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    "localId": "1523023",
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    "id": "1523023",
    "sourceUrl": "https://catalog.archives.gov/id/1523023",
    "contentType": "document",
    "title": "Soul City",
    "citationUrl": "https://catalog.archives.gov/id/1523023",
    "collections": [
        "Paul C. Leach Files (Ford Administration)",
        "Paul Leach's Commerce and Economic Development Subject Files"
    ],
    "subjects": [
        "North Carolina",
        "Federal aid",
        "Minority businesses"
    ],
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    "naId": 1523023,
    "coverageEndDate": {
        "logicalDate": "1975-12-31",
        "month": 12,
        "year": 1975
    },
    "coverageStartDate": {
        "logicalDate": "1975-07-01",
        "month": 7,
        "year": 1975
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    "seq": 1,
    "pageIndex": 0,
    "type": "document",
    "url": "https://s3.us-east-1.amazonaws.com/NARAprodstorage/lz/presidential-libraries/ford/grf-0102/643743/1523023.pdf",
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    "ocrText": "The original documents are located in Box 17, folder \"Soul City\" of the Paul C. Leach\nFiles, 1974 - 1977 at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nMEMORANDUM\nTHE WHITE HOUSE\nWASHINGTON\nSoul City\nOMBE has prounded\n190\n72\n342\n73\nFORD if LIBRARY 038410\n74\n333\n320\n75\nFor Purpose of Pla, Promote, Develop Industrad\nProgram\nEDA gave water system gront $2 million\nBrere Davies 4559\nMEMORANDUM\nC.S.A. from THE Quern WASHINGTON WHITE HOUSE\nFY 1973\n# 503,000 grad to asset\nin construct office bldg\nFY 1974\nTowed down on #2.5 million\nFY 1975\n$93,000\nfor almon. expenses\nFY 1976\nRequest for alwth93,000\nal will probably gave\n$ 40,000 (with kiss off).\nFORD LIBRARY is GERALD\nMEMORANDUM EDA from HITT\nTHE WHITE HOUSE\nWASHINGTON\nEdA IS comfortable with progress ad\npurposes.\nNo wheatron of improprieties with\ngrant from EDA\nFORD is LIBRARY 9ERALD\nCall Carl Hystad\nTHE WHITE HOUSE\nWASHINGTON\nDATE: July 14, 1975\nTO:\nLYNN MAY\nFROM: JIM CAVANAUGH &\nSUBJ: Senator Helms & OMBE\nFYI\nAction X\nPlease see me on this.\ncolled Hystad 7/18/75 for\nFACTS.\nFORD if LIBRARY 0ERALD\n7/30\nJuly 11, 1975\nMEMORANDUM TO:\nJIM LYNN\nJIM CANNON\nFROM:\nJACK MARSH\nThe attached materials present a number of delicate practical\nand political problems. As Russ's memo indicates, GAO is\nalready looking into this matter.\nThe President is aware of Senator Helms's interest in this\nmatter, and asked me to refer the phone memo and attachments\nto you for your Reonsideration and suggestions.\nI think he would like to have a short report back from OMB and\nDomestic Council as to the status of the situation as soon as is\nreasonably possible.\nMany thanks.\nCCI MFriedersdorf\nJOM:cb\nGERALD FORD LIBRARY\n7/30\nU.S. SENATOR JESSE HELMS\n5107 Dirksen Senate Office Building\nWashington, D.C. 20510\n202-224-6342\nJUI 8 1975\nThought This might be\nof inTeresT to you - - -\nClit Kuller\nExecutive Assistant\nSome items in this folder were not digitized because it contains copyrighted\nmaterials. Please contact the Gerald R. Ford Presidential Library for access to\nthese materials.\nLIBRARY\nFORD\nGIVD\nRAleish (N.C) News * observer\n7/4/75\nHowever. ne sold,\nam NUME\nnot have money and an\nworking, we will make\nMcKissick Agency Given Contract\nYM\narrangements.\nShipes said he felt that\ning the crew out on the\nwas not the answer to the\nBy PAT STITH\nCorp. (WRPC), a Soul City en existing minority businesses\n$500,000 of that money assisting\nvested more than $1 million in\nlem because without jo\nStaff Writer\nMI\nplanning agency headed by\nand help start new minority\nMcKissick's firms at Soul City\nMcKissick's Soul City project,\nmoney they would need go\nFloyd B. McKissick.\nbusiness in Warren, Vance\nhas been under fire from the\nThe Office of Minority Busi-\nTI\nMcKissick is the founder of\nFranklin, Halifax, Northamp-\nUnder prior contracts,\nHouse Appropriations Commit-\nlness Enterprise (OMBE)\nin\nSoul City, a government-subsi-\nton and Nash Counties.\nWRPC was to have planned\ntee.\nWashington announced Thurs dized \"new town\" in Warren The new contract was effec- various-aspects of Soul City,\nThat committee's investiga-\nTHE WHITE HOUSE\nWASHINGTON\nJuly 7, 1975\nMEMORANDUM FOR:\nJACK MARSH\nFROM:\nRUSS ROURKE\nR\nSUBJECT:\nTelephone Conversation With\nSenator Helms\nSenator Helms is extremely upset over continuing grants to Soul\nCity, North Carolina. Both Senator Helms and Congressman Fountain\nhave just called for a GAO audit of government grants to Soul City.\nHelms wants all such grants (HUD, HEW, OMBA, etc. ) stopped\nuntil it is determined \"how much McKissick and those rascals have\nstolen. 11 Senator Helms advised me that both he and his wife\npersonally drove through Soul City and found no evidence whatever\nthat any of the grants (now totaling some $17 million) have been put\nto any useful purpose whatever. \"Soul City Boulevard is nothing\nbut a bulldozer scraped road with temporary trailers on either\nside of the road. 11\nHelms recited a $320, 000 grant as the latest example of wasteful\nand irresponsible 1.\nHe is sending today a newspaper article from the Raleigh papers\nwhich further identifies the specifics of this situation.\nHelms asks that the White House act to halt any further award of\ngrants.\nFORD LIBRARY\nTHE WHITE HOUSE\nWASHINGTON\nJuly 28, 1975\nMEMORANDUM FOR: JIM CANNON\nTHROUGH:\nMAX FRIEDERSDORF\nmc\nFROM:\nBOB WOLTHUIS RKW\nSUBJECT:\nSoul City Funding in North Carolina\nSenator Helms called and was very disturbed by the fact\nthat Community Services recently funded Floyd McKissick's\nSoul City program in North Carolina for $38,000. Helms is\ninsisting that all funding throughout the administration be\ntemporarily halted until a GAO study of Soul City is completed.\nIn our telephone conversation this afternoon he stated that\nHUD had terminated funding pending the GAO report but was very\ndisturbed about Community Services. Senator Helms alleges that\nafter $7 million all that exists at Soul City is three house\ntrailers. He suspects that McKissick has Swiss Bank Accounts\nthat should be looked into.\nSenator Helms expressed a very strong desire that he wants to\nsave the President any embarrassment and, therefore, the GAO\nreport should be completed before any further funds are put\ninto the program.\nCC: Jim Lynn\nPaul O'Neill\nFORD is LIBRARY CERALD\n975 JUL 29 AM 11 08\nbenj\nCC: 2TH PAUD\nTupo FPG brodism*\nreborg вропто po combreçog perore gui Inuge use bas\nSTAG cpe sux evg' срехедото' a GVO\ngenerol HOTER exhresseq s ASIA afroud qestie cuse pe mewce FO\nFREE проята pe Jookeg Tupo*\nsalv& ead Jadd adosqure sH\n8.1 WITTTON VII cyst extere $5 gonj CTFA TO spzee porres\ngracmpeq пролс COMMUNITA BELATCES* genstor Herms vijedes\nHAD pgq permissing progrud beugrud FUC evo LEDOLD pof ASS ASIA\nIN one persbyous cure pe acered FUST\n.bejeIgmoo al your 1008 to you's OAD is Ittms befied\nad sid pathari IIs todo pattelant\nat smiell .000,880 zoi antions) at y310 1008\npara COMMUTTEA gerarces LEOSUCTA Inugeg LJOAG\ntost odd vd Seductab yzev asw bris beliso amIeH Todanet\n2001ECL:\ngody CTFA Enugynd TO yorff\nLBOW:\nBOB MoΓaHoΓe 15km\nWVX exter\nLOB: TIN СУЙИОЙ\nTHE 38' 7012\nTHE MHILE HONSE\nTHE WHITE HOUSE\nWASHINGTON\nDATE:\nJuly 29, 1975\nTO:\nPAUL LEACH\nFROM: JIM CAVANAUGH\nSUBJ:\nSenator Helms & OMBE,\nGrants to Soul City, No. Car\nFYI\nAction\nYou're already working on\nthis.\nFORD is LIBRARY 07V830\n7/30\nTHE WHITE HOUSE\nWASHINGTON\nJuly 30, 1975\nMEMORANDUM FOR:\nJIM CAVANAUGH\nFROM:\nPAUL LEACH\nSUBJECT:\nSoul City\nAttached are reports from Bob Hitt, Morton's Assistant at\nCommerce and Otto Stolz at, HUD's Community Development\nCorporation.\nHUD is making no new disbursements of grant money until the\nGAO audit is completed.\nOMBE has investigated the allegations and found that there\nwas no conflict of interest. OMBE is continuing to fund\nSoul City. Bob Hitt is going to dig into this to make sure\nthat the OMBE investigation was complete and fair. He is also\nlooking into EDA involvement.\nArt Quern is getting information from HEW and C.S.A.\nGERALD FORD LIBRURT\nDEPARTMENT OF COMMERCE\nU.S. DEPARTMENT OF COMMERCE\nEconomic Development Administration\nUNITED STATES OF AMERICA\nJuly 31, 1975\nTo :\nBob Hitt\nBill\nFrom:\nBill Henkel\nAttached please find some current\nmaterial relative to EDA's Henderson, N.C.\n(Soul City) project. The information\nconfirms our conversation yesterday that\nEDA is comfortable with the purposes and\nprogress of the subject project. The\ninformation I developed is routine and\nnormal.\nAttachment\nTRANSMITTAL FORM CD-82A (10-67)\nPRESCRIBED BY DAO 214-2\nUSCOMM-DC 1232-P67\nU.S. DEPARTMENT OF COMMERCE\nEXECUTIVE ASSISTANT TO THE SECRETARY\nDEPARTMENT OF COMMERCE\n*\nUNITED STATES OF AMERICA\nTo: Paul Leach\nFrom: Bob Hitt\nPer our conversation\nFORD i LIBRARY 0ERALD\nTRANSMITTAL FORM CD-82A (5-75)\nUSCOMM-DC 434-P75\nPRESCRIBED BY DAO 214-2\nPROJECT MANAGEMENT DIVISION\nDATE:\nJuly 30, 1975\nPROJECT BRIEF\nProject No.\n04-01-01159.1\nProject Location:\nHenderson, N.C. (Soul City)\nProject Description: The project is for construction of a raw water intake in\nKerr Reservoir; a 36\" raw water main from the intake to a\nnew 10 MGD water treatment plant; a 36\" finished water\nmain from treatment plant to Middleburg; with a 20\" water\nmain extending from Middleburg to Soul City with elevated\nstorage, a 30\" water main extending from Middleburg to\nHenderson, and a 20\" water main extending to Oxford from\nHenderson.\nGrantee is City of Henderson with Soul City as one beneficiary.\nDate Approved:\nJune 29, 1973\nFinancing:\nTotal Project Cost\n$12,823,000\nEDA Grant\n2,140,000\nEDA Loan\n- 0 -\nOther Federal Assistance\n- 0 -\nApplicant's Funds\n10,683,000\nStatus of Project:\nWater Transmission lines substantially complete (ahead\nof schedule). Treatment Plant will not be completed until\nMay 1976.\nAttached is an Inspection Report by Mabry S. Morgan of\nSERO dated April 2, 1975 with attachments.\n1/ Bill see project budget attactivel for complete\nbreakdown of This\nFORD is LIBRARY 076839\n- 2 -\nAs of March 27, 1975, funds in the amount of $4,090,667 have\nbeen expended. EDA is presently processing the first dis-\nbursement in the amount of $570,250.00.\nAs you know, there have been a series of articles in North\nCarolina newspapers concerning allegations of improprieties\nin Federal Grants to Soul City. Apparently there will be\ninvestigations and audits. The EDA grant is, of course, to\nthe City of Henderson and to date there has been no indication\nthat our project will be involved.\nMr. Holmes, City Manager of Henderson, appears to be quite\nsatisfied with the progress of the work thus far and is aware\nof no problems or developments which might complicate or delay\nthe work. I am in frequent telephone contact with Mr. Holmes\nand have requested that he contact me or you immediately if he\nbecomes aware of any situation which might jeopardize the\nsuccess of the project.\nFor your information and convenience, I am attaching maps,\nbudget and financing breakdowns, and contractor list for the\nproject.\nMaling Magan\nMABRY S. MORGAN\nCivil Engineer\nAttachments\nFORD i LIBRARY 9ERALD\nDEPARTMENT\nOF\nCOMMERCE\nU.S. DEPARTMENT OF COMMERCE\nEconomic Development Administration\nUNITED STATES OF AMERICA\nSOUTHEASTERN REGIONAL OFFICE\n1401 Peachtree St. N.E.\nAtlanta, Georgia 30303\nDate:\nApril 2, 1975\nReply to\nAttn of:\nTSD-SERO\nSubject:\nProject Inspection\nEDA Project No. 04-1-01159\nHenderson, North Carolina\nTo:\nC. H. Cole\nChief, Engineering Branch\nOn Thursday morning, March 27, 1975, Mr. Everett Scott, HUD\nEngineer, Raleigh, N. C.; Mr. Dick Primm, HUD Labor Relations\nDepartment, Greensboro, N. C.; and I met with Mr. Melvin Holmes,\nCity Manager of Henderson, N. C. We discussed a labor problem\nwhich Mr. Scott had observed at the construction site of the\nraw water intake facility a couple of weeks earlier. Mr. Scott\nhad observed two employees tieing structural steel reinforcing\nbars who were classified and being paid as carpenters. The\ncarpenter's classification carries a lower wage rate than\nstructural steel workers. Mr. Scott discussed this with the\nsuperintendent of the construction company and the superin-\ntendent stated that the improper classification would be taken\ncare of. EDA will verify this by checking future payrolls.\nIn the afternoon, Mr. Scott and I made a construction inspect-\nion on active parts of the project. We visited the elevated\ntank site where foundations were being formed for placement of\nconcrete within a few days. The work was satisfactory.\nFORD\nNo work was being performed at the raw water intake structure\ndue to recent rains which had raised the water level approxi-\nmately 15 feet above normal pool elevation. It was estimated\nGERALD\nthat it will take 3 or 4 weeks to draw down the level of Kerr\nReservoir enough to resume construction on the intake structure.\nWork at the water treatment plant was progressing rapidly and\nit appears that the plant work is on schedule.\nAll pipe lines are being installed rapidly and the work is\nahead of schedule with the exception of the connecting main to\nthe Cities of Henderson and Oxford. The contracts for these\nlines were executed on February 24, 1975 and work was to be\ncompleted within 180 calander days.\nAll construction and clean up inspected to date appears to be\nsatisfactory. For a project of this size and scope, there has\nbeen a minimum of problems and change orders to date.\nEDA PROJECT 04-1-01159\nHenderson, North Carolina\nPROJECT BUDGET\nGrant Offer\nAmendment\nActual After All\n6/29/73\n12/4/74\nBids 2/24/75\nInterest\n$ 264,000\n$ 370,000\n$ 370,000\nLegal & Admin.\n20,000\n20,000\n20,000\nLand\n57,000\n60,000\n60,000\nA/E Fees\n452,000\n717,060\n717,060\nIncidental to Land\nAcquisition\n7,000\n7,000\n7,000\nConstruction\n7,400,000\n11,211,831\n11,012,140\nContingency\n800,000\n437,109\n396,082\nTotal\n9,000,000\n12,823,000\n12,582,282*\n*Last contracts awarded resulted in underruns, causing\nthe budget to be less than anticipated on Dec. 4, 1974.\nSOURCES OF FUNDS\n± %\nEDA\n$2,140,000\n17\nHUD\n4,022,950\n32\nState of N.C.\n2,795,000\n22.2\nHenderson\n2,535,021\n20.2\nOxford\n986,191\n7.8\nSoul City\n103,120\n0.8\n12,582,282\n100.0\nTotal Federal Funds = 6,162,950 = 49%\n12,582,282\nFORD LIBRARY\nEDA PROJECT 04-1-01159\nHenderson, N.C.\nCONTRACTS AND AMOUNTS\nContractor\nContract\nAmount\n% Complete\nGeorge W. Kane, Inc.\nWater Treatment Plant\n$3,034,000\n24\nRoberts Filter Co.\nFilters\n621,300\nO\nBolton Corporation\nPlumbing\n70,920\n34\nBolton Corporation\nMechanical\n123,926\n12\nWatson Electrical\nElectrical\n410,830\n6\nPaul N. Howard\nRaw Water Intake\n1,415,000\n48\nCharles F. Smith\nWater Lines\n1,430,976\n30\nCharles F. Smith\nWater Lines\n1,216,444.25\n77\nBlythe Brothers\nWater Lines\n1,282,899.15\n81\nColumbus Contractors\nWater Lines\n695,215\n62\nBrown Steel Co.\nElevated Tank\n378,901.50\n16\nBlue Contracting Co.