The U.S. Department of Housing and Urban Development will ramp up its oversight of Buffalo Municipal Housing Authority spending after confirming evidence of widespread violations of bidding rules.
A new HUD report found the agency failed to follow procurement rules and its own policy by “purposefully breaking down similar purchases into small purchases, thus avoiding competition.”
The review followed reports by The Buffalo News that detailed questionable purchasing practices at the financially strapped housing authority, including:
• Instances where the housing authority paid more than other local governments for identical products.
• Purchases that appeared to be split up to avoid a $2,000 threshold that requires purchases to be bid.
• One contractor with ties to a BMHA assistant maintenance supervisor that received almost $400,000 in mostly no-bid payments in 2017.
The Buffalo housing agency was ordered this month to start obtaining independent cost estimates before buying anything exceeding $50, and to report monthly to HUD on how much it is paying individual contractors.
The federal agency’s Buffalo field office reviewed data on almost 3,400 small purchase orders totaling $2.9 million in no-bid payments made to 90 contractors in 2017.
None of the individual payments exceeded the $2,000 threshold HUD set for when purchases must be bid out. But total annual payments to each of the 90 contractors exceeded the $2,000 threshold – with eight contractors receiving more than $100,000 and one almost $400,000 in one year, according to the HUD review.
HUD concluded there were times the BMHA intentionally split larger purchases into several smaller orders to avoid bidding requirements.
"This reflects poor management, and disregard for tax dollars," said HUD spokesman Brian Sullivan.
HUD's review of BMHA purchasing covered a period from Jan. 1, 2017, to Dec. 31, 2017, when the BMHA was headed by Dawn Sanders-Garrett. Gillian Brown, who was appointed BMHA executive director in October, has already begun a series of moves aimed at improving the housing authority's purchasing practices. They include increasing training and supervision, and bidding out multiple work orders at one time.
The HUD report will be used as a guide for what more needs to be done, Brown said.
"We are in a transitional phase," Brown said. "We've been saying for months we would revamp purchasing. We were waiting for this report, and will use it as a road map. Within a few weeks, we will have a plan."
Meanwhile, Brown said, the housing agency is complying with HUD's requests related to increased federal monitoring. In addition to completing independent cost estimates and reporting running totals paid to individual contractors, HUD ordered the BMHA to report back to the federal agency on what steps are being taken to ensure federal purchasing regulations are met, and that the agency's purchasing system has adequate in-house oversight.
Following publication of The Buffalo News stories on BMHA purchasing, the U.S. Department of Housing and Urban Development's Inspector General's office issued a report in late September suggesting widespread bid-splitting was likely occurring at the BMHA.
The conclusion was based, in part, on a review of purchasing data for two vendors, from 2016 and 2017. As part of the review, the Inspector General's office examined 10 of the 415 purchase orders – all for $2,000 or less – the two companies received from the BMHA over the two-year period.
One of the companies was GFY, a Batavia-based company with ties to a BMHA assistant maintenance supervisor. The News reported in July that GFY received almost $400,000 in mostly no-bid payments in 2017 to clean and repair housing authority apartments. GFY General Services & Cleaning was paid twice as much in 2017 as any other contractor hired to do similar work for the BMHA. GFY owner Brandi Clark has said her company received a lot of BMHA work because it does a good job for a good price.
The HUD Inspector General's office, based in Washington, referred its finding to HUD's Buffalo field office for further review with the BMHA.
At the time, Brown, the BMHA executive director, questioned the Inspector General's methodology, saying it's "absurd" to assume widespread bid splitting based on a review of 10 vouchers.
Brown was less critical of the findings released this month by HUD's Buffalo field office, saying the local HUD officials made a stronger case that bid-splitting was likely widespread.
HUD regulations prohibit bid-splitting to get around the $2,000 bidding threshold, but exceptions can be made to provide opportunities for small and minority businesses, according to the HUD report.
HUD refers to no-bid payments under $2,000 as "micro-purchases."
HUD also requires micro-purchases be spread out equitably among contractors, and directs housing authorities to take into consideration annual costs associated with an item when deciding if micro-purchases are appropriate, the HUD report says. In some cases, HUD officials said, these items should be handled as annual contracts, not individual purchase orders.
The report cites, for example, the 321 purchase orders – all under $2,000 – issued to Bugs & More Pest Control for a total of $161,000 in 2017. On one date in January, the BMHA issued seven separate purchase orders to the company totaling $3,030, according to the report.
Bugs & More received the most purchase orders of any of the 90 companies cited in the HUD report.
Of the 90 contractors, GFY was paid the most in 2017, receiving $385,326 for 290 individual purchase orders. The company in one day in January received two separate payments for work done in the same apartment, according to BMHA records.
"It is apparent," the HUD reports concluded, "the BMHA should have been aware that contractors and suppliers were going to receive total contracts that exceed the $2,000 micro-purchase thresholds. Activities such as unit turnaround, painting, supplies and pest control generally have known quantities and costs from year to year. "
Brown said the shortcomings with the BMHA's purchasing system reflected a lack of adequate staff training following a decision the BMHA made several years ago to decentralize its purchasing system.
His goal, Brown said, is to centralize purchasing as a way to increase supervision and ensure the agency obtains the best prices.
While acknowledging there was evidence of bid-splitting, as well instances where the agency did not always obtain the best prices, Brown said there's no evidence BMHA workers acted in bad faith or for personal gain when issuing no-bid work orders, he said.
As an example, Brown cited GFY, the contractor that received almost $400,000 in 2017 to repair and clean apartments. While it's unfair for one company to get twice as much no-bid work as other companies, there's no indication the firm didn't work hard for the money, Brown said.
Clark, the GFY owner, is personally involved with Jeffrey DiPalma, whose brother Darryl is an assistant superintendent at the BMHA. Jeffrey DiPalma also is an employee of GFY.
Assistant superintendents have a say in which companies are hired to do cleanup and repair work in their assigned apartment complexes, although their role has been reduced in recent months, Brown said.
When BMHA officials spoke with Darryl DiPalma after his relationship to GFY was disclosed by The Buffalo News, DiPalma said he saw no reason not to work with GFY because there is no legal relationship between his brother Jeffrey and GFY, according to Brown.
Sullivan, the HUD spokesman, said the purchasing review only addressed the purchasing process, and not any other issues, such as potential conflict of interest questions.
"We still have a lot of questions for Buffalo," Sullivan said.
Story topics: BMHA