the U.S. House of Representatives and U.S. Senate;
    •   HUD continuing resolution, appropriation, and apportionment documents for fiscal years 2011
        and 2012 and related Congressional Reports;
    •   Information on public Websites, including HUD, CLPHA, and other public housing industry
        groups;
    •   HUD’s 2013 annual report to the Inspector General on Reducing Improper Payments; and
    •   Reports on Quality Control for Rental Assistance Subsidy Determinations for 2011 and 2012.

Our scope was from October 2010 through July 2014. We performed work in Washington, DC, and
OIG offices in Fort Worth, TX, and Oklahoma City, OK, from July 2013 through September 2014.

                                                    BACKGROUND

Generally, a conflict of interest exists when a person has responsibilities or loyalties to multiple groups
or interests that could conceivably conflict with one another. An inherent conflict of interest exists
when the responsibilities or loyalties of a person are such that the person may need to choose between
competing groups or interests that the person is responsible for representing.

According to its Website, CLPHA “is a national non-profit organization that works to preserve and
improve public and affordable housing through advocacy, research, policy analysis and public
education. CLPHA’s 70 members represent virtually every major metropolitan area in the country.
Together they manage 40 percent of the nation’s public housing program; administer 26 percent of the

2
    We have issued separate correspondence on other objectives related to this assignment.
3
    Special agents from our Office of Investigation, Special Investigations Division, led most of the interviews.

                                                              2
Housing Choice Voucher program; and operate a wide array of other housing programs.” Debra Gross
has served as CLPHA’s deputy director since February 2004.

Sandra B. Henriquez was the Assistant Secretary for PIH from June 2009 through June 2014. Before
coming to HUD, she was the administrator and chief executive officer of the Boston Housing Authority.
She had also been the president of the board of directors at CLPHA from 2005 through 2007. At HUD,
Assistant Secretary Henriquez had the responsibility of managing the operations of PIH, including its
policy-making division, OPPLI.

OPPLI has the lead responsibility for coordinating development of new legislation, regulations, and
policy; program performance measurement; program data collections; and evaluations of programs
administered by PIH. In February 2011, CLPHA’s deputy director, Debra Gross, was appointed to the
deputy assistant secretary (DAS) of OPPLI position under an Intergovernmental Personnel Act (IPA)
agreement. Under the IPA agreement, she remained a CLPHA employee. HUD agreed to reimburse
CLPHA for the full cost of the deputy director’s salary, benefits, bonuses, and cost-of-living salary
increases. She served as HUD’s DAS of OPPLI until February 2014, after which she returned to
CLPHA. 4

According to the Office of Personnel Management (OPM), “the goal of the IPA program is to facilitate
the movement of employees, for short periods of time, when this movement serves a sound public
purpose. Each assignment should be made for purposes which the Federal agency head, or his or her
designee, determines are of mutual concern and benefit to the Federal agency and to the non-Federal
organization. Assignments arranged to meet the personal interests of employees, to circumvent
personnel ceilings, or to avoid unpleasant personnel decisions are contrary to the spirit and intent of the
mobility assignment program.” 5 An individual appointed to a Federal agency under the IPA is deemed a
Federal employee with respect to rights and responsibilities, including the compliance with ethical
requirements. 6


                                            RESULTS OF REVIEW

HUD inappropriately used the IPA to appoint CLPHA’s deputy director as HUD’s DAS of OPPLI. In
doing so, Assistant Secretary Henriquez created an inherent conflict of interest because she placed the
deputy director of an industry group in charge of PIH’s policy-making division, the division responsible
for developing and coordinating the regulations applicable to the entities that CLPHA represents.
HUD’s lack of oversight in the IPA agreement process allowed this inherent conflict of interest to occur
without prior ethical review by HUD’s Office of General Counsel (OGC). Additionally, HUD did not
obtain required financial disclosure reports from the deputy director, 7 failed to provide the deputy
director with required ethics training, and allowed her to hire permanent HUD employees. In her HUD
policy-making role, it appeared that the deputy director championed the public housing industry’s
regulation relief agenda at HUD while retaining her job at CLPHA. Also, apparent lobbying efforts by
CLPHA and other housing industry groups during this period complicated the matter. Due to the
4
    To avoid confusion, Debra Gross will be referred to as deputy director throughout this memorandum.
5
    OPM Web site: http://www.opm.gov/policy-data-oversight/hiring-authorities/intergovernment-personnel-
    act/#url=Provisions.
6
    5 U.S.C. § 3374. This excludes Federal retirement and life and health insurance benefits.
7
    HUD also failed to obtain the required reports from other people serving under IPA agreements.

                                                          3
 inherent conflict of interest and HUD’s failure to recognize and mitigate it, HUD cannot know whether
 the policy decisions enacted during the deputy director’s tenure were inappropriately influenced or in the
 best interest of HUD and all of its stakeholders.

 Appointment of Deputy Director under the IPA

 Contrary to the spirit and intent of the IPA mobility program, the Assistant Secretary used the program
 to appoint CLPHA’s deputy director to a DAS position at her existing salary and benefits. On October
 24, 2010, the deputy director applied for the HUD-advertised GS-15 8 DAS of OPPLI position. As
 shown in table 1, on November 5, 2010, she was deemed ineligible because of her failure to submit
 required documentation with her application. Subsequently, she was deemed eligible after PIH staff got
 involved and emailed human resources on November 10, 2010, asking to reissue and amend the
 certificate of eligibles to include the deputy director. Despite being eligible for the position, HUD did
 not select her or anyone else for the position and rated the quality of applicants as low with a score of
 two out of five. In February 2011, HUD appointed the deputy director to the DAS of OPPLI position
 using an IPA agreement. Both the Assistant Secretary and general deputy assistant secretary confirmed
 that they used the IPA so that the deputy director would receive a higher salary and retain benefits offered
 by CLPHA. In multiple email messages, the Assistant Secretary expressed excitement about the deputy
 director taking the position and being able to work together. In summary, rather than competitively hire
 a permanent HUD employee to fill this position, the Assistant Secretary chose to appoint CLPHA’s
 deputy director at a significantly higher salary and benefits to temporarily fill the position. This seems to
 directly contradict OPM’s advice about not arranging IPA assignments to meet the personal interests of an
 employee. Table 1 shows a timeline of events of the deputy director’s application and the IPA process.

Table 1: Timeline of CLPHA’s Deputy Director’s Application and IPA Process
        Date                                               Description
October 6, 2010       • CLPHA’s deputy director emailed Assistant Secretary Henriquez about the
                         deputy director’s efforts to obtain her personnel records.
                      • The Assistant Secretary forwarded the deputy director’s email to staff in the
                         PIH Office of Planning, Resource Management and Administrative Services
                         (OPRMAS).
                      • OPRMAS forwarded the message to HUD human resources who then contacted
                         the National Personnel Records Center (NPRC) to obtain a record on the deputy
                         director’s behalf.
October 7, 2010       NPRC faxed the required record of the deputy director to HUD.
October 15, 2010      DAS of OPPLI job announcement opened.
October 24, 2010      CLPHA’s deputy director applied for OPPLI position advertised.
October 29, 2010      DAS of OPPLI job announcement closed.
November 5, 2010 Applicant rating sheet indicated the deputy director was ineligible as a non-status
                      applicant. This was because the deputy director did not submit the required
                      documentation with her application.

