# Presentation: 331451

## Conflicts of InterestSome Illustrations

- HOME

- CDBG

- HOME

- CDBG

- CDBG

- HOME

- CDBG

- HOME

## 		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 problem here?*

## 		Answer #1

- NO.
- Cybil may continue to serve as a County Commissioner of the County and also as VP of AHC’s Board.
- Cybil has _no financial interest in AHC_.
- 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)*

## 		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.
*Can Bay County award the contract to Constructors?  *

## 		Answer #2

- No.
- This is a “procurement of construction services” by Bay County covered by *24 CFR § 85.36. *
- Conflict of interest 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.

## 		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? *

## 		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).*

## 		Illustration #3

- The Bear Creek CHDO of Tennessee City, Texas, wishes to lease office space in Tennessee City.
- 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?*

## 		Answer #3

- No.
- It would be a conflict of interest for the Mayor to rent office space in a building which he owns to a CHDO funded with HUD HOME program monies.  *24 CFR § 92.356(b) & ©. *
- The referenced subsections of HUD’s conflict of interest regs prohibit a person who is an elected official of a city and in a position to gain inside information with regard to a HOME assisted activity, from obtaining a financial benefit from such activity.

## 		Illustration #4

- HUD notified Bowie City, Texas, that it would be a conflict of interest for its subrecipient, 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?*

## 		Answer #4

- No.
- The approval of the CDBG funding agreement between the City and ASSIST did not inform the public about the nature of the conflict as required by the cited regulation.
- 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.

## 		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?*

## 		Answer #5

- YES.
- Alice may continue her service on the Board.
- 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.

## 		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?  *

## 		 			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.

## 		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?*

## 		Answer #6

- Depends on when the conflict took place.
- 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.”

## 		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?*

## 		Answer #7

- Yes.
- 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.

## 		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? *

## 		Answer #8

- Yes.
- 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.

## 		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?*

## 		Answer #8a

- Yes.
- If Annie and her real estate firm sold the homes receiving DPP assistance free of charge, there would be no conflict of interest under the CDBG regs because there would be no “financial interest or benefit” to Annie or her real estate firm.  24 CFR § 570.611(b).

## 		Illustration #9

- Kenedy County Housing Partnership (KCHP), a subrecipient of HOME funds from the State of Texas, wrote HUD requesting an exception to a conflict of interest to permit lending institution officials to serve on the KCHP Board.
- HUD had granted KCHP a similar exception request under the CDBG conflict of interest regs earlier in the year.
- The KCHP letter emphasized that the HOME and CDBG conflict of interest regs were virtually identical.
*Can HUD grant KCHP the requested exception? *

## 		Answer #9

- No.
- The HOME conflict of interest regs provide that an application for an exception to such regs can only be made by the PJ.  *24 CFR § 92.356(d).*
- The HOME regs define PJ as a State or unit of general local government.  *24 CFR § 92.2.*
- Accordingly, KCHP cannot apply                       for the exception – only the                                State of Texas has that right.

## 		Illustration #10

- The City of Longhorn, Texas, is         seeking an exception from HUD               for a conflict of interest under the       CDBG regs.
- In connection with the City’s request, the City Attorney rendered an opinion that there might be a violation of the Texas Non-profit Corporation Act if the conflict of interest was not disclosed to disinterested members of the non-profit subrecipient’s Board, or is not “fair” to the non-profit subrecipient.
*Is there a problem here?** *

## 		Answer #10

- Yes.
- HUD’s CDBG conflict of interest regs contain certain “threshold” requirements which must be satisfied.
- One such requirement is that the recipient’s counsel must opine that the interest for which the exception is sought would not violate state or local law.  *24 CFR § 570.611(d)(1)(ii)*
- City Attorney’s opinion did not unequivocally state that the exception request would not run afoul of State law.
- Accordingly, HUD must deny the requested exception pending receipt of an acceptable recipient’s attorney’s opinion.

## 		Illustration #11

- Fairytale City, Texas, has allocated $75,250 in CDBG funds to the Gosling Child Development Center to renovate a daycare facility.
- The Center’s Director is Mother Goose.  Mother Goose’s step-sister, Old Mother Hubbard, owns the building to be renovated with CDBG funds.
*Conflict of interest? *

## 		Answer #11

- Yes.
- HUD conflict of interest regs prohibit an employee of a sub-recipient, who exercises functions and responsibilities with respect to CDBG activities, from obtaining a financial benefit from those activities either for themselves or for those with whom they have “immediate family ties.”
- “Immediate family ties” include Mother Goose’s spouse, parent (incl. steps), child (incl. steps), brother, sister (incl. steps), grandparent, grandchild, and in-laws of a covered person.** **Since Mother Goose’s step-sister is the owner of the building being renovated with the CDBG funds, there is the “immediate family ties” conflict.

## 	“The Final Exam Questions”

- Letter from City of Muleshoe, Texas, requesting a determination as to whether the following set of facts would constitute a conflict of interest under HUD’s CDBG program regs.
- What conflict of interest regs apply?
- Is this a Conflict of Interest?

## “The Facts of the Case”

- The City has a consulting contract with Consultants Out West (COW) to assist the City with economic development and affordable housing funded with CDBG money.
- One of COW’s reps is Martha Maverick.
- Martha’s husband, Marvin, was recently hired as the City’s Downtown Manager, a CDBG funded position.
- Marvin’s duties include overseeing projects that may qualify for CDBG funds that may require COW assistance.
- In its letter, the City assumed that HUD’s procurement regs *(24 CFR § 85.36)* would control any potential conflicts, since COW’s consultant contract with the City was procured under those regs.

##    “The Answer Sheet”

- Two conflict of interest provisions which might apply:
*24 CFR §85.36(b)(3) – Procurement conflict of interest regulations.*
*24 CFR §570.611 – CDBG conflicts of interest regulations.*
- No conflict under procurement regs because those regs do not apply.  Those regs relate only to the procurement itself and would not govern conflicts on interest that occur after the procurement has been completed. *24 CFR §85.36(b)(3).*
- There is a conflict under *24 CFR §570.611(b) & (c) *because Marvin Maverick has a financial interest in  the City’s contract with COW and has immediate family ties with his wife, a COW employee*.*

## Thanks for Your Attention!