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Soul City
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1523023
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Soul City
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Paul C. Leach Files (Ford Administration)
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The original documents are located in Box 17, folder "Soul City" of the Paul C. Leach
Files, 1974 - 1977 at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
Soul City
OMBE has prounded
190
72
342
73
FORD if LIBRARY 038410
74
333
320
75
For Purpose of Pla, Promote, Develop Industrad
Program
EDA gave water system gront $2 million
Brere Davies 4559
MEMORANDUM
C.S.A. from THE Quern WASHINGTON WHITE HOUSE
FY 1973
# 503,000 grad to asset
in construct office bldg
FY 1974
Towed down on #2.5 million
FY 1975
$93,000
for almon. expenses
FY 1976
Request for alwth93,000
al will probably gave
$ 40,000 (with kiss off).
FORD LIBRARY is GERALD
MEMORANDUM EDA from HITT
THE WHITE HOUSE
WASHINGTON
EdA IS comfortable with progress ad
purposes.
No wheatron of improprieties with
grant from EDA
FORD is LIBRARY 9ERALD
Call Carl Hystad
THE WHITE HOUSE
WASHINGTON
DATE: July 14, 1975
TO:
LYNN MAY
FROM: JIM CAVANAUGH &
SUBJ: Senator Helms & OMBE
FYI
Action X
Please see me on this.
colled Hystad 7/18/75 for
FACTS.
FORD if LIBRARY 0ERALD
7/30
July 11, 1975
MEMORANDUM TO:
JIM LYNN
JIM CANNON
FROM:
JACK MARSH
The attached materials present a number of delicate practical
and political problems. As Russ's memo indicates, GAO is
already looking into this matter.
The President is aware of Senator Helms's interest in this
matter, and asked me to refer the phone memo and attachments
to you for your Reonsideration and suggestions.
I think he would like to have a short report back from OMB and
Domestic Council as to the status of the situation as soon as is
reasonably possible.
Many thanks.
CCI MFriedersdorf
JOM:cb
GERALD FORD LIBRARY
7/30
U.S. SENATOR JESSE HELMS
5107 Dirksen Senate Office Building
Washington, D.C. 20510
202-224-6342
JUI 8 1975
Thought This might be
of inTeresT to you - - -
Clit Kuller
Executive Assistant
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
LIBRARY
FORD
GIVD
RAleish (N.C) News * observer
7/4/75
However. ne sold,
am NUME
not have money and an
working, we will make
McKissick Agency Given Contract
YM
arrangements.
Shipes said he felt that
ing the crew out on the
was not the answer to the
By PAT STITH
Corp. (WRPC), a Soul City en existing minority businesses
$500,000 of that money assisting
vested more than $1 million in
lem because without jo
Staff Writer
MI
planning agency headed by
and help start new minority
McKissick's firms at Soul City
McKissick's Soul City project,
money they would need go
Floyd B. McKissick.
business in Warren, Vance
has been under fire from the
The Office of Minority Busi-
TI
McKissick is the founder of
Franklin, Halifax, Northamp-
Under prior contracts,
House Appropriations Commit-
lness Enterprise (OMBE)
in
Soul City, a government-subsi-
ton and Nash Counties.
WRPC was to have planned
tee.
Washington announced Thurs dized "new town" in Warren The new contract was effec- various-aspects of Soul City,
That committee's investiga-
THE WHITE HOUSE
WASHINGTON
July 7, 1975
MEMORANDUM FOR:
JACK MARSH
FROM:
RUSS ROURKE
R
SUBJECT:
Telephone Conversation With
Senator Helms
Senator Helms is extremely upset over continuing grants to Soul
City, North Carolina. Both Senator Helms and Congressman Fountain
have just called for a GAO audit of government grants to Soul City.
Helms wants all such grants (HUD, HEW, OMBA, etc. ) stopped
until it is determined "how much McKissick and those rascals have
stolen. 11 Senator Helms advised me that both he and his wife
personally drove through Soul City and found no evidence whatever
that any of the grants (now totaling some $17 million) have been put
to any useful purpose whatever. "Soul City Boulevard is nothing
but a bulldozer scraped road with temporary trailers on either
side of the road. 11
Helms recited a $320, 000 grant as the latest example of wasteful
and irresponsible 1.
He is sending today a newspaper article from the Raleigh papers
which further identifies the specifics of this situation.
Helms asks that the White House act to halt any further award of
grants.
FORD LIBRARY
THE WHITE HOUSE
WASHINGTON
July 28, 1975
MEMORANDUM FOR: JIM CANNON
THROUGH:
MAX FRIEDERSDORF
mc
FROM:
BOB WOLTHUIS RKW
SUBJECT:
Soul City Funding in North Carolina
Senator Helms called and was very disturbed by the fact
that Community Services recently funded Floyd McKissick's
Soul City program in North Carolina for $38,000. Helms is
insisting that all funding throughout the administration be
temporarily halted until a GAO study of Soul City is completed.
In our telephone conversation this afternoon he stated that
HUD had terminated funding pending the GAO report but was very
disturbed about Community Services. Senator Helms alleges that
after $7 million all that exists at Soul City is three house
trailers. He suspects that McKissick has Swiss Bank Accounts
that should be looked into.
Senator Helms expressed a very strong desire that he wants to
save the President any embarrassment and, therefore, the GAO
report should be completed before any further funds are put
into the program.
CC: Jim Lynn
Paul O'Neill
FORD is LIBRARY CERALD
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THE MHILE HONSE
THE WHITE HOUSE
WASHINGTON
DATE:
July 29, 1975
TO:
PAUL LEACH
FROM: JIM CAVANAUGH
SUBJ:
Senator Helms & OMBE,
Grants to Soul City, No. Car
FYI
Action
You're already working on
this.
FORD is LIBRARY 07V830
7/30
THE WHITE HOUSE
WASHINGTON
July 30, 1975
MEMORANDUM FOR:
JIM CAVANAUGH
FROM:
PAUL LEACH
SUBJECT:
Soul City
Attached are reports from Bob Hitt, Morton's Assistant at
Commerce and Otto Stolz at, HUD's Community Development
Corporation.
HUD is making no new disbursements of grant money until the
GAO audit is completed.
OMBE has investigated the allegations and found that there
was no conflict of interest. OMBE is continuing to fund
Soul City. Bob Hitt is going to dig into this to make sure
that the OMBE investigation was complete and fair. He is also
looking into EDA involvement.
Art Quern is getting information from HEW and C.S.A.
GERALD FORD LIBRURT
DEPARTMENT OF COMMERCE
U.S. DEPARTMENT OF COMMERCE
Economic Development Administration
UNITED STATES OF AMERICA
July 31, 1975
To :
Bob Hitt
Bill
From:
Bill Henkel
Attached please find some current
material relative to EDA's Henderson, N.C.
(Soul City) project. The information
confirms our conversation yesterday that
EDA is comfortable with the purposes and
progress of the subject project. The
information I developed is routine and
normal.
Attachment
TRANSMITTAL FORM CD-82A (10-67)
PRESCRIBED BY DAO 214-2
USCOMM-DC 1232-P67
U.S. DEPARTMENT OF COMMERCE
EXECUTIVE ASSISTANT TO THE SECRETARY
DEPARTMENT OF COMMERCE
*
UNITED STATES OF AMERICA
To: Paul Leach
From: Bob Hitt
Per our conversation
FORD i LIBRARY 0ERALD
TRANSMITTAL FORM CD-82A (5-75)
USCOMM-DC 434-P75
PRESCRIBED BY DAO 214-2
PROJECT MANAGEMENT DIVISION
DATE:
July 30, 1975
PROJECT BRIEF
Project No.
04-01-01159.1
Project Location:
Henderson, N.C. (Soul City)
Project Description: The project is for construction of a raw water intake in
Kerr Reservoir; a 36" raw water main from the intake to a
new 10 MGD water treatment plant; a 36" finished water
main from treatment plant to Middleburg; with a 20" water
main extending from Middleburg to Soul City with elevated
storage, a 30" water main extending from Middleburg to
Henderson, and a 20" water main extending to Oxford from
Henderson.
Grantee is City of Henderson with Soul City as one beneficiary.
Date Approved:
June 29, 1973
Financing:
Total Project Cost
$12,823,000
EDA Grant
2,140,000
EDA Loan
- 0 -
Other Federal Assistance
- 0 -
Applicant's Funds
10,683,000
Status of Project:
Water Transmission lines substantially complete (ahead
of schedule). Treatment Plant will not be completed until
May 1976.
Attached is an Inspection Report by Mabry S. Morgan of
SERO dated April 2, 1975 with attachments.
1/ Bill see project budget attactivel for complete
breakdown of This
FORD is LIBRARY 076839
- 2 -
As of March 27, 1975, funds in the amount of $4,090,667 have
been expended. EDA is presently processing the first dis-
bursement in the amount of $570,250.00.
As you know, there have been a series of articles in North
Carolina newspapers concerning allegations of improprieties
in Federal Grants to Soul City. Apparently there will be
investigations and audits. The EDA grant is, of course, to
the City of Henderson and to date there has been no indication
that our project will be involved.
Mr. Holmes, City Manager of Henderson, appears to be quite
satisfied with the progress of the work thus far and is aware
of no problems or developments which might complicate or delay
the work. I am in frequent telephone contact with Mr. Holmes
and have requested that he contact me or you immediately if he
becomes aware of any situation which might jeopardize the
success of the project.
For your information and convenience, I am attaching maps,
budget and financing breakdowns, and contractor list for the
project.
Maling Magan
MABRY S. MORGAN
Civil Engineer
Attachments
FORD i LIBRARY 9ERALD
DEPARTMENT
OF
COMMERCE
U.S. DEPARTMENT OF COMMERCE
Economic Development Administration
UNITED STATES OF AMERICA
SOUTHEASTERN REGIONAL OFFICE
1401 Peachtree St. N.E.
Atlanta, Georgia 30303
Date:
April 2, 1975
Reply to
Attn of:
TSD-SERO
Subject:
Project Inspection
EDA Project No. 04-1-01159
Henderson, North Carolina
To:
C. H. Cole
Chief, Engineering Branch
On Thursday morning, March 27, 1975, Mr. Everett Scott, HUD
Engineer, Raleigh, N. C.; Mr. Dick Primm, HUD Labor Relations
Department, Greensboro, N. C.; and I met with Mr. Melvin Holmes,
City Manager of Henderson, N. C. We discussed a labor problem
which Mr. Scott had observed at the construction site of the
raw water intake facility a couple of weeks earlier. Mr. Scott
had observed two employees tieing structural steel reinforcing
bars who were classified and being paid as carpenters. The
carpenter's classification carries a lower wage rate than
structural steel workers. Mr. Scott discussed this with the
superintendent of the construction company and the superin-
tendent stated that the improper classification would be taken
care of. EDA will verify this by checking future payrolls.
In the afternoon, Mr. Scott and I made a construction inspect-
ion on active parts of the project. We visited the elevated
tank site where foundations were being formed for placement of
concrete within a few days. The work was satisfactory.
FORD
No work was being performed at the raw water intake structure
due to recent rains which had raised the water level approxi-
mately 15 feet above normal pool elevation. It was estimated
GERALD
that it will take 3 or 4 weeks to draw down the level of Kerr
Reservoir enough to resume construction on the intake structure.
Work at the water treatment plant was progressing rapidly and
it appears that the plant work is on schedule.
All pipe lines are being installed rapidly and the work is
ahead of schedule with the exception of the connecting main to
the Cities of Henderson and Oxford. The contracts for these
lines were executed on February 24, 1975 and work was to be
completed within 180 calander days.
All construction and clean up inspected to date appears to be
satisfactory. For a project of this size and scope, there has
been a minimum of problems and change orders to date.
EDA PROJECT 04-1-01159
Henderson, North Carolina
PROJECT BUDGET
Grant Offer
Amendment
Actual After All
6/29/73
12/4/74
Bids 2/24/75
Interest
$ 264,000
$ 370,000
$ 370,000
Legal & Admin.
20,000
20,000
20,000
Land
57,000
60,000
60,000
A/E Fees
452,000
717,060
717,060
Incidental to Land
Acquisition
7,000
7,000
7,000
Construction
7,400,000
11,211,831
11,012,140
Contingency
800,000
437,109
396,082
Total
9,000,000
12,823,000
12,582,282*
*Last contracts awarded resulted in underruns, causing
the budget to be less than anticipated on Dec. 4, 1974.
SOURCES OF FUNDS
± %
EDA
$2,140,000
17
HUD
4,022,950
32
State of N.C.
2,795,000
22.2
Henderson
2,535,021
20.2
Oxford
986,191
7.8
Soul City
103,120
0.8
12,582,282
100.0
Total Federal Funds = 6,162,950 = 49%
12,582,282
FORD LIBRARY
EDA PROJECT 04-1-01159
Henderson, N.C.
CONTRACTS AND AMOUNTS
Contractor
Contract
Amount
% Complete
George W. Kane, Inc.
Water Treatment Plant
$3,034,000
24
Roberts Filter Co.
Filters
621,300
O
Bolton Corporation
Plumbing
70,920
34
Bolton Corporation
Mechanical
123,926
12
Watson Electrical
Electrical
410,830
6
Paul N. Howard
Raw Water Intake
1,415,000
48
Charles F. Smith
Water Lines
1,430,976
30
Charles F. Smith
Water Lines
1,216,444.25
77
Blythe Brothers
Water Lines
1,282,899.15
81
Columbus Contractors
Water Lines
695,215
62
Brown Steel Co.
Elevated Tank
378,901.50
16
Blue Contracting Co.
Water Lines
331,738.10
0
Total
11,012,140.60
39.5%
% Construction completed as of March 15, 1975
= 4,353,712 = 39.5%
11,012,140
BERALOR FORD LIBRARY
Boydton
Finchle
in
1
Clarksville
46
Dom
Gasburg
13
(Buggs Island
9
11
Lake)
Ken Res
Vulture
Hill
Lake
Henrico
/
Gaston
Stateme
Townsville
Bullock
Comberry
Wise
COAST
ARCLAS
Stocal
VANCE
Roanoke Rapius
NORTHAMPTON
Williamsboro
Weldon
158
GRANVILLE
Sunnyside
W
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Hutoric
+
7
Holifax
Olewis
158
4
Brooksdale
Liberia
+
SOUTH
15
:
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Hendersom
+
Creek
43
Airlie
Serea
9
RIS ON
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Bryantown
Brieverville,
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:
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301
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42
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95
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3
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254
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6
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58
258
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9
9
Smithfield
58
Birthplace
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210
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50
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Check
I
CHALD CARLOR.
E
KERR
RAW WATER INTAKE
TRANSMISSION
NEW WATER (D) TREATMENT
MAINS
2
PLANT
36"
3
A
A
8
S.R.1371 S R 1371
Manson
7
20"
8
36"
9
20"
30"
MIDDLEBURG
A
sou
o
SITE
PLANT
VANCE
WARREN
CIT
NEW
14
15
16
WATER (or TRANSMISS MAINS
Belltown
Cokesbury
CO.
CO
-
WATER CITY (TO BE CF PLANT
FORD
07V835
THE WHITE HOUSE
WASHINGTON
August 1, 1975
MEMORANDUM FOR:
JIM CAVANAUGH
FROM:
PAUL LEACH Paul
SUBJECT:
Soul City
To update you on Soul City, Bob Hitt reports that EDA is
"comfortable" with the progress of the $2 million part of
the project which they are financing. Art Quern reports
that CSA (confidentially) is phasing out their support
over FY 1976.
Let's talk about what to do with this one.
FORD & LIBRARY CERALD
THE WHITE HOUSE
WASHINGTON
August 5, 1975
MEMORANDUM FOR:
JACK MARSH
THROUGH:
JIM CAVANAUGH
FROM:
PAUL LEACH
SUBJECT:
Soul City
The following information has been gathered to provide you
with a basis for responding to Senator Jesse Helms on the
Soul City situation.
Attached are reports on this project from Bob Hitt,
Secretary Morton's Assistant at Commerce (Tab A) and
Otto Stolz at HUD's Community Development Corporation (Tab B).
The other agencies provided information by telephone.
HUD is making no new disbursements of grant moneys until the
GAO audit is completed.
OMBE (at Commerce) has investigated the allegations and found
that there was no conflict of interest. OMBE is continuing
to fund Soul City.
In addition, the EDA (at Commerce) has financed about $2 million
of this project (public facilities, sewers, etc.) and is
reportedly "comfortable" with the progress.
The Community Services Administration (old OEO) has indicated
confidentially that FY 1976 grant of about $40,000 will be a
"phase out" grant with no more to follow.
HEW (primarily the Public Health Service) has put about
$1.2 million into the project and has nothing bad to report.
FORD is LIBRARY GERALD
UNITED STATES
REPORT OF THE
GENERNY ACCOUNTING OFFICE
COMPTROLLER GENERAL
OF THE UNITED STATES
Information On
The New Community
Of Soul City, North Carolina
Multiagency
This report contains the results of GAO's
review of the financing and operations of the
new community of Soul City, North
Carolina-the project's history; current status;
and sources and amounts of Federal, State,
and local financial aid going directly to Soul
City or to the surrounding municipalities for
the benefit of Soul City.
The report also contains the results of GAO's
examination into allegations relating to the
project and its test of the allowability of ex-
penditures of four Soul City organizations.
DEC. 18, 1975
RED-76-52
CONFEDER GENERAL
COMPTROLLER GENERAL OF THE UNITED STATES
WASHINGTON, D.C. 20548
OR THE OF THE UNITED STATES
B-183353
The Honorable L. H. Fountain
House of Representatives
Dear Mr. Fountain:
In accordance with your March 5, 1975, request and the
agreement reached with your office on March 12, 1975, we
examined the financing and operations of the new community
of Soul City, North Carolina. Specifically, we obtained
information on the project's history, current status, and
sources and amounts of Federal, State, and local financial
aid going directly to Soul City or to the surrounding
municipalities for the benefit of Soul City. We also
examined various allegations relating to the project and
tested the allowability of expenditures of four Soul City
organizations.
As you requested, we obtained oral comments on the
results of our review from the various Federal agencies
and from the Soul City organizations and have incorporated
them in the report.
The results of our review are summarized below and
are discussed in greater detail in the appendix.
HISTORY AND STATUS
Soul City, located in Warren County, North Carolina,
is one of 15 active new community developments authorized
by title VII of the Housing and Urban Development Act of
1970. The Soul City project was first announced in January
1969 by Mr. Floyd B. McKissick, president of Floyd B.