\nWater Lines\n331,738.10\n0\nTotal\n11,012,140.60\n39.5%\n% Construction completed as of March 15, 1975\n= 4,353,712 = 39.5%\n11,012,140\nBERALOR FORD LIBRARY\nBoydton\nFinchle\nin\n1\nClarksville\n46\nDom\nGasburg\n13\n(Buggs Island\n9\n11\nLake)\nKen Res\nVulture\nHill\nLake\nHenrico\n/\nGaston\nStateme\nTownsville\nBullock\nComberry\nWise\nCOAST\nARCLAS\nStocal\nVANCE\nRoanoke Rapius\nNORTHAMPTON\nWilliamsboro\nWeldon\n158\nGRANVILLE\nSunnyside\nW\nRREN\nHutoric\n+\n7\nHolifax\nOlewis\n158\n4\nBrooksdale\nLiberia\n+\nSOUTH\n15\n:\nottalitax\nHendersom\n+\nCreek\n43\nAirlie\nSerea\n9\nRIS ON\nUATOR\nElberon\nArcola\nBryantown\nBrieverville,\nmperiaxe\nM\nGilburg\nX\nIne\nCOAST\nTitlery\nLINE\nHollister\nHealthsville\n3,\n351 (125)\n:\nProvidence\nOAST\nGIN\nE\nEssam\nMorian\n/:\nSpring\nAiert\nussex\nSOUTHEEN\nH\nA\nL\nA\nX\nHis\nKittreil\nRingwood\nv\n501\nSEABOAD\n13\nCOAST\nCenterville\nWood\nEnfield\nStem\n10\nHinamoke\n12\n3\nGlenview\n258\nLake\nIngleside\n*\nBahama\nMichae\nCHester\n=\nAventon\nScotland Neck\nWilton\n1\nFRA\nNKLIN\nSEASONS\n56\n::\nFranklintor\n+\nLouisburg\nNORFOLK\nCreedmoor\n&\nSCL\n3\nCastalia\n43\nRosepeath\nPalmyrs\n10\nSEABOAR\nSROCK\n13\n35\n5/\nMapleville\nBattieboro\n/\nJustice\n6\nDURH\n50\n/\n58\nRed Oak\n301\nLawrence\nYoungsville\n10\na\n39\n581\nDortches 1/5\n44\n1)\n401\nN\nA\nS\nH\nDurham\n1A\nLeggett\nNew\n54\nWake Fore\n5\nHope\nMomever\nBunn\n-Nast\nc\nFring Hope\nRocky\nEDGECOMBE\nOa.\n1\nRiley\nMount\n2\nSEABOARD Tarborch\nRolesvill\n10\n10\n.\nPearces\nin\nNause\n9/3\nrinceville\nreshams\nL\nSharpsburg\n43\n:\nif\nGrove\n401\nWakefield\nStannope\nsoul\nE\nMillbrook\n5\nConetoe\n76\nW\nK\nE\nCountry\nE\nin\nDoctor\nTown\nPinetop\nin\nBethe\nKnightdal\nMuseum\nand\n6\n17\nWendel\nSime 8\nEABOARD\n258\nCreek\nCagle\nWilbanks\n24\nORFOL\nRock\nBaney\nNow\nState\nFair\nRaleigh\n39\nMacciesfield\n,\nCrisp\nSOUTHERN\nWilson\nFaiklar\nLake\nGarner\nWheeler\nArcher\n301\nAuburn\nBruce\n5\nsou.\nLodge\nWILSON\nFountain\nNewhii\nBonsal\n**\no\nToddy\n43\n50\n1\n70\nClayton\nLucama\n,\nMcCullers\nI\nScrings\nFarmille\n42\nSOUTHERN\n9\nLINE\nStantonsburg\nNORFOR\n401\n95\nKen\nBell\nFequive\nis\nWalstonburg\nWillow Scrings\nEA\nBagley?\n3\nMinis\n-\nWilsons\n55\n6\n70A\nSelma\n254\nP\n11\nFrement\n6\n13\nLorinth/\nDuncan\n+\nPinkney\nEureka\n58\n258\n13\nAYCOCK\n10\n9\n9\nSmithfield\n58\nBirthplace\nLizzie\n210\n14\nPine Level\nMauty Poundtree\nPikeville\nChalybeate Springs\nAngier\n50\nHolts\nUSA,\nPrinceton\nG\nR\nN\nKipling\nOH NL\nT\nBetown\nX\nSnow Hill(123)\nwill\nRoven Rock\n2\n3\n21\nSaulston\n13\n+\ncadway\n70\nHoo-erton\n10\nFour Oaks\n+\n421\nBules\nCOAST\nNeuse\nRosewood\nManiers\n1.006\nChars\nGoldsboro\n258\n+\n3CI\nLilling:\n16\nSOUTHERN\n)\nJason\nBenson,\n15\nInstitute\n58\n421\n17\nCare\n96\n3\nSEYMOUR\nATLANTIC\nDawson\n50\n10HNSON\n27\nErwin\nW\nA\n+\nAIR BASEN\nGrange\n701\n+\nBentorvile\nBurnett\n13\nDunn\n242\nBathetie\n4\nand\nHARNE\nGrantham\nIII\nKinston\nDwdley\n11\nSevent\nCarwell\nMemor\nA\nve\n117\nCliff, of Nevie\nSprings\nCurboat\nNew\nw\n55\nD-pbersville\nSt. Pk\n210\nRice\nLinden\nAverasboro\nGodwin\nBattieground\n11\nMount\n55\nSuttontown\nLENOIR\nRechester\nFalcon\nspivey's\nOlive\n13\nJorner\n10\n5%\nDeep\nNade\n15\n101)\nAlbertson\n242\nKeener\nJISON\nAC3\nS\nA\nM\nP\nS\n0\nN\n1735\nBoxders\nJ\nCourel lake\nSalemburg\nGardens\nCheck\nI\nCHALD CARLOR.\nE\nKERR\nRAW WATER INTAKE\nTRANSMISSION\nNEW WATER (D) TREATMENT\nMAINS\n2\nPLANT\n36\"\n3\nA\nA\n8\nS.R.1371 S R 1371\nManson\n7\n20\"\n8\n36\"\n9\n20\"\n30\"\nMIDDLEBURG\nA\nsou\no\nSITE\nPLANT\nVANCE\nWARREN\nCIT\nNEW\n14\n15\n16\nWATER (or TRANSMISS MAINS\nBelltown\nCokesbury\nCO.\nCO\n-\nWATER CITY (TO BE CF PLANT\nFORD\n07V835\nTHE WHITE HOUSE\nWASHINGTON\nAugust 1, 1975\nMEMORANDUM FOR:\nJIM CAVANAUGH\nFROM:\nPAUL LEACH Paul\nSUBJECT:\nSoul City\nTo update you on Soul City, Bob Hitt reports that EDA is\n\"comfortable\" with the progress of the $2 million part of\nthe project which they are financing. Art Quern reports\nthat CSA (confidentially) is phasing out their support\nover FY 1976.\nLet's talk about what to do with this one.\nFORD & LIBRARY CERALD\nTHE WHITE HOUSE\nWASHINGTON\nAugust 5, 1975\nMEMORANDUM FOR:\nJACK MARSH\nTHROUGH:\nJIM CAVANAUGH\nFROM:\nPAUL LEACH\nSUBJECT:\nSoul City\nThe following information has been gathered to provide you\nwith a basis for responding to Senator Jesse Helms on the\nSoul City situation.\nAttached are reports on this project from Bob Hitt,\nSecretary Morton's Assistant at Commerce (Tab A) and\nOtto Stolz at HUD's Community Development Corporation (Tab B).\nThe other agencies provided information by telephone.\nHUD is making no new disbursements of grant moneys until the\nGAO audit is completed.\nOMBE (at Commerce) has investigated the allegations and found\nthat there was no conflict of interest. OMBE is continuing\nto fund Soul City.\nIn addition, the EDA (at Commerce) has financed about $2 million\nof this project (public facilities, sewers, etc.) and is\nreportedly \"comfortable\" with the progress.\nThe Community Services Administration (old OEO) has indicated\nconfidentially that FY 1976 grant of about $40,000 will be a\n\"phase out\" grant with no more to follow.\nHEW (primarily the Public Health Service) has put about\n$1.2 million into the project and has nothing bad to report.\nFORD is LIBRARY GERALD\nUNITED STATES\nREPORT OF THE\nGENERNY ACCOUNTING OFFICE\nCOMPTROLLER GENERAL\nOF THE UNITED STATES\nInformation On\nThe New Community\nOf Soul City, North Carolina\nMultiagency\nThis report contains the results of GAO's\nreview of the financing and operations of the\nnew community of Soul City, North\nCarolina-the project's history; current status;\nand sources and amounts of Federal, State,\nand local financial aid going directly to Soul\nCity or to the surrounding municipalities for\nthe benefit of Soul City.\nThe report also contains the results of GAO's\nexamination into allegations relating to the\nproject and its test of the allowability of ex-\npenditures of four Soul City organizations.\nDEC. 18, 1975\nRED-76-52\nCONFEDER GENERAL\nCOMPTROLLER GENERAL OF THE UNITED STATES\nWASHINGTON, D.C. 20548\nOR THE OF THE UNITED STATES\nB-183353\nThe Honorable L. H. Fountain\nHouse of Representatives\nDear Mr. Fountain:\nIn accordance with your March 5, 1975, request and the\nagreement reached with your office on March 12, 1975, we\nexamined the financing and operations of the new community\nof Soul City, North Carolina. Specifically, we obtained\ninformation on the project's history, current status, and\nsources and amounts of Federal, State, and local financial\naid going directly to Soul City or to the surrounding\nmunicipalities for the benefit of Soul City. We also\nexamined various allegations relating to the project and\ntested the allowability of expenditures of four Soul City\norganizations.\nAs you requested, we obtained oral comments on the\nresults of our review from the various Federal agencies\nand from the Soul City organizations and have incorporated\nthem in the report.\nThe results of our review are summarized below and\nare discussed in greater detail in the appendix.\nHISTORY AND STATUS\nSoul City, located in Warren County, North Carolina,\nis one of 15 active new community developments authorized\nby title VII of the Housing and Urban Development Act of\n1970. The Soul City project was first announced in January\n1969 by Mr. Floyd B. McKissick, president of Floyd B.\nMcKissick Enterprises, Inc. A preapplication for a Federal\nloan guarantee was submitted to the Department of Housing\nand Urban Development (HUD) on April 1, 1969, and the final\napplication was submitted on February 24, 1971. HUD's\noffer of commitment for a loan guarantee was granted in\nJune 1972.\nThe project agreement--a contract with HUD which incor-\nporates all the legal, financial, and program arrangements\nfor the new town development--was completed in February\nRED-76-52\nB-183353\n1974. The project agreement provided that the developer\ncould issue up to $14 million of debentures which the\nGovernment would guarantee.\n--Final design has been completed on the underground\nutilities. The clearance of the right-of-way was\nSoul City's development using federally guaranteed\ncompleted in February 1975, and construction is\nfunds began in March 1974 when The Soul City Company, the\nscheduled to start soon.\ndeveloper, sold $5 million of debentures. Subsequent issues\nare contingent upon the developer's meeting certain special\n-The major roads for Village I are now under construc-\nconditions spelled out in the project agreement.\ntion and are nearing completion.\nThere are five other federally assisted organizations\nIn addition, an industrial building (Soultech I) is\nat Soul City--the Warren Regional Planning Corporation\nalmost finished, and Soul City will be a major participant\n(WRPC); the Soul City Foundation, Inc.; HealthCo, Inc.; the\nin a regional water system now under construction.\nSoul City Utilities Company; and the Soul City Sanitary\nDistrict. Other major organizations at Soul City are\nALLEGATIONS RELATING TO THE SOUL CITY PROJECT\nFloyd B. McKissick Enterprises, Inc., McKissick Soul City\nAssociates, and the Madison and McKissick Development\nIn accordance with agreements reached with your office,\nCompany, Inc. (See pp. 12 to 18.)\nwe examined various allegations relating to preferential\ntreatment in providing Federal assistance, interlocking\nAs of March 1975, 27 Federal grants, contracts, and\ndirectorships and nepotism, lack of progress, and poor\nagreements; 1 loan; and 1 loan guarantee, totaling $19.2\nmanagement practices.\nmillion, had been reserved or set aside for those six\norganizations. Of that amount, $10.2 million had been\nPreferential treatment in providing\nawarded and $4.6 million had been spent. In addition, the\nFederal assistance\nSoul City project benefited from Federal grants totaling\n$6.9 million that had been awarded to State, county, and\nWe wanted to determine whether the Federal agencies had\nlocal governmental units and to a private contractor.\nfollowed their normal procedures in awarding and monitoring\n(See pp. 19 to 32.)\nthe grants, contracts, and agreements; the loan; and the loan\nguarantee to Soul City organizations, and if not, the\nAs of August 1975 physical development at Soul City\nreasons for their deviation.\nwas essentially on target, considering that the loan guar-\nantee with the prime developer, The Soul City Company, was\nWe noted that one agency had awarded a contract before\nsigned about 18 months earlier.\nit established procedures for reviewing and approving such\na contract. We noted also that, although the other agencies\nThe following were either under construction or in the\nhad established procedures, several had deviated from them\ndesign stages as of August 1975.\nin awarding or administering the grants, contracts, a loan,\nand a loan guarantee that benefited the Soul City project.\n--Construction began on an interim water system in\nApril 1975. The system is to supply water until the\n1. Deviations from or lack of established\nregional water system is in operation.\nreview and approval procedures\n--An areawide waste water treatment study is underway,\nThe Office of Minority Business Enterprise (OMBE),\nand plans for the regional system are to be completed\nDepartment of Commerce, had not established contract review\nlate in the fall of 1975.\nand approval procedures before it awarded a $190,0 letter\ncontract to WRPC in February 1972. OMBE officials told us\n--Construction began on an industrial fire protection\nthat the Congress first appropriated program funds for OMBE\nsystem in April 1975. The system is being built in\nconjunction with a small lake adjoining the industrial\nin January 1972. At that time OMBE was considering funding\n17 proposals, 1 of which was a WRPC proposal. The official\npark.\nsaid that, although review and approval procedures had not\nbeen established, the Secretary of Commerce wanted to\nobligate the program funds before the end of the fiscal\n2\nyear. (See pp. 34 to 38.)\n3\nB-183353\nB-183353\nfree-standing, new community and because there was no\nThe Community Services Administration (CSA) approved\nestablished industrial base in the vicinity from which it\nand funded two grants to the Soul City Foundation in May\ncould attract growth.\n1973 and July 1974 for $502,875 and $93,000, respectively,\nbefore the grants had progressed through their normal review\nBecause of the risks, HUD imposed restrictive condi-\nand approval process. According to CSA officials, the grant\ntions on the developer that it did not impose on other new\nproposals were not reviewed in accordance with normal proce-\ncommunity developers. The loan guarantee for Soul City\ndures because CSA headquarters determined that the proposals\nwas established at $14 million, but the developer was\nshould be approved and funded before the review and approval\nauthorized to issue only $5 million of debentures initially.\nprocess was completed. As a result the review process was\nBefore it could issue additional debentures, the developer\nlimited to determining whether the necessary documentation\nwas required to meet certain conditions pertaining to\nwas in order and whether the proposed activities could be\nindustrial development, land sales, and onsite construction.\nfunded under the act. (See pp. 38 to 42.)\n(See p. 51.)\n2. Grants and loans awarded\n4. Relaxation of normal requirements\nafter the programs were terminated\nfor Soul City developer\nHUD approved basic water and sewer grants and a public\nHUD relaxed other conditions normally imposed on new\nfacility loan totaling about $3.5 million after the Secretary\ncommunity developers, and as a result, Soul City's debt-to-\nof HUD announced that the water and sewer facilities grant\nequity ratio may increase to 9:1, rather than the normally\nprogram and public facilities loan program would end on\nrequired ratio of 4:1, unless the developer is required to\nJanuary 5, 1973.\ncontribute additional equity when it issues additional\ndebentures. HUD officials said that the developer, when it\nThe Secretary of HUD told HUD regional and area offices\nissues additional debentures, probably will be required to\nthat no water and sewer grants or public facility loans\ncontribute additional equity.\nwould be approved after January 5, 1973, unless (1) the\nproject application had been rated under the community\nHUD requires that the security requirement for a loan\ndevelopment project-rating system, (2) the application had\nguarantee be at least 110 pèrcent of the outstanding obliga-\nbeen determined to be fundable in relation to other appli-\ntions at any one time. For Soul City, the security require-\ncations and to funds on hand, (3) funds had been reserved\nment was $5.5 million and the collateral used to meet the\nfor the project, and (4) the project applicant had been\nrequirement consisted of investments, real property, land\nnotified of approval, in writing, on or before January 5,\ndevelopment costs, and proceeds from the sale of the guar-\n1973.