DETROIT – Detroit's demolition program is back on track, as funding has been restored and abandoned homes are being knocked down in the city.
But new documents have surfaced that uncover a big secret. The state of Michigan went to the FBI in 2016 to report possible bid rigging and over-billing by the Detroit Land Bank.
The new documents are part of a discovery in a lawsuit, and they show that the state agency in charge of distributing millions of dollars for demolition conducted an audit, and they didn't like what they saw, so they took it to the FBI.
Detroit Mayor Mike Duggan held a press conference last October to say Detroit make a mistake in the demolition program.
"I was very disappointed by some of the things I learned, and we just need to fix them," Duggan said.
The Local 4 Defenders have learned what was going on behind the scenes. The agency dolling out funds was doing an audit and activist Robert Davis sued to get details.
"The most shocking (thing about) this is the fact that here they are identifying a big rigging issue and they fail to alert the citizens to say, 'Here's the result of our findings,'" Davis said.
These are excerpts from the August meeting memo:
"Update on audit: Have been digging into the Detroit Building Authority and the findings are not very good. Possible bid rigging going on. Funding has been immediately suspended."
"Mayor Duggan has been advised that all funding has been pulled and we are in the process of figuring out who may be involved."
"At this time, nothing has gone to the media, but when and if and should, MSHDA has prepared a statement if needed."
Davis accused the city and state of failing to be transparent.
"Nearly a year to a year and a half ago, discovered there was some possible big rigging going on with the city of Detroit demolition program," Davis said.
In October, there were more revelations.
Here is more from the memo:
"Not sure how long the audit will continue and may continue after all information has been turned over to the FBI investigation."
"Mayor of Detroit will pay back all money due and will not be paid with federal funds."
This is from the December memo:
"Treasury scheduled a meeting in Chicago for Jan. 4 with Detroit mayor, and the outside council. MSHDA will not be attending. There was great concern that no MSHDA officials will be attending and felt that at least one should be involved in this meeting."
The mayor's office said he has been consistently transparent in admitting mistakes, pointing specifically to last October's press conference.
"The speed in which we went outstripped the controls we had in place," Duggan said in October 2016.
The treasury demanded new strict controls, stronger than any other city in the country, and they are clearly satisfied that today all rules are being followed. They recently awarded the city another $88 million for demolition.
Here is a statement from Detroit Land Bank Authority Board Chair Erica Ward Gerson:
"MSHDA had a responsibility to conduct a very thorough audit and consider every possibility, which it clearly did. At the end of an exhaustive audit process that lasted several months, MSHDA did not find any bid rigging.
"We worked closely with the State to implement a series of new internal controls. Since those improvements were put in place, MSHDA and the Treasury Department have released another $130 million to continue the demolition program and MSHDA has fully released us from any claims regarding the bid process."
Here is a timeline provided by a city spokesman John Roach:
June 7, 2016: DLBA board hired Experis-Finance, a management consulting and forensic audit firm, to audit DLBA processes and procedures.
July 2016: DLBA was advised the MSHDA auditors had uncovered potentially ineligible expenses. DLBA board directs Experis to review the ineligible expenses identified by MSHDA.
Aug. 4, 2016: DLBA internal report identifies approximately $1 million in expenses billed to MSHDA that were potentially ineligible for reimbursement; nearly all of which were incurred over a nine-month period between June 2015 and Feb. 2016
Aug. 4, 2016: DLBA sends internal report to MSHDA
Aug. 15, 2016: Treasury suspends Detroit demolition program until additional controls were put in place.
Aug. 17, 2016: MHA meeting at which auditors discuss preliminary findings and express concerns over DLBA practices and indicate funding has been suspended.
August to October 2016: DLBA works with MSHDA to implement new procedures and stronger controls at both the DLBA and DBA.
- Two MSHDA employees housed at the Land Bank and Detroit Building Authority.
- Established a $5 Million escrow account fund to assure payment of demolition costs not eligible for HHF funding.
- Demolition bid packages restricted to no more than 50 houses.
- Contractors required to disclose the names of all subcontractors
- Contractors required to limit markup work performed by subcontractors by no more than 10%
Oct. 14, 2016 - MSHDA signs off on DLBA/DBA procedures and treasury releases $42 million for Detroit’s demolition program (HHF 4).
Oct. 17, 2016: Mayor Duggan holds press conference announcing that federal government has released $42 million for Detroit and demolitions would resume and new controls and procedures had been put in place during the suspension.
Oct. 19, 2016: MHA meeting discussed an update on the audit indicating they have identified 50 or more DLBA/DBA staff to interview. Discuss Treasury’s release of HHF4 funding.
Oct. 27, 2016: DLBA chair Erica Ward Gerson holds press conference to announce plans to repay MSHDA $1.3 million to cover identified improper billing, but still disputes other overbilling claimed by MSDHA.
Dec. 21, 2016: MHA meeting notes: "Treasury scheduled a meeting in Chicago for January 4th with the Detroit Mayor, and the outside counsel"
Jan. 4, 2017: Mayor attends a meeting in Chicago with MSHDA legal counsel Holland & Knight and auditors Ernst & Young in efforts to negotiate a settlement over the outstanding disputed invoices.
Jan. 31, 2017: Mayor holds press conference announcing partial resolution on MSHDA billing disputes, but plans to go to arbitration to resolve the rest.
May 31, 2017: Treasury Dept. releases $88M in demo funds (HHF5) to the city.
June 22, 2017: Mayor and DLBA Chair Erica Ward Gerson holds press conference to announce agreement with the state to settle billing irregularity issues and the terms of the agreement.