 8
     The GS classification and pay system covers the majority of civilian white-collar Federal employees (about 1.5 million
     worldwide) in professional, technical, administrative, and clerical positions. GS classification standards, qualifications,
     pay structure, and related human resources policies (e.g., general staffing and pay administration policies) are
     administered by the U.S. Office of Personnel Management on a government wide basis. The GS has 15 grades, with GS-
     15 being the highest.

                                                               4
November 8, 2010  Certificate of eligibles did not include the deputy director because the employee
                  reviewing the applications did not have the record obtained from NPRC on October
                  7, 2010.
November 10, 2010 OPRMAS emailed HUD human resources asking to reissue and amend the
                  certificate of eligibles to include the deputy director because HUD staff had
                  obtained the necessary documentation on her behalf and provided it to human
                  resources. The employee complied with the request and reissued the certificate to
                  include the deputy director.
November 22, 2010 The deputy director emailed the Assistant Secretary about IPA agreement
                  guidelines concerning the negotiation of a cost sharing arrangement on salary
                  between HUD and CLPHA.
December 1, 2010  CLPHA’s deputy director emailed the Assistant Secretary about CLPHA’s director
                  having unspecified conflict of interest concerns 9 related to the IPA process.
December 17, 2010 The general deputy assistant secretary did not select anyone from the certificate of
                  eligibles. She did not provide a specific reason for not selecting from the certificate
                  of eligibles. In the attached survey, she rated the quality of applicants as 2 out of 5.
February 28, 2011 CLPHA’s deputy director appointed as the DAS of OPPLI under an IPA agreement.

 OPM guidelines stated the reimbursement for an individual under an IPA agreement was to be through a
 cost sharing negotiation between the participating organizations. There appeared to be no cost sharing
 of the deputy director’s salary under the IPA agreement because HUD agreed to pay her full salary and
 benefits. 10 Further, HUD did not have documentation to show it negotiated the deputy director’s cost of
 living increases and bonuses. HUD agreed to reimburse CLPHA approximately $40,000 more in salary
 costs than it would have paid if it had hired the deputy director under the vacancy announcement at the
 maximum GS-15 salary of $155,500. It appears that the Assistant Secretary used the IPA to circumvent
 GS salary limitations to accommodate the deputy director’s higher salary.

 According to Assistant Secretary Henriquez, she and the CLPHA director verbally discussed the deputy
 director’s performance and negotiated the cost of living increases 11 and bonuses for the deputy director.
 Neither CLPHA nor HUD had documentation of the deputy director’s performance while serving as the
 DAS of OPPLI. Nonetheless, CLPHA awarded her two bonuses, of which HUD reimbursed one. 12 The
 results of these negotiations, performance evaluations, and support for bonuses and cost of living
 increases should have been documented. At a minimum, because individuals under IPA agreements
 have the same rights and responsibilities as Federal employees, HUD needed to review the deputy
 director’s performance in accordance with law, regulation, and its Performance Management Plan. 13
 CLPHA awarded her bonuses and cost of living increases during her period at HUD without any


 9
      The addendum to the agreement stipulated that the deputy director would be subject to the conflict of interest restrictions
      applicable to HUD employees during the assignment and upon separation from HUD.
 10
      For another individual under an IPA agreement, PIH’s reimbursement did not exceed the maximum GS-15 salary plus
      benefits, even though the individual received a significantly higher salary from his organization. PIH signed both
      agreements on the same day.
 11
      During this period of time, Federal employees did not receive a cost of living increase.
 12
      Based on a review of invoices and payments, CLPHA only billed, and HUD only reimbursed CLPHA for one of the two
      $5,000 bonuses and 2 percent cost of living increases that it awarded the deputy director.
 13
      5 U.S.C § 3374, 5CFR § 430.205(b), HUD Handbook 430.1 REV effective November 2013, and predecessor
      Performance Management Plan

                                                                5
documentation, such as performance reviews. HUD has since drafted a new policy regarding IPA
agreements, which included a section requiring performance reviews of such individuals.

HUD Created an Inherent Conflict of Interest

Assistant Secretary Henriquez created an inherent conflict of interest by appointing CLPHA’s deputy
director to a policy-making role in PIH. To maintain her position at CLPHA, the potential existed for
the deputy director to champion CLPHA’s regulation relief agenda within HUD. The Assistant
Secretary stated she chose the deputy director to head OPPLI to “shake it up.” She wanted someone in
that position who would regulate public housing with more emphasis on real estate rather than tenants.
She stated she wanted to lessen HUD’s burdensome regulations imposed on PHAs. While industry
groups, such as CLPHA, share some similar objectives with HUD, HUD has unique objectives and
responsibilities that at times conflict with industry groups. For example, HUD is responsible for
regulating, monitoring, and evaluating those entities that the industry groups represent. HUD created
this inherent conflict of interest by placing an industry group employee in charge of policy development
and legislative initiatives, or stated differently, HUD appointed someone who represents the regulated to
be in charge of developing the regulations. While CLPHA is only accountable to its members and
sponsors, HUD must solicit and consider input from all stakeholders in developing policy, programs,
and legislative initiatives. 14 Review of email correspondence indicated that industry groups representing
the interests of public housing agencies (PHAs) and their executives had greater access to HUD and
undue influence over OPPLI, its policy-making department. HUD should not favor or appear to favor
one stakeholder over others or compromise the achievement of its monitoring and evaluating objectives.

The deputy director’s financial interests in CLPHA contributed to the inherent conflict of interest. Since
the deputy director retained her CLPHA job and was expected to return to CLPHA, matters dealing with
CLPHA or the PHAs it represents may have had a direct impact on the deputy director’s financial
interests. After leaving HUD in February 2014, the deputy director returned to CLPHA as its deputy
director. It did not appear that HUD or the deputy director took any action to mitigate the appearance of
a conflict of interest.

According to the DAS position description, the deputy director was supposed to provide advice and
assistance to the Assistant Secretary on overall policy, legislation, program development, and
evaluation. This included working with HUD OGC in recommending PIH legislative proposals and
coordinating and expediting PIH program regulations. Considering the inherent conflict of interest, it is
questionable whether the input she provided would ensure HUD maintained the necessary oversight
controls to protect its interests while serving the needs of all PHAs, their residents, and communities.

Despite her acknowledgement of conflict of interest rules, 15 the deputy director failed to recuse herself
from dealings with her employer. Following her move to HUD, the deputy director continued direct
communications with colleagues from CLPHA regarding industry matters. CLPHA’s director continued
to include the deputy director as a blind courtesy copy recipient in correspondence to HUD executives
and others. For example, the deputy director was blind courtesy copied on CLPHA correspondence

14
     Stakeholders include residents, landlords, Congress, State and local governments, and citizens.
15
     The IPA agreement the deputy director signed stated that “Applicable Federal, State or local conflict-of-interest laws
     have been reviewed with the employee to assure that conflict-of-interest situations do not inadvertently arise during this
     assignment.”