\nanteed obligations. If the value of the collateral account\nexceeds the security requirement, the developer can draw\nThe grant and loan applications did not meet the above\ndown the excess from the escrow account.\ncriteria which would have allowed HUD to approve and award\nthe grants and loan after the termination date. HUD offi-\nThe basis used in computing the amount of land develop-\ncials agreed that the applications did not meet the criteria.\nment costs included in Soul City's collateral account\nHowever, it was their opinion that HUD had a moral obliga-\ndiffered from that normally used for other new communities.\ntion to fund the water and sewer grants because in 1972 HUD\nHUD's normal procedure provides that, if the developer owns\nissued an offer of commitment for guaranteed assistance to\nall the project land, all land development costs be included\nthe new community of Soul City. HUD successfully appealed\nin the collateral account. However, if the developer does\nto the Office of Management and Budget for release of water\nnot own all the project land, as is the case, with Soul City,\nand sewer funds for several new community projects,\nonly the land development costs directly related to the land\nincluding Soul City. (See pp. 55 to 60.)\nowned are included in the collateral account. In addition,\nan allocated portion of the costs incurred for land develop-\n3. Special restrictive conditions\nment that are applicable to the total project, such as\nimposed on Soul City developer\nadministrative costs, legal fees, and planning costs, is\nincluded in the collateral account.\nHUD recognized that there were considerable risks\ninherent in developing Soul City because it was the first\n5\n4\nB-183353\nB-183353\n1973--and a 4-month operational period beginning September 1,\nHUD's deviation from normal procedures permitted the\n1973. However, it was not until August 5, 1974, that\ndeveloper to include about 66 percent of the land development\nHealthCo began seeing patients.\ncosts in the collateral account rather than the 40 percent\nthat would have been allowed if normal procedures had been\nPart of HealthCo's problem in getting started stemmed\nfollowed. For example, in March 1974 the developer was per-\nfrom its inability to obtain the Public Health Service's\nmitted to draw down an additional $417,000.\napproval of the clinic until the permanency of Soul City\nwas reasonably insured by the March 1974 HUD bond closing\nHUD officials said that it would not have been equit-\nwith The Soul City Company. However, notwithstanding this\nable to apply the normal allocation formula because the\nuncontrollable restraint, the Public Health Service rated\ndeveloper owned a relatively small part of the total planned\nHealthCo's performance as poor.\nproject and because its ability to draw down funds from the\nescrow account would have been hampered. (See pp. 52 to 54.)\nHealthCo's efforts to obtain a permanent building have\nchanged radically. The building size has been scaled down\nInterlocking directorships and nepotism\nfrom 16,000 square feet to about 7,000 square feet, and the\nestimated cost has been reduced from $500,000 to $220,000.\nA number of allegations dealt with interlocking direc-\n(See p. 63.)\ntorships among organizations at Soul City and with nepotistic\npractices of hiring family members in management positions.\nIn August 1974, when it opened, the HealthCo clinic\ntreated an average of seven patients a day. This same work-\nWe found that the allegations related to interlocking\nload level prevailed through December 1974. From August\ndirectorships and the hiring of family members by management\nthrough December 1974, the average patient-visit cost was\nofficials were correct. However, nothing in the rules,\n$258. By May 1975 the clinic was treating 31 patients a\nregulations, or grant and contract provisions governing the\nday, and the workload remained at that level through August\nawards made by Federal agencies prohibited interlocking\n1975. In August 1975, with such a patient load, the\ndirectorships. Some grants did prohibit hiring family\npatient-visit cost was about $44, after deducting fees col-\nmembers to work within the same department of an organiza-\nlected from patients and third-party payments. The clinic\ntion. None of the family members hired worked in the same\nstaff consisted of 2 full-time physicians, 1 full-time\ndepartment. The family members hired had the education and\ndentist, 2 family-nurse practioners, and 18 other support\nexperience to qualify them for their jobs. (See pp. 60 to\nand administrative employees.\n65.)\n2. Warren Regional Planning Corporation\nLack of progress and poor management practices\nWRPC was faulted for its\nSome of the allegations made related to the lack of\nprogress and poor management practices of three of the Soul\n--Failing to recruit industry for Soul City.\nCity organizations.\n-Making improper loans to Floyd B. McKissick Enter-\n1. HealthCo, Inc.\nprises, Inc.\nHealthCo, Inc., was faulted for (1) having spent an\n-Paying for a life insurance policy on Floyd McKissick\ninordinately large amount before opening its doors to the\nafter he was no longer WRPC's director.\npublic and (2) not having treated an acceptable number of\npatients since starting operations. We found the allega-\n--Receiving $274,000 for legal and other services to\ntions to be essentially correct, but time has altered some\nsupport the profit-seeking organization, Floyd B.\nof the conditions. (See pp. 66 to 68.)\nMcKissick Enterprises, in its quest of Federal back-\ning for its bond sale. These expenditures may have\nHealthCo's first Federal grant from the Office of\nbeen included in Soul City Company's predevelopment\nEconomic Opportunity was effective July 1, 1972. The grant\ncosts.\nprovided for a 14-month preparation period--to September 1,\nBERALOR FORD VIBRARY\n7\n6\nB-183353\nB-183353\ntransactions, 86, or about 25 percent, did not meet 1 or\nWRPC contracts did not specifically require recruiting\nmore of the tests for allowability. Of the 86 errors, 67\nof industry. However, WRPC did try, unsuccessfully, to\nrelated to the lack of adequate documentation supporting\nrecruit industry for Soul City.\nthe expenditure transaction. On the basis of our projection,\nat a 95-percent confidence level, the number of transactions\nWRPC made improper loans of about $27,000 to Floyd B.\nin the universe which failed to meet 1 or more of the tests\nMcKissick Enterprises before HUD's backing of a bond sale\nfor allowability ranged from 1,063 to 1,926.\nfor The Soul City Company--Floyd B. McKissick Enterprises\nsuccessor in the development undertaking. The loans were\nWe also selected a judgment sample of expenditure trans-\nrepaid as soon as the bond proceeds were received. WRPC\nactions on the basis of the nature and size of the expendi-\nalso improperly paid Mr. McKissick's travel expenses and\ntures and their relation to our areas of interest. Using\ncontinued paying insurance premiums on his behalf after he\nthe same criteria for allowability as we used in the statis-\nresigned as WRPC's director.\ntical sample, we found that 39, or about 35 percent, of the\n113 selected transactions did not meet 1 or more of the\nOMBE amended WRPC's contract in June 1973 to authorize\ntests for allowability, as shown below. Of the 39 errors\n$274,000 for direct support of Floyd B. McKissick Enter-\nnoted, 29 related to expenditures that had not been made in\nprises' efforts to obtain final Federal backing of The Soul\naccordance with the provisions of the grants or contracts.\nCity Company's bonds. Our review showed that WRPC spent\nOur examination of HealthCo's and WRPC's records and accounts\nabout $223,000 for this purpose.\nindicated recent improvements but confirmed a need for a more\nbusinesslike approach to purchasing and recordkeeping.\nAlthough it is true that the $223,000 directly\nsupported a profit-seeking company, it was not included in\nThe following table shows the dollar value of expendi-\nthe predevelopment costs The Soul City Company claimed, nor\nture transactions included in our samples and the value of\nwas it used as a basis for increasing the stated value of\nthose transactions which we found to be questionable. A\nthe owner's equity in Soul City properties or for drawing\ndetailed breakdown by the four Soul City organizations is\ndown proceeds of bond sales. (See pp. 68 to 71.)\nshown on pages 77 to 79.\nSoul City Foundation, Inc.\nIt was alleged that Soul City Foundation, Inc.,\nreceived a $90,000 grant for the purpose of seeking more\nFederal moneys. We found that seeking more Federal moneys\nwas only one of four activities under the particular grant\nand that the grantee incurred costs for other activities\ncovered by the grant. (See p. 71.)\nALLOWABILITY OF EXPENDITURES OF\nSOUL CITY ORGANIZATIONS\nUsing statistical-sampling techniques, we selected 349\nexpenditure transactions from The Soul City Company, Soul\nCity Foundation, WRPC, and HealthCo and sought to determine\nwhether these expenditures had been made in accordance with\nthe terms and provisions of the grant, contract, or loan\nguarantee and whether they were adequately supported by\ndocumentation. We also sought to verify that the goods or\nservices procured had been received and had been used for\ntheir intended purposes. For this test, we excluded com-\npensation paid to employees of the Soul City organizations.\nWe made an additional test of payroll transactions, the\nresults of which are shown on page 83. Of the 349\n9\n8\nB-183353\nB-183353\nDollar Value of Questionable Transactions in Samples\nCONCLUSIONS\nStatistical Judgment\n--As of August 1975 the physical development of Soul\nsample\nsample\nCity was essentially on target. Although the idea\nfor a new community was conceived in 1969 and the\nNumber of transactions sampled\n349\n113\nfinal application was made to HUD in 1971, it was\nnot until early in 1974 that the loan guarantee was\nDollar value of transactions\nfinally executed. Therefore the project, for all\nsampled\n$802,000\n$354,400\npractical purposes, has been in existence for only\nabout 18 months. Because the project was in its\nNumber of transactions:\ninitial stages, most of the accomplishments were not\nNot in compliance with grant\nvisible in terms of shops and houses but were evi-\nprovisions\n17\n29\ndenced by more basic amenities, such as roads,\nLacking adeguate documentation\nutilities, and social services, required for the\n(note a)\n67\n10\nnew community.\nGoods or services not received\n2\n|\nHUD deviated from its established procedures in\nTotal\n86\n39\nawarding or administering grants, a loan, and a\nloan guarantee in that it made awards after the\nDollar value of questionable\nprograms were terminated, it relaxed certain condi-\ntransactions (note b)\n$ 44,331\n$ 51,883\ntions which are normally imposed on the awardee,\nand in one instance it imposed more restrictive\nrequirements on the awardee.\nᵃDocumentation was not adequate for only part of the\nexpenditures in some cases.\nCSA deviated from its established procedures in\nthat it made awards before the normal review and\nᵇIn some cases only part of the transactions were questioned.\napproval process was completed.\nTypical examples of expenditures not made in accordance\n-Although interlocking directorships and the hiring\nwith contract or grant provisions and of the lack of adequate\nof family by management officials did exist within\ndocumentation for expenditures are\nand among the Soul City organizations, these\nrelationships were not prohibited by the rules,\n--payments to Mr. McKissick for travel expenses\nregulations, or contract provisions governing the\nincurred after he resigned from WRPC,\nawards made by the Federal agencies. Furthermore\nthe agencies were aware of these relationships.\nloans to Floyd B. McKissick Enterprises and payments\nfor consultant services without prior approval of\nMany expenditure transactions by WRPC, HealthCo,\nthe agency responsible for administering the contract,\nand the Soul City Foundation were not in accordance\nwith grant or contract provisions or lacked adequate\n-interest and penalty payments to the Internal Revenue\nsupporting documentation.\nService and to the North Carolina Department of\nRevenue for late payment of employee withholding\nRECOMMENDATIONS\ntaxes, and\nIn view of the serious questions our review raised of\n--numerous payments for travel expenses without\nexpenditure transactions of the Soul City organizations and\nsufficient support for the amounts claimed.\nthe planned expenditures of millions of dollars of Federal\nfunds by these organizations for the Soul City project,\nwe recommend that the Secretaries of HUD, HEW, and Commerce\nand the Director of CSA:\n10\n11\n353\nAPPENDIX I\nAPPENDIX I\nContents\nDetermine the allowability of grant and contract\nexpenditures made to date and recover all unallowable\nPage\nexpenditures.\nNEW COMMUNITIES PROGRAM\n1\nInsure that adequate controls exist to prevent such\nunallowable expenditures in the future.\nHISTORY AND STATUS OF SOUL CITY PROJECT\n3\nHistory\n3\nProject status\n6\nPerent Sincerely yours B. Starts\nORGANIZATIONS AND INTERLOCKING RELATIONSHIPS\n12\nThe Soul City Company\n12\nWarren Regional Planning Corporation\n12\nSoul City Foundation, Inc.\n12\nComptroller General\nHealthCo, Inc.\n13\nof the United States\nSoul City Utilities Company\n13\nSoul City Sanitary District\n14\nFloyd B. McKissick Enterprises, Inc.\n14\nMcKissick Soul City Associates\n14\nMadison and McKissick Development Company, Inc.\n14\nInterlocking relationships\n16\nGRANTS, CONTRACTS, AGREEMENTS, LOAN, AND LOAN\nGUARANTEE\n19\nALLEGATIONS RELATING TO THE SOUL CITY PROJECT\n33\nPreferential treatment in providing\nFederal assistance\n33\nDepartment of Commerce--Office of Minority\nBusiness Enterprise\n34\nOffice of Economic Opportunity--Community\nServices Administration\n38\nDepartment of Health, Education, and\nWelfare--Office of Education\n42\nDepartment of Health, Education, and\nWelfare--Public Health Service\n43\nNational Endowment for the Arts\n49\nDepartment of Housing and Urban\nDevelopment--new communities loan\nguarantee\n50\nDepartment of Housing and Urban\nDevelopment--grants and loans pertaining\nto sewer and interim water system\n55\nGrants awarded to Henderson, North Carolina\n57\nDepartment of Commerce--Economic\nDevelopment Administration\n57\nDepartment of Housing and Urban\nDevelopment--basic water and sewer\ngrant\n59\nDepartment of Housing and Urban\nDevelopment--supplemental grant\n60\n12\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nPage\nINFORMATION ON THE NEW COMMUNITY\nOF SOUL CITY, NORTH CAROLINA\nInterlocking directorships and nepotism\n60\nLack of progress and poor management practices\n65\nNEW COMMUNITIES PROGRAM\nPhysical development\n65\nHealthCo\n66\nTitle IV of the Housing and Urban Development Act of\nWarren Regional Planning Corporation\n68\n1968 (42 U.S.C. 3901, et seq.) and title VII of the Housing\nSoul City Foundation\n71\nand Urban Development Act of 1970 (42 U.S.C. 4511, et seq.)