Draft Report cites serious problems with 1602 project
The federally funded Section 1602 program was “rushed through” and some projects were awarded to friends and relatives of Development Bank of American Samoa board members and bank officials, raising concerns over “conflict of interest” which is something the DBAS vice president, appears not to worry about, according to a draft report of the program.
Additionally, some recipients or subawardees of the program “suddenly became the project owner, project developer, the contractor and the building material supplier for their own project,” according to the ‘revised on July 21, 2012’ draft report prepared by the American Samoa Economy Stimulus and Recovery Office (ASESRO) 1602 Compliance staff to ASESRO executive director Pat Galeai, who also heads the local government’s Office of Federal Programs.
The draft report, obtained by Samoa News is in ‘narrative’ form, and is an ‘ongoing’ report, which includes items the compliance staff are still reviewing or questions they are still seeking to answer, which also states that a final report on Section 1602 will be issued in early 2013. This would correspond with the final date of the program — Dec. 31, 2012.
It states the “objective of this preliminary review includes determining if the DBAS complied with applicable federal rules and internal control procedures at grant origination (application), eligibility review in awarding of sub-grants, and administering of 1602 grant funds.”
At the end of the draft report conclusions are drawn, and in particular is the following one:
“We are convinced that the implementation of the 1602… was rushed to start with, thus the underlining note is evident of ‘the end justifies the means’ tactic. We were led to believe by the DBAS staff that there was not enough time for thoroughness and diligence. ‘It was either hurry up and give out the money or give it back.’ The emphasis was on maximizing the flow of grant funds into the hands of the developers at a time when the DBAS President was running for Governor.”
LIHTC Section 1602 Program
The LIHTC Section 1602 program provides funds under the American Recovery and Reinvestment Act (ARRA) provision to finance construction or acquisition and rehabilitation of a qualified low-income building.
The local program is administered __by DBAS, which was approved to receive $30.77 million under the program.
Of note, the draft report says its work “was conducted as part of its oversight and monitoring role under the ARRA,” pointing to the Office of Management and Budget (OMB memorandum M-09-10, dated April 3, 2009, which “clarified existing requirements and additional steps that needed to be taken to facilitate the accountability and transparency objectives of the ARRA.”
The ASESRO executive director was charged with responsibility of overseeing other ASG agencies’ activities in order to ensure ARRA funds are spent in a manner that minimizes the risk of improper use, according the report.
However, according to the draft report, ASESRO didn’t actively participate in the administering, reviewing and approving of Section 1602 payments until late May 2011. Up to then, they were excluded despite ASESRO repeatedly requesting to be included in the award process, with DBAS going as far as to block ASESRO from access to the 1602 records. It wasn’t until the federal government (US Treasury) cut off funding to force DBAS cooperation that ASESRO became actively involved.
The draft report outlines the requirements for an eligible project for the 1602 program — to use of funds and other things, including the new guidelines that provided funds were to be disbursed to subawardees through Dec. 31 of last year.
It also noted agencies “must submit two quarterly reports to Treasury — a financial status report and project performance report — within 10 working days after the end of each quarter.”
The compliance staff states “ASESRO has not received any copy of these reports.”
As part of its review of the program, ASESRO looked at 132 files for the 132 subgrants that were awarded and 18 files of the unsuccessful applicants. The staff also went “on site to look at all the projects and visited with some of the project owners.”
The draft report makes note that its “review is a recap of concerns we have noted over the months (since May 2011), as we continue to monitor” the 1602 LIHTC Project Grant.
The review by ASESRO found that $4.85 million in subgrants went to 27 applications “we found to be incomplete in such that the evaluation criterion and assessment was either missing or in disarray.”
Further, Evaluation Criterion of applications had a Criteria Point System, as set out in American Samoa’s Qualified Application Plan (QAP) allowing for a total possible score of 79. However, in review, the compliance staff found that “individual scores ranged from the lowest of 27 to the highest of 61,” with the record unclear “as to how or if any, a cut-off point was to be measured.”
Citing a DBAS administrative assistant for the 1602 Program, the draft report states, “27 applications were hurriedly approved because of the rapidly approaching deadline to use the funds, despite missing or incomplete information.”
The report also revealed that DBAS had 18 unsuccessful applicants, but only 5 of them were actually scored based on the Evaluation Criterion and the other 13 were neither scored nor explained. Eight of the applicants had no approval criterion assessment on file and five had only partially completed approval criterion assessment documented.
“We did not find any official notification to the unsuccessful applicants advising them of the reason or reasons their applications were declined,” the report says.