                                                               6
addressed to then HUD Secretary Donovan on September 14, 2011, regarding support for the rental
assistance demonstration program, and in correspondence to the Assistant Secretary on March 12, 2012,
regarding CLPHA’s concerns with two public housing notices. Further, approximately 2 months after
her HUD appointment, the deputy director had the following conversation with a CLPHA employee she
later hired at HUD:




Additional communications included a CLPHA employee providing the deputy director with community
service guidance, which was later championed by a PIH committee focused on regulation relief. The
deputy director and the same CLPHA employee discussed operating subsidies for PHAs with excess
reserves. These dealings demonstrate that at least some CLPHA officials believed that it was
appropriate for the deputy director to continue to be involved in CLPHA affairs as they related to HUD
business.

The Deputy Director May Not Have Appeared to be Impartial

Another aspect of the inherent conflict of interest was the potential favoritism towards industry groups
and the HUD employees that shared their agenda to the detriment of other stakeholders and the HUD
employees that had different views or perspectives. Under government ethics rules, 16 the deputy
director was required to consider whether her impartiality would be questioned whenever her
involvement in a “particular matter involving specific parties” might affect certain personal or business
relationships. 17 HUD provided no evidence that the deputy director ever considered this part of her
ethical obligations.

With the deputy director maintaining her job at CLPHA while at HUD, it is questionable how she would
remain impartial because of the dual roles she held, especially given the evidence that suggests she was
not impartial. The deputy director attempted to change established regulations through notices versus

16
     5 CFR § 2635.101 (b)(14)
17
     5 CFR § 2635.502

                                                    7
established methods of regulatory change, such as through the Federal Register. She also asked staff
whether PIH could bypass the role of HUD OIG in the departmental clearance process. The deputy
director attempted to deregulate PHA reporting requirements and loosen HUD’s oversight of PIH
programs, which aligned with CLPHA’s and other similar industry groups’ agenda. The deputy director
established and headed a streamlining committee to provide PHAs with “regulation relief.” The deputy
director hired two industry employees who actively participated and assisted her in the streamlining
committee. The deputy director’s actions showed her interests may have remained with her employer
and similar-minded industry groups and therefore it is questionable if her policy advice protected HUD.
Further, as described below, some of her policy change efforts would have complicated HUD’s ability to
meet its responsibilities for monitoring, evaluating, and reporting on program performance.

Financial Disclosure Forms

In addition to having no performance evaluations, the deputy director did not file financial disclosure
forms in a timely manner during her tenure at HUD. Under government ethics rules, the deputy director
had an obligation to complete and file public financial disclosure forms while serving as an IPA
appointee. Failure to accurately do so could have subjected her to civil and criminal penalties. 18 HUD
OGC, which is responsible for reviewing the financial disclosure forms, did not question the absence of
the deputy director’s forms until OIG inquired about it as part of this review. After our February 2013
inquiry, HUD OGC notified the deputy director of her requirement to file U.S. Office of Government
Ethics (OGE) Form 278, Public Financial Disclosure Report on March 29, 2013. OGC granted her a
filing extension until May 21, 2013, more than 2 years after it was due. Table 2 shows the periods she
was required to file, the due dates, dates she filed, and the date OGC completed its review.

     Table 2: OGE Form 278, Public Financial Disclosure Reports of CLPHA’s deputy director
         Period covered      Filing due date          Date of filing   Date of OGC review
      New entrant         March 30, 2011          May 20, 2013         August 8, 2013
      2011 annual report  May 15, 2012            July 30, 2013        August 8, 2013
      2012 annual report  May 15, 2013            July 30, 2013        August 8, 2013
      Termination report  March 12, 2014          Not filed            N/A

The deputy director was also required to attend annual ethics training but did not. The deputy director’s
failure to file OGE Forms 278 in a timely manner subjected her to potential fines and disciplinary
actions. 19

In February 2014, just before she left HUD to return to CLPHA, HUD OGC gave the deputy director
post government employment advice restricting her contact with HUD. A month later, 20 HUD OGC
concluded, contrary to its previous advice, that the deputy director was not required to file an OGE Form




18
     5 CFR § 2634.701, Failure to file or falsifying reports
19
     In August 2013, OGC waived the late penalties associated with her filings. There was no disciplinary action taken.
20
     March 18, 2014

                                                              8
278. 21 Therefore, the deputy director did not file a termination report. In responding to a draft of this
memorandum, HUD wrote that it now believed the deputy director should have filed OGE Form 450,
Confidential Financial Disclosure Form, because of the GS-15 DAS position that she occupied.

It seems OGC correctly required CLPHA’s deputy director to file the OGE Form 278 based on the level
of her compensation. 22 Due to the uniqueness of this IPA agreement in which the deputy director
occupied a position that would normally require the employee to file OGE Form 450 but was
compensated at a level that would require her to file OGE Form 278, HUD should seek an opinion from
OGE concerning which financial disclosure forms the deputy director was required to file, if any.
Further, HUD needs to ensure that it has a process to evaluate suitability and compliance with
requirements when making appointments under the IPA.

OGC Failed to Ensure Others under IPA Agreements Filed Financial Disclosure Forms

The deputy director’s failure to file financial disclosure forms was not an isolated occurrence. HUD
provided a list of 16 people 23 assigned to HUD under IPA agreements for fiscal years 2011 through
2013. Only 3 of the 16 (19 percent), which included the deputy director who only filed after we
inquired, filed the required financial disclosure reports. By delaying the identification and possible
mitigation of financial conflicts of interest or prohibited sources of investments or income, HUD put
itself and the employees in a vulnerable position. HUD attempted to address this issue when then HUD
Deputy Secretary Maurice Jones issued letters on January 22, 2014, requiring OGC review of temporary
assignments of non-Federal employees. While HUD has developed draft procedures to ensure
individuals under IPA agreements do not have any conflicts of interest, it needs to ensure that it
implements those draft procedures, starting with current individuals under an IPA agreement.

CLPHA’s Deputy Director Provided Preferential Hiring Treatment to Two Industry Insiders

During the deputy director’s tenure at HUD, she inappropriately hired two permanent HUD employees
with industry ties. The deputy director was the selecting official for a vacancy announcement for
multiple GS-14 program analyst positions in OPPLI. In one particular hire, she selected an individual
who previously worked for an industry group but was currently working as a HUD consultant. This
individual solicited for the position and helped tailor the vacancy announcement to fit her resume. In a
second hire, rather than recuse herself from the process, the deputy director also selected an individual
who worked for her at CLPHA. According to interviews with the two employees, the deputy director
did not interview them for their position. 24 Table 3 describes key communications between the deputy
director and the consultant concerning the vacancy.




21
     Pursuant to the Ethics in Government Act, those in positions which are classified above GS-15 under the General
     Schedule; those in positions outside the General Schedule, for which the rate of basic pay is equal to or greater than
     120% of the minimum rate of basic pay payable for GS-15; and those in any other position determined by the Director of
     OGE to be of equal classification are required to file Public Financial Disclosure Forms. OGC did not take into
     consideration the deputy director’s compensation when reaching this determination.
22
     5 CFR § 2634.202, Public filer defined
23
     HUD’s Office of the Chief Human Capital Officer prepared the listing of individuals under an IPA agreement.
24
     Under a separate job announcement for permanent Federal employees, the deputy director promoted a third individual.