\nOther allegations\n72\nestablished the Department of Housing and Urban Development's\n(HUD's) new communities program. The program encourages new\nALLOWABILITY OF EXPENDITURES OF SOUL CITY\ncommunity development by providing financial assistance to\nORGANIZATIONS\n75\nprivate and public developers. The developers must satisfy\nResults of statistical and judgment samples\n75\na broad range of economic, social, environmental, and govern-\nThe Soul City Company\n80\nmental objectives to obtain financial assistance.\nWarren Regional Planning Corporation\n81\nHealthCo\n82\nTitle IV provided for $250 million in Federal loan guar-\nSoul City Foundation\n83\nantees to new community developers for buying and developing\nPayroll audit results\n83\nland. The guarantee was limited to $50 million for each\nproject. Title IV also established a program for supple-\nSCOPE OF REVIEW\n84\nmental grants to State and local public bodies associated\nwith new communities for public facilities, such as water\nABBREVIATIONS\nand sewer systems.\nCPA\ncertified public accountant\nTitle VII expanded the Federal Government's commitment\nCSA\nCommunity Services Administration\nto the new communities program by doubling the loan guaran-\nEDA\nEconomic Development Administration\ntee ceiling to $500 million. It also provided for technical\nFHWA\nFederal Highway Administration\nassistance to help new developers plan and carry out new\nGAO\nGeneral Accounting Office\ncommunity projects. Public Law 93-117, enacted October 2,\nHEW\nDepartment of Health, Education, and Welfare\n1973, increased the loan guarantee ceiling to $695.5\nHUD\nDepartment of Housing and Urban Development\nmillion. The $50 million limit for each project remained\nNCA\nNew Communities Administration\nin effect.\nNEA\nNational Endowment for the Arts\nOE\nOffice of Education\nWith the Federal Government's guaranteeing their\nOEO\nOffice of Economic Opportunity\nobligations, developers can borrow long-term private capital\nOMBE\nOffice of Minority Business Enterprise\nat considerably lower interest rates than would otherwise\nPHS\nPublic Health Service\nbe possible. The federally guaranteed loan funds can be\nWRPC\nWarren Regional Planning Corporation\nused for land acquisition and for such land development\nactivities as installing water, sewer, and utility lines\nand constructing roads and sidewalks. However, these funds\ncannot be used to build residential, commercial, and\nindustrial structures.\nHUD's New Communities Administration (NCA) administers\nthe new communities program. NCA reviews applications to\ndetermine whether proposed new community projects meet\nlegislative goals and conform to HUD's regulations. After\nthese reviews, NCA reports its findings and recommendations\nto the Community Development Corporation's Board of Direc-\ntors. The seven-member Board consists of the Secretary\nof HUD, five persons appointed by the Secretary, and a\nGeneral Manager appointed by the President of the United\n1\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nStates. The General Manager is NCA's Administrator. The\nHISTORY AND STATUS OF SOUL CITY PROJECT\nBoard decides whether an offer of commitment should be made\nto the developer.\nSoul City, located in Warren County, North Carolina,\nWhen the Board makes an offer, HUD issues a letter of\nis one of 15 active new community developments authorized\ncommitment to the developer providing for a Federal guaran-\nunder title VII of the Housing and Urban Development Act of\ntee on a specified loan amount, if the developer meets\n1970. The maps on pages 4 and 5 show Soul City's location\ncertain conditions. For example, the developer must prepare\nand its present and proposed boundaries.\nplans for affording equal housing and employment opportuni-\nties, for encouraging small builders to participate, and\nHISTORY\nfor developing the land. After the developer meets these\nconditions, HUD and the developer enter into a project\nThe Soul City project was first announced in January\nagreement. HUD requires the developer to enter into a\n1969 by Mr. Floyd B. McKissick, president of Floyd B.\ntrust indenture with a bank which acts as a trustee for the\nMcKissick Enterprises, Inc.\nproceeds from the sale of the guaranteed obligations. The\ntrust indenture and project agreement set forth the require-\nA preapplication was submitted to HUD on April 1, 1969.\nments and restrictions relating to the federally guaranteed\nThe preapplication process requires the developer to present\nobligations, the developer's general equity and financial\ngeneral overall plans for the proposed project. Even though\nreporting requirements, and the Government's rights and\ngeneral in nature, the plans must be based on sound urban\nremedies in case the developer defaults on the obligations.\nplanning and economic feasibility before HUD will invite a\nformal, and much more extensive, final application.\nA final application for a $10 million loan guarantee\nwas submitted February 24, 1971. HUD made a thorough review\nof the Soul City application and approved it in June 1972.\nHUD engaged an independent consultant to review the studies\nsubmitted with the application and to make additional\nfeasibility studies. The consultant recommended that Soul\nCity's loan guarantee be at least $14 million. In June\n1972 HUD sent a letter of commitment to Floyd B. McKissick\nEnterprises, Inc. (the project sponsor) for a loan guaran-\ntee of $14 million for Soul City's land acquisition and land\ndevelopment. In February 1974 HUD and The Soul City Company\n(the project developer) completed the project agreement.\nThe project agreement is a contract between The Soul\nCity Company and HUD that incorporates all the legal,\nfinancial, and program arrangements for the new community\ndevelopment, as well as a 30-year development plan. The\nproject agreement had to be completed and signed before\nany bonds could be sold. The agreement was signed on\nFebruary 26, 1974.\nThe first bonds ($5 million) were sold on March 6,\n1974. The $5 million bond issue must be retired by The\nSoul City Company. The HUD guarantee assures the lenders\nthat, if The Soul City Company defaults, the Federal\nGovernment will pay off the bonds and the accumulated\ninterest due.\nFORD\n2\n3\nLIBRARY\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nGENERAL LOCATION OF SOUL CITY\nPRESENT AND PROPOSED BOUNDARIES OF SOUL CITY\nN\n150 MI.\nRICHMOND\n@\nLYNCHBURG\nN\nPETERSBURG\n100 MI.\nSR1234 1234\n1=85\n50 MI.\n1/8\"\nNORFOLK\nshe\n(IRGINIA\n1237\nNVIL\nOXFORD\nSOUL CITY\nN.\nCAROLINA\nUL\nHENDERSON\n.\nTHE\n@ DURHAM\nCHAPEL HILL\nSE ABOARD\nus ARD RAILROAD 1/158 COASTLINE\nSR 100\nSR 1112\nRALEIGH\nSR 1113\nDAB\nGOLDSBORO\n1008\nFAYETTEVILLE\nSR 1100\nMOREHEAD CITY\nN.\nSR 1114\nCAROLINA\nSOUL CITY PROPOSED\nWILMINGTON\n30YEAR BOUNDARY\n(5,300 ACRES)\nPRESENT SOUL CITY\nPROPERTY (2,100 ACRES)\n4\n5\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nUnder the project agreement, HUD does not permit any\nland sales until after it approves certain land covenants.\nThe Soul City Company sent the final covenants to HUD in\nOctober 1974. During our review HUD was reviewing the cove-\nnants, which prescribe the conditions under which land must\nbe developed and maintained. Until the covenants are\napproved, The Soul City Company cannot give a clear title\nto land sold. The approval process for the covenants has\ntaken more time than normal because the covenants initially\nsubmitted were unacceptable to HUD.\nPROJECT STATUS\nSoul City's development since March 1974, when the\nfirst bonds were sold, has consisted of developing a base\nfrom which the new community could grow. The photographs\non pages 7 and 8 show an aerial view of the project and\nthe temporary housing used by Soul City employees.\nOne major accomplishment at Soul City is the construc-\ntion of the first industrial building--Soultech I. This\nbuilding, valued at $1.5 million, is the first permanent\nstructure at Soul City. It is planned that space in\nSoultech I will be leased to manufacturing industry, to\nbe recruited by The Soul City Company, which will provide\njobs to area residents, begin to help meet The Soul City\nCompany's job requirements, and serve as a basis for\nis Soultech I is on page 9.\nfurther economic ventures by area residents. A photograph\nOne of the major developments which will directly\nbenefit the Soul City project is the Kerr Lake regional\nwater system--a 10-million-gallon-a-day system costing $12\nmillion. The system, currently being developed, is to be\noperative by the summer of 1976. Through the addition of\nmore pumps and another purification system, its capacity\ncan be increased to 20 million gallons or more a day. The\nregional water system will serve Soul City, Henderson,\nOxford, and other communities in Warren, Vance, and\nGranville Counties in North Carolina. The system not only\nwill provide adequate water for the new community but also\nwill solve water shortages in these neighboring areas and\nthe three counties. The project is financed with Federal\nremove one obstruction to economic development throughout\ngrants from HUD and the Economic Development Administration,\ngrants from the State of North Carolina, and funds\ncontributed by Henderson, Oxford, and Soul City.\nAERIAL VIEW OF SOUL CITY\nSEPTEMBER, 1975\n6\n7\nAPPENDIX I\nFORD LIBRARY GERALD\nSEPTEMBER 1975\nSOULTECH\n9\nAPPENDIX I\nAPPENDIX I\nSEPTEMBER, 1975\nTEMPORARY HOUSING OF SOUL CITY EMPLOYEES\n8\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nBecause of the time required to complete the regional\nThe Soul City Company has a number of other projects\nwater system, Soul City needs an interim water system. The\nwhich are in the design phase and which are scheduled to\ninterim water system, using three wells, will supply 200,000\nbe started in 1975-76. They include storm drains, streets,\ngallons a day to Soul City until the regional water system\nand the first residential subdivision. During the coming\nis completed. Construction of the interim system began on\nhousing construction is planned after HUD's approval to\nApril 21, 1975, and is scheduled to be complete before the\nyear, of the land covenants. The Soul City Company plans The\nend of 1975.\nmarket lots for 84 single-family housing units.\nalso plans to construct 25 rental units under the\nIn 1974 Soul City proposed construction of an interim\ncompany section 236 subsidized housing program. As of September\nsewage treatment plant. In the fall of 1974, the North\n1975 HUD was still reviewing the rental unit proposal.\nCarolina Department of Environmental Management approved\nthe interim plant. However, the treated effluent would go\nThe Village I activity center now being planned will\ninto a tributary of a stream which is impounded by Warenton,\ninclude commercial, recreational, and social services\nNorth Carolina, for its water supply. Therefore Warrenton\nfacilities. Marketing studies for the commercial aspect\nofficials threatened legal action to halt construction of\nof this center are underway. Also planned for the center\nthe plant, which could cause a long delay in the development\nis a community building which will include recreation space,\nof Soul City. To resolve this conflict, Soul City; Warrenton;\nmeeting rooms, a day-care facility, and social service\nNorlina, North Carolina; and Warren County have completed\noffices. Construction of the community center and the first in\nphase one of an areawide waste water treatment study. The\nstage of the commercial center is planned to start early\nstudy recommends construction of a regional plant at\nthe spring of 1976.\nWarrenton. The plan for the regional system is scheduled\nfor completion late in the fall of 1975. Soul City plans\nto construct a pipeline to Warrenton and to use Warrenton's\nexisting facility, instead of constructing a plant to use\nuntil the regional system is completed.\nIn April 1975 Soul City began constructing an indus-\ntrial fire protection system in conjunction with construc-\ntion of a small lake adjoining the Soul City industrial\npark. This involves damming a stream that runs through the\npark and constructing a pumping apparatus.\nIn May 1974 a utility company began preliminary design\nof an underground utilities system for Soul City. The\ninitial bulk feeder design was finalized in December 1974,\nand the agreement for the construction of the underground\nbulk feeder along Soul City Boulevard was signed in\nJanuary 1975. The clearance of the right-of-way was com-\npleted in February 1975. The utility company has indicated\nthat construction should start in the fall of 1975. Street\nlights will be installed at the same time.\nThe North Carolina Department of Transportation is now\nconstructing and/or improving the major roads for Village\nI (a subdivision of Soul City). Work is scheduled to be\ncompleted in the fall of 1975. The department is construc-\nting Soul City Boulevard--a new road which is being cut\nthrough the planned industrial park on a right-of-way dedi-\ncated for that purpose and which will be the main artery\nconnecting Soul City with U.S. Route 1--and is widening and\npaving existing secondary roads to serve increased traffic.\n10\n11\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nfuture comprehensive social programs serving Soul City and\nORGANIZATIONS AND INTERLOCKING RELATIONSHIPS\n(2) establish immediate programs to meet the needs of the\nsurrounding area. The foundation has existed mainly on\nOffice of Economic Opportunity grants, with one special\nIn addition to The Soul City Company, the developer of\nthe new town, five other organizations which have received\nWelfare (HEW) and small amounts of additional moneys from\nproject grant from the Department of Health, Education, and\nFederal assistance are located at Soul City--the Warren\nRegional Planning Corporation (WRPC); the Soul City Founda-\nprivate foundations and businesses.\ntion, Inc.; HealthCo, Inc.; the Soul City Utilities Company;\nOver the past 4 years, the foundation has operated\nand the Soul City Sanitary District. Other major organiza-\nsummer feeding programs for area youth, summer work-study\ntions at Soul City are Floyd B. McKissick Enterprises, Inc.;\nMcKissick Soul City Associates; and the Madison and McKissick\nprograms, a 1-year program of supplementary education and\ncultural enrichment for junior high school students, health\nDevelopment Company, Inc. A photograph of the temporary\nfacilities housing these organizations is on page 15.\nfairs, and a pilot manpower project. The foundation's major\nwork in the last 18 months has been in (1) planning manpower,\nTHE SOUL CITY COMPANY\neducation, recreation, cultural arts, and general social\nstudies for residents of Soul City and Vance and Warren\nThe Soul City Company was created in Feburary 1974 to\nCounties and (2) developing the first industrial plant,\nassume responsibility for developing Soul City. The company\nSoultech I.\nis charged with overall responsibility for project coordina-\nThe foundation's plans include (1) locating funding\ntion and construction. It is a limited partnership organized\nsources to support Soul City until it becomes a reality, (2)\nunder North Carolina law. As of March 31, 1975, the company\nhad 25 full-time and 2 part-time employees.