McKissick Enterprises, Inc. A preapplication for a Federal
loan guarantee was submitted to the Department of Housing
and Urban Development (HUD) on April 1, 1969, and the final
application was submitted on February 24, 1971. HUD's
offer of commitment for a loan guarantee was granted in
June 1972.
The project agreement--a contract with HUD which incor-
porates all the legal, financial, and program arrangements
for the new town development--was completed in February
RED-76-52
B-183353
1974. The project agreement provided that the developer
could issue up to $14 million of debentures which the
Government would guarantee.
--Final design has been completed on the underground
utilities. The clearance of the right-of-way was
Soul City's development using federally guaranteed
completed in February 1975, and construction is
funds began in March 1974 when The Soul City Company, the
scheduled to start soon.
developer, sold $5 million of debentures. Subsequent issues
are contingent upon the developer's meeting certain special
-The major roads for Village I are now under construc-
conditions spelled out in the project agreement.
tion and are nearing completion.
There are five other federally assisted organizations
In addition, an industrial building (Soultech I) is
at Soul City--the Warren Regional Planning Corporation
almost finished, and Soul City will be a major participant
(WRPC); the Soul City Foundation, Inc.; HealthCo, Inc.; the
in a regional water system now under construction.
Soul City Utilities Company; and the Soul City Sanitary
District. Other major organizations at Soul City are
ALLEGATIONS RELATING TO THE SOUL CITY PROJECT
Floyd B. McKissick Enterprises, Inc., McKissick Soul City
Associates, and the Madison and McKissick Development
In accordance with agreements reached with your office,
Company, Inc. (See pp. 12 to 18.)
we examined various allegations relating to preferential
treatment in providing Federal assistance, interlocking
As of March 1975, 27 Federal grants, contracts, and
directorships and nepotism, lack of progress, and poor
agreements; 1 loan; and 1 loan guarantee, totaling $19.2
management practices.
million, had been reserved or set aside for those six
organizations. Of that amount, $10.2 million had been
Preferential treatment in providing
awarded and $4.6 million had been spent. In addition, the
Federal assistance
Soul City project benefited from Federal grants totaling
$6.9 million that had been awarded to State, county, and
We wanted to determine whether the Federal agencies had
local governmental units and to a private contractor.
followed their normal procedures in awarding and monitoring
(See pp. 19 to 32.)
the grants, contracts, and agreements; the loan; and the loan
guarantee to Soul City organizations, and if not, the
As of August 1975 physical development at Soul City
reasons for their deviation.
was essentially on target, considering that the loan guar-
antee with the prime developer, The Soul City Company, was
We noted that one agency had awarded a contract before
signed about 18 months earlier.
it established procedures for reviewing and approving such
a contract. We noted also that, although the other agencies
The following were either under construction or in the
had established procedures, several had deviated from them
design stages as of August 1975.
in awarding or administering the grants, contracts, a loan,
and a loan guarantee that benefited the Soul City project.
--Construction began on an interim water system in
April 1975. The system is to supply water until the
1. Deviations from or lack of established
regional water system is in operation.
review and approval procedures
--An areawide waste water treatment study is underway,
The Office of Minority Business Enterprise (OMBE),
and plans for the regional system are to be completed
Department of Commerce, had not established contract review
late in the fall of 1975.
and approval procedures before it awarded a $190,0 letter
contract to WRPC in February 1972. OMBE officials told us
--Construction began on an industrial fire protection
that the Congress first appropriated program funds for OMBE
system in April 1975. The system is being built in
conjunction with a small lake adjoining the industrial
in January 1972. At that time OMBE was considering funding
17 proposals, 1 of which was a WRPC proposal. The official
park.
said that, although review and approval procedures had not
been established, the Secretary of Commerce wanted to
obligate the program funds before the end of the fiscal
2
year. (See pp. 34 to 38.)
3
B-183353
B-183353
free-standing, new community and because there was no
The Community Services Administration (CSA) approved
established industrial base in the vicinity from which it
and funded two grants to the Soul City Foundation in May
could attract growth.
1973 and July 1974 for $502,875 and $93,000, respectively,
before the grants had progressed through their normal review
Because of the risks, HUD imposed restrictive condi-
and approval process. According to CSA officials, the grant
tions on the developer that it did not impose on other new
proposals were not reviewed in accordance with normal proce-
community developers. The loan guarantee for Soul City
dures because CSA headquarters determined that the proposals
was established at $14 million, but the developer was
should be approved and funded before the review and approval
authorized to issue only $5 million of debentures initially.
process was completed. As a result the review process was
Before it could issue additional debentures, the developer
limited to determining whether the necessary documentation
was required to meet certain conditions pertaining to
was in order and whether the proposed activities could be
industrial development, land sales, and onsite construction.
funded under the act. (See pp. 38 to 42.)
(See p. 51.)
2. Grants and loans awarded
4. Relaxation of normal requirements
after the programs were terminated
for Soul City developer
HUD approved basic water and sewer grants and a public
HUD relaxed other conditions normally imposed on new
facility loan totaling about $3.5 million after the Secretary
community developers, and as a result, Soul City's debt-to-
of HUD announced that the water and sewer facilities grant
equity ratio may increase to 9:1, rather than the normally
program and public facilities loan program would end on
required ratio of 4:1, unless the developer is required to
January 5, 1973.
contribute additional equity when it issues additional
debentures. HUD officials said that the developer, when it
The Secretary of HUD told HUD regional and area offices
issues additional debentures, probably will be required to
that no water and sewer grants or public facility loans
contribute additional equity.
would be approved after January 5, 1973, unless (1) the
project application had been rated under the community
HUD requires that the security requirement for a loan
development project-rating system, (2) the application had
guarantee be at least 110 pèrcent of the outstanding obliga-
been determined to be fundable in relation to other appli-
tions at any one time. For Soul City, the security require-
cations and to funds on hand, (3) funds had been reserved
ment was $5.5 million and the collateral used to meet the
for the project, and (4) the project applicant had been
requirement consisted of investments, real property, land
notified of approval, in writing, on or before January 5,
development costs, and proceeds from the sale of the guar-
1973.
anteed obligations. If the value of the collateral account
exceeds the security requirement, the developer can draw
The grant and loan applications did not meet the above
down the excess from the escrow account.
criteria which would have allowed HUD to approve and award
the grants and loan after the termination date. HUD offi-
The basis used in computing the amount of land develop-
cials agreed that the applications did not meet the criteria.
ment costs included in Soul City's collateral account
However, it was their opinion that HUD had a moral obliga-
differed from that normally used for other new communities.
tion to fund the water and sewer grants because in 1972 HUD
HUD's normal procedure provides that, if the developer owns
issued an offer of commitment for guaranteed assistance to
all the project land, all land development costs be included
the new community of Soul City. HUD successfully appealed
in the collateral account. However, if the developer does
to the Office of Management and Budget for release of water
not own all the project land, as is the case, with Soul City,
and sewer funds for several new community projects,
only the land development costs directly related to the land
including Soul City. (See pp. 55 to 60.)
owned are included in the collateral account. In addition,
an allocated portion of the costs incurred for land develop-
3. Special restrictive conditions
ment that are applicable to the total project, such as
imposed on Soul City developer
administrative costs, legal fees, and planning costs, is
included in the collateral account.
HUD recognized that there were considerable risks
inherent in developing Soul City because it was the first
5
4
B-183353
B-183353
1973--and a 4-month operational period beginning September 1,
HUD's deviation from normal procedures permitted the
1973. However, it was not until August 5, 1974, that
developer to include about 66 percent of the land development
HealthCo began seeing patients.
costs in the collateral account rather than the 40 percent
that would have been allowed if normal procedures had been
Part of HealthCo's problem in getting started stemmed
followed. For example, in March 1974 the developer was per-
from its inability to obtain the Public Health Service's
mitted to draw down an additional $417,000.
approval of the clinic until the permanency of Soul City
was reasonably insured by the March 1974 HUD bond closing
HUD officials said that it would not have been equit-
with The Soul City Company. However, notwithstanding this
able to apply the normal allocation formula because the
uncontrollable restraint, the Public Health Service rated
developer owned a relatively small part of the total planned
HealthCo's performance as poor.
project and because its ability to draw down funds from the
escrow account would have been hampered. (See pp. 52 to 54.)
HealthCo's efforts to obtain a permanent building have
changed radically. The building size has been scaled down
Interlocking directorships and nepotism
from 16,000 square feet to about 7,000 square feet, and the
estimated cost has been reduced from $500,000 to $220,000.
A number of allegations dealt with interlocking direc-
(See p. 63.)
torships among organizations at Soul City and with nepotistic
practices of hiring family members in management positions.
In August 1974, when it opened, the HealthCo clinic
treated an average of seven patients a day. This same work-
We found that the allegations related to interlocking
load level prevailed through December 1974. From August
directorships and the hiring of family members by management
through December 1974, the average patient-visit cost was
officials were correct. However, nothing in the rules,
$258. By May 1975 the clinic was treating 31 patients a
regulations, or grant and contract provisions governing the
day, and the workload remained at that level through August
awards made by Federal agencies prohibited interlocking
1975. In August 1975, with such a patient load, the
directorships. Some grants did prohibit hiring family
patient-visit cost was about $44, after deducting fees col-
members to work within the same department of an organiza-
lected from patients and third-party payments. The clinic
tion. None of the family members hired worked in the same
staff consisted of 2 full-time physicians, 1 full-time
department. The family members hired had the education and
dentist, 2 family-nurse practioners, and 18 other support
experience to qualify them for their jobs. (See pp. 60 to
and administrative employees.
65.)
2. Warren Regional Planning Corporation
Lack of progress and poor management practices
WRPC was faulted for its
Some of the allegations made related to the lack of
progress and poor management practices of three of the Soul
--Failing to recruit industry for Soul City.
City organizations.
-Making improper loans to Floyd B. McKissick Enter-
1. HealthCo, Inc.
prises, Inc.
HealthCo, Inc., was faulted for (1) having spent an
-Paying for a life insurance policy on Floyd McKissick
inordinately large amount before opening its doors to the
after he was no longer WRPC's director.
public and (2) not having treated an acceptable number of
patients since starting operations. We found the allega-
--Receiving $274,000 for legal and other services to
tions to be essentially correct, but time has altered some
support the profit-seeking organization, Floyd B.
of the conditions. (See pp. 66 to 68.)
McKissick Enterprises, in its quest of Federal back-
ing for its bond sale. These expenditures may have
HealthCo's first Federal grant from the Office of
been included in Soul City Company's predevelopment
Economic Opportunity was effective July 1, 1972. The grant
costs.
provided for a 14-month preparation period--to September 1,
BERALOR FORD VIBRARY
7
6
B-183353
B-183353
transactions, 86, or about 25 percent, did not meet 1 or
WRPC contracts did not specifically require recruiting
more of the tests for allowability. Of the 86 errors, 67
of industry. However, WRPC did try, unsuccessfully, to
related to the lack of adequate documentation supporting
recruit industry for Soul City.
the expenditure transaction. On the basis of our projection,
at a 95-percent confidence level, the number of transactions
WRPC made improper loans of about $27,000 to Floyd B.
in the universe which failed to meet 1 or more of the tests
McKissick Enterprises before HUD's backing of a bond sale
for allowability ranged from 1,063 to 1,926.
for The Soul City Company--Floyd B. McKissick Enterprises
successor in the development undertaking. The loans were
We also selected a judgment sample of expenditure trans-
repaid as soon as the bond proceeds were received. WRPC
actions on the basis of the nature and size of the expendi-
also improperly paid Mr. McKissick's travel expenses and
tures and their relation to our areas of interest. Using
continued paying insurance premiums on his behalf after he
the same criteria for allowability as we used in the statis-
resigned as WRPC's director.
tical sample, we found that 39, or about 35 percent, of the
113 selected transactions did not meet 1 or more of the
OMBE amended WRPC's contract in June 1973 to authorize
tests for allowability, as shown below. Of the 39 errors
$274,000 for direct support of Floyd B. McKissick Enter-
noted, 29 related to expenditures that had not been made in
prises' efforts to obtain final Federal backing of The Soul
accordance with the provisions of the grants or contracts.
City Company's bonds. Our review showed that WRPC spent
Our examination of HealthCo's and WRPC's records and accounts
about $223,000 for this purpose.
indicated recent improvements but confirmed a need for a more
businesslike approach to purchasing and recordkeeping.
Although it is true that the $223,000 directly
supported a profit-seeking company, it was not included in
The following table shows the dollar value of expendi-
the predevelopment costs The Soul City Company claimed, nor
ture transactions included in our samples and the value of
was it used as a basis for increasing the stated value of
those transactions which we found to be questionable. A
the owner's equity in Soul City properties or for drawing
detailed breakdown by the four Soul City organizations is
down proceeds of bond sales. (See pp. 68 to 71.)
shown on pages 77 to 79.
Soul City Foundation, Inc.
It was alleged that Soul City Foundation, Inc.,
received a $90,000 grant for the purpose of seeking more
Federal moneys. We found that seeking more Federal moneys
was only one of four activities under the particular grant
and that the grantee incurred costs for other activities
covered by the grant. (See p. 71.)
ALLOWABILITY OF EXPENDITURES OF
SOUL CITY ORGANIZATIONS
Using statistical-sampling techniques, we selected 349
expenditure transactions from The Soul City Company, Soul
City Foundation, WRPC, and HealthCo and sought to determine
whether these expenditures had been made in accordance with
the terms and provisions of the grant, contract, or loan
guarantee and whether they were adequately supported by
documentation. We also sought to verify that the goods or
services procured had been received and had been used for
their intended purposes. For this test, we excluded com-
pensation paid to employees of the Soul City organizations.
We made an additional test of payroll transactions, the
results of which are shown on page 83. Of the 349
9
8
B-183353
B-183353
Dollar Value of Questionable Transactions in Samples
CONCLUSIONS
Statistical Judgment
--As of August 1975 the physical development of Soul
sample
sample
City was essentially on target. Although the idea
for a new community was conceived in 1969 and the
Number of transactions sampled
349
113
final application was made to HUD in 1971, it was
not until early in 1974 that the loan guarantee was
Dollar value of transactions
finally executed. Therefore the project, for all
sampled
$802,000
$354,400
practical purposes, has been in existence for only
about 18 months. Because the project was in its
Number of transactions:
initial stages, most of the accomplishments were not
Not in compliance with grant
visible in terms of shops and houses but were evi-
provisions
17
29
denced by more basic amenities, such as roads,
Lacking adeguate documentation
utilities, and social services, required for the
(note a)
67
10
new community.
Goods or services not received
2
|
HUD deviated from its established procedures in
Total
86
39
awarding or administering grants, a loan, and a
loan guarantee in that it made awards after the
Dollar value of questionable
programs were terminated, it relaxed certain condi-
transactions (note b)
$ 44,331
$ 51,883
tions which are normally imposed on the awardee,
and in one instance it imposed more restrictive
requirements on the awardee.
ᵃDocumentation was not adequate for only part of the
expenditures in some cases.
CSA deviated from its established procedures in
that it made awards before the normal review and
ᵇIn some cases only part of the transactions were questioned.
approval process was completed.
Typical examples of expenditures not made in accordance
-Although interlocking directorships and the hiring
with contract or grant provisions and of the lack of adequate
of family by management officials did exist within
documentation for expenditures are
and among the Soul City organizations, these
relationships were not prohibited by the rules,
--payments to Mr. McKissick for travel expenses
regulations, or contract provisions governing the
incurred after he resigned from WRPC,
awards made by the Federal agencies. Furthermore
the agencies were aware of these relationships.
loans to Floyd B. McKissick Enterprises and payments
for consultant services without prior approval of
Many expenditure transactions by WRPC, HealthCo,
the agency responsible for administering the contract,
and the Soul City Foundation were not in accordance
with grant or contract provisions or lacked adequate
-interest and penalty payments to the Internal Revenue
supporting documentation.
Service and to the North Carolina Department of
Revenue for late payment of employee withholding
RECOMMENDATIONS
taxes, and
In view of the serious questions our review raised of
--numerous payments for travel expenses without
expenditure transactions of the Soul City organizations and
sufficient support for the amounts claimed.
the planned expenditures of millions of dollars of Federal
funds by these organizations for the Soul City project,
we recommend that the Secretaries of HUD, HEW, and Commerce
and the Director of CSA:
10
11
353
APPENDIX I
APPENDIX I
Contents
Determine the allowability of grant and contract
expenditures made to date and recover all unallowable
Page
expenditures.
NEW COMMUNITIES PROGRAM
1
Insure that adequate controls exist to prevent such
unallowable expenditures in the future.
HISTORY AND STATUS OF SOUL CITY PROJECT
3
History
3
Project status
6
Perent Sincerely yours B. Starts
ORGANIZATIONS AND INTERLOCKING RELATIONSHIPS
12
The Soul City Company
12
Warren Regional Planning Corporation
12
Soul City Foundation, Inc.
12
Comptroller General
HealthCo, Inc.
13
of the United States
Soul City Utilities Company
13
Soul City Sanitary District
14
Floyd B. McKissick Enterprises, Inc.
14
McKissick Soul City Associates
14
Madison and McKissick Development Company, Inc.
14
Interlocking relationships
16
GRANTS, CONTRACTS, AGREEMENTS, LOAN, AND LOAN
GUARANTEE
19
ALLEGATIONS RELATING TO THE SOUL CITY PROJECT
33
Preferential treatment in providing
Federal assistance
33
Department of Commerce--Office of Minority
Business Enterprise
34
Office of Economic Opportunity--Community
Services Administration
38
Department of Health, Education, and
Welfare--Office of Education
42
Department of Health, Education, and
Welfare--Public Health Service
43
National Endowment for the Arts
49
Department of Housing and Urban
Development--new communities loan
guarantee
50
Department of Housing and Urban
Development--grants and loans pertaining
to sewer and interim water system
55
Grants awarded to Henderson, North Carolina
57
Department of Commerce--Economic
Development Administration
57
Department of Housing and Urban
Development--basic water and sewer
grant
59
Department of Housing and Urban
Development--supplemental grant
60
12
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Page
INFORMATION ON THE NEW COMMUNITY
OF SOUL CITY, NORTH CAROLINA
Interlocking directorships and nepotism
60
Lack of progress and poor management practices
65
NEW COMMUNITIES PROGRAM
Physical development
65
HealthCo
66
Title IV of the Housing and Urban Development Act of
Warren Regional Planning Corporation
68
1968 (42 U.S.C. 3901, et seq.) and title VII of the Housing
Soul City Foundation
71
and Urban Development Act of 1970 (42 U.S.C. 4511, et seq.)