                                                             9
     Table 3: Collaborations and Events of Hiring the Consultant
               Date                                           Event
      March 12, 2011        Consultant requested a “chat” with the deputy director regarding
                            working for her and asked that it be kept between them.
      May 19, 2011          Consultant provided the deputy director with a proposed job description
                            for herself and expressed concern about a reduction in force at HUD.
      June 21, 2011         The deputy director provided the consultant with a draft copy of a
                            vacancy announcement for the program analyst position and asked,
                            “Can you look this over and see if the skills and other stuff is aligned
                            for you – I have zippo experience in this area so we can noodle through
                            it together.” This draft copy contained the same key requirements,
                            duties, and knowledge, skills and abilities requirements as the published
                            vacancy announcement.
      July 5, 2011          Email correspondence between consultant and the deputy director
                            regarding updates on the vacancy announcement and forwarded
                            discussions between the deputy director and human resources staff
                            regarding the vacancy.
      July 11-15, 2011      Program analyst vacancy announcement open period.
      July 20, 2011         Consultant initiated action to move her workplace to PIH.
      July 28, 2011         Consultant asked whether she should attend OPPLI staff meetings. The
                            deputy director responded, “Not yet—we have some sensitivities and I
                            am trying to get status changes for some staff-meanwhile I need to do
                            everything by the book.”
      August 1, 2011        Qualified program analyst applicants were available for selection.
      August 3, 2011        The deputy director selected the consultant and her CLPHA employee
                            for the program analyst positions.
      September 12, 2011    Consultant and former CLPHA employee reported for duty.
      September 12, 2011    Consultant emailed the deputy director that her title was program
                            analyst but she would prefer to be the deputy director’s special
                            assistant, if possible. The deputy director responded, “I trie dhtat [sic] -
                            - that was my first choice, but was not allowed-according to______ --
                            hang in and we should talk with ______ —ok?”
      September 16, 2013    In a later email between the deputy director and the former CLPHA
                            employee that she selected as a program analyst, the deputy director
                            wrote, “When we hired you we had good advice from ______ who…
                            knows the process and advised that we write the ad and tailor it to [the
                            consultant]'s resume-very narrow with little room for others. But you
                            had parallel experience. It was smart. Not the ___ job-i guess ____
                            had help from the cap office I have not seen the ad-who knows-????”

Although hired for a position in OPPLI, the former CLPHA employee never physically worked there.
The deputy director was concerned how it would look if the former CLPHA employee worked directly
for her at HUD. 25 Therefore, the deputy director arranged for the former CLPHA employee to work in a
different department than the one in which she hired him, while showing that he worked in OPPLI on

25
     The former CLPHA employee said he had a personal relationship with the deputy director.

                                                           10
paper. After more than 6 months, he was officially reassigned to the Office of Public Housing and
Voucher Programs, where he had purportedly been working since he started his employment at HUD.
While physically located in the other department, he worked closely with the deputy director on policy
matters. As discussed later, he actively participated on a committee focused on regulation relief and
other policy-change initiatives that the deputy director appeared to have led. Further, OPPLI staff
members reported the deputy director eliminated them from projects if they disagreed with her or the
former CLPHA employee’s opinion.

The IPA requirements did not expressly prohibit the deputy director from hiring permanent HUD staff.
However, according to an OPM staff member, “…the ability to engage in hiring and staffing decisions
on behalf of a Federal agency is outside of the scope and intent of the IPA mobility program.”
Additionally, the deputy director may have also committed a prohibited personnel practice by pre-
selecting and hiring two individuals. Federal law 26 prohibits an official from giving an unauthorized
preference or advantage to anyone so as to improve or injure the employment prospects of any particular
employee or applicant. HUD should establish and implement a policy prohibiting individuals under an
IPA agreement from selecting permanent HUD staff. Further, HUD needs to develop and implement
policies and procedures to ensure that its employees occupy the positions for which they are hired to
prevent the manipulation of the hiring process or possibly causing Antideficiency Act violations. 27

Streamlining PIH Regulations

Under the auspices of “regulation relief” and with the support of the Assistant Secretary, the deputy
director established a streamlining committee to lead efforts to streamline PIH regulations. Both
employees that the deputy director hired served on this committee, 28 which evaluated suggestions from
PHAs and industry groups for reducing the perceived administrative burdens of program delivery. Both
CLPHA and other similar industry groups requested relief from regulatory requirements, including
suspending program reporting and evaluation activities and simplifying income verification. The
committee worked to determine which requests for “regulation relief” HUD could implement and
whether they would require regulatory or legislative changes. The deputy director and her committee
met weekly to discuss regulatory relief issues. The committee routinely contacted outside groups such
as CLPHA and other similar industry groups for input. Conversely, the previous DAS of OPPLI stated
she would not consult with industry groups on programmatic matters. Based upon the inherent conflict
of interest, the deputy director should not have been put into a position to influence regulation relief
attempts such as for verification of income, decreasing the use of the Enterprise Income Verification
(EIV) system, and increasing the amount of asset management fees PHAs charged. HUD needs to
independently review any rules or regulations implemented or in progress for implementation involving
the deputy director that positively impacted these industry groups to determine whether these rules and
regulations protect HUD’s interests and responsibilities.




26
     5 U.S.C. § 2302(b)(6)
27
     We issued audit memorandum 2014-FW-0801 entitled “Potential Antideficiency Act Violations - Intergovernmental
     Personnel Act Agreements” that involved another individual under an IPA agreement for whom HUD reimbursed salary
     expenditures from funds that were potentially for a position the individual did not occupy.
28
     The former HUD consultant served as the SharePoint administrator for the committee.

                                                         11
Enterprise Income Verification

The deputy director and the former CLPHA employee led the effort to remove or weaken some
requirements that HUD cited as reducing improper payments. Most notably, HUD required PHAs to use
its EIV system, which electronically matched tenant-reported income against income information
provided by third parties. 29 The regulation relief the deputy director championed on industry’s behalf
included diminished EIV report use and less frequent reexaminations for tenants on fixed incomes.
Unlike the well-documented decline in improper payments because of mandated EIV use, 30 industry
opinions about this burden and its related costs remained unsubstantiated. HUD provided no evidence
that reducing requirements would cause significant cost savings by reducing staffing, overtime, space
requirements, etc. commensurate with the significant benefits of these controls.

In July 2013, OPPLI circulated two draft notices through the departmental clearance process containing
proposed policy changes for (1) verification of income and (2) the use of EIV. Both draft notices were
intended to update and supersede PIH’s original implementing guidance on the required use of the EIV
system. 31 The draft notices contained provisions that conflicted with regulations.

The proposed notice regarding verification of income conflicted with HUD regulations that required
PHAs to request the employer or other income source to furnish the information when income
information in EIV differed substantially32 from what the tenant provided. 33 PIH staff, including the
former CLPHA employee, argued it was difficult for PHAs to obtain third party verification of income
from employers. Contradicting these assertions, the contractor that performed HUD’s annual study of
rent determinations reported an 84-85 percent return rate from employers from 2010 to 2012. Further,
HUD’s Office of Multifamily Housing commented that it disagreed with PIH’s contention that tenant-
provided documents were third-party documents because they were not provided by a third party.
Multifamily Housing also wrote that the rule change would undermine the effectiveness of EIV and
have the potential to increase the improper payment rate. In its role of commenting on proposed HUD
rules, OIG objected to the notice on similar grounds and commented that the new notices excluded
important language from the original guidance.

