Inspector General blasts JP Finance Authority in scathing audit

The JPFA has been the subject of a series of investigative reports by WWL-TV, with many of the findings of that investigation substantiated by the IG's audit.

The Jefferson Parish Inspector General questioned millions in what he calls wasteful spending by the Jefferson Parish Finance Authority in a scathing audit released Tuesday. The agency provides down payment assistance to would-be homeowners and the IG called its unusual entanglement with parish government, “A breakdown at the highest level of local government.”

The JPFA has been the subject of a series of investigative reports by WWL-TV, with many of the findings of that investigation substantiated by the IG’s audit.

MORE: The real cost of the 'free' JP down payment assistance

The finance authority provides what it calls free down payment assistance “grants” to would-be homeowners in Jefferson Parish, offering up to 4 percent of the cost of the loan. In return, the homeowners pay a higher, premium interest rate and the IG’s auditors calculated that it can add up to 8 percent to the overall cost of home.

In 2016, the agency started requiring a disclosure statement in the closing paperwork telling home buyers they will be paying a higher interest rate for accepting the grant.

But the report said, “Even when the disclosure statement was included, the borrowers were not aware of the premium interest rate associated with the down payment assistance grant.”

The finance authority's current Executive Director Valerie Brolin said lenders have a fiduciary duty to tell the borrowers what the best deal is for them when they look to take out a loan and that the borrowers' credit scores would likely require them to pay a premium interest rate whether they receive the grant or not.

Borrowers do not have to repay the grant if they choose to refinance their mortgages over the life of the loan.

The finance authority is a public trust created to promote home ownership. The agency used to issue municipal bonds, but since the bond market dried up over the last decade, its sole function is to dole out down payment assistance.  

MORE: JP Finance Authority board re-opens director search to battle cronyism concerns

While it does not operate using tax revenue, the agency operates using public funds, millions of which, auditors found were questionably spent.

Similar public trusts operate across Louisiana and the nation using a similar funding structure, in which the homeowner is given a “grant,” higher interest is tacked on for the life of the loan, and that grant is paid back to the authority upon closing.

Just this year, the HUD Inspector General released its own report questioning housing authorities’ funding structure. Congress has taken no action to stop the practice.

In Jefferson Parish, however, the IG’s questions stretch far beyond the agency’s funding structure.

In 2009, before then-Parish President Aaron Broussard went to prison on corruption charges, he hand-picked his special assistant, Terry McCarthy, as the JPFA's first Executive Director.

McCarthy took the job in 2009, pushing his salary to $105,000 a year.

In 2016, McCarthy's total salary and benefits package topped $174,000.

The JPFA is not a parish agency, but a public trust that operates under the umbrella of the Jefferson Parish Council.

Since the 1980's, the employees of the JPFA have been considered protected by parish civil service rules, even though they're not technically parish employees.

The agency's operating expenses are paid by the parish, but JPFA reimburses the parish using its self-generated fees and bond revenue.

Its entanglement with Jefferson Parish government escalated in 2009 when Broussard indicated McCarthy was transferring departments within parish government, not leaving for an outside agency, when he first took the JPFA job.

That allowed McCarthy to continue contributing to the parish retirement system, the Parochial Employees Retirement System of Louisiana, as a parish employee. 

If McCarthy's years of employment with the JPFA had not been added to his retirement calculation, he would not have had the seven years of service required for vested benefits, the audit found.

However, the JPFA Board of Trustees official response to the report says the retirement system clarified in October that PERSLA would have considered McCarthy and the other JPFA workers eligible participants because the parish was submitting their contributions along side all the other parish employees.

But the IG found the intermingling of the two agencies problematic.

"This audit revealed a break-down at the highest level of local government with numerous
failings and deficiencies resulting in unnecessary, unsupported and imprudent
entanglement between the Parish and the JPFA," the IG wrote.

"It's very much like a teenager who says, mom, dad, I want the car. I want the keys to the car. I want you to pay for the gas. I want you to pay for the insurance. But oh, by the way, I'm an adult. I'm separate than you," said Jefferson Parish Council Member Jennifer Van Vrancken, who has been pushing for reform. "They need to grow up. They need to be their own entity."

McCarthy announced he would retire in the wake of WWL-TV's series of investigative reports on the agency.

MORE: Jefferson Finance Authority head retires 4 months after stories about agency's spending

The JPFA Board of Trustees chose Brolin to replace McCarthy. She was hired as an employee of the JPFA, not Jefferson Parish. Like McCarthy, Brolin previously worked as an administrative assistant for a parish president, in Brolin's case, President Mike Yenni.

Her status as an employee is one of the corrective actions being taken or considered by the administration in response to the IG's findings.

"The Administration has been working to assist the Jefferson Parish Finance Authority with becoming more independent. The Authority has been reliant on the Parish for over 35 years. The Administration has been working in concert with the Council, the Authority's board and the new Executive Director to accomplish this. With this cooperative endeavor, we will enjoy great success in this regard, and the Finance Authority will continue to provide the customary excellent service it has historically provided in an independent fashion," said JP Chief Operating Officer Keith Conley in a statement.

McClintock's report also questions more than $2 million in spending by the agency on professional services with no contracts and legal opinion fees paid to its general counsel, attorney Rob Konrad, in addition to his $3,500 monthly retainer. 

In 2016, the agency spent $407,126.71 on professional services, according to the report, more than half of its total operating expenses.

"In 2016, the JPFA received operating income of $181,000. That year, JPFA spent a total of $668,000 in operating expenses, including the above mentioned payroll costs and professional service fees," the report reads.

The agency does have a significant fund balance, and disputed the claim that it's consistently operating in the red. In their response to the report, JPFA's numbers show $1.879 million in net cash flow for 2016.

The authority is governed by an 8-member Board of Trustees, which holds weekly meetings to sign off on the handful of down payment "grants" the agency issues. WWL-TV found those meetings last an average of about 15 minutes. 

Each trustee is paid $150 per diem for every meeting of the board, every committee meeting, every luncheon and every day they spend traveling at conferences.

In all, the JPFA paid trustees $58,000 in per diems in 2016, something the IG called "excessive." 

"If you look at the board meeting minutes, it's the same thing every week. There is nothing new. I don't know how you could look at these meeting minutes and not feel they only need one meeting a month," Van Vrancken said.

According to McClintock, no other finance authority in the state meets weekly.

Some of the trustees, including Marcy Planer, have pushed to change the frequency of meetings, calling the weekly gatherings unnecessary, but the official response from the JPFA defended the practice.

"While the authority disagrees with some of the findings, the authority will work with the administration to make sure it works with the utmost integrity," Brolin said.

Jefferson Parish Finance Authority Public Audit Report

© 2018 WWL-TV


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