\nidentifying and planning for future educational, recreational,\nand social needs, and (3) finding sources of funds to support\nWARREN REGIONAL PLANNING CORPORATION\nsocial activities at Soul City. As of March 31, 1975, the\nfoundation had nine full-time and three part-time employees.\nWRPC is a nonprofit entity incorporated in December\n1969. Its initial functions were to develop a general land-\nHEALTHCO, INC.\nuse plan for Soul City and to make studies related to the\nHealthCo was formed in March 1972 to provide health-care\ndevelopment of the new community and its impact on the\nState planning region. This work was financed through a\nservices to residents of Warren and Vance Counties. Because\nHUD 701 planning grant in cooperation with the State of\nof startup problems, the organization did not begin prcvid-\nNorth Carolina and the State Planning Region Council of\ning health care to patients until August 1974. Operating a\nGovernments. WRPC later received an Office of Minority\ntemporary clinic, 2 doctors, 1 full-time dentist, 2 family-\nBusiness Enterprise (OMBE) contract to provide technical\nnurse practitioners, and 18 other employees now provide\nassistance in forming The Soul City Company and in develop-\nmedical and dental services to approximately 30 patients a\ning various documents and studies necessary to obtaining\nday.\nthe Federal guarantee for Soul City. Under a new OMBE\ncontract, WRPC is providing technical assistance to\nNearly all the patients are rural residents of Vance\nminority and disadvantaged business persons in Warren and\nand Warren Counties. In addition, a home health-care pro-\nfive other counties. One aspect of this activity involves\ngram, sponsored jointly by HealthCo and the foundation,\ntechnical assistance to minority construction firms so that\nprovides skilled nursing services to 25 homebound patients\nthey will have a chance to participate in constructing\na month in Warren County.\nprojects both at Soul City and throughout the region. As\nof March 31, 1975, WRPC had 12 employees--11 full-time and\nSOUL CITY UTILITIES COMPANY\n1 part-time.\nThe Soul City Utilities Company is a nonprofit corpora-\nSOUL CITY FOUNDATION, INC.\ntion created in June 1973 to construct waste water treat-\nment facilities for leasing to the Soul City Sanitary\nThe Soul City Foundation is a tax-exempt public foun-\nDistrict. The construction is to be financed through a HUD\ndation established in March 1969 to plan and develop social\npublic facility loan to the utilities company and loans and\nand human services for residents of Soul City and the\ngrants from The Soul City Company. The utilities company\nsurrounding areas. The foundation's mission is to (1) plan\n13\n12\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nhas one employee who currently is paid by The Soul City\nCompany. As of March 31, 1975, the utilities company had\nnot received any of the $500,000 public facility loan funds.\nSOUL CITY SANITARY DISTRICT\nThe Soul City Sanitary District is a limited form of\nlocal government which will serve Soul City residents at\nleast until the new community is incorporated. Established\nby the Warren County Board of Commissioners in May 1973,\nthe sanitary district is governed by a three-member board\noriginally appointed by the Warren County Board of Commis-\nsioners and reelected by Soul City residents in November\n1974. The district is authorized under State statutes to\nVISITOR'S CENTER AND\nPUBLIC AFFAIRS\nSOUL CITY COMPANY\noperate sewage and water treatment plants, handle garbage\nand solid waste collection and disposal, establish a fire\ndepartment, levy taxes, and issue bonds to support its\noperations. The sanitary district will own and operate the\nwater and sewage facilities and fire protection system now\nbeing constructed at Soul City. The sanitary district does\nnot have any employees and as of March 31, 1975, had not\ntotaling $704,000.\nreceived any funds from its two approved Federal grants\nWARREN REGIONAL PLANNING\nCORPORATION\nFLOYD B. McKISSICK ENTERPRISES, INC.\nMcKissick Enterprises was the initial sponsor of the\nSoul City project. It contemplates being involved in a\nbroad spectrum of development activities and construction\nat Soul City. McKissick Enterprises owns all the limited-\nHEAL THCO HEALTHCO\npartnership interest in McKissick Soul City Associates and\nation also owns several mobile homes, office trailers,\nis a general partner in The Soul City Company. The corpor-\nmotor vehicles, and other personal property which it leases\nto other companies in Soul City.\nTEMPORARY FACILITIES HOUSING\nSOUL CITY ORGANIZATIONS\nSEPTEMBER, 1975\nMCKISSICK SOUL CITY ASSOCIATES\nformed for the dual purpose of owning a limited-partnership\nMcKissick Soul City Associates is a limited partnership\ninterest in The Soul City Company and of borrowing funds to\ncontribute as equity in The Soul City Company.\nMADISON AND McKISSICK DEVELOPMENT COMPANY, INC.\nMadison and McKissick Development Company, Inc., is a\nHealthCo to use.\ncorporation organized to design and develop a clinic for\nSOUL CITY FOUNDATION\n14\n15\nI APPENDIX\n16\ninterlocking relationships as of March 31, 1975.\nFollowing is a diagram depicting and a description of\norganizations. on the board of directors for more than one of the Soul are City\nCertain key individuals serve as officers and/or\nINTERLOCKING RELATIONSHIPS\nI APPENDIX\nSoul City--Interlocking Officers and board of directors\nFloyd B. McKissick\nFloyd B. McKissick Enterprises, Inc.\nI APPENDIX\n(notes a and b)\nFloyd B. McKissick, president\nThe Soul City Company\nEvelyn W. McKissick\nFloyd B. McKissick, president\nMcKissick Soul City Associates\nLewis H. Myers\nFloyd B. McKissick, partner\nMadison and McKissick Development Company\nGordon R. Carey\nDorothy L. Waller, president\nWarren Regional Planning Corporation\nT. T. Clayton\nFloyd B. McKissick, board member\n17\nSoul City Foundation, Inc.\nEva Clayton\nEva Clayton, executive director\nHealthCo, Inc.\nCharles C. Allen\nEva Clayton, board member\nSoul City Utilities Company\nDorothy L. Waller\nGordon R. Carey, president\n(note c)\nSoul City Sanitary District\nFORD\nEvelyn McKissick, chairman of the board\na\nResigned from HealthCo board on March 26, 1975.\nb\nResigned from Soul City Utilities Company board on May 23, 1975.\nI APPENDIX\nC\nBecame treasurer and board member of Soul City Utilities Company on May 23, 1975.\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nFloyd B. McKissick\n(note a)\nPresident, The Soul City Company; board\nGRANTS, CONTRACTS, AGREEMENTS, LOAN, AND LOAN GUARANTEE\nmember (note b), Warren Regional Planning\nCorporation; board member, Soul City\nAs of March 31, 1975, 27 Federal grants, contracts, and\nFoundation, Inc.; president and board\nagreements; 1 loan, and 1 loan guarantee, totaling\nmember, Floyd B. McKissick Enterprises.\n$19,175,000, had been reserved or set aside for six organiza-\nInc.; board member, Madison and\ntions at Soul City. Of this amount, $10,175,000 had been\nMcKissick Development Company; general\nawarded and $4,665,000 had been spent.\npartner, McKissick Soul City Associates\nEvelyn McKissick\nDistrict Chairman of board, Soul City Sanitary\nAmount reserved\nFederal funds\nor set aside\nAmount awarded\nAmount spent\nLewis H. Myers\nBoard member, Soul City Sanitary District;\nLoan guarantee\n$14,000,000\n$ 5,000,000\n$1,921,721\nInc. assistant director, Soul City Foundation,\nGrants\n3,601,452\n3,601,452\n1,781,267\nAgreements\n208,605\n208,605\n208,605\n864,640\n864,640\n753,531\nGordon R. Carey\nContracts\nVice president-secretary treasurer, The\nLoan\n500,000\n-\n500,000\nSoul City Company; president and board\nmember, Soul City Utilities Company;\nTotal\n$19,174,697\n$10,174,697\n$4,665,124\nboard member, Soul City Foundation, Inc.;\nvice president and board member, Floyd B.\nMcKissick Enterprises, Inc.; board\nThe following tables present details of Federal funding\nmember, Madison and McKissick Development\nfor each organization.\nCompany; general partner, McKissick Soul\nCity Associates\nT. T. Clayton\nVice president and board member, Soul\nCity Utilities Company; board member,\nFloyd B. McKissick Enterprises, Inc.;\nboard member, Madison and McKissick\nDevelopment Company; general partner,\nMcKissick Soul City Associates\nEva Clayton\nBoard member, HealthCo, Inc.; executive\ndirector, Soul City Foundation, Inc.\nCharles C. Allen\nVice president and general manager,\nThe Soul City Company; board member,\nWarren Regional Planning Corporation\nDorothy L. Waller\nTreasurer and board member, Soul City\nUtilities Company; secretary and board\nmember, Floyd B. McKissick Enterprises,\nInc.; president and board member,\nMadison and McKissick Development\nCompany\nᵃUntil May 23, 1975, was also president and board member\nof Soul City Utilities Company.\nbResigned as chairman of board on April 10, 1975.\n18\n19\nThe Soul City Company\nI APPRENDX\nStatus of funds as of March 31, 1975 (note a)\nGovernment agency\nDate\nAwarded\nSpent\nPurpose\nHUD--New Communities\n2/26/74\nᵇ$14,000,000\n$1,921,721\nLoan guarantee for land\nAdministration\nacquisition and\ndevelopment.\naAs of August 7, 1975, the following proposals had been submitted to, but not\napproved by, the grantor.\n20\nRequest for grant funds totaling $4,033,612 from HUD's New Communities\nAdministration for various purposes, such as parks and recreation.\n-Request for grant funds totaling $28,032 from the Department of Transporta-\ntion's Urban Mass Transportation Administration for a mass transit study.\n--An affiliate of The Soul City Company has applied to HUD for a mortgage\ninsurance commitment for 25 units of subsidized housing (section 236).\nbAs of March 31, 1975, The Soul City Company had been authorized to issue only\n$5 million of debentures. The $5 million of debentures were issued March 6, 1974.\nI APPENDIX\nWarren Regional Planning Corporation\nAPPENDIX I\nStatus of funds as of March 31, 1975 (note a)\nGovernment agency\nDate\nAwarded\nSpent\nPurpose\n$ 112,605\n$112,605\nAgreement for planning\nHUD, through the State\n9/28/70\nSoul City.\nof North Carolina\n12/31/70\nHUD, through the State\n3/10/72\n96,000\n96,000\nAgreement for comprehen-\nsive planning of Soul City\nof North Carolina\nand five surrounding\ncounties.\nDepartment of Commerce,\n5/26/72\n531,500\n531,164\nContract to plan, promote,\nand develop an industrial\n21\nOMBE\nprogram for Soul City.\n6/29/74\n333,140\n222,367\nContract to increase the\nOMBE\nnumber of minority\nbusinesses and strengthen\nexisting minority\nbusinesses in Soul City\nand surrounding counties.\n$1,073,245 $962,136\nTotal\naon 1975, during our review at Soul City, OMBE awarded dated a contract June 29, for\n$320,000. July 30, This contract is to be a follow-on to the contract 1974.\nI APPPENDX\nSoul City Foundation, Inc.\nStatus of funds as of March 31, 1975\nGovernment agency\n(notes a and b)\nDate\nAwarded\nSpent\nPurpose\nI APPENDIX\nDepartment of Agriculture,\n1970-72\n$\nthrough the Economic\n(c)\n$ (c)\nGrant for feeder enrich-\nDevelopment Corporation\nment program during\nthe summer of each year.\nDepartment of Labor,\n1971-74\n(d)\nNeighborhood Youth\n(d)\nGrant for summer employ-\nCorps, through Henderson\nment during each year.\ncommunity action program\nOffice of Economic\n6/14/71\n98,934\nOpportunity (OEO),\n98,934\nGrant to plan and develop\n22\nOffice of Health Affairs\ncomprehensive health\nprogram.\nOEO, Office of Program\n12/11/72\n90,000\nDevelopment\n90,000\nGrant for social-\nplanning project.\nOEO, Office of Program\n5/ 9/73\n502,875\nDevelopment\n502,875\nGrant for economic\ndevelopment demonstra-\ntion project.\nOEO, Office of Program\n6/13/74\n66,000\nDevelopment\n66,000\nGrant to continue\neconomic development\nment demonstration\nproject.\nOEO, community develop-\n10/ 3/74\n93,000\nment (subcontracted with\n55,000\nGrant for economic\nFranklin, Vance, Warren\ndevelopment and\nOpportunity, Inc.)\nsocial-planning\nproject.\nI APPENDIX\nGovernment agency\nDate\nAwarded\nSpent\nPurpose\nNational Endowment for\n4/30/73\n12,500\n12,500\nGrant to support planning\nthe Arts (NEA)\nfor a cultural arts\nprogram at Soul City.\nI APPENDIX\nNEA\n11/15/74\n9,620\n4,246\nGrant to support planning\nfor a cultural arts\nprogram at Soul City.\nHEW, Office of\nEducation\n6/22/73\n98,220\n98,220\nGrant to establish\nlearning laboratory.\nDepartment of Labor,\n9/ 1/74\n34,392\n11,441\nGrant for outreaching\nthrough State of\nrecruitment placement\nNorth Carolina\nprogram.\n23\nTotal\n$1,005,541\n$939,216\nᵃDuring our review at Soul City, the Community Services Administration awarded a\ngrant for $42,356. This grant is to close out the economic development and social\nplanning grant. In addition, HEW's Administration on the Aging, through Kerr Tar\nRegional Council of Governments, awarded a grant for $12,756 on August 7, 1975.\nThis grant is for an outreach information referral program.\nᵇAs of August 7, 1975, a request for grant funds totaling $53.005 from NEA for a\ncultural arts program had been submitted to, but not approved by, the grantor.\nᶜThe following number of children were fed under the feeder enrichment program:\n1970, 100; 1971, 121; and 1972, 126. Dollar amounts not readily available.\nᵈThe following number of youths were employed by the Henderson community action\nprogram and worked at Soul City: 1971, 27; 1972, 17; 1973, 12; and 1974, 45.\nI APPENDIX\nDollar amounts not readily available.\nHealthCo. Inc.\nStatus of funds as of March 31, 1975\nGovernment agency\nDate\nAwarded\nSpent\nPurpose\nI APPENDIX\nOEO, Office of Health\n6/ 5/72\n$1,097.457\n$822,816\nAffairs\nGrant to establish a com-\nprehensive health-care\ncenter (ambulatory) for\nWarren and Vance Counties.\nHEW, Public Health\n1/16/74\n277,206\n-\nService\nGrant to develop a compre-\nhensive ambulatory health-\ncare center for Warren and\nVance Counties.\nHEW, Public Health\n1/21/75\n492,183\nService\nContinuation of the above\n24\ngrant.\nHEW, through the\n12/13/73\n13,775\n13,156\nGovernor's Council\nGrant to provide home\non the Aging, North\nhealth care.\nCarolina Department\nof Human Resources\nHEW, through the\n6/14/74\n11,290\n6,079\nGovernor's Council\nGrant to provide home\non the Aging, North\nhealth care.\nCarolina Department\nof Human Resources\nTotal\n$1,891,911\n$842.051\nI APPRENDIX\nI APPPENDIX\nSoul City Sanitary District\nStatus of funds as of March 31, 1975\nDate\nAwarded Spent\nPurpose\nGovernment agency\n$500,000\nInterim water and sewer grant.\n9/17/73\nI\nHUD, Community Planning\nand Development\nHUD, NCA\n9/28/73\n204,000\nI\nSame as above.\nI\n$704,000\n-\nTotal\n25\nI APPENDIX\nAPPENDIX I\nSoul City Utilities Company\nGovernment agency\nDate\nAwarded Status of Spent funds as of March 31, 1975\nPurpose\nHUD, Community Planning\nand Development\n9/28/73\n$500,000\n-\nPublic facility loan for\ninterim water and sewer.\n26\nAPPENDIX I\n1\nagreements, and grants follows.\nAPPENDIX I\n27\nCommunication, Inc. Information on these 11 contracts.