29
     In 1994, GAO designated HUD as high-risk because of fundamental management and organizational problems that put
     billions of dollars at risk. In 2001, it narrowed the high-risk designation to HUD’s single-family mortgage insurance and
     rental housing assistance programs. GAO cited four reasons why it removed HUD’s rental assistance programs from its
     High-Risk Series in 2007, including HUD’s progress in reducing improper payments and its implementation of EIV. In
     a January 31, 2007 press release celebrating its removal from GAO’s high-risk list, HUD credited improved guidance,
     training, and automated systems support along with the development and implementation of EIV with a 60 percent
     decline in improper payments between 2001 and 2005. With the full implementation and use of EIV, HUD predicted the
     further reduction of improper payments. GAO cautioned against proposed legislative changes that could complicate
     HUD’s oversight efforts by eliminating the uniformity of its current programs.
30
     In March 2013, HUD’s Deputy Chief Financial Officer’s annual report to the Inspector General on reducing improper
     payments credited the increased availability and use of the EIV system with having a direct correlation to the reduction
     of improper payments associated with income reporting errors. In addition to the GAO report mentioned above, HUD’s
     contractor that performed its 2011 and 2012 study of rent determinations and estimates of improper payments concluded
     that mandatory use of the EIV system and related HUD monitoring helped decrease improper payments. In a
     memorandum attached to the annual report to the Inspector General, the Assistant Secretary proposed suspending the
     annual study.
31
     Notice PIH 2010-19 (HA), Administrative Guidance for Effective and Mandated Use of the Enterprise Income
     Verification (EIV) System, issued May 17, 2010
32
     HUD defined a substantial difference as $200 or more per month or $2,400 annually.
33
     24 CFR § 5.236(b)(3)

                                                             12
In the draft notice on the use of EIV, under the deputy director’s supervision, PIH attempted to eliminate
the requirements that PHAs review income verification reports in some instances. Further, it weakened
the requirement that PHAs with interim reexamination policies monitor the income discrepancy report
on a quarterly basis to a mere recommendation. Again, in its role of commenting on proposed HUD
rules, OIG objected to the draft notice because the changes would delay the identification of
overpayments and reduce the ability of PHAs to recapture overpaid funds.

The draft notices proposed by the deputy director’s office on income verification and EIV would have
weakened the effectiveness of EIV as a tool to proactively identify underreported income and prevent
subsidy overpayments. Although these draft notices promoted policies that would lessen PHAs’ reliance
on EIV, PIH published temporary provisions, as discussed below, that would have allowed PHAs to rely
solely on participants’ past income as documented in EIV for calculating household income. These
policies would have had the combined effect of allowing PHAs to be selective about using EIV as it
suited PHAs’ desires to reduce perceived administrative burden, rather than as a tool to prevent and
detect fraud. The deputy director’s actions illustrate an interest in adopting rules that were favorable to
industry while decreasing HUD’s controls to prevent, detect, and collect improper payments in its rental
assistance programs and resulted in disagreement with other HUD components.

Streamlining Initiative to Increase Asset Management Fees

A June 2014 HUD OIG report 34 recommended that HUD remove the provision that allowed PHAs to
charge asset management fees. The report concluded that the fees did not serve any purpose other than
to allow a PHA to de-federalize 35 additional funds from its projects to retain as profit in its central office
cost center (COCC). A review of emails showed, as part of the administrative streamlining initiative,
the former CLPHA employee pursued discussions in late 2012 with HUD public housing officials to
explore various fees in the public housing program. He cited HUD’s failure to make changes based on
the Public Housing Authorities Directors Association’s (PHADA) 36 comments regarding the
implementation of asset management. In an email, the former CLPHA employee presented PHADA’s
various arguments and requested that the HUD officials answer related questions. For example, the
former CLPHA employee wrote to the PIH financial management division director, “PHADA suggests
that there is no basis for the $10 [per unit month] amount HUD determined was an appropriate asset
management fee. Further, PHADA suggests that given the scope of activities that asset managers
complete, the fee should be in the range of $20 or more per month similar to the amount paid to contract
administrators.”

The HUD OIG report determined that HUD had not provided an explanation or methodology in
describing how it arrived at its asset management fee rate of $10 and the basis for allowing the fee.
Additionally, it reported that, on average, approximately $81.6 million in asset management fees were
de-federalized annually by PHAs nationwide. The report recommended that HUD re-federalize these
fees, thereby making the expenditure of these funds subject to HUD regulation and requirements.

34
     Audit report 2014-LA-0004, Public Housing Operating and Capital Fund Program Central Office Cost Center Fees,
     issued on June 30, 2014.
35
     Reasonable fees earned, including those derived from Federal funds, are treated as local revenue subject only to the
     controls and limitations imposed by State and local requirements, as applicable.
36
     CLPHA and PHADA often worked in collaboration and with similar industry groups to affect HUD policy.

                                                              13
Executive Director Salaries

After Congress enacted legislation 37 to limit salaries for PHA staff, PHADA requested that the HUD
Secretary use PHADA’s interpretations for implementation of the law. PHADA provided the Secretary
with a four-page letter, suggesting various ways that HUD could interpret the mandate. Suggested
interpretations included:

     •   COCC funds were not subject to the Congressional mandate.
     •   Salaries paid by PHAs during their 2013 fiscal year were not subject to the limitation; it also
         suggested dates through which the limitation did not apply and that “An annual salary based on
         salary of $155,000 from March 17, 2012 through December 31, 2012 is approximately
         $196,000.”
     •   The language limited salary rather than compensation.
     •   HUD should consider adjustments to accommodate cost of living differences between
         communities.

Many of these suggestions appeared to be strategies to circumvent the law rather than properly
implement it. Internal emails showed HUD staff members were in the process of considering similar
implementation strategies, which would primarily benefit highly compensated PHA officials. Excessive
executive director salaries had been a national issue. After negative news reports about the Tampa
Housing Authority, the Assistant Secretary wrote the following email to executives at CLPHA, PHADA,
and National Association of Housing and Redevelopment Officials (NAHRO):




Failure to establish an objective fee schedule could create a windfall to PHAs by de-federalizing HUD
funds. Once funds are de-federalized, HUD oversight is lost and PHAs are in a position to use the funds
as they wish. PHAs could use the funds to improve programs and housing stock for tenants or
alternatively, spend the funds circumventing HUD limits, such as increasing compensation for
executives beyond Congressional limits and lobbying.




37
     Public Law 112-55, Section 234(a)

                                                    14
PIH Modified Regulations Without Following Public Notice and Comment Requirements

Rulemaking, the Departmental process for considering and formulating the issuance, modification, or
repeal of a rule or regulation, required HUD to undertake public notice and comment procedures in
accordance with public law and its regulations. 38 PIH issued Notice PIH 2013-03 (HA): Public Housing
and Housing Choice Voucher Programs – Temporary Compliance Assistance, on January 22, 2013.
This notice contained temporary provisions that any PHA could selectively adopt in fulfilling certain
program requirements during a period of decreased resources (i.e., sequestration). The provisions were
to be available through March 2014. In November 2013, however, PIH published another notice to
make the alternative regulatory provisions available for another year, through March 2015. Based on
the evidence, HUD inappropriately modified regulatory requirements in the notice rather than undertake
formal rulemaking to enact a regulatory modification. In fact, the notice itself disclosed that HUD
intended to pursue more permanent changes, thereby acknowledging that it intended to permanently
modify the regulations.

