conflicts of interest sandra warren, director, cpd, houston hud office ken mcdonald, attorney,...

Conflicts of InterestConflicts of Interest

Sandra Warren, Director, CPD,

Houston HUD Office

Ken McDonald, Attorney, Office of Regional Counsel

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What is Conflict of What is Conflict of Interest?Interest?

Black’s Law Dictionary defines a “conflict Black’s Law Dictionary defines a “conflict of interest” as:of interest” as:

““a real or seeming incompatibility a real or seeming incompatibility between a person’s private interests and between a person’s private interests and his or her public or fiduciary duties.”his or her public or fiduciary duties.”

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Discussion TopicsDiscussion Topics

ALERT: Will discuss applicable Federal law and Federal regulations...State and local conflict provisions not subject of this presentation

CDBG HOME Program

• Conflicts of Interest:

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Conflicts of InterestConflicts of Interest

ProcurementProcurement

Non-procurementNon-procurement

TwoTwo Types:Types:

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Procurement Procurement Conflicts of InterestConflicts of Interest

Procurement of:Procurement of:– SuppliesSupplies– EquipmentEquipment– ConstructionConstruction– ServicesServices

Key point – ALL other Conflicts of Interest are NON-PROCUREMENT

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Procurement Procurement Conflicts of InterestConflicts of Interest

Procurement by State of Texas, Local Procurement by State of Texas, Local Governments and Sub grantees:Governments and Sub grantees:– 24 CFR § 85.3624 CFR § 85.36

Procurement by Non-profit organizations Procurement by Non-profit organizations (Recipients) and Sub recipients:(Recipients) and Sub recipients:– 24 CFR § 84.4224 CFR § 84.42

This presentation will cover non-procurement conflicts only….with two exceptions!

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Decision Point! Decision Point!

Four PossibilitiesFour Possibilities– CDBG ProcurementCDBG Procurement– CDBG Non-procurementCDBG Non-procurement– HOME ProcurementHOME Procurement– HOME Non-procurementHOME Non-procurement

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Non-Procurement Non-Procurement ConflictsConflicts

What Regulations and Rules apply?What Regulations and Rules apply?– CDBGCDBG

24 CFR § 570.61124 CFR § 570.611

– HOMEHOME 24 CFR § 92.35624 CFR § 92.356

ALERT: Check State and Local laws!

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CDBG ConflictsCDBG Conflicts

24 CFR § 570.61124 CFR § 570.611– No person who is an employee, No person who is an employee,

agent, consultant, officer, or agent, consultant, officer, or elected or appointed official of elected or appointed official of recipient or sub-recipient who:recipient or sub-recipient who:


Exercises any functions or Exercises any functions or responsibilities w/ respect to responsibilities w/ respect to CDBG activities,CDBG activities,

Is in a position to participate in the Is in a position to participate in the decision making process, decision making process,

Or gains inside information with Or gains inside information with regard to such activities may:regard to such activities may:

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– Obtain a financial interest or benefit Obtain a financial interest or benefit from a CDBG activity.from a CDBG activity.

– Have a financial interest in any Have a financial interest in any contract with respect to a CDBG contract with respect to a CDBG activity or its proceeds.activity or its proceeds.

– For themselves or those they have For themselves or those they have business or immediate family ties.business or immediate family ties.

ALERT: Reg applies during the person’s tenure and for one year thereafter.

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HUD may grant an exception to HUD may grant an exception to Conflict of Interest on a case-by-case Conflict of Interest on a case-by-case basis.basis.

Recipient must request an exception Recipient must request an exception in writingin writing..

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CDBG Conflicts CDBG Conflicts

ALERT!ALERT! ALL Conflict of Interest ALL Conflict of Interest

documents MUST be included in documents MUST be included in any request for an exception!!!any request for an exception!!!

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ExceptionsExceptions

Threshold Requirements:Threshold Requirements:– Public disclosure of conflict.Public disclosure of conflict.

