Dozens of current and former employees of the New York City Housing Authority (NYCHA) were arrested earlier this month, slapped with federal charges of bribery and extortion for taking kickbacks from companies getting housing-development contracts. The Housing and Urban Development’s Office of Inspector General (HUD IG) helped conduct the multi-agency investigation leading to the charges. For the details, the Federal Drive with Tom Temin was visited in-studio by IG Rae Oliver Davis.

Interview Transcript: 

Tom Temin And what was the nature of the case? It sounds like pretty old fashioned. Bribery will give you a contract. We get a kickback and la de da.

Rae Oliver Davis Exactly. It’s what you hear. Law enforcement call a pay to play scheme. And what we learned was that superintendents throughout NYCHA were taking bribes in order to award contracts. These were what we call micro purchase, micro purchase contracts, meaning they were they were small repairs, 5 to $10,000. So, the superintendents had autonomy to award those contracts rather than compete them. But often they were asking for two, three, $3,000 bribes on the front end to award the contract. Sometimes people were having to pay bribes to keep the contract or even get the work signed off on the back end. So good old-fashioned pay to play bribery.

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Tom Temin Although $3,000 kickback on something in the 5 to $10,000 range doesn’t seem like a real good deal for the contractors, it’s a wonder they agreed to it.

Rae Oliver Davis You know, it’s work, right? And it gets you to the door in it and it gets you work. Certainly.

Tom Temin Or it shows how much profit there is. And if you can still get away with whole and having paid a third of the thing away in bribes.

Rae Oliver Davis Exactly. You know, we think with the current charges, we’re looking at about $2 million in bribes collectively, I believe.

Tom Temin Yeah. So enough to make a difference in the bribe takers life. Really? If there’s even 70 of them, you know, it’s still a pretty good sum there. And how did that come to light? Was it a whistleblower or what?

Rae Oliver Davis You know, it’s an ongoing investigation. So, I, I want to be cautious about talking about how these charges came to light. There certainly were allegations that that it came forward. And we teamed up with the New York Department of Investigations. Homeland Security Investigations. DoL OIG was involved. Luckily, we had the attention of the Southern District of New York. And we went after these individuals and investigated them. And it resulted in the arrest of 70 individuals, collectively, early morning, 700 agents came in from all over the country to conduct these arrests. So, it was really a quite large operation.

Tom Temin And it sounds like a multi-location operation, because the way you described the New York City Housing Authority, there’s not one place where it all happens.

Rae Oliver Davis No. That’s right. And in fact, I was I went up that morning to be with my agents at headquarters and to monitor the teams as they were out in the field conducting their arrest. You know, some of these arrests took place at 6:00 in the morning at homes. Others were on site when people arrive for work and others were, frankly, at airports. Some people were in transit. So it was, a very large law enforcement effort that resulted in these arrests.

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Tom Temin How high up the chain of command did the bribery go? Was it directors of local offices, or was it pretty much those down on the day to day contracting and management area keeping the housing repaired?

Rae Oliver Davis Well, you know, that’s a good question. And currently the charges are against 70 former and current superintendents. I say current they’re obviously not current now, but they were current at the time. And the matter is ongoing and additional charges might be brought that will be dependent upon our partners at DOJ. My HUD, HUD, OIG agents will certainly continue to support the investigation, and they’ll follow the facts where they take them.

Tom Temin And a couple of background questions. Is New York City Housing Authority the biggest one that HUD deals with it.

Rae Oliver Davis Is it’s the largest housing authority. It services about one in 17 New Yorkers. They’re collectively about 500,000 New Yorkers that live there. So, this had a huge impact on New York. And, you know, Tom, you ask about, you know, the amount of the bribery we talked about, the amount of the contracts. For me, this was really about the public trust, right. Protecting trust in these programs as much as the money. Certainly. You know, I think this certainly had an impact on New York, but something of this scale will draw a reputational risk, and a trust risk from the American taxpayers and beneficiaries throughout the country.

Tom Temin We’re speaking with Rae Oliver Davis, inspector general of housing and Urban Development. And just a basic question why was this a federal matter? I’m presuming that most of the money originated with HUD as grants, to the New York City Housing Authority.

Rae Oliver Davis Well, for us, certainly we we go where the HUD money takes us, and HUD spends about $2 billion a year at NYCHA. So that was that’s easily, when we look in terms of high risk, to the programs, that’s easily a place that we were going. And frankly, you know, as I announced an audit while we were out there at the day of the takedown and we were already looking at NYCHA for this audit when the takedown started to come to fruition, but we backed off a bit because it was a covert operation to let that go forward and now we’re pushing forward with our audit. I was up in New York yesterday from the conference, so we’ll be we’ll be heading out with that.