\ncity of Henderson, Warren County, and Eden Advertising and\nand grants were awarded to the State of North Carolina, the\nbenefited the Soul City project. The contracts, agreements,\nbeen awarded as of March 31, 1975, that fully or partially\nat Soul City, 11 other contracts, agreements, and grants had\nloan; and 1 loan guarantee awarded to the 6 organizations\nIn addition to the 27 grants, contracts, and agreements;\nAPPENDIX I\nGovernment agency\nDate\nAdministered by\nAwarded\nPurpose\nHUD, Community\n9/28/70\nNorth Carolina\n$ 132,996\nPlanning and\n12/31/70\nAgreement for planning Soul City\nDepartment of\nDevelopment\nand regional planning.\nAdministration\nAPPENDIX I\nHUD, Community\n3/27/72\nNorth Carolina\n78,726\nPlanning and\nAgreement for comprehensive\nDepartment of\nDevelopment\nplanning of Soul City and five\nAdministration\nsurrounding counties.\nHUD, Community\n10/ 2/73\nCity of Henderson\n3,522,950\nPlanning and\nBasic water grant for regional\nDevelopment\nwater system.\nHUD, NCA\n10/ 2/73\nCity of Henderson\n500,000\nGrant for regional water system.\nHUD, NCA\n6/29/73\nNorth Carolina\n65,000\nGrant for road construction.\n28\nDepartment of\nTransportation\nand Highway\nSafety\nDepartment of\n6/--/73\nCity of Henderson\n2,140,000\nCommerce,\nGrant for regional water system.\nEconomic\nDevelopment\nAdministration\nDepartment of\n6/11/73\nNorth Carolina\nᵃ31,500\nTransportation,\nGrant for road construction.\nDepartment of\nFederal Highway\nTransportation\nAdministration\nand Highway\n(FHWA)\nSafety\nAPPENDIX I\nof\nGovernment agency\nDate\nAdministered by\nAwarded\nPurpose\nNorth Carolina\n236,785\nGrant for road construction.\nFHWA\n6/11/73\nDepartment of\nAPPENDIX I\nTransportation\nand Highway\nSafety\n67,268\nGrant for road construction.\nFHWA\n6/11/73\nNorth Carolina\nDepartment of\nTransportation\nand Highway\nSafety\n3/ 4/75\nWarren County\nb15,000\nGrant for need assessment of waste\nEnvironmental\nwater collection and treatment\nProtection\nrequirements for Soul City,\nAgency\nWarrenton, and Norlina.\n29\n12/20/74\nEden Advertising\n121,661\nContract for publicity of Soul\nOMBE\nand Communica-\nCity.\ntions, Inc.\n$6,911,886\nTotal\naOn April 30, 1975, this project was withdrawn and the grant was terminated.\nbon July 18, 1975, the State of North Carolina and Warren County each contributed $2,500 to the project.\nAPPENDIX I\nSoul City.\nI APPENDIX\n30\nhave also been awarded that will benefit the development of\nAs shown by the following table, State and local funds\nI APPPENDIX\nGovernment agency\nDate\nAdministered by\nAwarded\nPurpose\nState of North\n9/28/70\nWRPC\n$ 37,535\nAgreement for planning Soul City.\nCarolina\n12/31/70\nI APPPENDX\nState of North\n9/28/70\nState of North\n56,890\nAgreement for planning Soul City\nCarolina\n12/31/70\nCarolina\nand the surrounding region.\nState of North\n3/10/72\nWRPC\n32,000\nAgreement for comprehensive\nCarolina\nplanning of Soul City and five\nsurrounding counties.\nState of North\n3/10/72\nState of North\n22,076\nAgreement for comprehensive\nCarolina\nCarolina\nplanning of Soul City and five\nsurrounding counties.\nState of North\n6/ 1/72\nState of North\n4,080\nGrant for road construction.\nCarolina\nCarolina\n31\nState of North\n6/ 8/73\nState of North\n74,000\nGrant for road construction.\nCarolina\nCarolina\nState of North\n6/11/73\nState of North\n13,500\nGrant for road construction.\nCarolina\nCarolina\nState of North\n6/11/73\nState of North\n66,986\nGrant for road construction.\nCarolina\nCarolina\nState of North\n6/11/73\nState of North\n25,278\nGrant for road construction.\nCarolina\nCarolina\nState of North\n7/ 1/73\nSoul City\n5,000\nGrant to plan continuous arts\nCarolina\nFoundation, Inc.\nworkshop program.\nI APPENDIX\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nALLEGATIONS RELATING TO THE SOUL CITY PROJECT\nGrant for regional water system.\nIn accordance with agreements reached with your office,\nGrant for Henderson's share of\nwe examined various allegations relating to preferential\ntreatment in providing Federal assistance, to interlocking\nPurpose\nregional water system.\nGrant for Oxford's share of\nregional water system.\nGrant for Soul City's share of\ndirectorships and nepotism, and to the lack of progress and\nregional water system.\npoor management practices.\nPREFERENTIAL TREATMENT IN PROVIDING\nFEDERAL ASSISTANCE\nWe wanted to learn whether the Federal agencies had\nfollowed their normal procedures in awarding and monitoring\nthe grants, contracts, loan, and loan guarantee to Soul City\norganizations, and if not, the reasons for any deviation.\nExcept as noted below, the various agencies had followed\ntheir normal review, approval, and monitoring procedures.\nAwarded\n2,795,000\n2,535,021\n986,191\n103,120\n$6,756,677\nThe Office of Minority Business Enterprise had not\nestablished contract review, approval, and monitoring\nprocedures at the time it awarded a letter contract\nto WRPC.\nThe Community Services Administration (CSA) approved\nand funded two grants before the grants had progressed\nAdministered by\nCity of Henderson\nCity of Henderson\nCity of Henderson\nCity of Henderson\nthrough the normal review and approval process.\nHUD imposed certain restrictions on the Soul City\ndeveloper which were not imposed on other new commu-\nnity developers, but other restrictions normally\nimposed on other developers were relaxed for the\nSoul City developer. As a result of the restrictions,\nthe amount of debentures that the developer could\nissue was limited until certain conditions were met.\nHowever, the relaxed restrictions could allow the\nDate\n10/ 2/73\n10/ 2/73\n10/ 2/73\n11/20/74\ndeveloper to have a higher-than-normal debt-to-equity\nratio and to draw down a larger amount of the funds\nCE\nfrom the escrow account.\nHUD approved and awarded basic water grants and a\npublic facility loan to the Soul City Sanitary\nGovernment agency\nState of North\nCity of Henderson\nSoul City District Sanitary\nDistrict, Soul City Utilities Company, and Henderson\nafter the Secretary of HUD announced the termination\nCity of Oxford\nof the grant and loan programs.\nCarolina\nTotal\nThe agencies--CMBE, CSA, the Office of Education (OE)\nand NEA--relied heavily on self-evaluations by the\ngrantees and contractors without verifying the data.\nMoreover, OMBE used this data as a basis for awarding\na follow-on contract.\n32\n33\nFORD VIBRARY\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nand the a Federal loan agencies which awarded grants, contracts, a loan, at\nThe following summarizes the results of our review\nregional office's final evaluation of WRPC's performance\nguarantee to Soul City organizations.\nduring the contract period January 1974 through March 1975\nstated that the contractor had greatly exceeded its pro-\nDepartment of Commerce--Office of\njected goals, according to WRPC's records. OMBE did not\nMinority Business Enterprise\nverify the information WRPC submitted, and in actuality,\nWRPC did not exceed the projected procurement goals, as\nmoting, WRPC from February 1972 to July 1975 for (1) planning, to\nOMBE awarded three contracts totaling $1,184,640\nshown below.\n(2) and developing an industrial program for Soul City, pro-\nActual\nProjected goals\n$14 million assisting Floyd B. McKissick Enterprises in a\nCategory\nNumber\nAmount\nNumber\nAmount\nthe federally guaranteed loan, and (3) closing\nminority number of minority businesses and strengthening increasing existing\nLoans approved\ncounties. businesses in Soul City and the surrounding six\n(note a)\n10\n$13,800,000\n11\n$3,800,000\nProcurements secured\n(note b)\n2\n135,000\n5\n1,800,000\nprocedures Review, approval, and monitoring\nClients assisted\n180\n-\n27\n-\na Loans which WRPC arranged for clients.\nand February 1972, OMBE followed its normal review, awarded\nExcept for the letter contract for $190,000 in\nb Contracts which WPRC helped clients obtain.\ntold monitoring procedures. OMBE headquarters approval,\nfor OMBE us that the Congress first appropriated officials\nMost of WRPC's accomplishments were centered around\n17 proposals, in January 1972. At that time OMBE was program funds\nSoul City activities rather than activities in the six-county\nsaid that 1 of which was a WRPC proposal. The considering officials\narea described in its contract. For example, from May 1973\nthe Secretary of Commerce wanted to obligate the\nthrough March 1975 WRPC reportedly helped clients obtain\nprogram funds before the end of the fiscal year.\nfinancing totaling about $31.7 million, of which $19.6\nmillion, or about 60 percent, was directly related to Soul\nOMBE relied primarily on periodic progress\nCity activities. Before approving the recommendation for\ntoring contractor the submitted and OMBE's evaluation reports reports for the\nrefunding, the Regional Director suggested that the region\nalso contractor's performance. These moni-\nsend a letter to WRPC expressing the region's concern about\nthe were the basis for OMBE's decision to refund monitoring tools to\nthe limited activity outside the Soul City area and that\ncontractor. Between October 1973, when moneys\ncontinued support of the project depended on WRPC's services\nemployees monitoring responsibilities, and May 31, 1975, they OMBE assumed regional\nand activities in the six-county area. According to an OMBE\nreview had made only one onsite review at WRPC.\nproject specialist, the region did not send the letter but\nmatters consisted of completing a pro forma checklist The such\ndid discuss the matter with WRPC officials.\nment, (3) as (1) financial management, (2) personnel on\nance. The administrative matters, and (4) program perform- manage-\nIn commenting on the region's recommendations for\ndealt program performance section of the\nrefunding, the Director, OMBE, said that:\nmeeting whether the contractor had a time-phased output to\nfunding, primarily with the contractor's ratio of checklist\nThe information in the evaluation report showed that\nhad the contract objectives, and whether the plan for\nWRPC had fallen far short of achieving procurement\nwas that carried the out the required work. The reviewer's contractor\ngoals.\nratio, the ratio of output to funding exceeded the response\nthe contractor had submitted a time-phased plan, minimum and\n--WRPC's major accomplishments included loaning over\ncontractor was carrying out the required work.\n$1.2 million to corporations owned by Floyd McKissick.\nThis raised questions concerning the possible inbred\nInformation in the onsite evaluation and\nnature of WRPC's activities.\ncontract used for recommending the approval of a 2-year\noffice reports the contractor submitted was the basis progress the regional\nNevertheless, the Director signed the refunding request.\nfor $320,000 for WRPC to continue its work. The\n34\n35\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAudits of OMBE contracts with WRPC\naudits audits a certified public accountant (CPA) made made three\nThe and Department of Commerce, Office of Audits, four\nThe to certification of the financial statements. audits\npertained of the three contracts. One of the CPA's\nsupport other for six audits questioned costs because (1)\nQuestioned\ncosts unresolved\nat May 31, 1975\nI\n$65,266\nI\nI\nI\nI\nI\nnot been expenditures was lacking, (2) expenditures adequate\naward, (3) costs had been incurred before the\nsions, made in accordance with contract terms and provi- had\nwith OMBE and (4) expenditures had not been made contract in accordance\ncost principles. We confirmed the lack\nand following the table shows the costs questioned during the The audits\nsupport for many of WRPC's payments. (See p. 81.) of\nstatus of those costs at May 31, 1975.\nCosts\nquestioned\n$15,042\na65,266\nI\n(b)\nC34,998\n27,070\n38,668\n318,278\nAudits of Contracts Awarded to WRPC\nCosts\nreviewed\n$190,000\n194,418\n495,821\n(b)\n65,266\n356,910\nContract-proposal\nProposal for\n2-35590\n2-35590\n2-35590\n2-35590\n2-35590\nProposal for\n4-36550\nProposal for\n5-36579\nDate\n5/16/72\n8/31/73\n9/17/74\n9/17/74\n1/30/75\n1/29/74\n3/20/75\nAudit by\nDepartment of Commerce\nDepartment of Commerce\nN. T. Garrett, CPA\nN. T. Garrett, CPA\nN. T. Garrett, CPA\nDepartment of Commerce\nDepartment of Commerce\na ᵃInterim cost audit.\nb ᵇAudit pertained to certification of financial statements.\ncFollowup audit to resolve costs questioned by Department of Commerce during its audit of August 31,\n1973.\n36\n37\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nThe Regional Manager, Office of Audits, told us that,\nGrant number\nGrant period\nAmount\nPurpose\nwhen the CPA made the final audit on contract 2-35590 in\nSeptember 1974, he did not have a copy of the August 1973\n40475/CG4815\n7/ 1/71 to\n$\n98,934\nComprehensive health\naudit by the Office of Audits. Because of the amount of\n6/30/72\nservices.\ncosts the Office of Audits questioned and because the CPA's\naudit of the same contract had not questioned any costs,\n40168-E-72\n7/ 1/72 to\n1,097,457\nComprehensive health\nthe CPA was asked to make a followup audit. In January\n(note a)\n12/31/73\nservices.\n1975 the CPA made the followup audit and, in his opinion,\nresolved $30,268 of the $65,266 of costs questioned. The\n40475-G-73-01\n2/14/73 to\n90,000\nSocial planning.\nRegional Manager said that a final determination on the\n2/13/74\n$65,266 of questioned costs would be made when the Office of\nAudits made its final audit on contract 4-36550 after the\n40475-F-73-01\n5/ 1/73 to\n502,875\nEconomic development\ncompletion of our review.\n4/30/74\ndemonstration project.\nThe Regional Manager also said that the Office of\n40475-F-74-01\n5/ 1/74 to\n66,000\nAmendment to grant\nAudits knew about $34,000 additional costs that had been\n(note b)\n9/30/74\n40475-F-73-01.\ncharged to contract 2-35590 after the end of the contract\nperiod on December 31, 1973. According to the Regional\n40644-03\n7/ 1/74 to\n93,000\nCommunity develop-\nManager, those costs were not allowable and would be\n(note c)\n6/30/75\nment social planning\nquestioned during the final audit.\nproject.\nOffice of Economic Opportunity--\n40644-08\n7/ 1/75\n50,000\nCloseout.\nCommunity Services Administration\n(note c)\nCSA was established in January 1975 and assumed respon-\nTotal\n$1,998,266\nsibility for community action, economic development, and\nother programs formerly administered by OEO. Therefore, in\nᵃGrant administration transferred to the Public Health\nour discussion of grants CSA and OEO awarded, we have\nService (PHS), HEW, in July 1973.\ntreated the activities pertaining to these grants as though\nthey had been carried out by one agency, i.e., CSA, the\nNot considered as a separate grant.\nsuccessor agency to OEO.\nCGrants awarded by CSA regional office. All other grants\nCSA awarded six grants totaling $1,998.266 to Soul\nwere awarded by CSA headquarters.\nCity Foundation and HealthCo between July 1, 1971, to\nJuly 1, 1975, as shown below:\nThe grants were awarded for:\n--Planning for and carrying out a health-care delivery\nsystem for the poor people of Warren and Vance\nCounties.\n--Developing a process for mobilizing Federal and\nprivate resources for social planning so as to stem\nthe migration of poor, rural people to larger cities.