City Council MeetingCity Council Meeting

– Opinion of Recipient’s attorney Opinion of Recipient’s attorney that exception does not violate that exception does not violate State or local law.State or local law.HUD legal counsel determines whether threshold requirements are met.

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Exceptions – 7 FactorsExceptions – 7 Factors

1. Significant cost benefit or essential 1. Significant cost benefit or essential expertise to project.expertise to project.

2. Opportunity for open competitive 2. Opportunity for open competitive bidding or negotiation.bidding or negotiation.

3. Person affected: 3. Person affected: • Member of low or moderate income class of Member of low or moderate income class of

persons intended to be beneficiaries of the persons intended to be beneficiaries of the assisted activity.assisted activity.

• Exception will permit such person to receive Exception will permit such person to receive same benefits as the class.same benefits as the class.

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4. Person affected has withdrawn from his 4. Person affected has withdrawn from his or her functions or responsibilities, or the or her functions or responsibilities, or the decision making process with respect to decision making process with respect to the assisted activity.the assisted activity.

5. Interest or benefit was present 5. Interest or benefit was present beforebefore affected person was in the “conflicting” affected person was in the “conflicting” position.position.

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6. Undue hardship to recipient or 6. Undue hardship to recipient or person affected when weighed person affected when weighed against public interest served by against public interest served by avoiding the prohibited conflict.avoiding the prohibited conflict.

7. Any other relevant considerations.7. Any other relevant considerations.

HUD CPD determines whether to grant the exception.

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HOME ConflictsHOME Conflicts

24 CFR § 92.356.24 CFR § 92.356. Similar to CDBG.Similar to CDBG.

– What constitutes conflict.What constitutes conflict.– Persons covered.Persons covered.

Participating jurisdictionParticipating jurisdiction must must make written request for make written request for exception.exception.

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HOME ConflictsHOME Conflicts

Threshold requirements for Threshold requirements for exception similar to CDBG.exception similar to CDBG.

Exceptions:Exceptions:– 6 factors similar to CDBG.6 factors similar to CDBG.– ““open competitive bidding” not open competitive bidding” not

one of the HOME factors.one of the HOME factors.

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When in Doubt?When in Doubt?

Contact your HUD CPD Contact your HUD CPD Representative to resolve a Representative to resolve a

question or conflict.question or conflict.

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Conflicts of InterestConflicts of InterestSome IllustrationsSome Illustrations

HOME

CDBG

HOME

CDBG

CDBG

HOME

CDBG

HOME

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Illustration #1Illustration #1

Cybil Civic is a Commissioner of Fort Cybil Civic is a Commissioner of Fort Travis County, Texas. Travis County, Texas. – Cybil is also Vice-president of the Board of Cybil is also Vice-president of the Board of

Directors of American Handicapped Citizens Directors of American Handicapped Citizens of Fort Travis County (AHC). of Fort Travis County (AHC).

– She does not receive a salary or any other She does not receive a salary or any other compensation for serving on AHC’s Board.compensation for serving on AHC’s Board.

– AHC is subrecipient of $25,000 in CDBG AHC is subrecipient of $25,000 in CDBG grant funds from the County.grant funds from the County.

Is there a conflict of interest?Is there a conflict of interest?

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A. No, as long as Cybil resigns from her A. No, as long as Cybil resigns from her position as VP of AHC’s Board. position as VP of AHC’s Board.

B. No, because Cybil has no financial B. No, because Cybil has no financial interest in AHC.interest in AHC.

C. Yes, because AHC received $25,00 in C. Yes, because AHC received $25,00 in CDBG grants.CDBG grants.

D. Yes, unless AHC gives the County back D. Yes, unless AHC gives the County back the $25,000 of CDBG monies.the $25,000 of CDBG monies.

Answer ChoicesAnswer Choices

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AnswerAnswer

B. No, because Cybil has no financial B. No, because Cybil has no financial interest in AHC. interest in AHC.

** Cybil may continue to serve as a Cybil may continue to serve as a County Commissioner of the County County Commissioner of the County and also as VP of AHC’s Board.and also as VP of AHC’s Board.