In this first part of our story on the draft report, Samoa News focuses on the “appearance of impropriety” where according the compliance staff’s review “the eligibility requirements, selection of subgrantees, awarding and disbursing of payments/ funds were not followed in accordance with federal rules and the dictates of equity and fairness,” in at least 14 instances.
The compliance staff’s findings and concerns about the program, do not cite names, only ‘positions’ and ‘relationships’ of the persons involved in the administration of the LIHTC, Section 1602 program — namely DBAS bank officials, pointing to among other things conflicts of interest. Subawardees are also identified only in relationship to anomalies, peculiarities and non-compliance issues relating to the program, with no names used either.
CONFLICT OF INTEREST
“The conflict of interest issue is always a concern,” said the staff, “in a strongly linked and small community such as American Samoa. The mere fact that numerous subgrants were awarded to relatives and friends is cause enough for our concerns. Grants were awarded without all the required documents and fair evaluations applied. The ‘couldn’t care less’ attitude perceived from some of the project owners is disconcerting. Some projects may in actuality be repairing of their own homes with 1602 funds.
“As we performed interviews with project owners, certain connected project owners were clearly unconcerned by violations and irregularities.”
Even when all funds had been drawn down and supposedly expended, they were confident that they would be receiving further funds from DBAS to finish their incomplete projects, the report says.
“In some cases personal homes and non-1602 family or rental properties were renovated by the same crews and contractors building the 1602 units, without any accountability as to the separation of such projects,” the report notes.
ASESRO compliance staff also discussed the conflict of interest issue with the DBAS vice president, who “was not too concerned” and he “informed us that their consultant advised that the law was silent on the conflict of interest,” the draft report says.
The vice president (later identified in another part of the report, as James M. Betham Jr.) also told the ASESRO staff that DBAS had a resolution that exempts all of them from any conflict of interest violation.
Thereafter the staff ended the discussions regarding this issue due to ASESRO’s lack of authority, as a monitoring entity.
“However, this is one nagging problem that has been on everyone’s lips. It is a big concern for us and we definitely appeal to the appropriate authorities to look into it,” the staff said in the draft report.
14 INSTANCES OF CONFLICT OF INTEREST
The draft report cited incidents of conflict of interest where some of the recipients were related to DBAS officials or girl friends or friends of bank officials. It further states the 1602 program over the past year has been among one of the most talked-about subjects within the community and private citizenry.
For example, the draft report says there was a subgrant to the girlfriend of the DBAS president; a subgrant to the sister of the girlfriend; a subgrant to another sister of the girlfriend and a subgrant to the brother of the girlfriend. The report alleges that these applications were “dubious” as each “did not have a completed Evaluation Criterion.”
Subgrants to the girlfriend and the two sisters of the girlfriend are all for the same amount of $107,268.30 each for a one unit project. The girlfriend also received $14,501.45 in developer fees while each sister of the girlfriend got $14,518 in developer fees. The report didn’t specify how much the brother of the girlfriend received in the subgrant.
Other incidents of conflict of interest were sub grants to:
• brother of the DBAS president — application dubious, as it did not have completed Evaluation Criterion.
• wife of the 1602 Project Manager at DBAS — application dubious, as it did not have completed Evaluation Criterion.
• chairman of the DBAS board — application dubious, as it did not have completed Evaluation Criterion.
• aunt of the DBAS loan manager — application dubious, as it did not have completed Evaluation Criterion.
• husband of one of the DBAS board members — This grant was used to renovate the owner’s eight (8) unit hotel, it’s unknown if the swimming pool was a part of the renovations.
• one of the DBAS board members, who is also president of the Senate — “The president and board members of the DBAS are confirmed by the Senate.”
• husband of a high DBAS official
• son-in-law of an officer of DBAS.
• 27 subgrants to various applicants — applications are dubious, as they did not have completed Evaluation Criterion.
• brother of the same 1602 project manager, whose wife received a subgrant.
Samoa News will report tomorrow on other issues raised in the draft report, including issues the compliance staff says “warrant further review” and the ‘exorbitant range of average cost per unit’ for over 400 units of the 1,602 built.
WHAT CONSTITUTES CONFLICT OF INTEREST?
The draft report quotes the Federal Acquisition Regulation: “Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none. Transactions relating to the expenditure of public funds require the highest degree of public trust and an impeccable standard of conduct. The general rule is to avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships. While many Federal laws and regulations place restrictions on the actions of Government personnel, their official conduct must, in addition, be such that they would have no reluctance to make a full public disclosure of their actions.” (FAR Subpart 3.101-1 General)