\n--Constructing an industrial facility (Soultech I) and\ndeveloping plans for future projects.\n38\n39\nAPPENDIX I\nprocedures Review, approval, and monitoring\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nCSA regional officials told us that the review process\naccording approval 40644-03--were Of the to six not and and\nconsisted only of determining whether the proposed activities\nwere of the type that could be funded with regional program\nfunds. The regional office agreed to fund the proposal,\n40475-G-73-01, mine whether the normal three procedures. other We were not able was processed to deter-\neven though the proposed activities were in the nature of\nresearch and demonstration and were not normally funded at\napproved according and to 40168-E-72--had normal been reviewed 4815, and\nthe regional level, because:\navailable 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\nCSA thought that the grant would complete the\nresearch and demonstration work and that a viable\noperating program would emerge.\nfor determining\nCSA's normal whether: review and approval procedures provided\n--The emphasis in CSA at that time was to award grants\nat the regional level rather than at the headquarters\nlevel.\npurposes, The grant and proposal goals. conforms with CSA guidelines,\nThe community action agency in the Soul City area\nwas of the opinion that the proposed activities\nthe The program prospective activities. grantee is capable of carrying out\nwould complement its activities. It therefore agreed\nto act as the grantee and to enter into a delegate\nagency agreement with the Soul City Foundation for\ntrends The grant of the objectives area are compatible with\ncarrying out the grant activities.\nhas the support of the and local whether community. the prospective socioeconomic grantee\nCSA's monitoring of a grantee's performance consists\nprimarily of reviewing periodic progress reports the grantee\nities The grant of the activities local community are compatible action agency. with the activ-\nsubmits and visiting the site. The progress reports\ngenerally discuss the grantee's achievements and plans for\nmeeting grant objectives. CSA officials gave us two site-\nreviewed development According and grant to a 40475-F-73-01 CSA headquarters for official, economic\nvisit reports related to the economic development demonstra-\ntion grant. These reports discussed (1) background informa-\nsaid that the approved former CSA according to normal $502.875 was not He\ntion on the Soul City project, (2) attendance at a Soul\nproposal be director had procedures.\nCity Foundation board meeting, (3) extension of the grant\nhad not progressed approved and funded even though directed the that the\nbecause of a slow startup, and (4) progress being made on\nAs a result through the review proposal\nSoultech I.\nthe whether the the review process was limited and approval to determining process.\nRegional officials said that the Franklin-Vance-Warren\nfunded proposed under OEO act. nature was in that order could and whether be\nCommunity Action Agency was responsible for monitoring\nthe performance of the grant awarded by the region and that\nthe only monitoring of the Soul City Foundation by CSA\nproposal 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\nwould be through its monitoring of the community action\nagency's performance.\ntion. to the Atlanta regional headquarters office which, in turn, referred submitted it the\nRegional employees have made two site visits to the\ncommunity action agency to discuss matters related to the\nreview process, However, before the regional for review office and recommenda-\nSoul City Foundation. They discussed the release of grant\nproposal. allotment was being CSA headquarters increased by $93,000 told the to region completed fund the that its its\nfunds, advance approval of expenditures for consultants\nand other contractual services, advance approval for filling\ncertain positions, and intenance of grant funds in a\nseparate bank account. Regional employees also met with\nthe staff of Soul City Foundation to see if they had any\nquestions or problems.\n40\n41\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAudits of grants\nAPPENDIX I\nOE monitors the grantee's performance by reviewing\nthe\nSoul CPAS City made Foundation. five audits Four of CSA headquarters grants to\nperiodic progress reports, fiscal reports, and minutes of\nadvisory committee meetings the grantee submits and by\nfinancial surveys of statements. the accounting system of and the audits related to\nhaving OE employees make onsite reviews.\non the fifth audit on the Costs basis totaling certification $7,065 were questioned of the\nDuring the grant period, OE program officers made four\n1975, budgeted the line questioned items made costs without had been of CSA's expenditures resolved. approval. in At excess July 1, of\nonsite reviews. These reviews consisted primarily of com-\npleting a pro forma review sheet through interviews with the\ngrantee's staff. However, the OE program officer did note\ncertain problems which could affect the success of the pro-\nof region. No audits An audit have is been made of the 6 grant months awarded after by the the end\ngram: school officials were reluctant to allow the grantee\nto carry out activities in the schools and parents were\n$ 1915,000 tor accounting auditing the services. grantee\ngenerally negative toward the program. The program officer\nhas\nsaid that program emphasis seemed to be on \"what can the\nproject do for Soul City rather than what can Soul City do\nand\nfor the success of the project.\"\nThe OE program officer assessed the grantee's perform-\ngrant tion OE for was awarded the for period a a grant July of 1, $98,220 to to the Soul City Founda-\nance as average, considering the opposition expressed by\nschool district officials and the lack of parent participa-\nwhich youths and a create in the and past poor educa- white\ntional and a 1974. The\ntion in program activities.\nteachers it would be easier for students schools an atmosphere\nThe final evaluation report, which the grantee prepared\nin\nand which incorporated the results of an evaluation by a\nto teach. The program design to consisted achieve of: and\nconsultant, noted that certain program activities had not\n--A academic systematic areas: remedial instruction program in three\nbeen carried out, other program activities had been altered,\nand program emphasis had shifted from academic instruction\nwriting, and (1) basic studies in\nto cultural enrichment activities. Further, as a result of\nselected and (3) economics verbal for communications, 100 low achievers (2) reading, mathematics,\nthese changes, program implementation was delayed from July 1,\nto October 1, 1973.\nfrom junior high schools in Warren to be County.\n--A enrichment broad program for cultural and\nAudits of grant\nprogram and activities for high school for students students. intellectual in the academic\nOE rules and regulations governing the grant award\nrequire that the grantee audit all grant expenditures\noperate received In the May a grant 1974 extension the grantee through requested August and in June 1974 it\nusually on an annual basis but no less frequently than every\n2 years. As of November 1975 the grant had not been audited\neven though grant funds were budgeted for auditing and\nences between program the through the summer. The 31, 1974, to\naccounting services and over 2 years had passed since the\n(1) a reduction in initial the and the revised main differ-\ngrant award. The grantee's final expenditure report showed\nmentation number of participants, program were:\nthat all grant funds had been spent.\ntion of summer of a recreation summer feeding program. program, and (3) implementa- (2) imple-\nDepartment of Health, Education, and\nprocedures Review, approval, and monitoring\nWelfare--Public Health Service\nIn July 1973 PHS assumed responsibility for administer-\nsubmitted approving OE followed and the grant for its proposal normal procedures the Soul for reviewing and\ning a grant OEO awarded under the comprehensive health\nservices program. The grant of $1,097.457 was awarded to\nHealthCo for the program period July 1, 1972, to December 31\nthe grant period. monitoring the grantee City performance Foundation during\n1973. Under the grant, HealthCo proposed the following\nprogram objectives.\n42\n43\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nForm a medical group or partnership and develop an\nof the program which were ambiguous and for the most\nadequate ambulatory health-care facility.\npart nonexistent.\n--Initiate delivery of health-care services to an\n--It was high time that HealthCo seriously considered\nenrolled-patient population.\ndivorcing itself from the Soul City Foundation and\nMcKissick Enterprises and got on with the business\n--Initiate and negotiate a contract with the State of\nat hand. If that could not be done physically, then\nNorth Carolina under its title XIX program (Medicaid)\nit should be done programmatically.\nto prepay, on a capitation basis, for services\nprovided to Medicaid eligibles.\nThe financial base, number of patients treated, and\nthose projected did not indicate sufficient need nor\n-Carry out an appropriate health information and\nwarrant an expenditure for a permanent facility at\ncost-accounting system that would generate nationally\nthat stage of the program.\ncomparable data on service utilization and per unit\ncost of service.\nPHS decided to fund the grant proposal because it\nbelieved the grantee would overcome certain startup problems\n--Develop a procedure to evaluate the effectiveness and\nand would achieve the objectives of the first grant.\nto assess the cost benefit of using family-nurse\npractitioners within a health-care program.\nPHS monitors grantee performance by reviewing periodic\nprogress reports the grantee submits, by having PHS program\nThe grant also provided for constructing a permanent\nofficials make site visits, and by correspondence with the\nhealth-care facility estimated to cost $500,000 and to con-\ngrantee.\ntain about 16,000 square feet of space. Grant funds of\n$250,0 were earmarked for constructing the facility; the\nDuring the period August 1973 to May 1975, PHS made 13\nremaining $250,000 was to be raised by the grantee.\nsite visits to HealthCo to (1) discuss and review program\noperations and fiscal matters, (2) discuss HEW audit find-\nSince assuming responsibility for administering the\nings, (3) attend board of directors meetings, (4) discuss\ngrant, PHS has awarded two additional grants totaling\ngrant terms and conditions, and (5) discuss and review the\n$769,389 to HealthCo for the period January 1974 through\ngrantee's proposal for refunding. Additionally, the grant\nDecember 1975.\nfiles contained numerous pieces of correspondence and\nmemorandums of telephone calls between PHS and HealthCo\nAs of May 31, 1975, HealthCo had not drawn down any\nconcerning many of the same issues covered during the\nfunds from the two grants PHS awarded. The grantee was\nonsite visits.\nstill spending the first grant OEO awarded.\nPHS officials assessed HealthCo's performance under\nReview, approval, and monitoring\nthe grants as poor, considering the amount of money spent--\nprocedures\nabout $760,000 as of December 31, 1974--and the length of\ntime the organization has been in existence about 30 months.\nPHS followed its normal grant review and approval pro-\nThe official attributed HealthCo's poor performance to:\ncedures in awarding the grants to HealthCo. However, PHS\nemployees who reviewed the grant proposals expressed concern\n--The lack of clearly defined program goals and\nabout (1) the lack of clearly defined program objectives in\nobjectives.\nthe OEO grants, (2) the lack of action on the part of\nHealthCo to provide health services to the people of Warren\nIneffective management.\nand Vance Counties, and (3) the influence Mr. McKissick\nexerted on HealthCo's operations. The PHS reviewer's\nThe chief of the PHS Operations Branch said that a\nconcern is illustrated by his comments that:\ngrantee is expected to begin providing health-care services\nwithin 18 months after initial funding. HealthCo did not\n--It appeared that the level of funding for the\nbegin such services until about 25 months after initial\nproject did not coincide in any way with what had\nfunding.\nbeen or should have been the goals and objectives\n44\n45\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nsituation and (2) the above matters had become public\nThe Regional Health Administrator told us that one\nproblem had been the grantee's attitude. He said that, as\nknowledge and the residents of the area were alarmed. As\na result the staff feared that utilization of HealthCo's\nwith many of the grants transferred from OEO to PHS, the\nemphasis seemed to be on employing people rather than on\nclinic would suffer.\nachievements. He said that another problem was that,\nbecause the program goals and objectives were stated in\nIn August 1974, when it opened, the HealthCo clinic\nbroad, general terms, the grantee could do about anything\ntreated an average of seven patients a day. This same work-\nand, technically, meet the terms and conditions of the\nload level prevailed through December 1974. By May 1975\nthe clinic was treating 31 patients a day, and the workload\ngrant.\nremained at that level through August 1975. In August 1975,\nThe regional administrator also said that the lack of\nwith such a patient load, the patient-visit cost was about\ncontinuity of employees in key positions and Mr. McKissick's\n$44, after deducting fees collected from patients and\ninfluence on HealthCo's operations adversely affected manage-\nthird-party payments. This cost resulted from the clinic's\nment's capability to perform effectively. Since July 1,\nstaffing level, which consisted of 2 full-time physicians,\n1 full-time dentist, 2 family-nurse practioners, and 18\n1972, there have been numerous personnel changes in such key\npositions as the executive director, clinic director, and\nother employees on support and administrative jobs.\nstaff dentist. Regarding Mr. McKissick's influence on\nHealthCo's operations, the Chief, Operations Branch, told us\nAudits of grants\nthat Mr. McKissick's efforts seemed to be directed toward\ninsuring the success of Soul City rather than seeing to it\nA CPA firm made two audits of the grants OEO and PHS\nawarded. The two audits covered the grant periods of July 1,\nthat HealthCo became a workable activity. As an example of\nthis interference, he referred to a letter dated July 21,\n1972, to December 31, 1973, and January to December 31,\n1974, from Mr. McKissick to the then executive director in\n1974, respectively. In addition, late in 1974 HEW made a\nwhich Mr. McKissick expressed his concerns over the\nsurvey of the budget, financial, procurement, property, and\nexecutive director's failure to:\npersonnel systems the grantee used in administering the\nfirst grant. The costs questioned by the CPA firm and\n--Use the services of an insurance company which com-\nHEW related to (1) improper control over travel advances\nmitted $750,000 to the Soul City Foundation for\nand expenses paid to employees, (2) salaries and wages in\nbuilding Soultech I and which had a representative\nexcess of budgeted amounts, and (3) penalty and interest\non the board of directors of Floyd B. McKissick\npayments to the Internal Revenue Service for late payment\nEnterprises, Inc. Additionally, the insurance\nof taxes in 1973 and 1974. The following table shows the\ncompany had an interlocking board with a bank which\ncosts questioned during the audits and the status of these\nwas a financial backer of Soul City.