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Conflicts of Interest. Sandra Warren, Director, CPD, Houston HUD Office . Ken McDonald, Attorney, Office of Regional Counsel. What is Conflict of Interest?. Black’s Law Dictionary defines a “conflict of interest” as:

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conflicts of interest

Conflicts of Interest

  • Sandra Warren, Director, CPD, Houston HUD Office
  • Ken McDonald,
  • Attorney, Office of Regional Counsel
what is conflict of interest
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.”

discussion topics
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

conflicts of interest4
Conflicts of Interest

Procurement

Non-procurement

TwoTypes:

procurement conflicts of interest
Procurement Conflicts of Interest
  • Procurement of:
    • Supplies
    • Equipment
    • Construction
    • Services

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

procurement conflicts of interest6
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!

decision point
Decision Point!
  • Four Possibilities
    • CDBG Procurement
    • CDBG Non-procurement
    • HOME Procurement
    • HOME Non-procurement
non procurement conflicts
Non-Procurement Conflicts
  • What Regulations and Rules apply?
    • CDBG
      • 24 CFR § 570.611
    • HOME
      • 24 CFR § 92.356

ALERT: Check State and Local laws!

cdbg conflicts
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:
cdbg conflicts10
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:
cdbg conflicts11
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.

cdbg conflicts12
CDBG Conflicts
  • HUD may grant an exception to Conflict of Interest on a case-by-case basis.
  • Recipient must request an exception in writing.
cdbg conflicts13
CDBG Conflicts

ALERT!

ALL Conflict of Interest documents MUST be included in any request for an exception!!!

exceptions
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.

exceptions 7 factors
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.
exceptions 7 factors16
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.

exceptions 7 factors17
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.

home conflicts
HOME Conflicts
  • 24 CFR § 92.356.
  • Similar to CDBG.
    • What constitutes conflict.
    • Persons covered.
  • Participating jurisdiction must make written request for exception.
home conflicts19
HOME Conflicts
  • Threshold requirements for exception similar to CDBG.
  • Exceptions:
    • 6 factors similar to CDBG.
    • “open competitive bidding” not one of the HOME factors.
when in doubt
When in Doubt?

Contact your HUD CPD Representative to resolve a question or conflict.

conflicts of interest some illustrations
Conflicts of InterestSome Illustrations

CDBG

HOME

CDBG

HOME

HOME

CDBG

HOME

CDBG

illustration 1
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

answer choices
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.

answer
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)

illustration 2
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

question and answer choices
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?

answer27
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.

illustration 2a
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

answer 2a
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
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

answer choices31
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.

answer32
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.
illustration 4
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

answer choices34
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.

answer35
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.

illustration 5

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

answer choices37
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.

answer38
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.

illustration 5a
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

answers 5a
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
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

answer choices42
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.

answer43
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.”
illustration 7
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

answer choices45
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.

answer46
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.

illustration 8
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

answer choices48
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.

answer49
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.
illustration 8a
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

answer 8a
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
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?

M

answer choices53
Answer Choices

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

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

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

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

answer54
Answer

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

  • 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
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?

M

answer choices56
Answer Choices

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

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

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

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

answer57
Answer

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

  • 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)
  • Accordingly, HUD must deny the requested exception pending receipt of an acceptable recipient’s attorney’s opinion.
illustration 11
Illustration #11
  • The City of Fairytale (City), Texas, has allocated both CDBG and HOME funds to the Fairytale Women’s Center (FWC).
    • The Center’s current Director owns Techno Designs, the IT contractor for FWC. (The Director was previously the President of the Board as late as February 28.) The Board, in February, authorized the Director 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 statement saying no conflict exists between the City and FWC. Techno Designs contract was terminated on April 1.
  • Is this a Conflict of Interest under both programs?

M

answer choices59
Answer Choices

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

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

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

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

answer60
Answer

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

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

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

the final exam questions
“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 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
“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.