** A conflict of interest would arise in A conflict of interest would arise in this situation only if Cybil received a this situation only if Cybil received a salary or other compensation for her salary or other compensation for her AHC Board service. 24 CFR AHC Board service. 24 CFR §570.611(b)§570.611(b)

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Bay County, Texas and the Village of Seaside Creek Bay County, Texas and the Village of Seaside Creek sought a contractor to complete some drainage sought a contractor to complete some drainage improvements by sealed competitive bids. improvements by sealed competitive bids. – The project will be funded with CDBG funds.The project will be funded with CDBG funds.– Eric Smith and Associates is the engineering firm Eric Smith and Associates is the engineering firm

which will oversee the project.which will oversee the project.– Jones Constructors, Inc. was the low bidder for the job Jones Constructors, Inc. was the low bidder for the job

and has been selected for the award of this contract.and has been selected for the award of this contract.– The principles of both the engineering firm and the The principles of both the engineering firm and the

construction company are brothers-in-law.construction company are brothers-in-law.

* Is this a procurement or non-procurement issue?* Is this a procurement or non-procurement issue?

This is a procurement of construction services This is a procurement of construction services covered by 24 CFR §85.36.covered by 24 CFR §85.36.

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Question and Answer Question and Answer ChoicesChoices

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?

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AnswerAnswer

C. C. No, a conflict of interest exists because No, a conflict of interest exists because they are immediate family members.they are immediate family members.

** Conflict of interest exists for an agent of the Conflict of interest exists for an agent of the grantee to administer a contract supported by grantee to administer a contract supported by federal funds if a member of his “immediate federal funds if a member of his “immediate family” has a financial interest in the company family” has a financial interest in the company selected for the award.selected for the award.

** Accordingly, it would be a conflict of interest for Accordingly, it would be a conflict of interest for Eric Smith and Associates to administer a Eric Smith and Associates to administer a construction contract funded with CDBG money, construction contract funded with CDBG money, since Eric Smith’s brother-in-law is the President of since Eric Smith’s brother-in-law is the President of Jones Constructors, Inc.Jones Constructors, Inc.

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Illustration #2aIllustration #2a

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

Y N

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Answer #2aAnswer #2a

No.No. The fact that Bay County is paying Eric The fact that Bay County is paying Eric

Smith and Associates out of general Smith and Associates out of general revenues would not prevent the occurrence revenues would not prevent the occurrence of a conflict of interest in the previous of a conflict of interest in the previous example.example.

Eric Smith and Associates, as an agent of Eric Smith and Associates, as an agent of Bay County, cannot administer a CDBG Bay County, cannot administer a CDBG funded contract for the County in which his funded contract for the County in which his brother-in-law has a financial interest. brother-in-law has a financial interest. 24 24 CFR § 85.36(b)(3).CFR § 85.36(b)(3).

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The Bear Creek CHDO of Tennessee The Bear Creek CHDO of Tennessee City, Texas, wishes to lease office City, Texas, wishes to lease office space in Tennessee City. space in Tennessee City. – The CHDO receives HOME funds solely as a The CHDO receives HOME funds solely as a

developer or owner of housing. developer or owner of housing. – The CHDO will pay the rent on the building from The CHDO will pay the rent on the building from

its allocation of HOME CHDO operating expenses. its allocation of HOME CHDO operating expenses. – Tennessee City Mayor “Davy” Crockett owns the Tennessee City Mayor “Davy” Crockett owns the

building which the CHDO would like to lease. building which the CHDO would like to lease. Can the Mayor lease office space to Can the Mayor lease office space to

the CHDO?the CHDO?

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A. A. Yes, because there is no conflict of Yes, because there is no conflict of interest as long as the Mayor did not interest as long as the Mayor did not solicit Bear Creek to rent from him.solicit Bear Creek to rent from him.

B. B. Yes, because the HOME conflict of Yes, because the HOME conflict of interest regs., except for 24 CFR § interest regs., except for 24 CFR § 92.356(f), do not apply to the Bear 92.356(f), do not apply to the Bear Creek CHDO.Creek CHDO.