Other allegations
72
established the Department of Housing and Urban Development's
(HUD's) new communities program. The program encourages new
ALLOWABILITY OF EXPENDITURES OF SOUL CITY
community development by providing financial assistance to
ORGANIZATIONS
75
private and public developers. The developers must satisfy
Results of statistical and judgment samples
75
a broad range of economic, social, environmental, and govern-
The Soul City Company
80
mental objectives to obtain financial assistance.
Warren Regional Planning Corporation
81
HealthCo
82
Title IV provided for $250 million in Federal loan guar-
Soul City Foundation
83
antees to new community developers for buying and developing
Payroll audit results
83
land. The guarantee was limited to $50 million for each
project. Title IV also established a program for supple-
SCOPE OF REVIEW
84
mental grants to State and local public bodies associated
with new communities for public facilities, such as water
ABBREVIATIONS
and sewer systems.
CPA
certified public accountant
Title VII expanded the Federal Government's commitment
CSA
Community Services Administration
to the new communities program by doubling the loan guaran-
EDA
Economic Development Administration
tee ceiling to $500 million. It also provided for technical
FHWA
Federal Highway Administration
assistance to help new developers plan and carry out new
GAO
General Accounting Office
community projects. Public Law 93-117, enacted October 2,
HEW
Department of Health, Education, and Welfare
1973, increased the loan guarantee ceiling to $695.5
HUD
Department of Housing and Urban Development
million. The $50 million limit for each project remained
NCA
New Communities Administration
in effect.
NEA
National Endowment for the Arts
OE
Office of Education
With the Federal Government's guaranteeing their
OEO
Office of Economic Opportunity
obligations, developers can borrow long-term private capital
OMBE
Office of Minority Business Enterprise
at considerably lower interest rates than would otherwise
PHS
Public Health Service
be possible. The federally guaranteed loan funds can be
WRPC
Warren Regional Planning Corporation
used for land acquisition and for such land development
activities as installing water, sewer, and utility lines
and constructing roads and sidewalks. However, these funds
cannot be used to build residential, commercial, and
industrial structures.
HUD's New Communities Administration (NCA) administers
the new communities program. NCA reviews applications to
determine whether proposed new community projects meet
legislative goals and conform to HUD's regulations. After
these reviews, NCA reports its findings and recommendations
to the Community Development Corporation's Board of Direc-
tors. The seven-member Board consists of the Secretary
of HUD, five persons appointed by the Secretary, and a
General Manager appointed by the President of the United
1
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
States. The General Manager is NCA's Administrator. The
HISTORY AND STATUS OF SOUL CITY PROJECT
Board decides whether an offer of commitment should be made
to the developer.
Soul City, located in Warren County, North Carolina,
When the Board makes an offer, HUD issues a letter of
is one of 15 active new community developments authorized
commitment to the developer providing for a Federal guaran-
under title VII of the Housing and Urban Development Act of
tee on a specified loan amount, if the developer meets
1970. The maps on pages 4 and 5 show Soul City's location
certain conditions. For example, the developer must prepare
and its present and proposed boundaries.
plans for affording equal housing and employment opportuni-
ties, for encouraging small builders to participate, and
HISTORY
for developing the land. After the developer meets these
conditions, HUD and the developer enter into a project
The Soul City project was first announced in January
agreement. HUD requires the developer to enter into a
1969 by Mr. Floyd B. McKissick, president of Floyd B.
trust indenture with a bank which acts as a trustee for the
McKissick Enterprises, Inc.
proceeds from the sale of the guaranteed obligations. The
trust indenture and project agreement set forth the require-
A preapplication was submitted to HUD on April 1, 1969.
ments and restrictions relating to the federally guaranteed
The preapplication process requires the developer to present
obligations, the developer's general equity and financial
general overall plans for the proposed project. Even though
reporting requirements, and the Government's rights and
general in nature, the plans must be based on sound urban
remedies in case the developer defaults on the obligations.
planning and economic feasibility before HUD will invite a
formal, and much more extensive, final application.
A final application for a $10 million loan guarantee
was submitted February 24, 1971. HUD made a thorough review
of the Soul City application and approved it in June 1972.
HUD engaged an independent consultant to review the studies
submitted with the application and to make additional
feasibility studies. The consultant recommended that Soul
City's loan guarantee be at least $14 million. In June
1972 HUD sent a letter of commitment to Floyd B. McKissick
Enterprises, Inc. (the project sponsor) for a loan guaran-
tee of $14 million for Soul City's land acquisition and land
development. In February 1974 HUD and The Soul City Company
(the project developer) completed the project agreement.
The project agreement is a contract between The Soul
City Company and HUD that incorporates all the legal,
financial, and program arrangements for the new community
development, as well as a 30-year development plan. The
project agreement had to be completed and signed before
any bonds could be sold. The agreement was signed on
February 26, 1974.
The first bonds ($5 million) were sold on March 6,
1974. The $5 million bond issue must be retired by The
Soul City Company. The HUD guarantee assures the lenders
that, if The Soul City Company defaults, the Federal
Government will pay off the bonds and the accumulated
interest due.
FORD
2
3
LIBRARY
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
GENERAL LOCATION OF SOUL CITY
PRESENT AND PROPOSED BOUNDARIES OF SOUL CITY
N
150 MI.
RICHMOND
@
LYNCHBURG
N
PETERSBURG
100 MI.
SR1234 1234
1=85
50 MI.
1/8"
NORFOLK
she
(IRGINIA
1237
NVIL
OXFORD
SOUL CITY
N.
CAROLINA
UL
HENDERSON
.
THE
@ DURHAM
CHAPEL HILL
SE ABOARD
us ARD RAILROAD 1/158 COASTLINE
SR 100
SR 1112
RALEIGH
SR 1113
DAB
GOLDSBORO
1008
FAYETTEVILLE
SR 1100
MOREHEAD CITY
N.
SR 1114
CAROLINA
SOUL CITY PROPOSED
WILMINGTON
30YEAR BOUNDARY
(5,300 ACRES)
PRESENT SOUL CITY
PROPERTY (2,100 ACRES)
4
5
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Under the project agreement, HUD does not permit any
land sales until after it approves certain land covenants.
The Soul City Company sent the final covenants to HUD in
October 1974. During our review HUD was reviewing the cove-
nants, which prescribe the conditions under which land must
be developed and maintained. Until the covenants are
approved, The Soul City Company cannot give a clear title
to land sold. The approval process for the covenants has
taken more time than normal because the covenants initially
submitted were unacceptable to HUD.
PROJECT STATUS
Soul City's development since March 1974, when the
first bonds were sold, has consisted of developing a base
from which the new community could grow. The photographs
on pages 7 and 8 show an aerial view of the project and
the temporary housing used by Soul City employees.
One major accomplishment at Soul City is the construc-
tion of the first industrial building--Soultech I. This
building, valued at $1.5 million, is the first permanent
structure at Soul City. It is planned that space in
Soultech I will be leased to manufacturing industry, to
be recruited by The Soul City Company, which will provide
jobs to area residents, begin to help meet The Soul City
Company's job requirements, and serve as a basis for
is Soultech I is on page 9.
further economic ventures by area residents. A photograph
One of the major developments which will directly
benefit the Soul City project is the Kerr Lake regional
water system--a 10-million-gallon-a-day system costing $12
million. The system, currently being developed, is to be
operative by the summer of 1976. Through the addition of
more pumps and another purification system, its capacity
can be increased to 20 million gallons or more a day. The
regional water system will serve Soul City, Henderson,
Oxford, and other communities in Warren, Vance, and
Granville Counties in North Carolina. The system not only
will provide adequate water for the new community but also
will solve water shortages in these neighboring areas and
the three counties. The project is financed with Federal
remove one obstruction to economic development throughout
grants from HUD and the Economic Development Administration,
grants from the State of North Carolina, and funds
contributed by Henderson, Oxford, and Soul City.
AERIAL VIEW OF SOUL CITY
SEPTEMBER, 1975
6
7
APPENDIX I
FORD LIBRARY GERALD
SEPTEMBER 1975
SOULTECH
9
APPENDIX I
APPENDIX I
SEPTEMBER, 1975
TEMPORARY HOUSING OF SOUL CITY EMPLOYEES
8
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Because of the time required to complete the regional
The Soul City Company has a number of other projects
water system, Soul City needs an interim water system. The
which are in the design phase and which are scheduled to
interim water system, using three wells, will supply 200,000
be started in 1975-76. They include storm drains, streets,
gallons a day to Soul City until the regional water system
and the first residential subdivision. During the coming
is completed. Construction of the interim system began on
housing construction is planned after HUD's approval to
April 21, 1975, and is scheduled to be complete before the
year, of the land covenants. The Soul City Company plans The
end of 1975.
market lots for 84 single-family housing units.
also plans to construct 25 rental units under the
In 1974 Soul City proposed construction of an interim
company section 236 subsidized housing program. As of September
sewage treatment plant. In the fall of 1974, the North
1975 HUD was still reviewing the rental unit proposal.
Carolina Department of Environmental Management approved
the interim plant. However, the treated effluent would go
The Village I activity center now being planned will
into a tributary of a stream which is impounded by Warenton,
include commercial, recreational, and social services
North Carolina, for its water supply. Therefore Warrenton
facilities. Marketing studies for the commercial aspect
officials threatened legal action to halt construction of
of this center are underway. Also planned for the center
the plant, which could cause a long delay in the development
is a community building which will include recreation space,
of Soul City. To resolve this conflict, Soul City; Warrenton;
meeting rooms, a day-care facility, and social service
Norlina, North Carolina; and Warren County have completed
offices. Construction of the community center and the first in
phase one of an areawide waste water treatment study. The
stage of the commercial center is planned to start early
study recommends construction of a regional plant at
the spring of 1976.
Warrenton. The plan for the regional system is scheduled
for completion late in the fall of 1975. Soul City plans
to construct a pipeline to Warrenton and to use Warrenton's
existing facility, instead of constructing a plant to use
until the regional system is completed.
In April 1975 Soul City began constructing an indus-
trial fire protection system in conjunction with construc-
tion of a small lake adjoining the Soul City industrial
park. This involves damming a stream that runs through the
park and constructing a pumping apparatus.
In May 1974 a utility company began preliminary design
of an underground utilities system for Soul City. The
initial bulk feeder design was finalized in December 1974,
and the agreement for the construction of the underground
bulk feeder along Soul City Boulevard was signed in
January 1975. The clearance of the right-of-way was com-
pleted in February 1975. The utility company has indicated
that construction should start in the fall of 1975. Street
lights will be installed at the same time.
The North Carolina Department of Transportation is now
constructing and/or improving the major roads for Village
I (a subdivision of Soul City). Work is scheduled to be
completed in the fall of 1975. The department is construc-
ting Soul City Boulevard--a new road which is being cut
through the planned industrial park on a right-of-way dedi-
cated for that purpose and which will be the main artery
connecting Soul City with U.S. Route 1--and is widening and
paving existing secondary roads to serve increased traffic.
10
11
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
future comprehensive social programs serving Soul City and
ORGANIZATIONS AND INTERLOCKING RELATIONSHIPS
(2) establish immediate programs to meet the needs of the
surrounding area. The foundation has existed mainly on
Office of Economic Opportunity grants, with one special
In addition to The Soul City Company, the developer of
the new town, five other organizations which have received
Welfare (HEW) and small amounts of additional moneys from
project grant from the Department of Health, Education, and
Federal assistance are located at Soul City--the Warren
Regional Planning Corporation (WRPC); the Soul City Founda-
private foundations and businesses.
tion, Inc.; HealthCo, Inc.; the Soul City Utilities Company;
Over the past 4 years, the foundation has operated
and the Soul City Sanitary District. Other major organiza-
summer feeding programs for area youth, summer work-study
tions at Soul City are Floyd B. McKissick Enterprises, Inc.;
McKissick Soul City Associates; and the Madison and McKissick
programs, a 1-year program of supplementary education and
cultural enrichment for junior high school students, health
Development Company, Inc. A photograph of the temporary
facilities housing these organizations is on page 15.
fairs, and a pilot manpower project. The foundation's major
work in the last 18 months has been in (1) planning manpower,
THE SOUL CITY COMPANY
education, recreation, cultural arts, and general social
studies for residents of Soul City and Vance and Warren
The Soul City Company was created in Feburary 1974 to
Counties and (2) developing the first industrial plant,
assume responsibility for developing Soul City. The company
Soultech I.
is charged with overall responsibility for project coordina-
The foundation's plans include (1) locating funding
tion and construction. It is a limited partnership organized
sources to support Soul City until it becomes a reality, (2)
under North Carolina law. As of March 31, 1975, the company
had 25 full-time and 2 part-time employees.
identifying and planning for future educational, recreational,
and social needs, and (3) finding sources of funds to support
WARREN REGIONAL PLANNING CORPORATION
social activities at Soul City. As of March 31, 1975, the
foundation had nine full-time and three part-time employees.
WRPC is a nonprofit entity incorporated in December
1969. Its initial functions were to develop a general land-
HEALTHCO, INC.
use plan for Soul City and to make studies related to the
HealthCo was formed in March 1972 to provide health-care
development of the new community and its impact on the
State planning region. This work was financed through a
services to residents of Warren and Vance Counties. Because
HUD 701 planning grant in cooperation with the State of
of startup problems, the organization did not begin prcvid-
North Carolina and the State Planning Region Council of
ing health care to patients until August 1974. Operating a
Governments. WRPC later received an Office of Minority
temporary clinic, 2 doctors, 1 full-time dentist, 2 family-
Business Enterprise (OMBE) contract to provide technical
nurse practitioners, and 18 other employees now provide
assistance in forming The Soul City Company and in develop-
medical and dental services to approximately 30 patients a
ing various documents and studies necessary to obtaining
day.
the Federal guarantee for Soul City. Under a new OMBE
contract, WRPC is providing technical assistance to
Nearly all the patients are rural residents of Vance
minority and disadvantaged business persons in Warren and
and Warren Counties. In addition, a home health-care pro-
five other counties. One aspect of this activity involves
gram, sponsored jointly by HealthCo and the foundation,
technical assistance to minority construction firms so that
provides skilled nursing services to 25 homebound patients
they will have a chance to participate in constructing
a month in Warren County.
projects both at Soul City and throughout the region. As
of March 31, 1975, WRPC had 12 employees--11 full-time and
SOUL CITY UTILITIES COMPANY
1 part-time.
The Soul City Utilities Company is a nonprofit corpora-
SOUL CITY FOUNDATION, INC.
tion created in June 1973 to construct waste water treat-
ment facilities for leasing to the Soul City Sanitary
The Soul City Foundation is a tax-exempt public foun-
District. The construction is to be financed through a HUD
dation established in March 1969 to plan and develop social
public facility loan to the utilities company and loans and
and human services for residents of Soul City and the
grants from The Soul City Company. The utilities company
surrounding areas. The foundation's mission is to (1) plan
13
12
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
has one employee who currently is paid by The Soul City
Company. As of March 31, 1975, the utilities company had
not received any of the $500,000 public facility loan funds.
SOUL CITY SANITARY DISTRICT
The Soul City Sanitary District is a limited form of
local government which will serve Soul City residents at
least until the new community is incorporated. Established
by the Warren County Board of Commissioners in May 1973,
the sanitary district is governed by a three-member board
originally appointed by the Warren County Board of Commis-
sioners and reelected by Soul City residents in November
1974. The district is authorized under State statutes to
VISITOR'S CENTER AND
PUBLIC AFFAIRS
SOUL CITY COMPANY
operate sewage and water treatment plants, handle garbage
and solid waste collection and disposal, establish a fire
department, levy taxes, and issue bonds to support its
operations. The sanitary district will own and operate the
water and sewage facilities and fire protection system now
being constructed at Soul City. The sanitary district does
not have any employees and as of March 31, 1975, had not
totaling $704,000.
received any funds from its two approved Federal grants
WARREN REGIONAL PLANNING
CORPORATION
FLOYD B. McKISSICK ENTERPRISES, INC.
McKissick Enterprises was the initial sponsor of the
Soul City project. It contemplates being involved in a
broad spectrum of development activities and construction
at Soul City. McKissick Enterprises owns all the limited-
HEAL THCO HEALTHCO
partnership interest in McKissick Soul City Associates and
ation also owns several mobile homes, office trailers,
is a general partner in The Soul City Company. The corpor-
motor vehicles, and other personal property which it leases
to other companies in Soul City.
TEMPORARY FACILITIES HOUSING
SOUL CITY ORGANIZATIONS
SEPTEMBER, 1975
MCKISSICK SOUL CITY ASSOCIATES
formed for the dual purpose of owning a limited-partnership
McKissick Soul City Associates is a limited partnership
interest in The Soul City Company and of borrowing funds to
contribute as equity in The Soul City Company.
MADISON AND McKISSICK DEVELOPMENT COMPANY, INC.
Madison and McKissick Development Company, Inc., is a
HealthCo to use.
corporation organized to design and develop a clinic for
SOUL CITY FOUNDATION
14
15
I APPENDIX
16
interlocking relationships as of March 31, 1975.
Following is a diagram depicting and a description of
organizations. on the board of directors for more than one of the Soul are City
Certain key individuals serve as officers and/or
INTERLOCKING RELATIONSHIPS
I APPENDIX
Soul City--Interlocking Officers and board of directors
Floyd B. McKissick
Floyd B. McKissick Enterprises, Inc.
I APPENDIX
(notes a and b)
Floyd B. McKissick, president
The Soul City Company
Evelyn W. McKissick
Floyd B. McKissick, president
McKissick Soul City Associates
Lewis H. Myers
Floyd B. McKissick, partner
Madison and McKissick Development Company
Gordon R. Carey
Dorothy L. Waller, president
Warren Regional Planning Corporation
T. T. Clayton
Floyd B. McKissick, board member
17
Soul City Foundation, Inc.
Eva Clayton
Eva Clayton, executive director
HealthCo, Inc.
Charles C. Allen
Eva Clayton, board member
Soul City Utilities Company
Dorothy L. Waller
Gordon R. Carey, president
(note c)
Soul City Sanitary District
FORD
Evelyn McKissick, chairman of the board
a
Resigned from HealthCo board on March 26, 1975.
b
Resigned from Soul City Utilities Company board on May 23, 1975.
