Memo 033-2013 MBCD and its Operations MIAMI BEACH
OFFICE OF THE CITY MANAGER
MEMORANDUM
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TO: Mayor Phillip Levine °
FROM: Jimmy L. Morales, City Manager - Co
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DATE: December 16, 2013
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SUBJECT: Miami Beach Community De elopment Corporation and its Operafions..o �
The purpose of this memorandum is to apprise you of an ongoing review of Miami Beach
Community Development Corporation (MBCDC), the City's sole Community Housing
Development Organization (CHDO) until this year; its dealings with the City; and its use
of U.S. Department of Housing & Urban Development (HUD) funds. In addition, we hope
to inform you of actions that may need to be considered in the coming weeks to
safeguard certain City assets and funds. This update is being provided because MBCDC
has been unable to provide satisfactory explanations to issues raised, and the City is
facing a HUD-mandated timeline for the completion of The London House Apartments
by March 8, 2014.
Staffing Impacts
In May of this year, Anna Parekh, the City's former Director of Real Estate, Housing and
Community Development, had approached an employee requesting that he sign
timesheets for the Neighborhood Stabilization Program (NSP). Ms. Parekh asked that he
sign timesheets indicating that he had worked for the Program when, in fact, he had not.
Upon hearing this allegation, the City Manager's Office and Human Resources
investigated the matter and obtained corroboration of the allegations from Ms. Parekh.
Ms. Parekh was immediately terminated on May 23, 2013.
As a result, the Administration assigned Assistant City Manager Kathie Brooks, Tourism,
Culture and Economic Director Max Sklar, and Community Services Director Maria Ruiz
to assume oversight of departmental operations for the Office of Real Estate, Housing
and Community Development. Asset Management and the Redevelopment Agency
were reassigned to the Office of Tourism, Culture and Economic Development. Housing
& Community Development•and Homeless Outreach were assigned to Ms. Ruiz.
Staff immediately began a review of operations, contracts, and existing projects
receiving funding. Shortly thereafter,' staff discovered fiscal and operational
discrepancies with respect to the City's dealings with MBCDC. The Administration has
shared these findings with HUD.
On July 31st, the staff met with Rocio Soto, an employee in the Housing and Community
Development Division. Ms. Soto was asked to explain why she and Ms. Parekh had
routinely processed reimbursement requests from MBCDC without the required back-up
documentation, including cancelled checks and evidence of procurement, among other
December 16, 2013
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items. The replies provided were, in some cases, insufficient and, in others, contradicted
what was found in City e-mails. Ms. Soto asserted that she was following orders in the
conduct of her job. She resigned after the meeting.
On September 23rd, Mr. Brian Gillis, Community Development Specialist, submitted his
resignation, effective immediately. Mr. Gillis had administered the City's Community
Development Block Grant (CDBG) program as well as the Economic Development
Initiatives (EDI) program, among others.
The Administration provided support to the ongoing review by assigning staff from the
Office of Internal Audit to assist Housing staff in the review of current MBCDC projects.
In addition, Mr. Alex Ballina, formerly with Miami-Dade County's Housing Division, was
hired to replace Mr. Gillis to oversee the City's CDBG program.
Issues Identified
In the course of its review of contracts and departmental operations, the Administration
discovered serious discrepancies in invoices submitted by MBCDC in 2011 and 2012 for
reimbursement to the City's EDI grant for The London House Apartments. The London
House Apartments is an affordable housing rehabilitation property currently under
construction, and acquired using City Redevelopment Agency (RDA) funds, and located
at 1965-1975 Washington Avenue. The project was the subject of the City's $514,500
request for EDI funds. Among the receipts submitted for reimbursement by MBCDC
were architectural and insurance costs incurred as far back as 2007; fully four (4) years
before the execution of the City's contract for funding.
On July 24th, when the Administration discovered a pattern in which HUD rules were not
complied with by Housing and Community Development staff and/or MBCDC, the interim
management team met with representatives from HUD's Miami Field Office to
proactively share initial findings and assure HUD that the City was working cooperatively
with law enforcement to investigate the matter fully. Since then, the City has only
processed MBCDC reimbursement requests which have been properly documented and
associated with the Barclay Apartments elevator repairs. No other project funds have
been provided to MBCDC since that date.
The dated nature of the MBCDC receipts for The London House Apartments prompted
the Administration to request the project's payment history from Florida Housing Finance
Corporation (FHFC) and Miami-Dade County, additional funders of the project, and
compare MBCDC expenses submitted. Records show that the City reimbursed MBCDC
for expenses charged to, and paid by, FHFC in the amount of$292,268 (of the $347,824
disbursed by the City). Evidence of this double-billing has been provided to HUD.
The City awarded MBCDC $1,327,579 in NSP3 funds. To date, MBCDC has received
$615,915 in NSP3 funds, and has yet to provide a full accounting of the funds advanced.
The City is required to fully expend funds on The London House Apartments and
produce the completed affordable housing project by March 8, 2014. If the project is not
completed on time, HUD may deem the City in default and seek recapture of the full
funding award. The City has been exploring the ramifications of MBCDC's actions, and
the possible liability associated with the EDI and NSP3 funds committed to the London
December 16, 2013
Page 3
House Apartments. At this point, the City has a possible liability to HUD in the amount of
$1,842,079 (NSP3, CDBG and EDI)for this project.
Please note that, until May 23, 2013, MBCDC had been requesting advance draws for
its City-funded projects instead of standard reimbursement requests as is required of all
other City-funded sub-recipients. Advance draws require the prompt expenditure and
subsequent submission of receipts for payments made. Unfortunately, the City did not
always receive the required documentation of expenditures as required.
On September 30, the City did not renew MBCDC's annual CHDO recertification
because of concerns raised in the agency's financial statements and audits. According
to its latest audit, MBCDC has a decrease in net assets of $2 million despite having
grown its portfolio of debt-free assets and increasing its rental unit inventory.
As such, the Administration has reached out to MBCDC and informed the agency of its
desire that MBCDC return the London House Apartments to the City. It is the City's
intent to collaborate with HUD to prevent the City's default and subsequent possible
recapture of funds.
On December 5th, Denis Russ, now Acting Executive Director of MBCDC, advised the
Administration that Mr. Roberto Datorre, MBCDC's Executive Director for the past 10
years, submitted his resignation effective immediately.
In light of these events, the Administration intends to retain the services of an outside
auditor to provide an independent audit of MBCDC to ensure transparency, compliance
and legitimacy as well as proactively protect City interests. We will continue to keep the
City Commission apprised of efforts.
Cc: Vice-Mayor Deede Weithorn
Commissioner Michael Grieco
Commissioner Joy Malakoff
Commissioner Micky Steinberg
Commissioner Ed Tobin
Commissioner Jonah Wolfson
Jose Smith City Attorney
y
Kathie G. Brooks, Assistant City Manager
Raul Aguila, Chief Deputy City Attorney
Maria Ruiz, Interim Housing Director
LM/KGB/MLR