Conflicts of Interest

1. Conflicts of Interest • Sandra Warren, Director, CPD, Houston HUD Office • Ken McDonald, • Attorney, Office of Regional Counsel

2. What is Conflict of Interest? Black’s Law Dictionary defines a “conflict of interest” as: “a real or seeming incompatibility between a person’s private interests and his or her public or fiduciary duties.”

3. Discussion Topics • Conflicts of Interest: CDBG HOME Program ALERT: Will discuss applicable Federal law and Federal regulations...State and local conflict provisions not subject of this presentation

4. Conflicts of Interest Procurement Non-procurement TwoTypes:

5. Procurement Conflicts of Interest • Procurement of: • Supplies • Equipment • Construction • Services Key point – ALL other Conflicts of Interest are NON-PROCUREMENT

6. Procurement Conflicts of Interest • Procurement by State of Texas, Local Governments and Sub grantees: • 24 CFR § 85.36 • Procurement by Non-profit organizations (Recipients) and Sub recipients: • 24 CFR § 84.42 This presentation will cover non-procurement conflicts only….with two exceptions!

7. Decision Point! • Four Possibilities • CDBG Procurement • CDBG Non-procurement • HOME Procurement • HOME Non-procurement

8. Non-Procurement Conflicts • What Regulations and Rules apply? • CDBG • 24 CFR § 570.611 • HOME • 24 CFR § 92.356 ALERT: Check State and Local laws!

9. CDBG Conflicts • 24 CFR § 570.611 • No person who is an employee, agent, consultant, officer, or elected or appointed official of recipient or sub-recipient who:

10. CDBG Conflicts • Exercises any functions or responsibilities w/ respect to CDBG activities, • Is in a position to participate in the decision making process, • Or gains inside information with regard to such activities may:

11. CDBG Conflicts • Obtain a financial interest or benefit from a CDBG activity. • Have a financial interest in any contract with respect to a CDBG activity or its proceeds. • For themselves or those they have business or immediate family ties. ALERT: Reg applies during the person’s tenure and for one year thereafter.

12. CDBG Conflicts • HUD may grant an exception to Conflict of Interest on a case-by-case basis. • Recipient must request an exception in writing.

13. CDBG Conflicts ALERT! ALL Conflict of Interest documents MUST be included in any request for an exception!!!

14. Exceptions • Threshold Requirements: • Public disclosure of conflict. • City Council Meeting • Opinion of Recipient’s attorney that exception does not violate State or local law. HUD legal counsel determines whether threshold requirements are met.

15. Exceptions – 7 Factors 1. Significant cost benefit or essential expertise to project. 2. Opportunity for open competitive bidding or negotiation. 3. Person affected: • Member of low or moderate income class of persons intended to be beneficiaries of the assisted activity. • Exception will permit such person to receive same benefits as the class.

16. Exceptions – 7 Factors 4. Person affected has withdrawn from his or her functions or responsibilities, or the decision making process with respect to the assisted activity. 5. Interest or benefit was present before affected person was in the “conflicting” position.

17. Exceptions – 7 Factors 6. Undue hardship to recipient or person affected when weighed against public interest served by avoiding the prohibited conflict. 7. Any other relevant considerations. HUD CPD determines whether to grant the exception.

18. HOME Conflicts • 24 CFR § 92.356. • Similar to CDBG. • What constitutes conflict. • Persons covered. • Participating jurisdiction must make written request for exception.

19. HOME Conflicts • Threshold requirements for exception similar to CDBG. • Exceptions: • 6 factors similar to CDBG. • “open competitive bidding” not one of the HOME factors.

20. When in Doubt? Contact your HUD CPD Representative to resolve a question or conflict.

21. Conflicts of InterestSome Illustrations CDBG HOME CDBG HOME HOME CDBG HOME CDBG

22. Illustration #1 • Cybil Civic is a Commissioner of Fort Travis County, Texas. • Cybil is also Vice-president of the Board of Directors of American Handicapped Citizens of Fort Travis County (AHC). • She does not receive a salary or any other compensation for serving on AHC’s Board. • AHC is subrecipient of $25,000 in CDBG grant funds from the County. • Is there a conflict of interest? M

23. Answer Choices A. No, as long as Cybil resigns from her position as VP of AHC’s Board. B. No, because Cybil has no financial interest in AHC. C. Yes, because AHC received $25,00 in CDBG grants. D. Yes, unless AHC gives the County back the $25,000 of CDBG monies.

