By Chris Lane
By Jeff Balke
By Aaron Reiss
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Buffalo Steel contracted with Cornerstone to install fences and gates at the complexes. But firm owner James Mills took $10,000 off the top of the $100,100 contract by issuing a check made out to himself. He then passed the contract along to Gulf Con, saying he did not have time to do the work. Gulf Con's Pat Rivers took another $14,000 off that, and gave the job to two other companies for $77,000 -- $24,000 less than the city paid Cornerstone, all of which was pocketed by Mills and Rivers for doing nothing.
Cornerstone also wrote checks totaling $221,400 either directly to Rivers or to another individual, who signed them over to Rivers to cash.
HUD also ruled that $112,145 paid to Gulf Coast Building Supply for materials was "highly questionable." HUD's suspicions were raised because Cornerstone had clearly contracted with Gulf Con for all materials, and there was no record of why and for what Mills's supply company was paid.
How this all happened, and why it went undetected until much later, is not easy to explain.
Mills's and Rivers's accounts, as captured by HUD, are hardly worth mentioning, except as an illustration of how difficult it is to defend their actions. For example, Mills could offer no reason why most of the $203,000 paid to his firms was transferred to Gulf Con. Mills also explained that he allowed Rivers to sign his company checks because he was a "longtime friend." Rivers chimed in that Mills was allowed to sign Gulf Con's checks, too, though HUD could find no instances of that.
When contacted by phone at Gulf Coast Building Supply in Pasadena, Mills refused to comment on the audit, saying he had not seen the final report from HUD. He politely declined to answer any questions about the work his company did for Cornerstone.
"I don't know who you are, so I don't think I have anything to say about this," he said.
As for Cornerstone, the company could offer few plausible explanations to auditors, and has, in fact, placed its defense in the hands of city housing officials. Max Uzick, the Duddlesten employee who handled the city contract for Duddlesten Management, said last week that he had not seen the final HUD report, nor had he or anyone else been contacted since late last year to assist with the city's response.
In a phone interview, Wayne Duddlesten echoed the city's primary defense that the RTC program -- which involved the purchase, operation, repair and resale of nine complexes -- turned an $11 million profit for the city. Also repeating the city's line, Duddlesten suggested that HUD didn't fully comprehend the complexity of the RTC program.
"As I recall it, I had people in my organization meet with the HUD people last year," Duddlesten said. "You know, I guess we wouldn't be talking about this if they were as satisfied at that time as they wanted to be. That's regrettable, but it doesn't mean we won't quit trying.
"We understand the business, and oftentimes bureaucrats don't. There's a lot of practicality in things like this. I wish there was a Bible and a book that says, 'Here's what to do.' "
Actually, there is: It's called Title 24, Code of Federal Regulations, Part 570. It outlines the administrative requirements for certain federal grants. While Duddlesten arguably can be excused for not knowing the particulars of the regulations, the city cannot. Yet HUD's audit uncovered an incredible ignorance of the law among housing department employees working on the RTC contract.
According to the audit, the administrative manager for the program "was not familiar with HUD's requirements for procurement of goods and services." He also stated that he was not responsible for making sure Cornerstone properly subcontracted the construction work, and he did not know whose duty it was.
The housing employee in charge of inspecting and verifying the construction work told auditors he only performed one inspection, well before the rehabilitation was complete. He also admitted he did not keep a written documentation of the inspection, but reported the results "orally" to the administration manager.
Perhaps the most inexcusable act of negligence on the part of housing officials -- and potentially the most costly -- was their failure to ensure that Cornerstone and its subcontractors adhered to federal wage laws. Max Uzick insisted the company was not required to, citing a phone conversation he had with a U.S. Department of Labor official. However, no written documentation authorizing an exemption from the wage laws was produced.
"The city apparently relied on the contractor's erroneous recommendation that Davis-Bacon Act prevailing wages did not apply to the construction contracts," auditors wrote in their final report.
According to Darrel Vaught, the assistant inspector general for audits at HUD's Fort Worth regional office, the city will have to prove that wage laws were followed -- or be forced to reimburse from its general fund all of the $1.1 million construction costs.
"There's not much argument on that point," Vaught said, "but the city thinks we should be the ones to find out if the correct wages were paid."
Margie Bingham, the city's housing director, is on sick leave and was unavailable to comment on the audit. That duty fell to Mike Loftin, an assistant director in the department. Loftin says the HUD auditors "viewed things in an overly narrow context" and ignored "the bigger picture of what we were trying to do."