One of the temporary provisions included in the notice was to allow PHAs to choose to calculate a
participant’s annual income using either anticipated future income or actual past income. Existing
regulations required PHAs to calculate participant income using anticipated future income. Several
years before PIH issued this notice, PIH had submitted the same topic of annual income calculation
through a Federal Register notice and received public comments on the proposed rule. PIH withdrew
the topic after several implementation delays and wrote, “[s]hould HUD determine that additional
rulemaking on the subject of annual income is necessary or appropriate, HUD will provide the public
with the opportunity to comment on any proposed changes to the regulations.” 39 Since PIH provided a
choice for all PHAs to select from regarding annual income calculation (i.e. a modification to the
regulation) and referenced the topic as rulemaking in the past, it would seem appropriate to address the
topic as rulemaking and follow the appropriate procedures in the future.

The notice required PHAs to follow specific procedures that included informing HUD staff via email if
they elected to adopt any provisions described in the notice. HUD maintained that the process
established in the notice constituted case-by-case waivers for PHAs that adopted the measures, not
rulemaking subject to public notice and comment. However, HUD did not publish the individual
waivers in the Federal Register; it published only a summary outlining the provisions of the notice. 40 In
the Federal Register notice, HUD wrote that the PIH “notice involved offering PHAs the option to
comply with certain alternative requirements to existing regulations, and if they opted to do so the
existing regulation would be waived.” However, the notice itself did not assert that the modified rules
would be considered waivers. It was not until HUD published the information in the Federal Register 8
months later that it disclosed that it regarded the modified rules as waivers. According to HUD OGC,
HUD had previously used this method of granting waivers in situations such as disasters in which only a
specific subset of PHAs was affected. However, in this situation, the alternative requirements were

38
     24 CFR § 10
39
     Refinement of Income and Rent Determination Requirements in Public and Assisted Housing Programs: Implementation
     of Enterprise Income Verification, 74 FR 52934, October 15, 2009
40
     HUD published a notice of regulatory waiver in the Federal Register on September 16, 2013, outlining the temporary
     provisions in Notice PIH 2013-03, granted January 22, 2013. However, HUD did not file the notice when required, and
     it did not identify the agencies for which it granted the waivers. The Federal Register notice stated the provisions were
     temporary and were available during the current and upcoming fiscal year (September 2014). However, Notice 2013-03
     had an expiration date of March 31, 2014, and HUD later extended it through March 2015.

                                                              15
available to any PHAs that chose the alternative without regard to circumstances. Through this notice,
HUD essentially modified regulatory requirements for all PHAs, yet claimed it granted individual
waivers only to agencies that formally adopted them. If these were truly individual waivers, then HUD
should publish the individual waivers in the Federal Register.

In addition to circumventing public notice and comment in rulemaking, such a piecemeal approach to
policy-making could have the effect of complicating HUD’s compliance monitoring and reporting
activities because different PHAs will have adopted different measures for temporary periods of time.
HUD would therefore be forced to identify and apply inconsistent program rules among PHAs as it
evaluates and reports their performance.

Documentation showed PIH sought and considered input from prominent industry groups on the
“FAQs” it posted as implementation guidance for the notice. In an internal email message dated
August 8, 2013, the director of the Public Housing Management and Occupancy division wrote that
“[t]hese provisions were all requested by PHAs, and as such, the notice has been well received by
PHAs.” Contrary to that assertion, in April 2013, shortly after PIH issued the notice, NAHRO’s Chief
Executive Officer 41 wrote to then HUD’s Deputy Secretary Jones, “NAHRO appreciated the
Department’s attempt to provide relief through the issuance of PIH Notice 2013-3. Unfortunately, the
notice in some cases imposes administrative burdens that are more onerous than those that already exist
under existing regulation, making it difficult for PHAs to utilize what would otherwise be useful
flexibilities. We recommend that PIH Notice 2013-3 and its related FAQs be rescinded, revised, and
reissued.” Further, the deputy director approached OGC with the idea for this arrangement, and the
Assistant Secretary signed the PIH notice. HUD should not use a PIH notice to provide “regulatory
relief” to PHAs as it works internally to modify regulations to further the relief agendas of the industry
groups.

PIH staff attempted to add a provision to allow PHAs to accept a tenant’s self-certification that they met
the community service requirements into the extension notice for PIH Notice 2013-03. In another
example of pursuing the industry’s agenda, the former CLPHA employee continued to argue with OGC
on the issue, despite OGC’s objections and legal citations for why PIH could not waive the statutory
requirement through a PIH notice. OGC advised that the statute would permit PIH’s proposed policy if
the regulations were amended, but as proposed, it conflicted with the regulations. HUD should refrain
from modifying program regulations via PIH Notice, and instead follow required rulemaking
procedures.

CLPHA Had Been a Registered Lobbying Organization

Until it terminated its registration in September 2009, CLPHA was a registered lobbying organization
under the Lobbying Disclosure Act and filed the required disclosure reports. Both the deputy director
and the former CLPHA employee the deputy director hired had been registered lobbyists employed by
CLPHA before it terminated its registration. In interviews, they both stated their duties and
responsibilities did not change after CLPHA terminated its registration in 2009. 42



41
     Saul N. Ramirez, Jr. had previously served as HUD Deputy Secretary.
42
     The deputy director stated she did not ever consider herself a lobbyist.

                                                               16
The Lobbying Disclosure Act 43 defined lobbying contact (in part) as any communication to a covered
executive or legislative branch official made on behalf of a client regarding Federal legislation
(including legislative proposals), Federal rules, regulations, Executive Orders, or any other program,
policy, or position of the United States Government, or Federal programs or policies. The Act required
lobbyists or their employers to register and file quarterly reports on their lobbying activities with the
Secretary of the Senate and the Clerk of the House of Representatives. The quarterly reports must list
the specific issues upon which the lobbyist engaged in lobbying activities, identify the Houses of
Congress and the Federal agencies contacted, list the employees who acted as lobbyists, and provide a
good faith estimate of the total expenses that the registrant and its employees incurred in connection
with lobbying activities during the quarterly period.

CLPHA terminated its registration as a lobbying organization in September 2009. However, as
illustrated in table 4, its ongoing contacts with HUD and Congressional personnel on policy and
legislative matters demonstrated it continued to serve its members’ interests by lobbying both HUD and
the Congress on PIH matters.