24. Answer B. No, because Cybil has no financial interest in AHC. * Cybil may continue to serve as a County Commissioner of the County and also as VP of AHC’s Board. * A conflict of interest would arise in this situation only if Cybil received a salary or other compensation for her AHC Board service. 24 CFR §570.611(b)

25. Illustration #2 • Bay County, Texas and the Village of Seaside Creek sought a contractor to complete some drainage improvements by sealed competitive bids. • The project will be funded with CDBG funds. • Eric Smith and Associates is the engineering firm which will oversee the project. • Jones Constructors, Inc. was the low bidder for the job and has been selected for the award of this contract. • The principles of both the engineering firm and the construction company are brothers-in-law. * Is this a procurement or non-procurement issue? • This is a procurement of construction services covered by 24 CFR §85.36. M

26. Question and Answer Choices A. Yes, because although Eric Smith and the principle of Jones Constructors, Inc. are brothers-in-law, Bay County secured the bid by sealed competitive bid. B. Yes, because they are not immediate family members. C. No, a conflict of interest exists because they are immediate family members. D. No, as long as Eric does not physically handle the money being paid to Jones Constructor’s Inc. Can Bay County award the contract to Constructors?

27. Answer C. No, a conflict of interest exists because they are immediate family members. * Conflict of interest exists for an agent of the grantee to administer a contract supported by federal funds if a member of his “immediate family” has a financial interest in the company selected for the award. * Accordingly, it would be a conflict of interest for Eric Smith and Associates to administer a construction contract funded with CDBG money, since Eric Smith’s brother-in-law is the President of Jones Constructors, Inc.

28. Illustration #2a • Would it make a difference in the last example if Bay County were to pay Eric Smith and Associates its engineering fees for overseeing the project out of the County’s general revenue fund and not with CDBG money? Y N

29. Answer #2a • No. • The fact that Bay County is paying Eric Smith and Associates out of general revenues would not prevent the occurrence of a conflict of interest in the previous example. • Eric Smith and Associates, as an agent of Bay County, cannot administer a CDBG funded contract for the County in which his brother-in-law has a financial interest. 24 CFR § 85.36(b)(3).

30. Illustration #3 • The Bear Creek CHDO of Tennessee City, Texas, wishes to lease office space in Tennessee City. • The CHDO receives HOME funds solely as a developer or owner of housing. • The CHDO will pay the rent on the building from its allocation of HOME CHDO operating expenses. • Tennessee City Mayor “Davy” Crockett owns the building which the CHDO would like to lease. • Can the Mayor lease office space to the CHDO? M

31. Answer Choices A. Yes, because there is no conflict of interest as long as the Mayor did not solicit Bear Creek to rent from him. B. Yes, because the HOME conflict of interest regs., except for 24 CFR § 92.356(f), do not apply to the Bear Creek CHDO. C. No, because the Mayor’s name is Davy. D. No, because the Mayor owns the building.

32. Answer D. Yes, because there is no conflict. • This is not a conflict of interest under 24 CFR § 92.356 because the HOME Conflict of Interest regulations, except for § 92.356(f), do not apply to CHDOs that receive HOME funds solely as a developer or owner of housing. • Accordingly, the CHDO may rent the building from the Mayor, provided such would not be a violation of State or local law.

33. Illustration #4 • HUD notified Baton Rouge, LA that it would be a conflict of interest for its sub-recipient, ASSIST, to rehabilitate a building using CDBG funds when the executive director of ASSIST is also owner of the building to be rehabilitated. • The City has now come to HUD asking for an exception to this conflict. • One of the threshold requirements for an exception is that the conflict be publicly disclosed. 24 CFR § 570.611(d)(1). • City Council at its regular meeting approved a Resolution authorizing the City to enter into an agreement with ASSIST. • Adequate public disclosure? Why or why not? M

34. Answer Choices A. Yes, because the disclosure was done at a City Council meeting. B. Yes, because the City revealed it would enter into an agreement with Assist. C. No, because the disclosure did not inform the public about the nature of the conflict. D. No, because HUD was not invited to the meeting where it was disclosed.

35. Answer C. No, because the disclosure did not inform the public about the nature of the conflict. * At a minimum, disclosure should inform the public that: The City is awarding CDBG funds to ASSIST to rehab a building owned by ASSIST’s ED. * HUD has determined this to be a conflict of interest. * The City is publicly disclosing such a conflict in connection with a request the City has made to HUD for an exception to the conflict.