I APPENDIX
C
Became treasurer and board member of Soul City Utilities Company on May 23, 1975.
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Floyd B. McKissick
(note a)
President, The Soul City Company; board
GRANTS, CONTRACTS, AGREEMENTS, LOAN, AND LOAN GUARANTEE
member (note b), Warren Regional Planning
Corporation; board member, Soul City
As of March 31, 1975, 27 Federal grants, contracts, and
Foundation, Inc.; president and board
agreements; 1 loan, and 1 loan guarantee, totaling
member, Floyd B. McKissick Enterprises.
$19,175,000, had been reserved or set aside for six organiza-
Inc.; board member, Madison and
tions at Soul City. Of this amount, $10,175,000 had been
McKissick Development Company; general
awarded and $4,665,000 had been spent.
partner, McKissick Soul City Associates
Evelyn McKissick
District Chairman of board, Soul City Sanitary
Amount reserved
Federal funds
or set aside
Amount awarded
Amount spent
Lewis H. Myers
Board member, Soul City Sanitary District;
Loan guarantee
$14,000,000
$ 5,000,000
$1,921,721
Inc. assistant director, Soul City Foundation,
Grants
3,601,452
3,601,452
1,781,267
Agreements
208,605
208,605
208,605
864,640
864,640
753,531
Gordon R. Carey
Contracts
Vice president-secretary treasurer, The
Loan
500,000
-
500,000
Soul City Company; president and board
member, Soul City Utilities Company;
Total
$19,174,697
$10,174,697
$4,665,124
board member, Soul City Foundation, Inc.;
vice president and board member, Floyd B.
McKissick Enterprises, Inc.; board
The following tables present details of Federal funding
member, Madison and McKissick Development
for each organization.
Company; general partner, McKissick Soul
City Associates
T. T. Clayton
Vice president and board member, Soul
City Utilities Company; board member,
Floyd B. McKissick Enterprises, Inc.;
board member, Madison and McKissick
Development Company; general partner,
McKissick Soul City Associates
Eva Clayton
Board member, HealthCo, Inc.; executive
director, Soul City Foundation, Inc.
Charles C. Allen
Vice president and general manager,
The Soul City Company; board member,
Warren Regional Planning Corporation
Dorothy L. Waller
Treasurer and board member, Soul City
Utilities Company; secretary and board
member, Floyd B. McKissick Enterprises,
Inc.; president and board member,
Madison and McKissick Development
Company
ᵃUntil May 23, 1975, was also president and board member
of Soul City Utilities Company.
bResigned as chairman of board on April 10, 1975.
18
19
The Soul City Company
I APPRENDX
Status of funds as of March 31, 1975 (note a)
Government agency
Date
Awarded
Spent
Purpose
HUD--New Communities
2/26/74
ᵇ$14,000,000
$1,921,721
Loan guarantee for land
Administration
acquisition and
development.
aAs of August 7, 1975, the following proposals had been submitted to, but not
approved by, the grantor.
20
Request for grant funds totaling $4,033,612 from HUD's New Communities
Administration for various purposes, such as parks and recreation.
-Request for grant funds totaling $28,032 from the Department of Transporta-
tion's Urban Mass Transportation Administration for a mass transit study.
--An affiliate of The Soul City Company has applied to HUD for a mortgage
insurance commitment for 25 units of subsidized housing (section 236).
bAs of March 31, 1975, The Soul City Company had been authorized to issue only
$5 million of debentures. The $5 million of debentures were issued March 6, 1974.
I APPENDIX
Warren Regional Planning Corporation
APPENDIX I
Status of funds as of March 31, 1975 (note a)
Government agency
Date
Awarded
Spent
Purpose
$ 112,605
$112,605
Agreement for planning
HUD, through the State
9/28/70
Soul City.
of North Carolina
12/31/70
HUD, through the State
3/10/72
96,000
96,000
Agreement for comprehen-
sive planning of Soul City
of North Carolina
and five surrounding
counties.
Department of Commerce,
5/26/72
531,500
531,164
Contract to plan, promote,
and develop an industrial
21
OMBE
program for Soul City.
6/29/74
333,140
222,367
Contract to increase the
OMBE
number of minority
businesses and strengthen
existing minority
businesses in Soul City
and surrounding counties.
$1,073,245 $962,136
Total
aon 1975, during our review at Soul City, OMBE awarded dated a contract June 29, for
$320,000. July 30, This contract is to be a follow-on to the contract 1974.
I APPPENDX
Soul City Foundation, Inc.
Status of funds as of March 31, 1975
Government agency
(notes a and b)
Date
Awarded
Spent
Purpose
I APPENDIX
Department of Agriculture,
1970-72
$
through the Economic
(c)
$ (c)
Grant for feeder enrich-
Development Corporation
ment program during
the summer of each year.
Department of Labor,
1971-74
(d)
Neighborhood Youth
(d)
Grant for summer employ-
Corps, through Henderson
ment during each year.
community action program
Office of Economic
6/14/71
98,934
Opportunity (OEO),
98,934
Grant to plan and develop
22
Office of Health Affairs
comprehensive health
program.
OEO, Office of Program
12/11/72
90,000
Development
90,000
Grant for social-
planning project.
OEO, Office of Program
5/ 9/73
502,875
Development
502,875
Grant for economic
development demonstra-
tion project.
OEO, Office of Program
6/13/74
66,000
Development
66,000
Grant to continue
economic development
ment demonstration
project.
OEO, community develop-
10/ 3/74
93,000
ment (subcontracted with
55,000
Grant for economic
Franklin, Vance, Warren
development and
Opportunity, Inc.)
social-planning
project.
I APPENDIX
Government agency
Date
Awarded
Spent
Purpose
National Endowment for
4/30/73
12,500
12,500
Grant to support planning
the Arts (NEA)
for a cultural arts
program at Soul City.
I APPENDIX
NEA
11/15/74
9,620
4,246
Grant to support planning
for a cultural arts
program at Soul City.
HEW, Office of
Education
6/22/73
98,220
98,220
Grant to establish
learning laboratory.
Department of Labor,
9/ 1/74
34,392
11,441
Grant for outreaching
through State of
recruitment placement
North Carolina
program.
23
Total
$1,005,541
$939,216
ᵃDuring our review at Soul City, the Community Services Administration awarded a
grant for $42,356. This grant is to close out the economic development and social
planning grant. In addition, HEW's Administration on the Aging, through Kerr Tar
Regional Council of Governments, awarded a grant for $12,756 on August 7, 1975.
This grant is for an outreach information referral program.
ᵇAs of August 7, 1975, a request for grant funds totaling $53.005 from NEA for a
cultural arts program had been submitted to, but not approved by, the grantor.
ᶜThe following number of children were fed under the feeder enrichment program:
1970, 100; 1971, 121; and 1972, 126. Dollar amounts not readily available.
ᵈThe following number of youths were employed by the Henderson community action
program and worked at Soul City: 1971, 27; 1972, 17; 1973, 12; and 1974, 45.
I APPENDIX
Dollar amounts not readily available.
HealthCo. Inc.
Status of funds as of March 31, 1975
Government agency
Date
Awarded
Spent
Purpose
I APPENDIX
OEO, Office of Health
6/ 5/72
$1,097.457
$822,816
Affairs
Grant to establish a com-
prehensive health-care
center (ambulatory) for
Warren and Vance Counties.
HEW, Public Health
1/16/74
277,206
-
Service
Grant to develop a compre-
hensive ambulatory health-
care center for Warren and
Vance Counties.
HEW, Public Health
1/21/75
492,183
Service
Continuation of the above
24
grant.
HEW, through the
12/13/73
13,775
13,156
Governor's Council
Grant to provide home
on the Aging, North
health care.
Carolina Department
of Human Resources
HEW, through the
6/14/74
11,290
6,079
Governor's Council
Grant to provide home
on the Aging, North
health care.
Carolina Department
of Human Resources
Total
$1,891,911
$842.051
I APPRENDIX
I APPPENDIX
Soul City Sanitary District
Status of funds as of March 31, 1975
Date
Awarded Spent
Purpose
Government agency
$500,000
Interim water and sewer grant.
9/17/73
I
HUD, Community Planning
and Development
HUD, NCA
9/28/73
204,000
I
Same as above.
I
$704,000
-
Total
25
I APPENDIX
APPENDIX I
Soul City Utilities Company
Government agency
Date
Awarded Status of Spent funds as of March 31, 1975
Purpose
HUD, Community Planning
and Development
9/28/73
$500,000
-
Public facility loan for
interim water and sewer.
26
APPENDIX I
1
agreements, and grants follows.
APPENDIX I
27
Communication, Inc. Information on these 11 contracts.
city of Henderson, Warren County, and Eden Advertising and
and grants were awarded to the State of North Carolina, the
benefited the Soul City project. The contracts, agreements,
been awarded as of March 31, 1975, that fully or partially
at Soul City, 11 other contracts, agreements, and grants had
loan; and 1 loan guarantee awarded to the 6 organizations
In addition to the 27 grants, contracts, and agreements;
APPENDIX I
Government agency
Date
Administered by
Awarded
Purpose
HUD, Community
9/28/70
North Carolina
$ 132,996
Planning and
12/31/70
Agreement for planning Soul City
Department of
Development
and regional planning.
Administration
APPENDIX I
HUD, Community
3/27/72
North Carolina
78,726
Planning and
Agreement for comprehensive
Department of
Development
planning of Soul City and five
Administration
surrounding counties.
HUD, Community
10/ 2/73
City of Henderson
3,522,950
Planning and
Basic water grant for regional
Development
water system.
HUD, NCA
10/ 2/73
City of Henderson
500,000
Grant for regional water system.
HUD, NCA
6/29/73
North Carolina
65,000
Grant for road construction.
28
Department of
Transportation
and Highway
Safety
Department of
6/--/73
City of Henderson
2,140,000
Commerce,
Grant for regional water system.
Economic
Development
Administration
Department of
6/11/73
North Carolina
ᵃ31,500
Transportation,
Grant for road construction.
Department of
Federal Highway
Transportation
Administration
and Highway
(FHWA)
Safety
APPENDIX I
of
Government agency
Date
Administered by
Awarded
Purpose
North Carolina
236,785
Grant for road construction.
FHWA
6/11/73
Department of
APPENDIX I
Transportation
and Highway
Safety
67,268
Grant for road construction.
FHWA
6/11/73
North Carolina
Department of
Transportation
and Highway
Safety
3/ 4/75
Warren County
b15,000
Grant for need assessment of waste
Environmental
water collection and treatment
Protection
requirements for Soul City,
Agency
Warrenton, and Norlina.
29
12/20/74
Eden Advertising
121,661
Contract for publicity of Soul
OMBE
and Communica-
City.
tions, Inc.
$6,911,886
Total
aOn April 30, 1975, this project was withdrawn and the grant was terminated.
bon July 18, 1975, the State of North Carolina and Warren County each contributed $2,500 to the project.
APPENDIX I
Soul City.
I APPENDIX
30
have also been awarded that will benefit the development of
As shown by the following table, State and local funds
I APPPENDIX
Government agency
Date
Administered by
Awarded
Purpose
State of North
9/28/70
WRPC
$ 37,535
Agreement for planning Soul City.
Carolina
12/31/70
I APPPENDX
State of North
9/28/70
State of North
56,890
Agreement for planning Soul City
Carolina
12/31/70
Carolina
and the surrounding region.
State of North
3/10/72
WRPC
32,000
Agreement for comprehensive
Carolina
planning of Soul City and five
surrounding counties.
State of North
3/10/72
State of North
22,076
Agreement for comprehensive
Carolina
Carolina
planning of Soul City and five
surrounding counties.
State of North
6/ 1/72
State of North
4,080
Grant for road construction.
Carolina
Carolina
31
State of North
6/ 8/73
State of North
74,000
Grant for road construction.
Carolina
Carolina
State of North
6/11/73
State of North
13,500
Grant for road construction.
Carolina
Carolina
State of North
6/11/73
State of North
66,986
Grant for road construction.
Carolina
Carolina
State of North
6/11/73
State of North
25,278
Grant for road construction.
Carolina
Carolina
State of North
7/ 1/73
Soul City
5,000
Grant to plan continuous arts
Carolina
Foundation, Inc.
workshop program.
I APPENDIX
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
ALLEGATIONS RELATING TO THE SOUL CITY PROJECT
Grant for regional water system.
In accordance with agreements reached with your office,
Grant for Henderson's share of
we examined various allegations relating to preferential
treatment in providing Federal assistance, to interlocking
Purpose
regional water system.
Grant for Oxford's share of
regional water system.
Grant for Soul City's share of
directorships and nepotism, and to the lack of progress and
regional water system.
poor management practices.
PREFERENTIAL TREATMENT IN PROVIDING
FEDERAL ASSISTANCE
We wanted to learn whether the Federal agencies had
followed their normal procedures in awarding and monitoring
the grants, contracts, loan, and loan guarantee to Soul City
organizations, and if not, the reasons for any deviation.
Except as noted below, the various agencies had followed
their normal review, approval, and monitoring procedures.
Awarded
2,795,000
2,535,021
986,191
103,120
$6,756,677
The Office of Minority Business Enterprise had not
established contract review, approval, and monitoring
procedures at the time it awarded a letter contract
to WRPC.
The Community Services Administration (CSA) approved
and funded two grants before the grants had progressed
Administered by
City of Henderson
City of Henderson
City of Henderson
City of Henderson
through the normal review and approval process.
HUD imposed certain restrictions on the Soul City
developer which were not imposed on other new commu-
nity developers, but other restrictions normally
imposed on other developers were relaxed for the
Soul City developer. As a result of the restrictions,
the amount of debentures that the developer could
issue was limited until certain conditions were met.
However, the relaxed restrictions could allow the
Date
10/ 2/73
10/ 2/73
10/ 2/73
11/20/74
developer to have a higher-than-normal debt-to-equity
ratio and to draw down a larger amount of the funds
CE
from the escrow account.
HUD approved and awarded basic water grants and a
public facility loan to the Soul City Sanitary
Government agency
State of North
City of Henderson
Soul City District Sanitary
District, Soul City Utilities Company, and Henderson
after the Secretary of HUD announced the termination
City of Oxford
of the grant and loan programs.
Carolina
Total
The agencies--CMBE, CSA, the Office of Education (OE)
and NEA--relied heavily on self-evaluations by the
grantees and contractors without verifying the data.
Moreover, OMBE used this data as a basis for awarding
a follow-on contract.
32
33
FORD VIBRARY
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
and the a Federal loan agencies which awarded grants, contracts, a loan, at
The following summarizes the results of our review
regional office's final evaluation of WRPC's performance
guarantee to Soul City organizations.
during the contract period January 1974 through March 1975
stated that the contractor had greatly exceeded its pro-
Department of Commerce--Office of
jected goals, according to WRPC's records. OMBE did not
Minority Business Enterprise
verify the information WRPC submitted, and in actuality,
WRPC did not exceed the projected procurement goals, as
moting, WRPC from February 1972 to July 1975 for (1) planning, to
OMBE awarded three contracts totaling $1,184,640
shown below.
(2) and developing an industrial program for Soul City, pro-
Actual
Projected goals
$14 million assisting Floyd B. McKissick Enterprises in a
Category
Number
Amount
Number
Amount
the federally guaranteed loan, and (3) closing
minority number of minority businesses and strengthening increasing existing
Loans approved
counties. businesses in Soul City and the surrounding six
(note a)
10
$13,800,000
11
$3,800,000
Procurements secured
(note b)
2
135,000
5
1,800,000
procedures Review, approval, and monitoring
Clients assisted
180
-
27
-
a Loans which WRPC arranged for clients.
and February 1972, OMBE followed its normal review, awarded
Except for the letter contract for $190,000 in
b Contracts which WPRC helped clients obtain.
told monitoring procedures. OMBE headquarters approval,
for OMBE us that the Congress first appropriated officials
Most of WRPC's accomplishments were centered around
17 proposals, in January 1972. At that time OMBE was program funds
Soul City activities rather than activities in the six-county
said that 1 of which was a WRPC proposal. The considering officials
area described in its contract. For example, from May 1973
the Secretary of Commerce wanted to obligate the
through March 1975 WRPC reportedly helped clients obtain
program funds before the end of the fiscal year.
financing totaling about $31.7 million, of which $19.6
million, or about 60 percent, was directly related to Soul
OMBE relied primarily on periodic progress
City activities. Before approving the recommendation for
toring contractor the submitted and OMBE's evaluation reports reports for the
refunding, the Regional Director suggested that the region
also contractor's performance. These moni-
send a letter to WRPC expressing the region's concern about
the were the basis for OMBE's decision to refund monitoring tools to
the limited activity outside the Soul City area and that
contractor. Between October 1973, when moneys
continued support of the project depended on WRPC's services
employees monitoring responsibilities, and May 31, 1975, they OMBE assumed regional
and activities in the six-county area. According to an OMBE
review had made only one onsite review at WRPC.
project specialist, the region did not send the letter but
matters consisted of completing a pro forma checklist The such
did discuss the matter with WRPC officials.
ment, (3) as (1) financial management, (2) personnel on
ance. The administrative matters, and (4) program perform- manage-
In commenting on the region's recommendations for
dealt program performance section of the
refunding, the Director, OMBE, said that:
meeting whether the contractor had a time-phased output to
funding, primarily with the contractor's ratio of checklist
The information in the evaluation report showed that
had the contract objectives, and whether the plan for
WRPC had fallen far short of achieving procurement
was that carried the out the required work. The reviewer's contractor
goals.
ratio, the ratio of output to funding exceeded the response
the contractor had submitted a time-phased plan, minimum and
--WRPC's major accomplishments included loaning over
contractor was carrying out the required work.
$1.2 million to corporations owned by Floyd McKissick.
This raised questions concerning the possible inbred
Information in the onsite evaluation and
nature of WRPC's activities.
contract used for recommending the approval of a 2-year
office reports the contractor submitted was the basis progress the regional
Nevertheless, the Director signed the refunding request.
for $320,000 for WRPC to continue its work. The
34
35
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Audits of OMBE contracts with WRPC
audits audits a certified public accountant (CPA) made made three
The and Department of Commerce, Office of Audits, four
The to certification of the financial statements. audits
pertained of the three contracts. One of the CPA's
support other for six audits questioned costs because (1)
Questioned
costs unresolved
at May 31, 1975
I
$65,266
I
I
I
I
I
not been expenditures was lacking, (2) expenditures adequate
award, (3) costs had been incurred before the
sions, made in accordance with contract terms and provi- had
with OMBE and (4) expenditures had not been made contract in accordance
cost principles. We confirmed the lack
and following the table shows the costs questioned during the The audits
support for many of WRPC's payments. (See p. 81.) of
status of those costs at May 31, 1975.