Tom Temin And the audit will cover what? What was it you were planning to audit in the first place?

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Rae Oliver Davis So again, looking across the HUD portfolio, our portfolio at risk and NYCHA being the largest public housing authority and a tremendous amount of money going there. We’re looking to, you know, spend our resources in the riskiest parts. So, we’re looking at fraud risk management. And this is something that we’ve looked at department wide at the very top within HUD, we’re looking at, is HUD specifically assessing the risk in their programs. And are they mitigating that risk. And are they continuing on in order to form an anti-fraud culture at the department? We found that that HUD at the department level is really just starting out. They haven’t conducted risk assessments within their own programs. Consistently, we’ve heard from the department, either we don’t see fraud in our programs, or we think that that is a job for our grantees. Well, then that causes us to look at NYCHA because it is such a large program participant. So, we’re headed, to look at them in terms of their own fraud risk management. It’s basically the same thing. Are they assessing their risk? Are they continuing to get better with time? And are we ultimately, I think producing this, what I’m going to call an ecosystem around the funding, where we have internal controls that are exceptionally strong, promoting anti-fraud culture. And we as law enforcement, continue doing what we’re doing to get the bad actors out of the program, and we just provide as much protection for money and the tenants as we can.

Tom Temin You have a similar problem or analogous problem, let’s say, to the Labor Department, which disperses money to state operated unemployment fund systems, where there’s a lot of fraud and abuse and so forth. So, it’s kind of a recurring theme federal money, state or local municipally carried out programs, but ultimately there’s still federal taxpayer dollars.

Rae Oliver Davis Absolutely. And we’ve made this fraud risk management a priority recommendation for the department. So, we’ll see what comes of this? The CEO was present yesterday at NYCHA and all of her top executives, and we had a very good dialog. And we’re going to go in and learn what they’re already doing and then see if we can make a recommendation for improvements.

Tom Temin Presuming, she keeps her job. Who knows where this could go, but I won’t ask you to speculate on that one. But what about the big contracts? I mean, you’re talking small potatoes. Just a lot of little bribes over a period of time for, you know, I don’t know, replacing bathrooms or whatever they do for 5 or $10,000. And that must happen tens of thousands of times throughout the vast NYCHA system. But what about, say, contracts to build a new building or a major renovation that might be a multimillion-dollar operation? You really got to watch that one where it might have slightly different and more subtle bribery mechanisms.

Rae Oliver Davis Those are good questions, and I’m hoping that this audit work will reveal, some of the controls that are in place there or the lack of controls. You know, at the meeting yesterday, the CEO had her, chief compliance officer present. And that’s something that is new for NYCHA and comes on the heels of the monitor, the monitor being in place back in 2019. So, we’ll be asking those questions, will be learning what they’re doing for the larger contracts as well.

Tom Temin And it strikes me getting back to the specific case that if they’re taking 2 or $3000 bribes and five and $10,000 contracts, there’s a lot of maintenance potentially, that just doesn’t get done because the money is siphoned off.

Rae Oliver Davis Well. That’s a good question, too. Now, my understanding with the current charges is that we don’t necessarily have allegations that in these particular instances, that repairs weren’t being made. Certainly, living conditions are the utmost important to us, and I’m sure that we’ll be asking those questions along the way. Absolutely.

Tom Temin Because you can see these driving in in New York, you know, you see these gigantic projects, 30 story buildings and ten of them in a row. You really wonder what goes on inside a vast complex like that.

Rae Oliver Davis And, Tom, really, when we’re talking about these micro purchases, the reason the superintendents are given autonomy on the front end is so they could move quickly so they could help improve conditions. That was the policy and theory around giving them their own, authority to award the contracts. But as we can see, people took advantage of that. So, we’ll be looking at that.

Tom Temin Yeah, it’s almost the equivalent of micro card purchases at the credit card. Micro purchases at the federal level. You really need the diffusion of that authority, because you can’t have centralized management of every little, tiny thing, or it would come to a halt at the other extreme.

Rae Oliver Davis Absolutely. You have to have a risk tolerance, and you have to be on the lookout for bad actors at all times.

Tom Temin Right? So, if there’s a poor culture of risk management and anti-fraud controls at that level, it’s a good guess. It could creep up to higher levels. And then next thing you know, you’re talking real money.

Rae Oliver Davis We’ll see. Like I said, we ultimately want to have protection of the funds deterrence and protect the tenant. So, we’ll see where the audit takes us. Certainly.

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