Table 4: Examples of CLPHA’s Lobbying Activity After It Terminated its Registration
         Date                                          Lobbying activity
 August 11, 2010      HUD (including Assistant Secretary Henriquez) and CLPHA (including the
                      deputy director before she joined HUD under an IPA agreement) met to discuss
                      legislative and appropriations strategy regarding various issues including
                      funding, streamlining, conversions, project-based vouchers, rent setting and
                      contract terms.
 April 10, 2012       CLPHA sent draft legislative language to a House staff employee
                      recommending changes to an amendment.
 May 4-10, 2012       Email discussions between CLPHA and HUD staff regarding an April 27, 2012
                      draft version of Title IV of the proposed Affordable Housing and Self-
                      Sufficiency Improvement Act bill that CLPHA provided to HUD.
 May 10, 2012         CLPHA’s director asked the deputy director if HUD was sending the bill to the
                      Hill.
 March 18, 2013       CLPHA’s director sent sequester waiver legislative language to the deputy
                      director and the Assistant Secretary for consideration. CLPHA’s proposed
                      waiver would allow PHAs to deviate from restrictions under the U.S. Housing
                      Act of 1937 and from regulations to the maximum extent practicable.

CLPHA’s activities indicated it continued to function as a lobbying organization and was therefore
required to submit quarterly reports to the House and Senate disclosing its specific lobbying activities,
income, and expenses. Its advocacy and policy analysis for large PHAs suggests it continued to lobby
despite the deregistration that occurred in 2009.




43
     2 U.S.C. § 1602(8)

                                                    17
                                                      CONCLUSION

HUD’s use of the IPA to appoint the deputy director of CLPHA in a policy-making role in PIH was
inappropriate. In doing so, Assistant Secretary Henriquez created an inherent conflict of interest that
placed the deputy director in a position that allowed her to pursue CLPHA’s organizational goals and the
industry’s regulatory relief agenda while simultaneously being responsible for devising objective
regulatory policy at HUD. Additionally, CLPHA and other housing industry groups may have lobbied
HUD when the deputy director occupied her HUD position. Further, the use of the IPA resulted in HUD
paying the deputy directory a higher salary than if it had hired her at the GS-15 level for the position for
which she applied. HUD’s lack of oversight in the IPA process led to ethical concerns that included the
inherent conflict of interest, failure to obtain the deputy director’s and others’ financial disclosure
reports and provide her with ethics training, and allowing her to hire permanent HUD employees. Due
to HUD’s failure to recognize and correct the inherent conflict of interest, HUD did not know whether
the deputy director enacted policy that was in the best interest of HUD and all of its stakeholders and
constituents.


                                                RECOMMENDATIONS

We recommend that the Deputy Secretary

1A. Establish and implement Department-wide procedures to ensure that when HUD makes
    assignments of individuals under the IPA it (1) vets them for potential conflicts of interest, (2)
    requires them to file the proper financial disclosure reports, and (3) complies with other normal
    employment requirements to protect the integrity of HUD programs and avoid putting an
    individual or HUD in a potentially compromising situation.

1B. Direct the Acting Assistant Secretary for PIH to hire a permanent HUD employee as the deputy
    assistant secretary for Policy, Program and Legislative Initiatives in accordance with the
    established hiring rules and regulations. 44

1C. Require an independent review of the streamlining committee’s and the deputy director’s actions
    to determine whether they compromised HUD’s integrity or objectivity in managing, monitoring,
    and evaluating its PIH programs.

1D. Direct OGC to seek a formal advisory opinion from OGE about whether the deputy director and
    other individuals under IPA agreements needed to file financial disclosure forms, and if so, which
    forms were required.

We recommend that the Chief Human Capital Officer

IE.     Implement policies and procedures to ensure HUD uses IPA agreements responsibly, including but
        not limited to (1) not using the services of industry advocacy groups in a policy-making role within
        HUD, (2) not allowing individuals under an IPA agreement to make or be the selecting official for

44
      HUD advertised the position in June 2014 at the higher senior executive service level, a position that would be subject to
      the filing of the ethics form OGE Form 278.

                                                               18
     hiring decisions, (3) ensuring employees under IPA agreements receive written performance
     evaluations, and (4) documenting the negotiation of compensation and the performance
     evaluations of the individuals.

1F. Develop and implement policies and procedures to ensure that employees occupy the positions for
    which they are hired to prevent the manipulation of the hiring process.

We recommend that the Acting Assistant Secretary for Public and Indian Housing

IG. Refrain from modifying program regulations through PIH Notice, and instead follow required
    rulemaking procedures, including ensuring public participation in accordance with 24 CFR § 10.

1H. Publish in the Federal Register the regulatory waivers granted to individual PHAs as a result of
    PIH Notice 2013-03 and subsequent extension notices.




                                                  19
           AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation    Auditee Comments




                             20
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 1




Comment 2




                            21
Ref to OIG Evaluation   Auditee Comments




                            22
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                            23
Ref to OIG Evaluation   Auditee Comments




Comment 4




Comment 5




                            24
Ref to OIG Evaluation   Auditee Comments




Comment 6




                            25
Ref to OIG Evaluation   Auditee Comments




Comment 7




Comment 8




                            26
Ref to OIG Evaluation   Auditee Comments




Comment 9




Comment 10




                            27
Ref to OIG Evaluation   Auditee Comments




Comment 11




                            28
Ref to OIG Evaluation   Auditee Comments




Comment 1
Comment 3
Comment 6



Comment 1
Comment 2


Comment 5

Comment 7
Comment 8
Comment 9

Comment 10




                            29
Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 11




                            30
                     OIG Evaluation of Auditee Comments

Comment 1   HUD’s response only addressed a criminal conflict of interest. HUD held the
            position that if the arrangement was not illegal, then it was permissible.

            The memorandum did not allege violations of criminal conflict of interest statutes.
            We maintain the position that placing a housing industry advocacy employee in
            charge of PIH’s policy-making division created an inherent conflict of interest.
            An inherent conflict of interest exists when the responsibilities or loyalties of a
            person are such that the person may need to choose between competing groups or
            interests that the person is responsible for representing. An inherent conflict of
            interest existed in that the deputy director of an advocacy group for large PHAs
            was in charge of developing policies and procedures that directly, materially, and
            financially impacted the members of that advocacy group. HUD’s response
            neglected to address this inherent conflict of interest and the supporting facts. We
            modified the memorandum to clarify this difference.

Comment 2   HUD used a variety of legal citations to support its conclusion that CLPHA did
            not have a financial interest in HUD policy matters, and therefore the deputy
            director did not have an illegal conflict of interest.

            As HUD summarized in its response, the draft memorandum concluded that an
            [inherent] conflict of interest existed because HUD and CLPHA had divergent
            policy interests. This is precisely the basis of the conflict of interest that HUD
            should have sought to avoid. HUD and CLPHA have some similar goals and
            objectives. However, HUD has additional goals, objectives, and responsibilities
            that CLPHA does not have. CLPHA advocates on behalf of large PHAs, which
            HUD is responsible for monitoring and evaluating. HUD is responsible for using
            publicly-allocated funds responsibly and in accordance with the law to help those
            in need of housing. We modified the memorandum language as appropriate.

Comment 3   HUD’s response argued that unless a Federal employee decided his or her own
            pay and benefits, the potential for gain or loss in Federal salary and benefits
            cannot be considered direct and predictable. It further argued that unless an
            employee set his or her pay and benefits, there cannot be a conflict.