Costs
questioned
$15,042
a65,266
I
(b)
C34,998
27,070
38,668
318,278
Audits of Contracts Awarded to WRPC
Costs
reviewed
$190,000
194,418
495,821
(b)
65,266
356,910
Contract-proposal
Proposal for
2-35590
2-35590
2-35590
2-35590
2-35590
Proposal for
4-36550
Proposal for
5-36579
Date
5/16/72
8/31/73
9/17/74
9/17/74
1/30/75
1/29/74
3/20/75
Audit by
Department of Commerce
Department of Commerce
N. T. Garrett, CPA
N. T. Garrett, CPA
N. T. Garrett, CPA
Department of Commerce
Department of Commerce
a ᵃInterim cost audit.
b ᵇAudit pertained to certification of financial statements.
cFollowup audit to resolve costs questioned by Department of Commerce during its audit of August 31,
1973.
36
37
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
The Regional Manager, Office of Audits, told us that,
Grant number
Grant period
Amount
Purpose
when the CPA made the final audit on contract 2-35590 in
September 1974, he did not have a copy of the August 1973
40475/CG4815
7/ 1/71 to
$
98,934
Comprehensive health
audit by the Office of Audits. Because of the amount of
6/30/72
services.
costs the Office of Audits questioned and because the CPA's
audit of the same contract had not questioned any costs,
40168-E-72
7/ 1/72 to
1,097,457
Comprehensive health
the CPA was asked to make a followup audit. In January
(note a)
12/31/73
services.
1975 the CPA made the followup audit and, in his opinion,
resolved $30,268 of the $65,266 of costs questioned. The
40475-G-73-01
2/14/73 to
90,000
Social planning.
Regional Manager said that a final determination on the
2/13/74
$65,266 of questioned costs would be made when the Office of
Audits made its final audit on contract 4-36550 after the
40475-F-73-01
5/ 1/73 to
502,875
Economic development
completion of our review.
4/30/74
demonstration project.
The Regional Manager also said that the Office of
40475-F-74-01
5/ 1/74 to
66,000
Amendment to grant
Audits knew about $34,000 additional costs that had been
(note b)
9/30/74
40475-F-73-01.
charged to contract 2-35590 after the end of the contract
period on December 31, 1973. According to the Regional
40644-03
7/ 1/74 to
93,000
Community develop-
Manager, those costs were not allowable and would be
(note c)
6/30/75
ment social planning
questioned during the final audit.
project.
Office of Economic Opportunity--
40644-08
7/ 1/75
50,000
Closeout.
Community Services Administration
(note c)
CSA was established in January 1975 and assumed respon-
Total
$1,998,266
sibility for community action, economic development, and
other programs formerly administered by OEO. Therefore, in
ᵃGrant administration transferred to the Public Health
our discussion of grants CSA and OEO awarded, we have
Service (PHS), HEW, in July 1973.
treated the activities pertaining to these grants as though
they had been carried out by one agency, i.e., CSA, the
Not considered as a separate grant.
successor agency to OEO.
CGrants awarded by CSA regional office. All other grants
CSA awarded six grants totaling $1,998.266 to Soul
were awarded by CSA headquarters.
City Foundation and HealthCo between July 1, 1971, to
July 1, 1975, as shown below:
The grants were awarded for:
--Planning for and carrying out a health-care delivery
system for the poor people of Warren and Vance
Counties.
--Developing a process for mobilizing Federal and
private resources for social planning so as to stem
the migration of poor, rural people to larger cities.
--Constructing an industrial facility (Soultech I) and
developing plans for future projects.
38
39
APPENDIX I
procedures Review, approval, and monitoring
APPENDIX I
APPENDIX I
APPENDIX I
CSA regional officials told us that the review process
according approval 40644-03--were Of the to six not and and
consisted only of determining whether the proposed activities
were of the type that could be funded with regional program
funds. The regional office agreed to fund the proposal,
40475-G-73-01, mine whether the normal three procedures. other We were not able was processed to deter-
even though the proposed activities were in the nature of
research and demonstration and were not normally funded at
approved according and to 40168-E-72--had normal been reviewed 4815, and
the regional level, because:
available longer responsible employed for for us by reviewing to CSA trace and the and not procedures procedures approving enough documentation the because followed. grants the were was employees no
CSA thought that the grant would complete the
research and demonstration work and that a viable
operating program would emerge.
for determining
CSA's normal whether: review and approval procedures provided
--The emphasis in CSA at that time was to award grants
at the regional level rather than at the headquarters
level.
purposes, The grant and proposal goals. conforms with CSA guidelines,
The community action agency in the Soul City area
was of the opinion that the proposed activities
the The program prospective activities. grantee is capable of carrying out
would complement its activities. It therefore agreed
to act as the grantee and to enter into a delegate
agency agreement with the Soul City Foundation for
trends The grant of the objectives area are compatible with
carrying out the grant activities.
has the support of the and local whether community. the prospective socioeconomic grantee
CSA's monitoring of a grantee's performance consists
primarily of reviewing periodic progress reports the grantee
ities The grant of the activities local community are compatible action agency. with the activ-
submits and visiting the site. The progress reports
generally discuss the grantee's achievements and plans for
meeting grant objectives. CSA officials gave us two site-
reviewed development According and grant to a 40475-F-73-01 CSA headquarters for official, economic
visit reports related to the economic development demonstra-
tion grant. These reports discussed (1) background informa-
said that the approved former CSA according to normal $502.875 was not He
tion on the Soul City project, (2) attendance at a Soul
proposal be director had procedures.
City Foundation board meeting, (3) extension of the grant
had not progressed approved and funded even though directed the that the
because of a slow startup, and (4) progress being made on
As a result through the review proposal
Soultech I.
the whether the the review process was limited and approval to determining process.
Regional officials said that the Franklin-Vance-Warren
funded proposed under OEO act. nature was in that order could and whether be
Community Action Agency was responsible for monitoring
the performance of the grant awarded by the region and that
the only monitoring of the Soul City Foundation by CSA
proposal normal 40644-03 CSA procedures. to had regional CSA not been office The reviewed Soul officials City and Foundation approved told us that according grant to
would be through its monitoring of the community action
agency's performance.
tion. to the Atlanta regional headquarters office which, in turn, referred submitted it the
Regional employees have made two site visits to the
community action agency to discuss matters related to the
review process, However, before the regional for review office and recommenda-
Soul City Foundation. They discussed the release of grant
proposal. allotment was being CSA headquarters increased by $93,000 told the to region completed fund the that its its
funds, advance approval of expenditures for consultants
and other contractual services, advance approval for filling
certain positions, and intenance of grant funds in a
separate bank account. Regional employees also met with
the staff of Soul City Foundation to see if they had any
questions or problems.
40
41
APPENDIX I
APPENDIX I
APPENDIX I
Audits of grants
APPENDIX I
OE monitors the grantee's performance by reviewing
the
Soul CPAS City made Foundation. five audits Four of CSA headquarters grants to
periodic progress reports, fiscal reports, and minutes of
advisory committee meetings the grantee submits and by
financial surveys of statements. the accounting system of and the audits related to
having OE employees make onsite reviews.
on the fifth audit on the Costs basis totaling certification $7,065 were questioned of the
During the grant period, OE program officers made four
1975, budgeted the line questioned items made costs without had been of CSA's expenditures resolved. approval. in At excess July 1, of
onsite reviews. These reviews consisted primarily of com-
pleting a pro forma review sheet through interviews with the
grantee's staff. However, the OE program officer did note
certain problems which could affect the success of the pro-
of region. No audits An audit have is been made of the 6 grant months awarded after by the the end
gram: school officials were reluctant to allow the grantee
to carry out activities in the schools and parents were
$ 1915,000 tor accounting auditing the services. grantee
generally negative toward the program. The program officer
has
said that program emphasis seemed to be on "what can the
project do for Soul City rather than what can Soul City do
and
for the success of the project."
The OE program officer assessed the grantee's perform-
grant tion OE for was awarded the for period a a grant July of 1, $98,220 to to the Soul City Founda-
ance as average, considering the opposition expressed by
school district officials and the lack of parent participa-
which youths and a create in the and past poor educa- white
tional and a 1974. The
tion in program activities.
teachers it would be easier for students schools an atmosphere
The final evaluation report, which the grantee prepared
in
and which incorporated the results of an evaluation by a
to teach. The program design to consisted achieve of: and
consultant, noted that certain program activities had not
--A academic systematic areas: remedial instruction program in three
been carried out, other program activities had been altered,
and program emphasis had shifted from academic instruction
writing, and (1) basic studies in
to cultural enrichment activities. Further, as a result of
selected and (3) economics verbal for communications, 100 low achievers (2) reading, mathematics,
these changes, program implementation was delayed from July 1,
to October 1, 1973.
from junior high schools in Warren to be County.
--A enrichment broad program for cultural and
Audits of grant
program and activities for high school for students students. intellectual in the academic
OE rules and regulations governing the grant award
require that the grantee audit all grant expenditures
operate received In the May a grant 1974 extension the grantee through requested August and in June 1974 it
usually on an annual basis but no less frequently than every
2 years. As of November 1975 the grant had not been audited
even though grant funds were budgeted for auditing and
ences between program the through the summer. The 31, 1974, to
accounting services and over 2 years had passed since the
(1) a reduction in initial the and the revised main differ-
grant award. The grantee's final expenditure report showed
mentation number of participants, program were:
that all grant funds had been spent.
tion of summer of a recreation summer feeding program. program, and (3) implementa- (2) imple-
Department of Health, Education, and
procedures Review, approval, and monitoring
Welfare--Public Health Service
In July 1973 PHS assumed responsibility for administer-
submitted approving OE followed and the grant for its proposal normal procedures the Soul for reviewing and
ing a grant OEO awarded under the comprehensive health
services program. The grant of $1,097.457 was awarded to
HealthCo for the program period July 1, 1972, to December 31
the grant period. monitoring the grantee City performance Foundation during
1973. Under the grant, HealthCo proposed the following
program objectives.
42
43
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Form a medical group or partnership and develop an
of the program which were ambiguous and for the most
adequate ambulatory health-care facility.
part nonexistent.
--Initiate delivery of health-care services to an
--It was high time that HealthCo seriously considered
enrolled-patient population.
divorcing itself from the Soul City Foundation and
McKissick Enterprises and got on with the business
--Initiate and negotiate a contract with the State of
at hand. If that could not be done physically, then
North Carolina under its title XIX program (Medicaid)
it should be done programmatically.
to prepay, on a capitation basis, for services
provided to Medicaid eligibles.
The financial base, number of patients treated, and
those projected did not indicate sufficient need nor
-Carry out an appropriate health information and
warrant an expenditure for a permanent facility at
cost-accounting system that would generate nationally
that stage of the program.
comparable data on service utilization and per unit
cost of service.
PHS decided to fund the grant proposal because it
believed the grantee would overcome certain startup problems
--Develop a procedure to evaluate the effectiveness and
and would achieve the objectives of the first grant.
to assess the cost benefit of using family-nurse
practitioners within a health-care program.
PHS monitors grantee performance by reviewing periodic
progress reports the grantee submits, by having PHS program
The grant also provided for constructing a permanent
officials make site visits, and by correspondence with the
health-care facility estimated to cost $500,000 and to con-
grantee.
tain about 16,000 square feet of space. Grant funds of
$250,0 were earmarked for constructing the facility; the
During the period August 1973 to May 1975, PHS made 13
remaining $250,000 was to be raised by the grantee.
site visits to HealthCo to (1) discuss and review program
operations and fiscal matters, (2) discuss HEW audit find-
Since assuming responsibility for administering the
ings, (3) attend board of directors meetings, (4) discuss
grant, PHS has awarded two additional grants totaling
grant terms and conditions, and (5) discuss and review the
$769,389 to HealthCo for the period January 1974 through
grantee's proposal for refunding. Additionally, the grant
December 1975.
files contained numerous pieces of correspondence and
memorandums of telephone calls between PHS and HealthCo
As of May 31, 1975, HealthCo had not drawn down any
concerning many of the same issues covered during the
funds from the two grants PHS awarded. The grantee was
onsite visits.
still spending the first grant OEO awarded.
PHS officials assessed HealthCo's performance under
Review, approval, and monitoring
the grants as poor, considering the amount of money spent--
procedures
about $760,000 as of December 31, 1974--and the length of
time the organization has been in existence about 30 months.
PHS followed its normal grant review and approval pro-
The official attributed HealthCo's poor performance to:
cedures in awarding the grants to HealthCo. However, PHS
employees who reviewed the grant proposals expressed concern
--The lack of clearly defined program goals and
about (1) the lack of clearly defined program objectives in
objectives.
the OEO grants, (2) the lack of action on the part of
HealthCo to provide health services to the people of Warren
Ineffective management.
and Vance Counties, and (3) the influence Mr. McKissick
exerted on HealthCo's operations. The PHS reviewer's
The chief of the PHS Operations Branch said that a
concern is illustrated by his comments that:
grantee is expected to begin providing health-care services
within 18 months after initial funding. HealthCo did not
--It appeared that the level of funding for the
begin such services until about 25 months after initial
project did not coincide in any way with what had
funding.
been or should have been the goals and objectives
44
45
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
situation and (2) the above matters had become public
The Regional Health Administrator told us that one
problem had been the grantee's attitude. He said that, as
knowledge and the residents of the area were alarmed. As
a result the staff feared that utilization of HealthCo's
with many of the grants transferred from OEO to PHS, the
emphasis seemed to be on employing people rather than on
clinic would suffer.
achievements. He said that another problem was that,
because the program goals and objectives were stated in
In August 1974, when it opened, the HealthCo clinic
broad, general terms, the grantee could do about anything
treated an average of seven patients a day. This same work-
and, technically, meet the terms and conditions of the
load level prevailed through December 1974. By May 1975
the clinic was treating 31 patients a day, and the workload
grant.
remained at that level through August 1975. In August 1975,
The regional administrator also said that the lack of
with such a patient load, the patient-visit cost was about
continuity of employees in key positions and Mr. McKissick's
$44, after deducting fees collected from patients and
influence on HealthCo's operations adversely affected manage-
third-party payments. This cost resulted from the clinic's
ment's capability to perform effectively. Since July 1,
staffing level, which consisted of 2 full-time physicians,
1 full-time dentist, 2 family-nurse practioners, and 18
1972, there have been numerous personnel changes in such key
positions as the executive director, clinic director, and
other employees on support and administrative jobs.
staff dentist. Regarding Mr. McKissick's influence on
HealthCo's operations, the Chief, Operations Branch, told us
Audits of grants
that Mr. McKissick's efforts seemed to be directed toward
insuring the success of Soul City rather than seeing to it
A CPA firm made two audits of the grants OEO and PHS
awarded. The two audits covered the grant periods of July 1,
that HealthCo became a workable activity. As an example of
this interference, he referred to a letter dated July 21,
1972, to December 31, 1973, and January to December 31,
1974, from Mr. McKissick to the then executive director in
1974, respectively. In addition, late in 1974 HEW made a
which Mr. McKissick expressed his concerns over the
survey of the budget, financial, procurement, property, and
executive director's failure to:
personnel systems the grantee used in administering the
first grant. The costs questioned by the CPA firm and
--Use the services of an insurance company which com-
HEW related to (1) improper control over travel advances
mitted $750,000 to the Soul City Foundation for
and expenses paid to employees, (2) salaries and wages in
building Soultech I and which had a representative
excess of budgeted amounts, and (3) penalty and interest
on the board of directors of Floyd B. McKissick
payments to the Internal Revenue Service for late payment
Enterprises, Inc. Additionally, the insurance
of taxes in 1973 and 1974. The following table shows the
company had an interlocking board with a bank which
costs questioned during the audits and the status of these
was a financial backer of Soul City.
costs at July 1, 1975.
-Purchase vehicles from dealers that were friendly
to Soul City.
-Employ, as promised, the wife of the general
manager of The Soul City Company.
We noted that in August 1974 the HealthCo staff
expressed concern to PHS about the ability of HealthCo to
fulfill its responsibility of providing health-care services
to residents of Warren and Vance Counties because of how the
program was being operated and the self-serving interest of
certain individuals. According to the staff, these issues
threatened the program in several ways: (1) there were
clearly identifiable areas of conflicting interests in the
two-county area and the staff was demoralized over the
GERALD FORD VIBRARY
47
46
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
The CPA firm and HEW said that the cash on hand was
excess to then-current needs. The situation developed when
HEW authorized the grantee to draw down all remaining grant
Questioned costs
funds under the initial grant. In December 1973 the grantee
unresolved at
July 1, 1975
drew down $802,457, of which $44,968 was to cover obliga-
$ I
I
c992
tions incurred under the grant and $757,489 was unobligated.
The grant funds were deposited in non-interest-bearing
accounts. The CPA firm, in its audit report dated
August 15, 1974, recommended that the grantee use all the
excess cash on hand before drawing down any grant funds
from later grants. A HEW audit report dated November 26,
Costs
questioned
1,685
2,496
the CTravel expenses incurred for relocating medical director from Jamaica to Soul City. PHS disallowed
1974, recommended that the grantee refund all excess cash
costs from Jamaica to Miami, Florida--the port of entry. The medical director appealed PHS's
on hand. In February 1975 the grantee responded to the
$6,249
CPA's report and said that, for the most part, funds remain-
ing from the drawdown had been deposited in interest-bearing
accounts and that the interest earned on the accounts would
be paid into the U.S. Treasury. A PHS official told us that
the grantee deposited about $240,000 in interest-bearing
accounts in January 1975--about 1 year after the grant
funds were drawn down.
Audits of Grants to HealthCo, Inc.
