Little Rock housing authority failed to follow spending and contracting rules, HUD finds

Little Rock’s public housing agency routinely failed to comply with federal, state and its own purchasing rules, according to a report from the U.S. Department of Housing and Urban Development.

HUD’s Departmental Enforcement Center reviewed samples of two and a half years of contracts and financial documents from the Housing Authority of the City of Little Rock, known as the Metropolitan Housing Alliance. It is the state’s largest federally-funded public housing agency and provides rental assistance to about 8,000 low-income people.

The probe found “inadequate oversight” of MHA’s payments of non-federal funds to various entities between Jan. 1, 2019, and June 30, 2021, according to the April letter obtained this month via an Arkansas Freedom of Information Act request.

The enforcement agency found $258,609 in “unallowable” expenses and $11,355 in questionable expenses out of a $771,469 spent on marketing, computer equipment and contracts for services meant to benefit tenants, among other things.

MHA Board Chairman Kenyon Lowe said the “unallowable” amount — more than 33% of the reviewed amount — was small compared to the agency’s total “$30 million of procurement.”

HUD reported inadequate documentation of both the payments themselves and whether the MHA had enough money to fulfill its contracts. Additionally, the sampled contracts did not follow the rules for both competitive and noncompetitive proposals, the HUD letter states.

The Departmental Enforcement Center recommended that MHA pay HUD the unallowable amount. Lowe said the option is “always in negotiation.”

The letter also said MHA should ensure that its contracts adhere to all applicable rules and that board and staff members are well-versed in all levels of procurement regulations.

A HUD spokesman said Sept. 26 that the federal agency is reviewing MHA’s response to the report.

Lowe said he disagreed with HUD’s findings.

“If you look at the errors they pointed out, they weren’t malicious,” he said. “The report speaks for itself.”

The review was underway when MHA’s then-executive director, Nadine Jarmon, filed a 161-page complaint with the local HUD field office in June 2021. Her memo alleged widespread misconduct, including unnecessary and unauthorized spending, by the five commissioners and requested their removal.

The Departmental Enforcement Center investigated the complaint, and the letter acknowledges it without naming Jarmon.

“During our review, we received allegations of misconduct against the Board by certain current and former MHA staff,” the letter states. “Interviews and follow-up interviews were conducted but we were unable to substantiate the allegations.”

Unallowable payments

The HUD review found 85% of $219,386 paid to The Design Group of Little Rock to be unallowable, primarily because of a lack of detail on invoices for the $187,221 cited. The Design Group has provided marketing and website design for MHA since 2019.

MHA admitted to HUD reviewers that “specific funding sources had not been well-defined” at the time it solicited bids, even though its procurement policy requires a clear funding source before awarding a contract, the letter states.

The letter also notes that MHA paid the marketing firm $23,276 for mobile live-streaming equipment that MHA staff said was not on agency property at the time of the review.

Lowe disputed that, saying the equipment was at MHA headquarters during the review and is still there.

The purchase of 13 laptops for MHA staff, totaling $23,863, and part of a contract with local development agency Houseaboutit, totaling $40,000, were paid with the wrong MHA accounts, the letter states.

Lowe told the Advocate changes in MHA’s services, such as the conversion of public housing to Section 8 housing choice vouchers, led to mix-ups in which accounts were used for certain purchases.

HUD only reviewed $40,000 of the $140,000 in the Houseaboutit contract; the report recommends that MHA review the rest of the contract and “ensure allowability of the charged costs.”

The Houseaboutit contract was not specific enough about the services it would provide MHA tenants, the letter states. The contract, obtained through a public records request, says the development agency provides “case management” and “supportive service and maintenance of the health and safety of assisted individuals and families.”

MHA also works with a Maumelle agency called Growth Achieved for additional “resident supportive services.” Its $5,466 invoice lacked a date and adequate description of the services, the letter states.

The other unallowable costs included $1,000 to a former employee and $673 to Kroger, for which MHA did not provide receipts.

When asked about the lack of receipts, Lowe said he would “have to look at the report again.”

The letter also says $386 paid to Jason’s Deli, where the MHA board frequently orders lunch during meetings, is prohibited by federal regulations without “a programmatic purpose.”

HUD questioned two transactions in which MHA did not respond to requests for more information. One was $1,005 to Goodyear Auto Service; MHA did not provide an inventory of its vehicles to help determine if the service was for agency purposes, the letter states.

The other was $10,350 to Gans, Gans & Associates, a Florida-based executive recruitment firm that helped MHA hire four “senior managers.” MHA did not provide information on one of the four, the letter states.

Lowe said none of the four still work at MHA. He also said MHA asked its vendors to supply HUD with the more specific spending information the review sought.

Procurement issues

HUD’s enforcement agency evaluated five of 38 contracts MHA awarded during the review period. The housing authority didn’t explain why it used a time-and-materials or hourly rate contract for three of those contracts instead of some other type. The contracts also didn’t set a maximum amount.

The Houseaboutit contract was the only one with a “ceiling price,” the letter states.

“It is unclear how MHA budgeted for these contracts or made a comparison to actual expenditures as required by federal regulations and its own policy,” the letter states. “Without these types of controls in place, MHA risked overspending its available funds.”

MHA also failed to follow competitive bidding rules for at least two other contracts, the letter states, and in one instance, it awarded contracts to all five bidders rather than awarding one to the highest bidder.

Lowe said MHA staff is receiving procurement regulations training, which the HUD report recommended.

When asked if the board is also being trained, Lowe said, “I don’t feel like I need it.”

Arkansas procurement law sets $20,000 as the maximum cost of “small procurements” that do not require soliciting bids, but MHA’s “small purchase threshold” has been $100,000 since 2012, according to the HUD letter.

Board members said at their May 2021 meeting that they would decrease the threshold to $20,000 in compliance with state law. Lowe said HUD must not have been aware of this.

HUD reprimanded MHA in July 2021 for awarding a contract that risked exceeding the agency’s threshold. MHA would have paid Leon Jones Jr. of Pinnacle Strategy Group a maximum of $160,000 for up to 10 months to investigate Jarmon’s recent complaint against the board. The board awarded the contract without soliciting other bids.

Little Rock HUD field office director Anthony Landecker told MHA that it needed to either terminate the contract or provide documents to prove its legality. One problem with the contract was that it did not specify the source of the funds MHA would use to pay Jones.

MHA terminated the contract after paying Jones $3,900. He sued the housing authority earlier this year, demanding the rest of the $160,000.

The board suspended Jarmon shortly after she filed the complaint and fired her two months later. She was the housing authority’s third of five executive directors in less than three years.

Jarmon is currently suing the agency for wrongful termination.