36. Alice’s Alice’s Illustration #5 • “Choppy” Waters is the Mayor of Seadrift, Texas. • When Alice, his wife, is not running her restaurant, she serves as an unpaid member of the Board of the Texas Driftwood Museum, a non-profit corporation. • The Mayor has made public this conflict and has recused himself from voting on CDBG funding for the museum. • Can Alice remain on the Board? M

37. Answer Choices A. No, unless they get a divorce. B. No, because she is not paid to serve on the board. C. Yes, because the conflict was disclosed. D. Yes, because there is no conflict.

38. Answer D. Yes, because there is no conflict. * This is not a conflict of interest under 24 CFR § 570.611(b) because there is no “financial interest or benefit” flowing from the non-profit to Alice.Thus,Alice may continue her service on the Board.

39. Illustration #5a • In the previous example, would it be a conflict of interest under 24 CFR § 570.611 if Alice receives mileage reimbursement for travel to and from Board meetings? Y N

40. Answers #5a • No. • Reimbursement of Alice’s travel expenses to attend Museum Board meetings would not be considered a “financial interest or benefit” under 24 CFR § 570.611 and thus, such reimbursement would not constitute a conflict of interest under the cited regulation.

41. Illustration #6 • The Heartland Housing Finance Corporation (HHFC) hired Marshall and Associates to administer a Homebuyer Assistance Program funded with HUD HOME funds. • John Marshall is President and partner of Marshall and Associates and also serves as the Executive Director of HHFC. • HUD has determined this to be a Procurement conflict of interest under 24 CFR § 85.36. • The City of Heartland has requested an exception for this ongoing conflict. • Should HUD grant the requested exception? M

42. Answer Choices A. No, because the request for an exception came after the conflict occurred. B. No, because Mr. Marshall should have requested the exception. C. Yes, because HHFC will benefit from Marshall’s services. D. Yes, as long as the City has disclosed the conflict.

43. Answer A. No, because the request for an exception came after the conflict occurred. • Absent extraordinary circumstances, HUD is reluctant to grant exceptions to conflicts “after the fact.” • Moreover, HUD could require the City to provide assurance that any funds expended for which Mr. Marshall benefited financially were appropriate (costs were fair and reasonable) for services rendered. • The City may request HUD for an exception to the conflict “from this point forward.”

44. Illustration #7 • Brewster County, Texas, requested an exception to a conflict under the HOME program. • The County’s request did not include the threshold documents required by 24 CFR § 92.356(d), namely: • Public disclosure of the conflict. • PJ’s Attorney’s opinion certifying no violation of state or local law. • The County had furnished these items 6 months earlier with a similar conflict request. • Must the County furnish the missing items to HUD? M

45. Answer Choices A. Yes, Brewster County must furnish updated documents for each exception request made to the agency. B. Yes, because the expiration period for the documents has passed. C. No, once documents have been submitted for one conflict, it is not necessary to submit the documents again. D. No, the documents have not expired.

46. Answer A. Yes, Brewster County must furnish updated documents for each exception request made to the agency. * HOME regs state that HUD may grant an exception to a conflict of interest on a “case-by-case” basis. 24 CFR §92.356(d). * Accordingly, a PJ must furnish updated thresholds and factors for each exception request made to the agency.

47. Illustration #8 • Quintana Housing Finance Corporation (QHFC) administers a Down Payment Program (DPP) with CDBG funds for the City of Quintana. • “Oil Tanker Annie,” a QHFC Board member is the owner of a real estate office. • She never actually sells homes for which DPP funds are being used, but her agents may. • Will Annie “run aground” on HUD’s conflict of interest regs if one of her agents sells a house with DPP assistance? M

48. Answer Choices A. No, because it is not Annie selling the houses. B. No, as long as Annie lets the agent keep the commission from the sale, she will not be gaining any financial interest. C. Yes, unless Annie was elected and not appointed to the QHFC Board. D. Yes, because Annie is in a position to gain a financial interest.

49. Answer D. Yes, because Annie is in a position to gain a financial interest. • HUD’s CDBG conflict of interest regs provide that no appointed official of a subrecipient who exercises any functions or responsibilities with respect to CDBG activities may obtain a financial benefit from the CDBG activity. 24 CFR § 570.611(b) & (c). • Annie must instruct her agents to not sell a home for which DPP assistance is being used, or the City will have to seek an exception to the potential conflict.

50. Illustration #8a • In the previous illustration, would it make a difference in the result if Annie offered the services of her firm free of charge to sell homes for which DPP funds are being used? Y N