Costs
reviewed
$339,968
(b)
441,926
National Endowment for the Arts
NEA awarded two grants, totaling $22.120 to the Soul
City Foundation between January 1973 and July 1974. Under
these grants the foundation proposed to plan and develop
Grant
with specific proposals and recommendations on which agen-
ᵃ40168-E-72
04-H-000817-01-0
04-H-000817-01-0
a long-range cultural arts program for Soul City, including
(1) preparing a general cultural arts program for Soul City
Date of
decision, and at July 1, 1975, the appeal was pending.
cies and foundations could be approached for funds and (2)
providing professional assistance and technical expertise
to the existing cultural programs at Soul City, that is,
the dance and drama groups. In addition, the long-range
plan would consider the (1) types of programs which the
new community and surrounding area could support, (2) type
of publicity and educational program needed, (3) type of
report
8/15/75
11/26/74
2/21/75
program needed for identifying and nurturing local talent,
(4) potential resources to support planned programs, (5)
development of a resident theatrical group and choir, (6)
implementation of art workshops, (7) establishment of an
annual art festival, and (8) plans for permanent facilities
and their time schedules.
Audit by
Wolf & Company, CPA
Wolf & Company, CPA
Review, approval, and monitoring
ᵃAwarded by OEO.
procedures
bNot shown.
NEA followed its normal procedures for reviewing and
approving the grants awarded to the Soul City Foundation.
HEW
48
49
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
NEA normal monitoring procedures consist primarily of
Special restrictive conditions imposed
reviewing financial and progress reports the grantee submits
on the Soul City developer
and making site visits to provide technical assistance to
the grantee and to insure that grant funds are being spent
NCA realized, early in the application stage, that
for grant-related purposes. As of July 1975 NEA had not
there was considerable risk inherent in developing Soul City
made any site visits to the Soul City Foundation.
because it was the first freestanding community and that
there was no established industrial base in the vicinity
NEA's evaluation of a grantee's performance is based
from which it could attract growth. The Administration
on final financial and evaluative reports the grantee sub-
also recognized the inherent risks of the Soul City project,
mits at the end of the grant period. NEA reviewed and
as evidenced by the following memorandum from the White
approved the reports for the first grant and noted no
House dated June 21, 1973, to the Under Secretary of HUD
problem areas. The reports for the second grant were not
concerning the Soul City project.
period. due until October 1975-90 days after the end of the grant
* * the whole New Communities program is and
was expected to be an experimental venture with
Audit of grants
inherent risks. We should not now argue that
because one of these new communities is
NEA has not audited its grants to the Soul City Founda-
'marginal', it should be scrubbed. Unless we
tion. NEA officials told us that, because of its small
go ahead with this, how are we ever going to
audit staff, NEA did not attempt to audit every grant. They
find out whether a new town, beginning from
said that they selected for audit only those grants with
scratch in an entirely rural area, can be made
large dollar amounts or those which had received adverse
to succeed?
publicity. The official further said that, although the
grantee had received some adverse publicity, none of it was
If we now say 'no' to McKissick, we will stand
related to the NEA grants, and NEA did not plan to audit
accused not only of reneging on specific commit-
the grants.
ments to him, but of reneging on the President's
commitment to the whole minority enterprise
Department of Housing and Urban
concept. However unfair or inaccurate those
Development--ne communities loan
accusations may be in a narrow sense, in the
guarantee
broader context they will be persuasive to the
public and damaging to all of us on the domestic
In 1969 the Soul City developer applied to NCA to have
side of the Administration.
it guarantee a loan for development of Soul City. In 1974
NCA executed a project agreement with the developer. The
"We should give Soul City the green light and
project agreement provided that the developer could issue
inform the interested agencies that we have
up to $14 million of debentures which the Government would
done so ***.
guarantee. As discussed later, the developer could issue
only $5 million of debentures intially with later issues
As a result of the recognized risks, NCA imposed cer-
contingent upon the developer's accomplishing certain
tain special restrictive conditions on the developer. For
requirements specified in the project agreement.
example, the loan guarantee for Soul City was established
at $14 million, but the developer was authorized to issue
Review, approval, and monitoring
only $5 million of debentures initially. Before additional
procedures
debentures could be issued, the developer was required to
submit evidence that (1) there actually was primary employ-
NCA followed its normal procedures in reviewing and
ment at Soul City of 300 jobs, (2) enough funds were avail-
approving the developer's applications for guarantee assist-
able to construct certain waterlines, sewerlines, and
ance and in monitoring the project. However, because Soul
storm-drainage lines, (3) certain roads and streets had been
City differed from other new communities, NCA imposed certain
completed, and (4) contracts had been signed for purchasing
restrictive conditions on the developer which it had not
a specific number of acres of industrial, residential,
imposed on other developers. Conversely, NCA relaxed other
commercial, and institutional land at specific prices.
conditions which it had imposed on other developers.
50
51
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
HUD requires that the security requirement for a loan
NCA officials were of the opinion that the development
guarantee be at least 110 percent of the outstanding
of a job base through industrial development would be
obligations at any one time. For Soul City, the security
necessary for Soul City to succeed. For this reason NCA
requirement was $5.5 million and the collateral used to
decided to restrict the developer's efforts during the first
meet the requirement consisted of investments, real prop-
3 years to industrial-related development. The developer
erty, land development costs, and cash proceeds from the
expressed the opinion that it would be difficult to attract
sale of the guaranteed obligations.
industry if residential and commercial development were not
taking place concurrently with industrial development.
If the value of the collateral account exceeds the
However, NCA believed that the developer could not afford
security requirement, the developer can draw down the excess
to diversify its efforts for this type of concurrent devel-
funds from the escrow account. The basis used in computing
opment. That restriction, along with the condition that
the amount of development costs included in Soul City's
land not be developed for residential and commercial pur-
collateral account differed from that normally used for new
poses until the land was sold, was incorporated in the
communities. This resulted in a larger part of the develop-
project agreement.
ment costs being included in the collateral account, which,
in turn, allowed the developer to draw down a larger amount
Relaxation of normal conditions
of the funds from the escrow account.
for Soul City developer
NCA's normal procedure provides that, if the developer
We noted that NCA did not impose on the developer of
owns all the project land, all land development costs be
Soul City two requirements which normally are imposed on
included in the collateral account. However, if the devel-
other developers. As a result, the equity contribution by
oper does not own all the project land, as is the case with
the developer may be less than is normally required when
Soul City, only the land development costs directly related
additional debentures are issued and the developer could
to the land owned are included in the collateral account.
withdraw funds from its escrow account in excess of the
In addition, an allocated part of the costs incurred for
amount normally allowed to other developers.
land development that are applicable to the total project,
such as administrative costs, legal fees, and planning
NCA's policy is that the developer's debt-to-equity
costs, are included in the collateral account on the basis
ratio should be 4:1 or better for new community develop-
of the ratio of land owned to total planned-project size.
ment entities, in order to protect the Government's
The Soul City developer owned about 2,100 acres, and the
financial interests and to insure that developers have a
total planned-project size was established at about 5,300
considerable financial stake in the success of the venture.
acres. However, during the initial development period
HUD limited the project size to about 3,000 acres until
Soul City issued an initial series of debentures for
an onsite employment base of 300 jobs was obtained. Under
$5 million and was required to contribute $1.5 million in
HUD's normal procedures, land development costs applicable
equity. Thus the normal debt-to-equity ratio was met.
to the total planned project would have been allocated
However, the project agreement does not stipulate whether
over the total planned-project size of 5,300 acres (develop-
additional equity would be required from the developer
should the additional $9 million of debentures be issued.
ment costs X 5,300 2,100 For Soul City the development costs
were allocated over the 3,000 acres (development costs X
Therefore, unless additional equity was required, the
2,100
debt-to-equity ratio could increase to 9:1. NCA officials
3,000 ).
told us that, for other new communities where debentures
As of March 6, 1974, the Soul City developer reported
were issued in series, the project agreement required
land development costs totaling 421, 676 which were appli-
the developer to contribute additional equity so as to
cable to the total planned project of 5,300 acres. Under
retain the normal debt-to-equity ratio. The officials said
HUD's normal procedures, $553,935 would have been allocated
that, since the project agreement with Soul City was silent
to the collateral account. However, the procedures HUD
on the matter, NCA could, and probably would, require addi-
used for allocating land development costs resulted in
tional equity from the developer when additional debentures
$971,000 being allocated to the collateral account. The
were issued.
following example shows the computation of funds available
for drawdown from the escrow account in March 1974 using
HUD's normal method and the method used for Soul City.
53
52
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
NCA normal
Method used for
Department of Housing and Urban
procedure
Soul City
Development--grants and loans pertaining
to sewer and interim water system
Project real property
$ 727,300
$ 727,300
Land development costs
HUD awarded grants totaling $704,000 to the Soul City
($1,421,676)
553,935
971,000
Sanitary District to aid in constructing an interim water
Value of escrow account
5,000,000
5,000,000
system. Additionally, the Soul City Utilities Company
applied for and received a public facilities loan from HUD
Total value of collateral
of $500,000 for constructing a sewer system.
account
6,281,235
6,698,300
Less required security
5,500,000
5,500,000
The sewer and interim water system, estimated to cost
$1,954,000, will be funded through a combined effort of
Amount available for
HUD and The Soul City Company, as shown below.
drawdown from escrow
account
$ 781,235
$1,198,300
Funding source
Amount
HUD, basic grant
$ 500,000
An NCA official told us that, because the developer was
HUD, public facilities loan
500,000
limited as to the amount of land that it could own during
HUD, supplemental grant
204,000
the initial development period, it would not have been
The Soul City Company
750,000
equitable to allocate the development costs on the basis
of the total planned-project size of 5,300 acres. The
Total
$1,954,000
official said that normally the developer owns all or most
of the project land and therefore the allocation formula
As of July 1, 1975, the Soul City Sanitary District
does not work a hardship on it. However, the Soul City
and the Soul City Utilities Company had not spent any grant
developer does not own most of the land. Consequently, if
or loan funds.
the normal allocation formula had been used, the ability of
the developer to draw down funds from the escrow account
HUD basic grant and public facilities
would have been severely hampered.
loan review, approval, and monitoring
procedures
Audits of loan guarantee
HUD awarded the basic grant and public facilities loan
There have been three audits of the loan guarantee
after the Secretary of HUD announced that grant and loan
since the date of the project agreement. Two of the audits
programs would be terminated on January 5, 1973.
pertained to examination of financial statements by a CPA
and the other was a management-type audit by HUD's Office
The Secretary advised HUD regional and area offices
of Inspector General. The CPA's audits disclosed no find-
that no water and sewer grants or public facility loans
ings. The HUD management audit disclosed that there had
would be approved after January 5, 1973, unless (1) the
been inadequate communication and coordination between the
project application had been rated under the community
NCA staff and their counterparts in HUD's headquarters and
development project-rating system, (2) the application had
area offices. In response to the audit report, the NCA
been determined to be fundable in relation to other appli-
staff agreed with the finding and promised to take correc-
cations and to funds on hand, (3) funds had been reserved
tive action. In May 1975 NCA established an organizational
for the project, and (4) the project applicant had been
component, the Program Support and Field Liaison Division,
notified of approval, in writing, on or before January 5,
to correct any lack of coordination and communication with
1973.
other HUD offices.
Neither the grant nor the loan application met the
above criteria.
--The Soul City Sanitary District submitted the grant
application in June 1973. HUD reserved grant funds
54
55
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
NCA does not monitor a grantee's performance under the
for the project on June 29, 1973, and awarded the
supplemental grants bec use the agency awarding the basic
grant in September 1973.
water grant will do SO.
--The Soul City Utilities Company submitted its appli-
NCA officials said that no audits had been made of the
cation for a public facilities loan on June 20, 1973,
supplemental grant and that the agency awarding the basic
and HUD earmarked funds for the loan on August 17,
grant was responsible for determining whether a final audit
1973. As of July 1, 1975, HUD had not approved the
was required.
loan request.
Grants awarded to Henderson,
HUD officials agreed with us that the applications for
North Carolina
the water and sewer grants and the public facilities loan
did not meet the above criteria. However, they believed
HUD and the Economic Development Administration (EDA)
that, because of the 1972 offer of commitment for the new
awarded grants totaling about $6.2 million to Henderson to
community of Soul City--of which the water system was an
aid in construction of a regional water system to serve
integral part--HUD had a moral, if not a legal, obligation
Henderson, Oxford, and Soul City. The regional system was
to fund the water and sewer project. HUD successfully
estimated in 1973 to cost $9 million. Since that time,
appealed to the Office of Management and Budget for
costs have escalated to about $12.6 million. The following
release of grant and loan funds for several new community
table shows the Federal, State, and local funding sources
projects, including Soul City.
for the regional system at the initial and revised cost
levels.
Construction of the sewer and interim water system will
be monitored primarily by the architect-engineer firm
Sources of Funding for Regional Water System
employed by the Soul City Sanitary District. HUD's moni-
toring will consist of periodic site visits and reviews of
Initial
Revised
the progress reports submitted by the architect-engineer
cost level
cost level
firm. As of July 1, 1975, no monitoring or evaluation had
Funding source
at June 1973
at January 1975
taken place.
EDA
$1,500,000
$ 2,140,000
No audits have been made of the HUD grant or public
HUD:
facilities loan; however, final audits are required upon
Basic grant
2,500,000
3,522,950
project completion.
Supplemental grant
500,000
500,000
State of North Carolina
1,700,000
2,795,000
HUD supplemental grant review,
Henderson
2,000,000
2,535,021
approval, and monitoring procedures
Oxford
800,000
986,191
Soul City
-
103,120
NCA can award grants to State or local public bodies
undertaking certain types of projects beneficial to the
Total
$9,000,000
$12,582,282
development of a new community. The grants, referred to as
supplemental grants, supplement other Federal assistance for
water and sewer systems, highways, and other facilities
Department of Commerce--Economio
related to the development of new communities. NCA awarded
Development Administration
a $204,000 supplemental grant to the Soul City Sanitary
District for constructing the interim water and sewer
In June 1973 EDA awarded Henderson a $1.5 million grant
system.
to aid in developing and constructing a regional water
system. In December 1974 EDA increased its grant award by
NCA followed its normal review and approval procedures
$640,000, for a total of $2,140,000, to help compensate
in awarding the supplemental grant to the Soul City Sanitary
for increased costs of constructing the regional system.
District.
57
56
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Review, approval, and monitoring
procedures
The grant awarded to Henderson has not been audited.
A final audit is required and must be reviewed and approved
EDA followed its normal procedures for reviewing and
by the Department of Commerce's Office of Audits before EDA
performance. approving Henderson's proposal and for monitoring its
can make final payment to the grantee.
Department of Housing and Urban
EDA's monitoring consists primarily of (1) site visits
Development--basic water and sewer grant
by regional office employees, (2) correspondence with the
grantee, (3) review of construction progress reports, (4)
In October 1973 HUD awarded Henderson a $2.5 million
request for progress payments, and (5) final project
water and sewer grant to aid in developing and constructing
inspection. EDA officials told us that they relied on the
the regional water system. Because of the escalating cost
architect-engineer firm, hired by the grantee, for day-to-
of the system, in October 1974 HUD increased its basic grant
day monitoring. The architect-engineer firm is the project
award by $1,022,950 for a total grant of $3,522,950.
supervisor and as such is responsible for insuring
successful project completion.
Review, approval, and
monitoring procedures
EDA regional office employees made seven site visits--
one before and six after the grant award--to the grantee to
HUD followed its normal procedures for reviewing and
(1) help the applicant prepare the grant proposal, (2)
approving the grant to Henderson. However, the grant was
attend a preconstruction conference, (3) discuss labor
approved and awarded after the water and sewer grant program
problems at the construction site, (4) inspect the project.
was terminated in January 1973.
and (5) discuss cost overruns.
In carrying out the Secretary's announcement, the HUD
EDA officials said that both they and the grantee were
area office notified Henderson in February 1973 that,
completely satisfied with the progress being made toward
because its application had not been approved by January 5,
completing the regional water system. The officials said
1973, it was being returned.
that construction was proceeding as scheduled--and in
certain instances ahead of schedule--and that the system
As discussed on page 56, HUD believed that it had a
was expected to be in operation by August 1976.
moral obligation to fund the water system even though the
grant application did not meet the criteria spelled out by
The following table shows, at May 31, 1975, the percent
the Secretary in January 1973.
of completion and the estimated completion date of the
major components of the regional water system.
In May 1973 HUD's headquarters directed its regional
office to give Henderson the necessary documents and advice
Percent
to enable it to resubmit its application in time for HUD
completed
Estimated
to respond before June 30, 1973.
Component
(note a)
completion date
On June 5, 1973, Henderson resubmitted to the HUD area
Water treatment plant
35.3
Raw-water intake facility
5/75
office its application for a $3 million grant, and on
57.1
Main transmission lines
3/76
June 29, 1973, HUD central office told the regional office
88.7
Pipeline to Soul City
7/75
that funds had been earmarked for the regional water system.
82.1
Elevated storage tank at
7/75
Soul City
HUD relies primarily on the architect-engineer firm,
48.7
8/75
hired by the grantee, to monitor the progress being made
ᵃBased on costs incurred. According to EDA officials, the
on the project. Periodically HUD employees make site
visits to keep abreast of the progress being made.
percent of costs incurred approximates the percent of
physical completion.
According to HUD's project engineer, construction of the
regional water system is proceeding on schedule and satis-
factorily. He said that there had been a minimum of problems
and changes in design, considering the size of the project.
58
59
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
No audits have been made of the HUD grant; however, a
final audit is required before final payment can be made to
WRPC paid the Clayton and Ballance law firm $12,700 in
the grantee.
legal fees under WRPC's contract with OMBE for services for
the Soul City project closing. WRPC also paid $117,200 in
Department of Housing and Urban
legal fees to other law firms. OMBE's chief counsel ruled
Development--supplemental grant
that there was no violation of (1) the Federal conflict of
interest law and (2) any past or present contract with WRPC.
In June 1973 Henderson was awarded a HUD supplemental
Federal statutes in title 18 of the United States Code--
grant system. of $500,000 to aid in constructing a regional water
which governs criminal conflict of interest--apply only
to Federal employees and former Federal employees and there-
fore do not apply to employees of grantees or contractors
The review, approval, and monitoring procedures for
mentioned in this allegation. On the basis of our review,
this grant were the same as for the supplemental grant on
we are not aware of any Federal laws, regulations, or grant
the interim system. Also NCA is not required to evaluate
and contract provisions which prohibited the matter discussed
the grantee's performance or to audit the grant. These two
in the above allegation.
functions are the responsibility of the agency awarding the
basic grant.
"The corporate structure supported by the
Federal aid is marked by nepotism ***."