C. C. No, because the Mayor’s name is Davy.No, because the Mayor’s name is Davy.D.D. No, because the Mayor owns the No, because the Mayor owns the

building.building.

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AnswerAnswer

D.D. Yes, because there is no Yes, because there is no conflict.conflict.

• This is not a conflict of interest under 24 CFR § This is not a conflict of interest under 24 CFR § 92.356 because the HOME Conflict of Interest 92.356 because the HOME Conflict of Interest regulations, except for § 92.356(f), dregulations, except for § 92.356(f), do not applyo not apply to CHDOs that receive HOME funds solely as a to CHDOs that receive HOME funds solely as a developer or owner of housing. developer or owner of housing.

• Accordingly, the CHDO may rent the building Accordingly, the CHDO may rent the building from the Mayor, provided such would not be a from the Mayor, provided such would not be a violation of State or local law.violation of State or local law.

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HUD notified Baton Rouge, LA that it would be a conflict HUD notified Baton Rouge, LA that it would be a conflict of interest for its sub-recipient, ASSIST, to rehabilitate a of interest for its sub-recipient, ASSIST, to rehabilitate a building using CDBG funds when the executive director building using CDBG funds when the executive director of ASSIST is also owner of the building to be of ASSIST is also owner of the building to be rehabilitated. rehabilitated.

The City has now come to HUD asking for an exception The City has now come to HUD asking for an exception to this conflict. to this conflict. – One of the threshold requirements for an exception is One of the threshold requirements for an exception is

that the conflict be publicly disclosed. that the conflict be publicly disclosed. 24 CFR § 24 CFR § 570.611(d)(1).570.611(d)(1).

– City Council at its regular meeting approved a City Council at its regular meeting approved a Resolution authorizing the City to enter into an Resolution authorizing the City to enter into an agreement with ASSIST.agreement with ASSIST.

Adequate public disclosure? Why or why not?Adequate public disclosure? Why or why not?M

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A.A. Yes, because the disclosure was done Yes, because the disclosure was done at a City Council meeting.at a City Council meeting.

B.B. Yes, because the City revealed it would Yes, because the City revealed it would enter into an agreement with Assist.enter into an agreement with Assist.

C.C. No, because the disclosure did not No, because the disclosure did not inform the public about the nature of inform the public about the nature of the conflict.the conflict.

D.D. No, because HUD was not invited to No, because HUD was not invited to the meeting where it was disclosed.the meeting where it was disclosed.

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AnswerAnswer

C.C. No, because the disclosure did No, because the disclosure did not inform the public about the not inform the public about the nature of the conflict.nature of the conflict.

** At a minimum, disclosure should inform the public that:At a minimum, disclosure should inform the public that:

The City is awarding CDBG funds to ASSIST to rehab a The City is awarding CDBG funds to ASSIST to rehab a building owned by ASSIST’s ED.building owned by ASSIST’s ED.

** HUD has determined this to be a conflict of interest.HUD has determined this to be a conflict of interest.

** The City is publicly disclosing such a conflict in The City is publicly disclosing such a conflict in connection with a request the City has made to HUD for connection with a request the City has made to HUD for an exception to the conflict.an exception to the conflict.

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““Choppy” Waters is the Mayor of Choppy” Waters is the Mayor of Seadrift, Texas.Seadrift, Texas. – When Alice, his wife, is not running her When Alice, his wife, is not running her

restaurant, she serves as an unpaid restaurant, she serves as an unpaid member of the Board of the Texas Driftwood member of the Board of the Texas Driftwood Museum, a non-profit corporation.Museum, a non-profit corporation.

– The Mayor has made public this conflict and The Mayor has made public this conflict and has recused himself from voting on CDBG has recused himself from voting on CDBG funding for the museum. funding for the museum.

Can Alice remain on the Board?Can Alice remain on the Board?

