The San Francisco Controller’s Office released a batch of recommendations for reforming contracting processes within the city’s Public Works Department following a monthslong and sweeping investigation launched in response to the public corruption scandal touched off by the arrest of former director Mohammed Nuru earlier this year.
Overall, the recommendations are intended to shore up weaknesses and identify blind spots within Public Works’ vast contracting apparatus, parts of which Nuru may have exploited.
“Public Works awarded 366 contracts with a value of $1.4 billion from July 2017 to March 2020. We found weaknesses in various department and citywide procurement approaches, concentrated in several contracting methods, that create risks for abuse and fraud,” the Controller’s Office said in a statement summarizing the findings.
“Throughout our review, we found significant lapses in the ‘tone at the top’ created by Mr. Nuru that provided the pressure, rationalization and ability to carry out unethical and unacceptable acts,” the summary said.
Nuru has been charged with fraud over an alleged scheme to bribe an airport commissioner in exchange for a vote to approve a lease for a chicken restaraunt at San Francisco International Airport owned by Nick Bovis, who was arrested alongside Nuru but has since agreed to cooperate with the U.S. Attorney’s Office.
But Nuru’s arrest triggered a still-widening internal probe into wrongdoing at City Hall, particularly around how for years money — possibly directed at the direction of city officials — sloshed between contractors and nonprofits before ending back at Public Works and other agencies for events, including a Public Works Christmas party.
The Controller’s Office and the City Attorney’s Office are conducting parallel investigations into potential wrongdoing within City Hall.
The City Attorney’s Office is focused on rooting out misconduct by city employees. Investigators and auditors with the Controller’s Office are assessing systemic failures that allowed misconduct to occur.
“Our job is to ensure the transparency, accountability and ethical behavior that San Franciscans are owed when it comes to the delivery of city services and the use of their tax dollars.” City Controller Ben Rosenfield said in a statement. “In simple terms, the Controller’s Office is seeking to rectify bad policies and practices that undermine those goals.”
Rosenfield’s office found a number of flimsy practices and legal loopholes within Public Works’ contracting systems that increase the risk of fraud and abuse and made recommendations for how the department, Mayor London Breed and the Board of Supervisors can remedy them.
Supervisor Matt Haney on Monday announced he intended to introduce an “anti-corruption legislative package” based on the report’s findings and recommendations. One piece of that package would end what’s commonly called the “best friends forever” gift exemption, a fuzzy area of city law that allows officials to avoid having to report gifts given by longtime, close personal friends.
“The casual, blatant corruption in our city government goes far beyond Director Nuru. We have to root out the bad actors and change the laws that allow pay-to-play politics,” Haney said.
Haney is also pursuing an initiative for the November ballot that would split Public Works into two departments and create commissions to provide greater oversight and transparency into its inner workings. A separate ballot measure, spearheaded by Supervisor Gordon Mar, seeks to create a dedicated city position solely focused on rooting out corruption and government waste. The measures may face a difficult path ahead, considering the substantial costs they’d likely incur while the city stares down a nearly $2 billion budget deficit brought on by the COVID-19 pandemic.
One of the recommendations from Rosenfield’s office urges the city to undo a 2011 decision by then-Mayor Ed Lee to delegate an enormous amount of authority to approve Public Works construction contracts to Nuru. Lee appointed Nuru to lead the department that same year.
Among the six city departments that approve construction contracts, Public Works is the only one without a commission to provide transparency and oversight into its procurement process. That oversight function rested with Lee — until he decided to transfer it to Nuru, consolidating the power to award major contracts in his office.
Breed, a personal friend and brief romantic partner of Nuru’s two decades ago, said Monday that following the recommendations she reversed Lee’s 2011 decision and assigned oversight authority over contracting to Sailaja Kurella, acting director of the Office of Contract Administration and City Purchaser.
“I know these are the first in a series of recommendations, and we need to continue to identify problematic issues that erode public trust across our city. We have work to do, but we will do that work. Our residents and city workers deserve nothing less,” Breed said in a statement.
This month, federal officials filed criminal charges against Balmore Hernandez, a former Public Works employee who’s now CEO of construction and engineering firm AzulWorks, for allegedly supplying Nuru with $250,000 worth of building materials for his vacation home in Stonyford (Colusa County) in exchange inside information on city contracts.
The controller’s report highlighted that allegation as evidence of the need for greater external oversight for Public Works’ contracting.
Public Works was also able to get around normal contracting safeguards under a program Breed instituted last year meant to speed up the city’s ability to administer homelessness services and build shelters. The department awarded 15 contracts worth $25 million using that sped-up process. Seven of those, worth a combined $10 million, “were awarded through no discernible selection process and are at the greatest risk of fraud or abuse in the award process,” according to the report. The largest of those contracts was valued at $4.7 million.
Acting Public Works Director Alaric Degrafinried reverted back to a more traditional contracting process around homelessness services and structures shortly after he took the helm of the agency in February — one of several policy changes the report said should be continued or even promoted citywide.
The Controller’s Office also urged city policymakers tighten rules surrounding grants — which aren’t subject to the same legal controls as contracts, allowing for less oversight into how they’re administered.