INTERLOCKING DIRECTORSHIPS AND NEPOTISM
Management officials were responsible for hiring members
A number of allegations dealt with interlocking direc-
of their family. However, Federal laws, regulations, and
torships among organizations at Soul City and with nepo-
contract provisions governing the awards to the Soul City
positions. tistic practices of hiring family members in management
organizations did not prohibit such practices. Additionally,
the family members holding management or professional posi-
tions at Soul City had the education and experience to
We found that the allegations relating to interlocking
qualify them for their jobs.
directorships and the hiring of family members by manage-
ment officials were correct. However, we found nothing in
**** he [Floyd B. McKissick] served as chairman
the rules, regulations, or grant and contract provisions
of the board of Warren Regional Planning Corp.
governing the awards made by Federal agencies, included in
(WRPC) while drawing a salary from WRPC to direct
this report which prohibited interlocking directorships.
a government-funded project to promote an indus-
Some grants prohibited the hiring of family members to
trial program for his real estate development."
work in the same department of an organization. None of
the family members worked in the same department. Further-
"Warren Regional Planning Corp. hired Gordon R.
more, the family members hired had the education and
Carey, at $27,000 a year, to direct a contract
experience to qualify them for their jobs.
to provide $274,000 in 'technical assistance' to
McKissick Enterprises. Carey is a vice president
The allegations and our evaluations follow.
and stockholder in McKissick Enterprises ****
"Carey and Warrenton lawyer T. T. Clayton are
The allegations are correct, except that Mr. Carey's
McKissick's partners in the Soul City develop-
entry salary at WRPC was $25,000 a year. In May 1975, long
ment. While directing the WRPC project to
after the fact, the legal counsel for OMBE concluded that
provide technical assistance to McKissick
neither Mr. McKissick nor Mr. Carey violated conflict of
Enterprises, Carey farmed out the legal work
interest laws in past or present OMBE contracts. For the
(paid for by the Government) to T. T. Clayton's
reasons stated previously the Federal criminal statutes
law firm."
governing conflicts of interest do not apply to this situ-
ation. Based on our review, we are not aware of any Federal
This allegation is accurate. Messrs. Gordon Carey and
law, regulations, or grant and contract provisions which
T. T. Clayton are two of the partners in McKissick Soul
prohibit the matter discussed above.
City Associates, which is a limited partner in The Soul
City Company. While Mr. Carey was the director of WRPC,
60
61
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
--The lease-purchase agreement in which a leading
"***A Government-funded health clinic ***
member of the black community is a principal was
is to be developed by Madison and McKissick
necessary to insure timely completion of the facil-
Development Co., Inc. *** McKissick is a
ity, the maximum focus of community interest and
director of that for-profit development con-
community participation in the project, maximum
cern and he is also a director of HealthCo,
employment of minority workers and subcontractors,
Inc., which would operate the clinic."
and maximum economic benefits to the inhabitants of
the project target area.
In July 1973 OEO approved a lease-purchase agreement
between HealthCo and Madison & McKissick Development Company,
--The terms of the lease-purchase agreement were
Inc. The lease-purchase agreement provided that:
reasonable and compared favorably with terms of
lease-purchase agreements entered into for other
Grant funds of $250,000 would be paid to the devel-
projects in the past.
oper and the developer would be responsible for
financing the $250,000 balance of the construction
--The transaction was in accordance with all other OEO
costs.
guidelines, standards, and procedures.
--The developer would construct the facility and lease
At the time of our review, construction of the clinic
it to HealthCo for 20 years.
had not been started. PHS is now the grant administrator.
PHS officials told us that the clinic had not been con-
--The monthly lease payments to the developer would
structed because HealthCo had not submitted final construc-
consist of interest, amortization of principal, and
tion plans for approval and the developer had not obtained
a 5-percent developer's fee until the $250,000
its share ($250,000) of the funds. Also the officials said
borrowed by the developer was repaid.
that approval for construction of the facility would not be
granted until there was evidence that Soul City would become
The OEO acting associate director for the Office of
a reality. They said that relocating HealthCo away from the
Health Affairs, in a letter to HealthCo, commented on the
Soul City site was being considered because of HealthCo's
"apparent conflict of interest" between HealthCo and the
low patient workload. A final decision will be made before
developer.
the end of the current program year--December 31, 1975.
"In granting this approval, full cognizance is
In August 1975, after we completed our audit, we were
taken of the apparent conflict of interest
told that HealthCo submitted to PHS architectural drawings
arising from the fact that Mr. Floyd B. McKissick,
for a permanent clinic of about 7,000 square feet with an
a member of the HealthCo Board of Directors, also
estimated construction cost of about $220,000 rather than
has a substantial interest in the Madison &
the initially proposed clinic of 16,000 square feet with
McKissick Development Company. In such a situ-
an estimated cost of $500,000. According to HealthCo's
ation, this rental/purchase of space would
executive director, Madison and McKissick Development Com-
normally be prohibited by OEO Instruction 6909-1.
pany, Inc., will not be the developer. A new developer
In this case, however, this specific transaction
will be chosen after PHS approves the construction plans.
is approved as permitted by Parts IV and V of
OEO Instruction 6909-1 due to the circumstances
"McKissick Enterprises borrowed $386,000 from
and for the reasons set forth below as a matter
Chase Manhatten Bank in New York City and
of record."
bought the Satterwhite farm on Feb. 19, 1969.
Tax stamps affixed to the deed indicate a
The reasons given for approving the lease-purchase
purchase price of $390,000.
agreement were:
"The farm, together with a few hundred addi-
The cost of the project was comparable to that of
tional acres, was sold by McKissick Enterprises
other projects and did not result in any undue
to The Soul City Co. five years later for
financial advantage accruing to the developer.
$650,000 according to tax stamps on the deed
transferring the property.
63
62
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
On March 6, 1974, Floyd B. McKissick Enterprises, Inc.,
sold three tracts totaling 2,087 acres for $600,556 to The
but that there was no conflict of interest. We are not
Soul City Company. HUD appraised the land at $727,300 as
aware of any Federal law, rules, regulations, or contract
of the same date.
provisions governing the award to WRPC which would prohibit
the matter discussed above.
The allegation relates to the $390,000 McKissick Enter-
prises paid for the first tract and does not include the
LACK OF PROGRESS AND POOR MANAGEMENT PRACTICES
$74,584 paid for two additional tracts.
Some of the allegations were directed to Soul City's
McKissick Enterprises purchased the three tracts in
overall lack of industry, shops, homes, and other physical
1969 and 1971 for $464,584. McKissick Enterprises' total
developments despite its 6-year history and expenditure of
net cost to buy and hold the property for several years
over $5 million of Federal funds. Other allegations related
was $598,320, as shown below.
to the lack of progress and poor management practices of
three of the Soul City organizations.
Land purchase cost
$464,584
Interest on mortgage
Physical development
121,507
Real estate taxes
5,281
Land improvement cost less
"After six years ***.
depreciation
28,790
Less revenue earned on farming
"More than $5 million from federal grants, con-
during holding period
tracts and government-backed loans had been
- 21,842
spent at Soul City.
Total
$598,320
"There is no industry there, no shops, no
houses--no Soul City.
On the basis of the above, McKissick Enterprises
realized a profit of $2,236 on its sale of land to The Soul
This allegation is basically accurate but can be mis-
City Company.
leading without the complete story.
"* * *Warren Regional Planning Corp. got
Although about $4.6 million of Federal and federally
$274,000 in 1973 to provide 'technical assist-
guaranteed funds had been spent by Soul City organizations
ance' to Floyd B. McKissick Enterprises, Inc.
through March 1975, physical development was essentially
WRPC spent the money to prepare the legal,
on target considering that the loan guarantee for the
planning, and other documents McKissick
prime developer, The Soul City Company, was consummated
Enterprises needed to close the $14 million
only 1 year earlier on March 6, 1974.
HUD loan agreement.
The Soul City Company
$1,921,721
"McKissick is chairman of both the nonprofit
Soul City Foundation, Inc.
b939,216
WRPC and the for-profit McKissick Enterprises."
WRPC
C962,136
HealthCo, Inc.
b842,051
In June 1973 OMBE modified and expanded the contract
with WRPC to provide technical assistance to McKissick
Total
$4,665,124
Enterprises for the HUD closing. The modification added
$274,000 to the contract. The funds were used to pay
aFederally guaranteed loan.
subcontractors for planning and engineering, accounting and
financial services, insurance counseling, printing costs,
bFederal grants.
and legal fees for closing.
CFederal agreements and contracts.
OMBE's chief counsel ruled that no provision of the
contract with WRPC had been violated. He concluded that
there was an identity of interest among the participants
64
65
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Except for the $568,875 the Soul City Foundation spent
As of December 31, 1973, HealthCo incurred expenses
to construct the recently completed industrial building,
totaling $339,968. The total costs increased to $555,800
Soultech I, the Federal and federally guaranteed loan funds
at July 31, 1974, primarily due to purchasing equipment,
were not spent to construct industrial buildings, shops,
supplies, and other items necessary to open and operate the
or houses. The Soul City Foundation, WRPC, and HealthCo
clinic.
spent the funds for establishing a health-care program for
a two-country area, a learning laboratory, and a cultural
HealthCo was scheduled to provide health services
arts program; assisting minority businesses in a six-county
beginning September 1973 under the original grant. Services
area; and planning programs for the Soul City project.
did not begin until August 5, 1974, some 11 months late,
because PHS officials would not approve a temporary or per-
The $1,921,721 of federally guaranteed funds The Soul
manent clinic until after the HUD bond closing. The bond
City Company spent were primarily for land purchases and
closing took place in March 1974, and PHS then authorized
development activities. The project agreement with HUD
HealthCo to set up a temporary clinic.
prohibits The Soul City Company from using guaranteed funds
to build residential, commercial, and industrial structures.
From August 1974 through August 1975, HealthCo treated
The Soul City Company is responsible for planning the Soul
4,743 patients. Expendtures--after deducting patient
City project; constructing streets; providing such neces-
fees and third-party payments--totaled about $414,000.
sities as water, sewage disposal, and electricity; and
As shown below, the average patient load increased steadily
selling land to other developers. (For further details on
from the date the clinic opened in August 1974 until May
the project status see p. 6.)
1975. Since then the patient load has remained fairly
constant.
HealthCo
Average number of
HealthCo was faulted for (1) having spent an inordi-
patients treated
nately large amount before opening its doors to the public
Patients treated
daily
and (2) not having treated an acceptable number of patients
since starting operations. We found the allegations to be
August 1974
151
7
essentially correct, but time has altered some of the
September 1974
146
7
conditions.
October 1974
175
8
November 1974
162
8
"HealthCo. spent $339,968 in 1972-73 on a
December 1974
163
7
regional health clinic for Vance and Warren
January 1975
289
13
counties. Most of the money went for salaries.
February 1975
278
14
Not one patient was treated during that period.
March 1975
338
17
April 1975
462
21
"The clinic eventually opened on Aug. 5, 1974,
May 1975
659
31
11 months behind schedule * *
June 1975
634
32
July 1975
644
29
"In its first month of operation, the clinic
August 1975
642
31
treated 155 patients and collected $688 in
income. HealthCo had cost the Government
Total
4,743
a total of $646,968 by that time."
HealthCo received an 18-month grant from OEO effective
As shown above, in August 1974, when it opened, the
July 1, 1972. This grant provided for a 14-month planning
HealthCo clinic treated an average of seven patients a day.
and preparation period and a 4-month operational period.
This same workload level prevailed through December 1974.
Responsibility for administering the grant was transferred
From August through December 1974, the average patient-visit
to PHS on July 6, 1973. PHS awarded HealthCo an additional
cost was $258. By May 1975 the clinic was treating 31
12-month grant upon expiration of the original 18-month
patients a day, and the workload remained at that level
grant.
through August 1975.
66
67
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
In August 1975, with such a patient load, the patient-
We verified that WRPC had done work on the tasks
visit cost was $44, after deducting fees collected from
enumerated in the contract. In making the various studies
patients and third-party payments. The clinic's staff con-
referred to above, WRPC contacted many corporations. The
sisted of 2 full-time physicians, 1 full-time dentist, 2
contacts were made to determine what presentation should
family-nurse practioners, and 18 other support and
be used when actual recruiting began. During the contacts,
administrative employees.
WRPC did try, unsuccessfully, to recruit those corporations
which expressed interest in Soul City as an industrial site.
Warren Regional Planning Corporation
"Without OMBE's knowledge, Warren Regional
WRPC was faulted for
Planning Corp. loaned money, obtained from
an OMBE contract, to McKissick Enterprises.
--Failing to recruit industry for Soul City.
Those loans, which have been repaid,
totaled $27,486."
--Making improper loans to Floyd B. McKissick Enter-
prises, Inc.
The allegation is correct. The loans were made to
enable Floyd B. McKissick Enterprises, Inc., to continue
--Paying for a life insurance policy on Mr. McKissick
its efforts to perform the activities necessary for it to
after he was no longer WRPC's director.
close the HUD bond guarantee. All loans were repaid in
March 1974, immediately after the HUD closing. At the time
-Receiving $274,000 for legal and other services to
of the loans, Mr. McKissick was chairman of the board of
support the profit seeking organization, Floyd B.
WRPC.
McKissick Enterprises, in its quest for Federal
backing for its bond sale. These expenditures may
Although WRPC's contract required WRPC to provide
have been included in The Soul City Company's
technical assistance to Floyd B. McKissick Enterprises,
predevelopment costs.
Inc., it did not permit it to loan money to Floyd B.
McKissick Enterprises or to any other minority business.
In our opinion, WRPC should not be blamed for not hav-
Because it failed to request OMBE approval before making
ing recruited industry to Soul City inasmuch as it was never
such loans, WRPC exceeded its authority under the OMBE
WRPC's purpose to recruit industry. The other allegations
contract by making such loans.
made are essentially correct.
"Warren Regional Planning Corp. used OMBE
"Warren Regional Planning Corporation (WRPC)
funds to pay more the $2,000 in premiums on
was given $257,000 in 1972-73 to plan an
a $200,000 insurance policy on McKissick's
industrial program for McKissick's develop-
life. McKissick's wife was the primary
ment and to persuade industries to locate
beneficiary."
there. That agency did a lot of planning,
but recruited no industry ***."
In March 1972 WRPC took out an insurance policy on
the life of Mr. McKissick, the director of WRPC. The insur-
This allegation is only partially correct. WRPC was
ance policy was considered a fringe benefit to Mr. McKissick.
given an OMBE contract in 1972 to plan an industrial program
In the event of Mr. McKissick's death, WRPC would have
for Soul City. The contract did not provide for recruiting
received an amount equal to the paid-in premiums and
industry for Soul City.
Mrs. McKissick would have received the balance.
The contract required WRPC to (1) make studies of the
The Department of Commerce audit report dated August 31,
industrial development feasibility of the area, (2) deter-
1973, questioned $2,088 of the $3,016 paid-in premiums.
mine the number, size, and type of plants Soul City should
ultimately have, (3) design a physical plan for industrial
**** After July 1, 1972, Mr. McKissick was
sites, and (4) make various feasibility studies to determine
not contractually authorized to perform under
the organizations to promote and develop the industrial base
the OMBE contract. Accordingly, the premiums
and the methods of financing the projects.
related to this period are considered to be
unallowable costs.
GERALD FORD LIBRARY
68
69
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
After the Department of Commerce audit, WRPC paid
$1,392 additional in premiums. However, WRPC discontinued
with the approval of OMBE, WRPC's contract was amended
paying premiums on this policy after September 1973.
in June 1973 to allow an expenditure of $274,000 for direct
support of the sponsor's efforts to obtain final Federal
Since Mr. McKissick was no longer contractually
backing of The Soul City Company's bonds. Our review showed
authorized to perform under the OMBE contract after July 1,
that WRPC spent about $223,000 for this purpose.
1972, the premiums of $3,480 paid after that date were not
allowable costs under the terms of the contract. The
Although it is true that the $223,000 expenditure
Atlanta Regional Manager, Office of Audits, Department of
directly supported a profit-seeking company, it was not
Commerce, said a final determination would be made on the
included in the predevelopment costs The Soul City Company
questioned costs when the final audit on the contract is
claimed. Neither was the expenditure used as a basis for
made.
increasing the stated value of the owner's equity in Soul
City properties or for drawing down proceeds of bond sales.
"The U. S. Department of Housing and Urban
Development (HUD) permitted Soul City's
In an effort to determine whether the predevelopment
developer to draw funds last year from HUD
costs had been incurred, we statistically sampled $360,916
guaranteed loans to pay more than $1 million
of the predevelopment costs and found two minor discrepan-
in predevelopment costs. The department did
cies. The net effect of the discrepancies was that the
so without determining if a part of these
developer could have included $388.22 additional as pre-
costs already had been paid by another
development cost on the cost certificate.
federal agency.
The results of our tests indicate that the developer
"The Office of Minority Business Enterprises
incurred the predevelopment costs certified to HUD and
(OMBE), a U. S. Department of Commerce agency,
that they were not previously paid by another Federal
gave the Warren County, N. C., new town
agency.
project a $274,000 contract on June 25, 1973.
The money was to cover fees for attorneys,
Soul City Foundation
architects, engineers and other predevelopment
expenses.
"The federal government gave $90,000 to Soul
City Foundation to identify and apply for more
On March 6, 1974, HUD approved the Soul City's cost
federal, State, and private monies * * *."
certification of predevelopment costs amounting to
$1,421,676. On the basis of the approved cost certifica-
The allegation identifies only one of the four grant
tion, The Soul City Company was permitted to draw down
objectives.
$685,428 from its escrow account.
OEO awarded a $90,000 social advocacy planning project
We made some tests to determine whether the predevelop-
grant to the Soul City Foundation in December 1972. The
ment costs certified to HUD (1) had been paid by another
goals of the advocacy project were to (1) plan a lifestyle
Federal agency and (2) had actually been incurred. Neither
for the new community which would be responsive to the needs
Floyd B. McKissick Enterprises (the project sponsor) nor
of low-income residents, (2) prepare a program for identi-
The Soul City Company (the project developer) had directly
fying, recruiting, and relocating low-income families, (3)
received any Federal funds through grants, contracts, or
identify the resources, both human and financial, in the
loans in relation to the Soul City project. However, four
public or private sector to carry out the designed programs,
other Soul City organizations receiving Federal funds did
and (4) assemble a detailed report designed to enable other
make disbursements to the project sponsor for rent and for
new communities to strengthen the participation of low-income
expense reimbursements. The sponsor properly reduced appro-
persons.
priate expense accounts for all but two expense reimburse-
ments totaling $350.45 from these organizations. The
Our review of the grantee's performance showed that the
failure to properly credit the sponsor's expense account
grantee had done some work toward achieving each program
resulted in a $350.45 overstatement of predevelopment cost.
activity except that of identifying, recruiting, and
relocating low-income families. Due to the delay in the HUD
70
71
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Total
closing and the heavy workload of the small staff, the Soul
Total
North
estimated
Number
City Foundation decided not to plan and develop a program
Project
of miles
FHWA
HUD
Federal
Carolina
cost
to meet this grant goal.