Alice’sAlice’s

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A.A. No, unless they get a divorce.No, unless they get a divorce.B.B. No, because she is not paid to No, because she is not paid to

serve on the board.serve on the board.C.C. Yes, because the conflict was Yes, because the conflict was

disclosed.disclosed.D.D. Yes, because there is no conflict.Yes, because there is no conflict.

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AnswerAnswer

D.D. Yes, because there is no Yes, because there is no conflict.conflict.

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

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

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Answers #5aAnswers #5a

• No.No.• Reimbursement of Alice’s travel Reimbursement of Alice’s travel

expenses to attend Museum Board expenses to attend Museum Board meetings would not be considered a meetings would not be considered a “financial interest or benefit” under 24 “financial interest or benefit” under 24 CFR § 570.611 and thus, such CFR § 570.611 and thus, such reimbursement would not constitute a reimbursement would not constitute a conflict of interest under the cited conflict of interest under the cited regulation.regulation.

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The Heartland Housing Finance Corporation The Heartland Housing Finance Corporation (HHFC) hired Marshall and Associates to (HHFC) hired Marshall and Associates to administer a Homebuyer Assistance Program administer a Homebuyer Assistance Program funded with HUD HOME funds.funded with HUD HOME funds.– John Marshall is President and partner of Marshall and John Marshall is President and partner of Marshall and

Associates and also serves as the Executive Director of Associates and also serves as the Executive Director of HHFC. HHFC.

– HUD has determined this to be a Procurement conflict of HUD has determined this to be a Procurement conflict of interest under 24 CFR § 85.36.interest under 24 CFR § 85.36.

– The City of Heartland has requested an exception for this The City of Heartland has requested an exception for this ongoing conflict.ongoing conflict.

Should HUD grant the requested exception?Should HUD grant the requested exception?

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A.A. No, because the request for an No, because the request for an exception came after the conflict exception came after the conflict occurred.occurred.

B.B. No, because Mr. Marshall should have No, because Mr. Marshall should have requested the exception.requested the exception.

C.C. Yes, because HHFC will benefit from Yes, because HHFC will benefit from Marshall’s services.Marshall’s services.

D.D. Yes, as long as the City has disclosed Yes, as long as the City has disclosed the conflict.the conflict.

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AnswerAnswer

A.A. No, because the request for an exception No, because the request for an exception came after the conflict occurred.came after the conflict occurred.

Absent extraordinary circumstances, HUD is reluctant to Absent extraordinary circumstances, HUD is reluctant to grant exceptions to conflicts “after the fact.”grant exceptions to conflicts “after the fact.”

– Moreover, HUD could require the City to provide Moreover, HUD could require the City to provide assurance that any funds expended for which Mr. assurance that any funds expended for which Mr. Marshall benefited financially were appropriate (costs Marshall benefited financially were appropriate (costs were fair and reasonable) for services rendered.were fair and reasonable) for services rendered.

The City may request HUD for an exception to the conflict The City may request HUD for an exception to the conflict “from this point forward.”“from this point forward.”

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Brewster County, Texas, requested an exception Brewster County, Texas, requested an exception to a conflict under the HOME program. to a conflict under the HOME program.

– The County’s request did not include the The County’s request did not include the threshold documents required by 24 CFR § threshold documents required by 24 CFR § 92.356(d), namely:92.356(d), namely: Public disclosure of the conflict.Public disclosure of the conflict. PJ’s Attorney’s opinion certifying no PJ’s Attorney’s opinion certifying no

violation of state or local law.violation of state or local law.– The County had furnished these items 6 The County had furnished these items 6

months earlier with a similar conflict request.months earlier with a similar conflict request.

Must the County furnish the missing items to Must the County furnish the missing items to HUD?HUD?

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A.A. Yes, Brewster County must furnish updated Yes, Brewster County must furnish updated documents for each exception request made documents for each exception request made to the agency.to the agency.

B.B. Yes, because the expiration period for the Yes, because the expiration period for the documents has passed.documents has passed.

C.C. No, once documents have been submitted for No, once documents have been submitted for one conflict, it is not necessary to submit the one conflict, it is not necessary to submit the documents again.documents again.

