Rules weren't followed in Detroit's demolition program, audit reports

Detroit — Unreliable data, lack of documentation and failure to meet contract requirements are among critical concerns flagged in a newly released audit of city-funded demolition work.

The audit, filed with the city Friday and penned by Detroit's Office of the Auditor General, covers a range of findings. They included allegations the Detroit Building Authority, which manages the program under an agreement with the city's Housing and Revitalization Department, did not meet contract requirements or comply with city policies and procedures, state and other local rules.

In the report, Detroit Auditor General Mark Lockridge also cites a lack of documentation to support payments, disorganization and "unreliable" data and concludes the building authority failed in its role as program manager.

Mayor Mike Duggan has made the demolition of abandoned homes a cornerstone of his administration. Since spring 2014, Detroit knocked down more than 19,000 houses. Of those about 12,000 were razed with federal funds. But the effort came under review of city, state and federal officials amid concerns over soaring costs and bidding practices.

The report from Lockridge comes amid a push by the Duggan administration to put a $250 million bond proposal before city voters this spring to help wipe out the rest of Detroit's blighted properties by the middle of 2025.

Lockridge stressed Friday the timing of the audit’s release has nothing to do with the bond issue, as evidenced by the fact the office was prepared to do it as early as February.

“It cannot be implied that we’re doing this just to appease anyone," he said. "We are here for a reason. We are dedicated to the city. We take our job seriously."

 The mayor's request to put the ballot measure before voters is currently being debated by Detroit's City Council.

In his report, Lockridge noted contractors did not adhere to timelines set in demolition contracts, comply with some city, state and other local rules or provide proper documentation for landfill and backfill receipts.

A Detroit News investigation in September revealed a lack of controls allowed demolition contractors to charge the federal government whatever they wanted for more than two years for dirt used to fill holes at demolition sites. 

The building authority and other city agencies, the audit adds, did not fully comply with the city's dangerous buildings and demolition processes and other relevant laws and regulations.

"The reporting for city-funded demolitions (including costs), lacks transparency, accuracy, and completeness," the report reads. 

While the audit was initiated more than two years ago, the Duggan administration admitted in recent weeks the data it provided for the review was flawed, Lockridge said.

"To me, that just speaks to the lack of effectiveness of their system," he said. "They are not taking ownership of their flawed data that they gave us."

On Friday, the city's administration rejected the audit's conclusions.

Detroit Building Authority Director Tyrone Clifton on Friday wrote the audit “failed to help us move forward” and provided an “unreasonable critique of a demolition program that has long since evolved.”

Clifton specifically criticized a sample set from demolitions in 2014 and 2015 as being outdated and said it would lead to confusion and undermine the report's credibility.

Clifton accused Lockridge's office of basing its "sweeping conclusions" on non-representative data.

He blamed the data concerns on a data set pulled together by a "junior staffer" from the building authority.

But the auditor's office stood by its report, saying it only included properties it determined were city-funded.

The audit serves as the latest installment of a years-long probe of the city’s controversial demolition activities.

Detroit's City Council first requested a broad evaluation of the program in the wake of bidding concerns and spiraling costs tied to federally funded demolition in the city that came to light in fall 2015.

Lockridge's audit encompasses demolition activities from Jan. 1, 2014, to Dec. 31, 2018, and focuses on activities and transactions "deemed as high risk" for "internal controls, public safety, safeguarding assets," and areas, it says, where there is a "high probability of misappropriation and/or fraud."

The audit focuses on the administration of city-funded demolitions contracted primarily through the city's Housing and Revitalization Department, with oversight and management by the building authority.

The auditor began focusing on contract administration of city-funded demolitions in February 2017 and notes during the course of the work, there were "significant delays in receiving documentation."

Those delays, Lockridge said, prompted two rounds of subpoenas being issued to the building authority.

One requested item was how much the city had spent supplementing demolitions funded with federal Hardest Hit Fund dollars and performed by the Detroit Land Bank Authority, which manages the federal demolition efforts alongside the building authority.

The auditor, to date, has not received a response, the report notes. 

Ultimately, the auditor tested 47 properties out of a sample set of 96. The audit found 29% of the information was not accurate pertaining to funding sources and the type of demolition.

Under the charter, the auditor's office makes recommendations, and if it finds evidence of fraud, waste or abuse, it's empowered to turn over information to the city's inspector general or outside law enforcement. 

While the auditor has not referred the report to another agency, one identified property has been forwarded to the inspector general for review.

The auditor's office initially sought contract information on 34 properties selected during previous audit work on the city's bid processes relating to demolitions. Those initial findings were presented to the impacted city departments in June 2018, and the auditor's office released an interim draft in February.

The response from the departments was that the sample of the selected properties had been "old and stale," and "did not include new processes that had been put in place to correct documented and reported issues," according to the audit.

The auditor later agreed to "roll forward" its work through Dec. 31, 2018. Still, it encountered delays in receiving information on a new sample, the audit notes. 

In August 2015, a two-year demolition management agreement was executed between the building authority and the city, through its Housing and Revitalization Department and Building Safety Engineering and Environmental Department.

A similar agreement was in place between the building authority and Detroit Land Bank Authority for federally funded demolition efforts.

Both agreements empowered the building authority to serve as the program manager and to coordinate and implement the demolition program on the city's behalf.

A new, three-year demolition agreement with the building authority was approved by Detroit's City Council in July and runs through Aug. 18, 2022.

The city administration has proposed setting up a demolition department to manage the program and subsequently cancel or revise the city's demolition contract with the building authority.

City-funded demolition is paid for through a variety of sources including dollars allocated through Detroit's debt-cutting bankruptcy plan of adjustment, block grant dollars, fire insurance escrow monies, Neighborhood Stabilization Program dollars and other private funds.