RS-51 (3)
OTHER ALLEGATIONS
(note a).
0.5
$ 31,500
$ -
$ 31,500
$ 13,500
$ 45,000
RS-1709( (1)
1.2
236,785
31,159
267,944
66,986
334,930
The following allegations did not readily fit into the
RS-1710(1)
0.7
67,268
33,841
101,109
25,278
126,387
above categories and are discussed separately below.
Total
2.4 $335,553 $65,000 $400,553 $105,764 $506,317
"The Office of Federal Elections lists
McKissick as a $500 contributor to the Black
aCanceled April 30, 1975.
Committee for the Reelection of the President
on May 22, 1972 * * There is a Federal
law prohibiting political contributions by
On March 27, 1973, representatives from Soul City,
Government contractors at any time between
FHWA, HUD, and the North Carolina State Department of Trans-
the commencement of negotiations and the
portation met to discuss Soul City's highway needs. At
completion of their contract.'
this meeting HUD said it could provide funds to help
finance Soul City's highway needs if the funds were com-
On May 22, 1972, Mr. McKissick personally donated $500
mitted by June 30, 1973. At this same meeting, the North
to the Black Committee for the Reelection of the President.
Carolina secretary of transportation directed his staff
We verified that the cash was not paid out of the resources
to realine its priorities to help get Soul City roads con-
of any Soul City organization. Title 18, section 611,
structed. Before this time North Carolina's 7-year highway
United States Code, prohibits contributions by firms or
plans for 1973-80 and 1974-81 did not include any highway
individuals contracting with the United States. At the
construction in the county in which Soul City is located.
time of his donation, Mr. McKissick was an officer or
Road project RS-1710(1), a proposed new road, was accepted
director of three Soul City organizations which were nego-
into North Carolina's rural secondary road system on May 17,
tiating for over $15 million in Federal assistance from
1973. Projects RS-51(3) and RS-1709(1) had been part of the
HUD, OMBE, and OEO but he personally was not contracting
system for some time. HUD committed funds to supplement the
with the United States. It appears to us that the Federal
three projects on June 29, 1973, and FHWA approved the
law was not violated. However, whether there was a viola-
projects on August 2, 1973. In October 1974 contracts
tion of title 18 of the United States Code is a matter for
totaling $461, 317 were awarded for projects RS-1709 (1) and
consideration by the Department of Justice since title 18,
RS-1710(1). Project RS-51(3) was canceled on April 30,
section 611, is a criminal statute and not within the
1975. The other two projects are currently under
purview of our Office.
construction.
"State and federal highway officials did
Since the two road projects under construction are
McKissick a $535,317 favor by building roads
included in North Carolina's secondary road system, they
through his development. Without this assist-
are eligible for Federal highway funds. The funds pro-
ance the Soul City Company would have had to
vided by HUD were properly authorized under section 718
pay for its own roads. The company could have
of the Urban Growth and New Community Development Act of
used Government-backed loan money to build
1970. The Soul City Company will be responsible for
them, but it would have had to repay the
building the residential roads in the Soul City project
funds.'
using HUD-guaranteed loan funds.
As of March 31, 1975, approved highway projects within
"The U. S. Department of Commerce paid a New
the geographic limits of the Soul City project were to be
York firm $85,157 in 1972 - 73 to publicize
financed as follows:
the operations of Soul City * ***.
72
73
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
"Ten months after it got its federal contracts,
ALLOWABILITY OF EXPENDITURES OF SOUL CITY ORGANIZATIONS
the publicity firm [Eden Advertising and
Communications, Inc.] quietly went out of
business * * *.
Using statistical-sampling techniques, we selected 349
expenditure transactions completed before April 1, 1975,
"The payments to Eden were supposed to have
from the Soul City organizations and sought to determine
been based on Eden's cost of publicizing Soul
whether the expenditures had been made in accordance with
City. Although Eden was paid $85,157, it
the terms and provisions of the grant, contract, or loan
only claimed cost of $42,017. Of the first
guarantee and whether they were adequately supported by
figure, Commerce auditors accepted only
documentation. We also sought to verify that the goods and
$7,429 as allowable under the terms of the
services procured had been received and had been used for
contract."
their intended purposes.
On December 12, 1974, the Commerce Department's Office
We also scanned the accounting records of each organi-
of Investigations turned over its findings to the Depart-
zation and selected, on a judgment basis, 113 transactions
ment of Justice's criminal fraud section in Washington, D.C.
that were (1) large dollar values, (2) between other
The Eden file has since been sent to the U.S. attorney in
organizations at Soul City, or (3) alleged to be improper.
New York, and a decision on whether to prosecute Eden is
pending.
For this test, we excluded compensation paid to
employees of the Soul City organizations. Because payroll
costs accounted for a large percentage of the total costs
organizations incurred, we felt these expenditures
warranted separate handling. The results of these payroll
tests are discussed later.
RESULTS OF STATISTICAL AND JUDGMENT SAMPLES
The following table shows the number and dollar value
of all cash transactions to April 1, 1975, and our samples.
Total transactions
Statistical
Judgment
(note a)
sample
sample
Organization
Number
Value
Number
Value
Number
Value
The Soul City
Company
885
$4,547,432
90
$673,400
12
$134,100
WRPC
1,321
872,600
80
72,900
49
99,000
HealthCo
1,527
513,200
100
40,400
42
93,900
Soul City
Foundation
1,601
1,496,600
79
15,400
10
27,400
a
Includes Federal, State, and private funds.
The results of applying the audit criteria to the
transactions in our statistical samples showed that 86,
or about 25 percent, of the transactions we reviewed did
not meet 1 or more of the tests for allowability. When
projected to the universe, on the basis of a 95-percent
confidence level, the number of transactions which did
not meet 1 or more of the tests for allowability ranged
from 1,063 to 1,926. (See pp. 77 and 78.)
74
75
LL
9L
NEA
WRPC:
Labor
HEW, OE
OEO and CSA
Soul City Foundation:
HEW, PHS
OEO
HealthCo:
OMBE
Total
Development
Planning and
HUD, Community
HUD, NCA
The Soul City Company: :
Organization
349
79
1
3
14
61
100
T9
39
80
40
40
06
Total
17
4
I
I
I
1
3
9
L
2
3
2
1
1
grant provisions
compliance with
Not in
67
28
I
I
1
4
23
15
4
11
24
8
16
I
I
documentation
Inadequate
11N
2
I
I
I
I
IN
T
1
I
I
I
#
,
I
I
not received
Goods or services
Number of transactions in statistical sample
(°6L d
86
32
|
I
1
5
26
26
12
14
27
10
17
of errors
number
did not meet 1 or more of the tests for allowability. (See
1
Total
percent, of the 113 transactions in our judgmental sample
the statistical sample, we found that 39, or about 35
Using the same criteria for allowability as we used in
I
I APPENDIX
I APPENDIX
I APPENDIX
Number of transactions
Number in
Range of number in
Statistical
sample not
universe not meeting
Organization
Universe
sample
meeting criteria
criteria (note a)
I APPENDIX
From
To
The Soul City Company
885
90
1
(b)
(b)
WRPC
1,321
80
27
315
583
HealthCo, Inc.
1,527
100
26
270
525
Soul City Foundation
1,601
79
32
478
818
Total
5,334
349
86
1,063
1,926
78
ᵃBased on a 95-percent confidence level.
ᵇNumber of errors in sample too small to warrant projection.
I APPENDIX
Number of transactions in judgment sample
Not in
Total
compliance with
Inadequate
number
Organization
Total
grant provisions
documentation
of errors
I APPPENDX
The Soul City Company:
HUD, NCA
12
-
-
WRPC:
HUD, Community
Planning and
Development
29
9
4
13
OMBE
20
10
1
11
49
19
5
24
HealthCo:
79
OEO
12
3
1
4
HEW, PHS
30
7
2
9
42
10
3
13
Soul City Foundation:
OEO and CSA
10
-
2
2
Total
113
29
10
39
I APPENDIX
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
Dollar Value of Questionable Transactions in Samples
Warren Regional Planning Corporation
Statistical
Judgment
Of the 129 transactions in our samples of WRPC, 22
sample
sample
transactions involving expenditures totaling $28,859 were
Number of transactions sampled
not in compliance with agreement or contract provisions and
349
113
29 others totaling $38,295 lacked necessary documentation.
Dollar value of transactions
sampled
Of the 22 transactions found not in compliance with
$802,000
$354,400
grant contract provisions, 11 had previously been questioned
Number of transactions:
by the Office of Audits, Department of Commerce. For
Not in compliance with grant
example, using OMBE contract funds, WRPC made two payments
provisions
totaling $1,016 for travel expenses of Mr. McKissick. These
17
29
Lacking adequate documentation
expenses were for travel after Mr. McKissick left WRPC's
(note a)
payroll. The Department of Commerce audit report dated
67
10
Goods or services not received
August 31, 1973, questioned the costs and stated the expend-
2
-
itures were for Mr. McKissick's travel and subsistence after
Total
he was no longer contractually authorized to perform under
86
39
the OMBE contract. As of September 1, 1975, Commerce had
Dollar value of questionable
not decided on the final disposition of the August 31, 1973,
transactions (note b)
audit findings. We were told that a final determination on
$ 44,331
$ 51,883
the questioned costs would be made after we completed our
review.
ᵃDocumentation was not adequate for only part of the
expenditures in some cases.
Other transactions found not in compliance with con-
bIn some cases only part of the transactions were questioned.
tract or agreement provisions included (1) interest and
penalties paid to the Internal Revenue Service for late pay-
ment of taxes withheld from employees' salaries, (2) loans
The Soul City Company
to Floyd B. McKissick Enterprises, (3) expenditures for
entertainment, and (4) consultant services not approved as
Our review of the 102 transactions in our samples of
required. For example, WRPC used HUD funds to pay $349.71
The Soul City Company disclosed only one for $35 which did
in interest and penalties to the Internal Revenue Service
not meet the criteria. However, in our samples we found
and to the North Carolina Department of Revenue. Provisions
three transactions totaling $189, which HUD would not
of the HUD agreements did not allow interest and other costs
permit to be paid from the guaranteed bond proceeds because
resulting from violation of or failure to comply with
the transactions were not in accordance with the project
Federal, State, and local laws and regulations.
agreement.
The absence or insufficiency of documentation to
According to the project agreement, only land acquisition
support the propriety of expenditures was a serious problem
and development expenses can be paid from federally guaran-
at WRPC. No documentation was available for 14 expendi-
teed bond proceeds. The Soul City Company must use equity
ture transactions, and there was inadequate documentation
funds (its own funds derived from private sources) to cover
on file for 15 transactions.
other types of expenditures. In January 1975 The Soul City
Company made a $180,0 loan commitment to the Soul City
WRPC could not locate any documentation, other than
Foundation to provide the necessary funds to complete the
canceled checks, for 14 transactions.
first industrial building in Soul City, Soultech I. During
1974 The Soul City Company paid annual dues and other fees
-Documentation for two transactions was not adequate
totaling $9,000 to the League of New Communities. Because
to enable us to verify the accuracy of certain
HUD determined that these expenditures were not in accordance
costs, such as insurance premiums, employees'
with the project agreement, The Soul City Company was forced
salaries, office supplies, utility services, and
to use its equity funds.
equipment rentals, which had to be prorated among
various programs administered by WRPC.
80
81
APPENDIX I
APPENDIX I
APPENDIX I
APPENDIX I
-Thirteen travel vouchers were not prepared in
accordance with regulations. The vouchers did
The two transactions for which goods or services were
not contain the necessary information to verify
not received totaled $418.75. The transactions were for
the propriety of the amounts paid.
(1) payment of $15.08 for a motel room which was guaranteed
but not used and (2) back pay of $403.67 for a suspended
HealthCo
employee who was reinstated after a hearing.
Our audit of the 142 transactions in HealthCo disclosed
Soul City Foundation
19 expenditures totaling $7,593 were not in compliance with
grant provisions, 18 expenditures totaling $6,043 with
Of the 89 transactions in our samples of the Soul City
insufficient documentation, and 2 expenditures totaling $419
Foundation, 4 transactions totaling $71 were not in compli-
for which goods or services were not received.
ance with grant provisions and 30 totaling $4,128 with
insufficient documentation on file. Examples of the lack of
Transactions not in compliance with grant provisions
documentation follow.
include (1) improperly computed travel claims, (2) required
OEO or HEW approval not obtained, (3) penalties and interest
Thirteen travel vouchers were improperly filled out.
paid to the Internal Revenue Service for late payment of
The vouchers did not contain necessary information
taxes withheld from employees' salaries, and (4) payment of
to verify the propriety of the amounts claimed.
a Soul City Foundation liability. Following are examples
of transactions questioned.
The Soul City Foundation could not locate any docu-
mentation, other than canceled checks, for four
-Travel claims were made which included incorrect
transactions.
mileage rates, mileage computation errors, and
incorrect subsistence allowances.
--Documentation on file did not adequately support the
amounts paid for 13 transactions involving telephone
On Feburary 15, 1973, HealthCo paid taxes and
bills, office equipment services, and insurance
interest totaling $731 to the Employment Security
premiums.
Commission of North Carolina. This amount repre-
sented the assessed tax for the first three quarters
PAYROLL AUDIT RESULTS
of 1972. Our analyses revealed that the taxes were
for Soul City Foundation employees.
We randomly selected a pay period in 1974 and reviewed
all payroll transactions. Each transaction was reviewed in
Our review disclosed 18 transactions which were not
accordance with the following criteria.
adequately supported.
-The position; salary; and, if required, the individ-
Eleven travel vouchers were improperly filled out.
ual holding the position was in accordance with the
The vouchers did not contain the necessary informa-
Federal grant, contract, or loan guarantee.
tion to determine the propriety of the amounts
claimed.
--An approved time and attendance sheet was on file
for each employee paid.
Documentation was not available for two transactions
to determine why the expenditures were made.
The gross wages were computed correctly.
Documentation for four transactions was not available
In general, we found that payroll costs were correctly
to determine whether HealthCo paid WRPC and Floyd B.
paid and properly controlled.
McKissick Enterprises the correct amounts for its
share of telephone bills and insurance premiums.
-Documentation for one transactions was not available
to determine whether the items purchased were actually
received.
82
83
APPENDIX I
APPENDIX I
SCOPE OF REVIEW
We directed our review to determining the project's
history; current status; and sources and amounts of Federal,
State, and local financial aid going directly to Soul City
or the surrounding municipalities for the benefit of Soul
City. We also examined various allegations relating to the
project and tested the allowability of expenditures for four
Soul City organizations.
We reviewed the basic laws, legislative history,
regulations, policies, and instructions governing the new
communities program. We reviewed pertinent documentation
relative to reviewing, approving, and monitoring procedures
for grants, contracts, agreements, the loan, and the loan
guarantee awarded by the Federal agencies. Also we reviewed
audit reports prepared by CPAs and agency internal auditors
and determined the status of the findings therein. We inter-
viewed officials of the agencies which provided assistance
to Soul City and officials of the Soul City organizations.
We made our review at
HUD, Washington, D.C., and Greensboro, North Carolina;
Department of Commerce--OMBE, Washington, D.C., and
Atlanta, Georgia;
Department of Commerce EDA, Atlanta, Georgia;
CSA, Washington, D.C., and Atlanta, Georgia;
HEW OE and PHS, Atlanta, Georgia;
National Endowment for the Arts, Washington, D.C.;
Department of Labor, Atlanta, Georgia;
Environmental Protection Agency, Atlanta, Georgia;
Department of Transportation- FHWA, Raleigh, North
Carolina; and
The Soul City Company, the Soul City Foundation,
WRPC, HealthCo, Floyd B. McKissick Enterprises,
McKissick Soul City Associates, Soul City Sanitary
District, and Soul City Utilities Company at Soul
City.
84
APPENDIX I
APPENDIX I
SCOPE OF REVIEW
We directed our review to determining the project's
history; current status: and sources and amounts of Federal,
State, and local financial aid going directly to Soul City
or the surrounding municipalities for the benefit of Soul
City, We also examined various allegations relating to the
Soul City organizations.
project and tested the allowability of expenditures for four
regulacions, policies, and instructions governing the new
We-reviewed the basic laws, legislative history,
communities program. We reviewed pertinent documentation
for grants, contracts, agreements, the loan, and the loan
relative to reviewing, approving, and monitoring procedures
guarantee awarded by the Federal agencies. /Miso we seviewed
and determined the status of the findings therein. NE inter-
audit reports prepared by CPAB and agency internal auditors
viewed officials of the agencies which provided assistance
to Sout^City and officials of the Sool City organizations.
We made our review at
--BUD, Washington, over, and Greensboro, North Carolinar
-Department of Commerce--ONBE, Washington, D.C., and
Atlanta, Georgia;
Department of Commerce--EDA, Atlanta, Georgia;
--CSA; Washington, D.C., and Atlanta, Georgiar
HEW--OB and PHS, Atlanta, Georgia;
--National Endowment for the Arts, Washington, D.C.I
+-Department of Labor, Atlanta, Georgia:
Environmental Protection Agency, Atlanta. Georgiar
Carolinar and
Department of Transportation--PHXA, Releigh, North
The Soul City Company, the Soul City Foundation,
WRPC, HealthCo, Floyd B. McKissick Enterprises,
MuXlssick Soal City Associates, Soul City Sanitary
District, City, and Soul City Utilities Company at Soul
84
AN EQUAL OPPORTUNITY EMPLOYER
UNITED STATES
POSTAGE AND FEES PAID
GENERAL ACCOUNTING OFFICE
U.S. GENERAL ACCOUNTING OFFICE
U.S.MAIL
WASHINGTON, D.C. 20548
OFFICIAL BUSINESS
THIRD CLASS
PENALTY FOR PRIVATE USE,$300