D.D. No, the documents have not expired.No, the documents have not expired.

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AnswerAnswer

A.A. Yes, Brewster County must furnish Yes, Brewster County must furnish updated documents for each exception updated documents for each exception request made to the agency.request made to the agency.

** HOME regs state that HUD may grant an HOME regs state that HUD may grant an exception to a conflict of interest on a “case-by-exception to a conflict of interest on a “case-by-case” basis. 24 CFR §92.356(d).case” basis. 24 CFR §92.356(d).

** Accordingly, a PJ must furnish updated Accordingly, a PJ must furnish updated thresholds and factors for each exception thresholds and factors for each exception request made to the agency.request made to the agency.

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Quintana Housing Finance Corporation Quintana Housing Finance Corporation (QHFC) administers a Down Payment (QHFC) administers a Down Payment Program (DPP) with CDBG funds for the City Program (DPP) with CDBG funds for the City of Quintana. of Quintana. – ““Oil Tanker Annie,” a QHFC Board member is the owner of Oil Tanker Annie,” a QHFC Board member is the owner of

a real estate office.a real estate office.– She never actually sells homes for which DPP funds are She never actually sells homes for which DPP funds are

being used, but her agents may.being used, but her agents may.

Will Annie “run aground” on HUD’s Will Annie “run aground” on HUD’s conflict of interest regs if one of her conflict of interest regs if one of her agents sells a house with DPP assistance? agents sells a house with DPP assistance?

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A.A. No, because it is not Annie selling No, because it is not Annie selling the houses.the houses.

B.B. No, as long as Annie lets the agent No, as long as Annie lets the agent keep the commission from the sale, keep the commission from the sale, she will not be gaining any financial she will not be gaining any financial interest.interest.

C.C. Yes, unless Annie was elected and Yes, unless Annie was elected and not appointed to the QHFC Board.not appointed to the QHFC Board.

D.D. Yes, because Annie is in a position Yes, because Annie is in a position to gain a financial interest.to gain a financial interest.

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AnswerAnswer

D.D.Yes, because Annie is in a position Yes, because Annie is in a position to gain a financial interest.to gain a financial interest.

HUD’s CDBG conflict of interest regs provide that no HUD’s CDBG conflict of interest regs provide that no appointed official of a subrecipient who exercises any appointed official of a subrecipient who exercises any functions or responsibilities with respect to CDBG functions or responsibilities with respect to CDBG activities may obtain a financial benefit from the activities may obtain a financial benefit from the CDBG activity. CDBG activity. 24 CFR § 570.611(b) & (c).24 CFR § 570.611(b) & (c).

Annie must instruct her agents to Annie must instruct her agents to notnot sell a home for sell a home for which DPP assistance is being used, or the City will which DPP assistance is being used, or the City will have to seek an exception to the potential conflict.have to seek an exception to the potential conflict.

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

Y N

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Answer #8aAnswer #8a

Yes.Yes. If Annie and her real estate firm sold the If Annie and her real estate firm sold the

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

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Kenedy County Housing Partnership (KCHP), Kenedy County Housing Partnership (KCHP), a subrecipient of HOME funds from the a subrecipient of HOME funds from the State of Texas, wrote HUD requesting an State of Texas, wrote HUD requesting an exception to a conflict of interest to permit exception to a conflict of interest to permit lending institution officials to serve on the lending institution officials to serve on the KCHP Board.KCHP Board.– HUD had granted KCHP a similar exception request under HUD had granted KCHP a similar exception request under

the CDBG conflict of interest regs earlier in the year. the CDBG conflict of interest regs earlier in the year. – The KCHP letter emphasized that the HOME and CDBG The KCHP letter emphasized that the HOME and CDBG

conflict of interest regs were virtually identical.conflict of interest regs were virtually identical.

Can HUD grant KCHP the requested Can HUD grant KCHP the requested exception? exception?

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A.A. Yes, a subrecipient may directly Yes, a subrecipient may directly request an exception from HUD.request an exception from HUD.

B.B. No, because the exception would not No, because the exception would not help the cause.help the cause.

