Investigations continue into fiscal mismanagement, lack of oversight
While the furor over inappropriate spending at the Maine State Housing Authority has faded, one large expense still stands out: $7.1 million has been paid over eight years to just two consultants for MaineHousing’s computer systems—and the systems are still not done.
The MaineHousing Board of Commissioners has authorized a forensic audit to determine if the $7.1 million was a legitimate expense.
With the media frenzy around the resignation of former MaineHousing executive director Dale McCormick and revelations in TheMaineWire.com about inappropriate spending on travel, parties and a failed one-million-dollar “carbon credit” scheme, the MaineHousing board didn’t have time to look into all of the financial issues that came up.
But the hefty expense for computer systems leaped out at the commissioners, even before they became embroiled in the controversy over McCormick’s management of MaineHousing.
“Seven million dollars. That’s a lot of money—and it’s not done yet,” said Peter Anastos, chair of the MaineHousing board of commissioners. “We’re having a hard time figuring out where the money went.”
The board learned that MaineHousing has spent over $7 million since 2005 on two major computer systems, MERAC and ECOS. Most of that budget went to two vendors: John Joseph, principal of JAI Software in Hallowell, and Lynn Kinney of Kinney Consulting & Associates, an IT consultant.
According to its website, “JAI has successfully designed, developed, implemented and now maintains major software applications.” The only three JAI products listed on its website are MERAC, the Maine Energy Assistance and Conservation application used by MaineHousing; ECOS, the Energy Conservation Online System used by MaineHousing; and CARTS, the Community and Regional Transportation Services program that manages transportation services provided by the Kennebec Valley Community Action Program.
MERAC is a centralized application used by the MaineHousing to manage the Low Income Home Energy Assistance Program (LIHEAP).
ECOS is an application at MaineHousing that was designed to support the U.S. Department of Energy’s Low Income Weatherization Program. ECOS tracks the process from client selection and energy audit to final billing and monitoring of weatherization jobs.
“The U.S. Department of Energy has approved ECOS after an extensive review of the software and associated documentation,” according to the JAI website. “JAI prepared the documentation for this approval and assisted in fielding all technical questions from the U.S. DOE and their consultants.”
Lincoln Merrill, a MaineHousing commissioner who is president and CEO of Patriot Insurance Company, said his company, which is about the same size as MaineHousing, implemented a new, custom-built computer system that has to handle vast amounts of customer information and complicated policy data, plus it had to incorporate 10 years of information from another agency that Patriot acquired.
“We did ours for a million bucks,” he said. “They did theirs for $7 million. What in the world were they getting for that? It seemed like such a big number.”
Merrill said the commissioners knew they could not conduct an audit themselves. “We’re not experts,” Merrill said. “We don’t know what we got. We don’t know if the amount of money we paid was fair. I just know it’s a staggering amount of money for a computer system—which, by the way, still isn’t done.”
Although the computer systems work well and the staff seems to like them, the board was concerned about the high cost. “Did we pay three times more than we should have?” Merrill said.
Since he knew that MaineHousing was not always diligent in making contracts with clear costs and clear expectations, the high cost of the computer systems nagged at Merrill. “It could have allowed the opportunity for milking the system, letting projects drag on for too long or letting the expenses go too high,” he said. And the timeline for finishing the system was nebulous.
During the winter and spring of 2012, MaineHousing was caught up in a whirlwind of press coverage, after The Maine Wire revealed lavish spending on gift cards, staff parties, massages and luxury hotels, as well as millions of dollars spent on a failed “carbon credit” cap-and-trade scheme.
These reports led to questions from the Maine Senate and eventually a new law that gave the governor and legislature more oversight over the agency.
Amidst the turmoil and questions surrounding spending practices and management deficiencies at the agency, former executive director Dale McCormick resigned on March 20.
Since that time, the state’s Office of Program Evaluation & Government Accountability (OPEGA) and the U.S. Dept. of Housing and Urban Development (HUD) have initiated investigations of MSHA, and the board has been working to put financial controls in place.
The Inspector General of HUD has ruled that MaineHousing must pay back almost $200,000 because it paid for housing assistance in units in Norway, Maine that failed to meet HUD’s standards. The Inspector General found that MaineHousing did not have adequate oversight of its contractors or their inspectors for housing units, and it did not have effective internal quality controls for its own inspectors.
As a result, taxpayers paid at least $194,956 in housing assistance payments for tenants who were living in units that failed to meet quality standards. Maine taxpayers must now pay back that money. A new executive director has been hired to run MaineHousing, internal controls are being strengthened and the board is combing through the budget.
“But this big bogey remains out there,” Merrill said.
The commissioners voted to seek an outside consulting firm to audit how much work has been done on the computer systems and what payments have been made, to review contracts and documentation and to determine if MSHA got what it paid for.
“Did we or didn’t we get what we needed, and did we get it at a fair price?” Merrill said. “If we did, fine. It may be a staggering amount of money, but if an independent firm tells us that it’s a good deal, then all right. If they tell us we got hosed, then we’ll have some further discussions about it.”
Merrill said work on the computer systems started in 2005; as of June 2012, MaineHousing has spent over $7 million. “And it’s still not done,” he said. “The spigot has not turned off yet.”
Donald F. Capoldo Jr., a MaineHousing commissioner and executive director of Plant Memorial Home in Bath, said the commissioners agreed unanimously that they should get an outside firm to do the audit.
“None of us are qualified to ascertain whether $7million paid to two vendors over a eight-year period was appropriate,” he said. “The staff seems to really like the system. It is not complete. Should it be complete? Did we get what we paid for?”
Capoldo said MaineHousing has averaged over $800,000 on computer-systems spending for each of the past two years. “And annual invoice totals are going up, not down, after eight years,” he said.
During an audit meeting in May with Baker Newman Noyes, MaineHousing’s accounting firm, the board of commissioners learned that while $100,000 was budgeted for computer services last year, $800,000 was spent.
“That actually got the board pretty excited,” Merrill said. “You budgeted $100,000, but spent $800,000 in one year? Who’s in charge here? This is unbelievable. It makes you wonder, where does the money come from?”
Since IT and computer systems are such a specialized and unique field, Capoldo said the board of commissioners felt obligated to find an outside firm that is qualified to conduct the audit.
“What concerned me was how we paid for it,” Capoldo said. “There are grants available for paying for these types of computer expenses, and those same grants provide assistance to tenants. Fuel assistance was one. That was it for me. I run a charitable low-income housing program. The numbers were staggering, and if there was any possible way to do this cheaper, we may have been able to help more people.”
Both Capoldo and Merrill said this is not a partisan issue. When the board was first appointed, Merrill said none of the commissioners knew which party the others belonged to. Although Democrats and the press portrayed the investigations into MaineHousing as a Republican “witch hunt,” the board is concentrating on getting the financial house in order so they can focus on its core mission: helping people in need.
“I pray they find nothing wrong,” Capoldo said. “I hope it is found that the system is worth what we paid and that, in the long run, it will provide more opportunities to assist low-income families.”
Merrill agreed. “We need to focus on core mission, not trading carbon credits or providing dance lessons for recently released inmates,” he said. “We’re supposed to be providing safe and affordable housing to as many people as possible.”