            Contrary to HUD’s analysis, the deputy director did not have a Federal salary.
            Assistant Secretary Henriquez stated that HUD used the IPA agreement process,
            instead of the job announcement, to provide CLPHA’s deputy director her
            CLPHA salary and benefits. Therefore, we maintain our position that CLPHA’s
            deputy director’s salary, along with the expectation she would return to CLPHA,
            created a financial incentive for the deputy director to further CLPHA’s agenda
            and supported the existence of an inherent conflict of interest.

Comment 4   HUD claimed that the question of impartiality did not mean that HUD created a
            conflict of interest by hiring the employee. Rather, it meant that the employee
            misused his or her position. HUD stated that the use of her position while DAS to
            hire an employee and to provide nonpublic information to outsiders was a misuse
                                           31
            of position rather than a conflict of interest.

            We contend that the deputy director misused her position to the benefit of
            outsiders because she had a conflict of interest. Her misuse of position was the
            result of the conflict of interest, not the cause of it. While the impartiality
            regulations do not specifically cover every possibility, HUD would be remiss to
            dismiss the inherent conflict of interest created by placing the deputy director of a
            housing policy advocacy group in charge of developing policies, procedures, and
            legislative initiatives that directly, materially, and financially impacted the
            group’s members.

Comment 5   HUD maintained its position that the deputy director was not required to file a
            public financial disclosure form.

            While the deputy director’s position at HUD was classified as a GS-15, her
            compensation was at a higher rate. According to 5 CFR § 2634.202 (c), a public
            filer included an individual whose rate of basic pay was equal to or greater than
            120 percent of the minimum rate of basic pay for a GS-15. As discussed in the
            memorandum, PIH took a number of steps to provide the deputy director with a
            higher salary than the GS-15 position allowed. While the memorandum briefly
            discussed the interaction between OGC and OIG on this matter, it did not disclose
            some of the initial discussions related to whether the deputy director was even
            required to file a financial disclosure form. Because of the uniqueness of these
            circumstances, the reversal of OGC’s opinion and timing thereof, and the
            differing positions about what dictates which form was required, we maintain our
            position that OGC should seek an opinion from OGE about whether the deputy
            director and other individuals under IPA agreements needed to file financial
            disclosure forms, and if so, which forms were required.

Comment 6   HUD noted that not all IPA assignees were required to complete financial
            disclosure reports. HUD also stated that of the persons on the list of 16 IPA
            agreements questioned, some of the individuals were no longer at HUD. OGC
            reviewed the current IPA agreements and determined that only three of the
            remaining individuals were required to file a financial disclosure report.

            HUD’s response did not contain any context of its review or conclusions reached.
            Specifically, its response did not address if OGC sought to determine if all IPA
            assignees at HUD from 2011 to 2013 should have filed financial disclosure
            reports. HUD did disclose that three individuals were required to file, but did not
            indicate if they filed every year they were required to file, if the filings were
            timely, or if the filings revealed any conflicts of interest. Without these details,
            we cannot adequately evaluate HUD’s response. HUD’s new policy requiring
            OGC to review assignments under the IPA is an opportunity for OGC to
            determine in advance whether particular personnel should file financial disclosure
            reports and evaluate the reported information to determine whether a financial
            conflict of interest could exist.


                                           32
Comment 7   HUD wrote that regulations allowed agreements with advocacy groups such as
            CLPHA and did not prohibit the use of personnel covered by an IPA agreement in
            policy-making roles.

            We do not disagree with HUD’s general comments. While the IPA regulations
            may not specifically prohibit using IPA agreements to temporarily employ
            industry advocacy group employees in Federal policy-making roles, HUD’s
            analysis did not include the impact of the Assistant Secretary inappropriately
            using the IPA process to appoint the deputy director to the HUD position at a
            significantly higher salary and benefits. Additionally, HUD did not address the
            deputy director’s actions while she was at HUD. We maintain our position that it
            was inappropriate to use the IPA to place CLPHA’s deputy director in a policy-
            making role at HUD.

Comment 8   HUD contended that the IPA regulations did not prohibit an IPA assignee from
            working in supervisory or managerial positions.

            We agree that IPA regulations did not specifically “prohibit an IPA assignee from
            working in supervisory or managerial positions.” However, we do not agree that
            its exclusion from the regulations implies that it is good policy or management to
            allow IPA assignees to make long-term personnel decisions.

            HUD’s response further failed to acknowledge that it was uncommon for HUD to
            use IPA agreements to fill supervisory or managerial roles. In fact, while
            arranging the IPA agreement, the branch chief of the OCHCO policy development
            branch wrote in an email message that “it is highly unusual for an outside non-
            HUD employee to serve in a managerial/supervisory position and is not typically
            something HUD does.” To allow CLPHA’s deputy director while on an IPA
            agreement to be the selecting official for a CLPHA employee she supervised
            while at CLPHA gives the appearance of favoritism and a conflict of interest. In
            addition, CLPHA’s deputy director then arranged for this employee occupy a
            position other than the one for which he was hired to avoid the appearance of
            favoritism and a conflict of interest. While HUD contended that nothing
            prohibited IPA assignees from serving in managerial or supervisory roles, HUD
            did not assert that this was either its normal policy or a best practice for
            management. We maintain our recommendation that HUD should implement
            policies to ensure it uses IPA agreements responsibly.

Comment 9   HUD commented that personnel covered by an IPA agreement were not required
            to receive written performance evaluations.

            We revised the memorandum to show that HUD was required to review the
            performance of individuals under IPA agreements. Documented performance
            evaluations show what was expected versus what was accomplished and support
            that the stated purpose of the IPA agreement was being fulfilled. During the
            deputy director’s tenure at HUD, HUD reimbursed CLPHA more than $600,000
            in salary, benefits, and a bonus for her services. We maintain our position that
            good management controls include documented evaluations of performance,
                                          33
             including supporting that associated costs were reasonable and necessary.
             Additionally, documenting evaluations of performance will increase the
             appearance of impartiality and transparency.

Comment 10   HUD acknowledged that an employee was hired for a position in OPPLI, but
             never physically worked there. It agreed that it needs to implement procedures
             that ensure employees occupy positions for which they are hired. HUD conveyed
             that it had established a new policy and counseled individuals involved in this
             matter.

             We commend HUD for recognizing that employees hired need to occupy the
             positions for which they were hired. We agree with HUD that it is important to
             exercise sound judgment in all cases, and this is as important as following rules
             and regulations.

Comment 11   HUD claimed that it did not need to develop separate policies and procedures for
             policy notice development by PIH; instead, PIH will continue to follow
             procedures for notice development found in Handbook 000.2 REV-3, HUD
             Directives System.

             HUD’s response misconstrued the draft memorandum’s conclusion concerning
             waivers and public notice. We contend that HUD essentially engaged in
             rulemaking and circumvented public notice and comment requirements when it
             issued and extended Notice 2013-03 (HA), modifying the program regulations
             PHAs where required to follow. HUD’s rules at 24 CFR § 10 defined rulemaking
             as the Departmental process for considering and formulating the issuance,
             modification, or repeal of a rule. Further, we did not assert that HUD failed to
             follow its procedures for departmental clearance of Notices. Instead, it failed to
             follow Part 10 by disguising its rulemaking in a Notice. We clarified our position
             and revised the associated recommendations.




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