C.C. No, because KCHP has exceeded their No, because KCHP has exceeded their maximum requirement for the year maximum requirement for the year when they requested an exception when they requested an exception under the CDBG regulations.under the CDBG regulations.

D.D. No, since the State of Texas did not No, since the State of Texas did not apply for the exception.apply for the exception.

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AnswerAnswer

D.D. No, since the State of Texas did not No, since the State of Texas did not apply for the exception.apply for the exception.

The HOME conflict of interest regs provide that an The HOME conflict of interest regs provide that an application for an exception to such regs can only be application for an exception to such regs can only be made by the PJ. 24 CFR § 92.356(d).made by the PJ. 24 CFR § 92.356(d).

The HOME regs define PJ as a State or unit of general The HOME regs define PJ as a State or unit of general local government. 24 CFR § 92.2.local government. 24 CFR § 92.2.

Accordingly, KCHP cannot apply for the exception – only Accordingly, KCHP cannot apply for the exception – only the State of Texas has that right.the State of Texas has that right.

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The City of Longhorn, Texas, is The City of Longhorn, Texas, is seeking an exception from HUD seeking an exception from HUD for a conflict of interest under for a conflict of interest under the CDBG regs.the CDBG regs.– In connection with the City’s request, the City In connection with the City’s request, the City

Attorney rendered an opinion that there might be a Attorney rendered an opinion that there might be a violation of the Texas Non-profit Corporation Act if the violation of the Texas Non-profit Corporation Act if the conflict of interest was not disclosed to disinterested conflict of interest was not disclosed to disinterested members of the non-profit subrecipient’s Board, or is members of the non-profit subrecipient’s Board, or is not “fair” to the non-profit subrecipient. not “fair” to the non-profit subrecipient.

Is there a problem here?Is there a problem here?

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A.A.Yes, because the City Attorney’s opinion did Yes, because the City Attorney’s opinion did not explicitly state the exception request not explicitly state the exception request would not violate State or local law. would not violate State or local law.

B.B.Yes, because the State Attorney General Yes, because the State Attorney General should have sent the letter not the City should have sent the letter not the City Attorney.Attorney.

C.C.No, because there is only a remote possibility No, because there is only a remote possibility the conflict would violate local or state law.the conflict would violate local or state law.

D.D. No, unless the conflict the City No, unless the conflict the City Attorney’s letter is sufficient to met the Attorney’s letter is sufficient to met the threshold requirements.threshold requirements.

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AnswerAnswer

A.A. Yes, because the City Attorney’s opinion Yes, because the City Attorney’s opinion did not explicitly state the exception did not explicitly state the exception request would not violate State or local request would not violate State or local law.law.

HUD’s CDBG conflict of interest regs contain certain HUD’s CDBG conflict of interest regs contain certain “threshold” requirements which must be satisfied.“threshold” requirements which must be satisfied.

– One such requirement is that the recipient’s counsel must One such requirement is that the recipient’s counsel must opine that the interest for which the exception is sought opine that the interest for which the exception is sought would not violate state or local law. 24 CFR § 570.611(d)(1)would not violate state or local law. 24 CFR § 570.611(d)(1)(ii)(ii)

Accordingly, HUD must deny the requested exception pending Accordingly, HUD must deny the requested exception pending receipt of an acceptable recipient’s attorney’s opinion. receipt of an acceptable recipient’s attorney’s opinion.

5858


The City of Fairytale (City), Texas, has allocated both The City of Fairytale (City), Texas, has allocated both CDBG and HOME funds to the Fairytale Women’s Center CDBG and HOME funds to the Fairytale Women’s Center (FWC).(FWC).– The Center’s current Director owns Techno Designs, the IT contractor The Center’s current Director owns Techno Designs, the IT contractor

for FWC. (The Director was previously the President of the Board as for FWC. (The Director was previously the President of the Board as late as February 28.) The Board, in February, authorized the Director late as February 28.) The Board, in February, authorized the Director to apply for CDBG and HOME funds and designated her as the grant to apply for CDBG and HOME funds and designated her as the grant official for both funds. The Director has signed a conflict of interest official for both funds. The Director has signed a conflict of interest statement saying no conflict exists between the City and FWC. statement saying no conflict exists between the City and FWC. Techno Designs contract was terminated on April 1. Techno Designs contract was terminated on April 1.

Is this a Conflict of Interest under both programs? Is this a Conflict of Interest under both programs?

M

5959


A.A. No, because the Director signed a No, because the Director signed a conflict of interest form.conflict of interest form.

B.B. Yes, even though the IT contract Yes, even though the IT contract terminated on April 1.terminated on April 1.

C.C. No, because the Board authorized the No, because the Board authorized the Director to apply for and administer Director to apply for and administer the programs.the programs.

D.D. No, because the IT contract was No, because the IT contract was terminated on April 1.terminated on April 1.

6060

AnswerAnswer

B.B. Yes, even though the IT contract Yes, even though the IT contract terminated on April 1.terminated on April 1.

** The conflict of interest prohibitions in 24 CFR The conflict of interest prohibitions in 24 CFR §§570.611 and 92.356 remain in effect not only §§570.611 and 92.356 remain in effect not only during the tenure of the employment but for during the tenure of the employment but for one year thereafter.one year thereafter.

** A one year period had not elapsed from the A one year period had not elapsed from the time the contract was terminated and the time time the contract was terminated and the time she resigned as President, nor from the time she resigned as President, nor from the time she became Grant Administrator or Director.she became Grant Administrator or Director.

6161

““The Final Exam Questions”The Final Exam Questions”

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

6262

““The Facts of the Case”The Facts of the Case”

The City has a consulting contract with Consultants Out The City has a consulting contract with Consultants Out West (COW) to assist the City with economic development West (COW) to assist the City with economic development and affordable housing funded with CDBG money.and affordable housing funded with CDBG money.

One of COW’s reps is Martha Maverick.One of COW’s reps is Martha Maverick.– Martha’s husband, Marvin, was recently hired as the Martha’s husband, Marvin, was recently hired as the

City’s Downtown Manager, a CDBG funded position.City’s Downtown Manager, a CDBG funded position.– Marvin’s duties include overseeing projects that may Marvin’s duties include overseeing projects that may

qualify for CDBG funds that may require COW qualify for CDBG funds that may require COW assistance.assistance.

In its letter, the City assumed that HUD’s procurement regs In its letter, the City assumed that HUD’s procurement regs (24 CFR § 85.36)(24 CFR § 85.36) would control any potential conflicts, would control any potential conflicts, since COW’s consultant contract with the City was since COW’s consultant contract with the City was procured under those regs.procured under those regs.

6363

““The Answer Sheet”The Answer Sheet”

Two conflict of interest provisions which might apply:Two conflict of interest provisions which might apply:– 24 CFR §85.36(b)(3) – Procurement conflict of interest 24 CFR §85.36(b)(3) – Procurement conflict of interest

regulations.regulations.– 24 CFR §570.611 – CDBG conflicts of interest 24 CFR §570.611 – CDBG conflicts of interest

regulations.regulations. No conflict under procurement regs because those regs do No conflict under procurement regs because those regs do

not apply. Those regs relate only to the procurement itself not apply. Those regs relate only to the procurement itself and would not govern conflicts on interest that occur after and would not govern conflicts on interest that occur after the procurement has been completed. the procurement has been completed. 24 CFR §85.36(b)(3).24 CFR §85.36(b)(3).

There is a conflict under There is a conflict under 24 CFR §570.611(b) & (c) 24 CFR §570.611(b) & (c) because because Marvin Maverick has a financial interest in the City’s Marvin Maverick has a financial interest in the City’s contract with COW and has immediate family ties with his contract with COW and has immediate family ties with his wife, a COW employeewife, a COW employee..

Thanks for Your Thanks for Your Attention!Attention!

conflicts of interest sandra warren, director, cpd, houston hud office ken mcdonald, attorney,...

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