\ncosts at July 1, 1975.\n-Purchase vehicles from dealers that were friendly\nto Soul City.\n-Employ, as promised, the wife of the general\nmanager of The Soul City Company.\nWe noted that in August 1974 the HealthCo staff\nexpressed concern to PHS about the ability of HealthCo to\nfulfill its responsibility of providing health-care services\nto residents of Warren and Vance Counties because of how the\nprogram was being operated and the self-serving interest of\ncertain individuals. According to the staff, these issues\nthreatened the program in several ways: (1) there were\nclearly identifiable areas of conflicting interests in the\ntwo-county area and the staff was demoralized over the\nGERALD FORD VIBRARY\n47\n46\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nThe CPA firm and HEW said that the cash on hand was\nexcess to then-current needs. The situation developed when\nHEW authorized the grantee to draw down all remaining grant\nQuestioned costs\nfunds under the initial grant. In December 1973 the grantee\nunresolved at\nJuly 1, 1975\ndrew down $802,457, of which $44,968 was to cover obliga-\n$ I\nI\nc992\ntions incurred under the grant and $757,489 was unobligated.\nThe grant funds were deposited in non-interest-bearing\naccounts. The CPA firm, in its audit report dated\nAugust 15, 1974, recommended that the grantee use all the\nexcess cash on hand before drawing down any grant funds\nfrom later grants. A HEW audit report dated November 26,\nCosts\nquestioned\n1,685\n2,496\nthe CTravel expenses incurred for relocating medical director from Jamaica to Soul City. PHS disallowed\n1974, recommended that the grantee refund all excess cash\ncosts from Jamaica to Miami, Florida--the port of entry. The medical director appealed PHS's\non hand. In February 1975 the grantee responded to the\n$6,249\nCPA's report and said that, for the most part, funds remain-\ning from the drawdown had been deposited in interest-bearing\naccounts and that the interest earned on the accounts would\nbe paid into the U.S. Treasury. A PHS official told us that\nthe grantee deposited about $240,000 in interest-bearing\naccounts in January 1975--about 1 year after the grant\nfunds were drawn down.\nAudits of Grants to HealthCo, Inc.\nCosts\nreviewed\n$339,968\n(b)\n441,926\nNational Endowment for the Arts\nNEA awarded two grants, totaling $22.120 to the Soul\nCity Foundation between January 1973 and July 1974. Under\nthese grants the foundation proposed to plan and develop\nGrant\nwith specific proposals and recommendations on which agen-\nᵃ40168-E-72\n04-H-000817-01-0\n04-H-000817-01-0\na long-range cultural arts program for Soul City, including\n(1) preparing a general cultural arts program for Soul City\nDate of\ndecision, and at July 1, 1975, the appeal was pending.\ncies and foundations could be approached for funds and (2)\nproviding professional assistance and technical expertise\nto the existing cultural programs at Soul City, that is,\nthe dance and drama groups. In addition, the long-range\nplan would consider the (1) types of programs which the\nnew community and surrounding area could support, (2) type\nof publicity and educational program needed, (3) type of\nreport\n8/15/75\n11/26/74\n2/21/75\nprogram needed for identifying and nurturing local talent,\n(4) potential resources to support planned programs, (5)\ndevelopment of a resident theatrical group and choir, (6)\nimplementation of art workshops, (7) establishment of an\nannual art festival, and (8) plans for permanent facilities\nand their time schedules.\nAudit by\nWolf & Company, CPA\nWolf & Company, CPA\nReview, approval, and monitoring\nᵃAwarded by OEO.\nprocedures\nbNot shown.\nNEA followed its normal procedures for reviewing and\napproving the grants awarded to the Soul City Foundation.\nHEW\n48\n49\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nNEA normal monitoring procedures consist primarily of\nSpecial restrictive conditions imposed\nreviewing financial and progress reports the grantee submits\non the Soul City developer\nand making site visits to provide technical assistance to\nthe grantee and to insure that grant funds are being spent\nNCA realized, early in the application stage, that\nfor grant-related purposes. As of July 1975 NEA had not\nthere was considerable risk inherent in developing Soul City\nmade any site visits to the Soul City Foundation.\nbecause it was the first freestanding community and that\nthere was no established industrial base in the vicinity\nNEA's evaluation of a grantee's performance is based\nfrom which it could attract growth. The Administration\non final financial and evaluative reports the grantee sub-\nalso recognized the inherent risks of the Soul City project,\nmits at the end of the grant period. NEA reviewed and\nas evidenced by the following memorandum from the White\napproved the reports for the first grant and noted no\nHouse dated June 21, 1973, to the Under Secretary of HUD\nproblem areas. The reports for the second grant were not\nconcerning the Soul City project.\nperiod. due until October 1975-90 days after the end of the grant\n* * the whole New Communities program is and\nwas expected to be an experimental venture with\nAudit of grants\ninherent risks. We should not now argue that\nbecause one of these new communities is\nNEA has not audited its grants to the Soul City Founda-\n'marginal', it should be scrubbed. Unless we\ntion. NEA officials told us that, because of its small\ngo ahead with this, how are we ever going to\naudit staff, NEA did not attempt to audit every grant. They\nfind out whether a new town, beginning from\nsaid that they selected for audit only those grants with\nscratch in an entirely rural area, can be made\nlarge dollar amounts or those which had received adverse\nto succeed?\npublicity. The official further said that, although the\ngrantee had received some adverse publicity, none of it was\nIf we now say 'no' to McKissick, we will stand\nrelated to the NEA grants, and NEA did not plan to audit\naccused not only of reneging on specific commit-\nthe grants.\nments to him, but of reneging on the President's\ncommitment to the whole minority enterprise\nDepartment of Housing and Urban\nconcept. However unfair or inaccurate those\nDevelopment--ne communities loan\naccusations may be in a narrow sense, in the\nguarantee\nbroader context they will be persuasive to the\npublic and damaging to all of us on the domestic\nIn 1969 the Soul City developer applied to NCA to have\nside of the Administration.\nit guarantee a loan for development of Soul City. In 1974\nNCA executed a project agreement with the developer. The\n\"We should give Soul City the green light and\nproject agreement provided that the developer could issue\ninform the interested agencies that we have\nup to $14 million of debentures which the Government would\ndone so ***.\nguarantee. As discussed later, the developer could issue\nonly $5 million of debentures intially with later issues\nAs a result of the recognized risks, NCA imposed cer-\ncontingent upon the developer's accomplishing certain\ntain special restrictive conditions on the developer. For\nrequirements specified in the project agreement.\nexample, the loan guarantee for Soul City was established\nat $14 million, but the developer was authorized to issue\nReview, approval, and monitoring\nonly $5 million of debentures initially. Before additional\nprocedures\ndebentures could be issued, the developer was required to\nsubmit evidence that (1) there actually was primary employ-\nNCA followed its normal procedures in reviewing and\nment at Soul City of 300 jobs, (2) enough funds were avail-\napproving the developer's applications for guarantee assist-\nable to construct certain waterlines, sewerlines, and\nance and in monitoring the project. However, because Soul\nstorm-drainage lines, (3) certain roads and streets had been\nCity differed from other new communities, NCA imposed certain\ncompleted, and (4) contracts had been signed for purchasing\nrestrictive conditions on the developer which it had not\na specific number of acres of industrial, residential,\nimposed on other developers. Conversely, NCA relaxed other\ncommercial, and institutional land at specific prices.\nconditions which it had imposed on other developers.\n50\n51\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nHUD requires that the security requirement for a loan\nNCA officials were of the opinion that the development\nguarantee be at least 110 percent of the outstanding\nof a job base through industrial development would be\nobligations at any one time. For Soul City, the security\nnecessary for Soul City to succeed. For this reason NCA\nrequirement was $5.5 million and the collateral used to\ndecided to restrict the developer's efforts during the first\nmeet the requirement consisted of investments, real prop-\n3 years to industrial-related development. The developer\nerty, land development costs, and cash proceeds from the\nexpressed the opinion that it would be difficult to attract\nsale of the guaranteed obligations.\nindustry if residential and commercial development were not\ntaking place concurrently with industrial development.\nIf the value of the collateral account exceeds the\nHowever, NCA believed that the developer could not afford\nsecurity requirement, the developer can draw down the excess\nto diversify its efforts for this type of concurrent devel-\nfunds from the escrow account. The basis used in computing\nopment. That restriction, along with the condition that\nthe amount of development costs included in Soul City's\nland not be developed for residential and commercial pur-\ncollateral account differed from that normally used for new\nposes until the land was sold, was incorporated in the\ncommunities. This resulted in a larger part of the develop-\nproject agreement.\nment costs being included in the collateral account, which,\nin turn, allowed the developer to draw down a larger amount\nRelaxation of normal conditions\nof the funds from the escrow account.\nfor Soul City developer\nNCA's normal procedure provides that, if the developer\nWe noted that NCA did not impose on the developer of\nowns all the project land, all land development costs be\nSoul City two requirements which normally are imposed on\nincluded in the collateral account. However, if the devel-\nother developers. As a result, the equity contribution by\noper does not own all the project land, as is the case with\nthe developer may be less than is normally required when\nSoul City, only the land development costs directly related\nadditional debentures are issued and the developer could\nto the land owned are included in the collateral account.\nwithdraw funds from its escrow account in excess of the\nIn addition, an allocated part of the costs incurred for\namount normally allowed to other developers.\nland development that are applicable to the total project,\nsuch as administrative costs, legal fees, and planning\nNCA's policy is that the developer's debt-to-equity\ncosts, are included in the collateral account on the basis\nratio should be 4:1 or better for new community develop-\nof the ratio of land owned to total planned-project size.\nment entities, in order to protect the Government's\nThe Soul City developer owned about 2,100 acres, and the\nfinancial interests and to insure that developers have a\ntotal planned-project size was established at about 5,300\nconsiderable financial stake in the success of the venture.\nacres. However, during the initial development period\nHUD limited the project size to about 3,000 acres until\nSoul City issued an initial series of debentures for\nan onsite employment base of 300 jobs was obtained. Under\n$5 million and was required to contribute $1.5 million in\nHUD's normal procedures, land development costs applicable\nequity. Thus the normal debt-to-equity ratio was met.\nto the total planned project would have been allocated\nHowever, the project agreement does not stipulate whether\nover the total planned-project size of 5,300 acres (develop-\nadditional equity would be required from the developer\nshould the additional $9 million of debentures be issued.\nment costs X 5,300 2,100 For Soul City the development costs\nwere allocated over the 3,000 acres (development costs X\nTherefore, unless additional equity was required, the\n2,100\ndebt-to-equity ratio could increase to 9:1. NCA officials\n3,000 ).\ntold us that, for other new communities where debentures\nAs of March 6, 1974, the Soul City developer reported\nwere issued in series, the project agreement required\nland development costs totaling 421, 676 which were appli-\nthe developer to contribute additional equity so as to\ncable to the total planned project of 5,300 acres. Under\nretain the normal debt-to-equity ratio. The officials said\nHUD's normal procedures, $553,935 would have been allocated\nthat, since the project agreement with Soul City was silent\nto the collateral account. However, the procedures HUD\non the matter, NCA could, and probably would, require addi-\nused for allocating land development costs resulted in\ntional equity from the developer when additional debentures\n$971,000 being allocated to the collateral account. The\nwere issued.\nfollowing example shows the computation of funds available\nfor drawdown from the escrow account in March 1974 using\nHUD's normal method and the method used for Soul City.\n53\n52\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nNCA normal\nMethod used for\nDepartment of Housing and Urban\nprocedure\nSoul City\nDevelopment--grants and loans pertaining\nto sewer and interim water system\nProject real property\n$ 727,300\n$ 727,300\nLand development costs\nHUD awarded grants totaling $704,000 to the Soul City\n($1,421,676)\n553,935\n971,000\nSanitary District to aid in constructing an interim water\nValue of escrow account\n5,000,000\n5,000,000\nsystem. Additionally, the Soul City Utilities Company\napplied for and received a public facilities loan from HUD\nTotal value of collateral\nof $500,000 for constructing a sewer system.\naccount\n6,281,235\n6,698,300\nLess required security\n5,500,000\n5,500,000\nThe sewer and interim water system, estimated to cost\n$1,954,000, will be funded through a combined effort of\nAmount available for\nHUD and The Soul City Company, as shown below.\ndrawdown from escrow\naccount\n$ 781,235\n$1,198,300\nFunding source\nAmount\nHUD, basic grant\n$ 500,000\nAn NCA official told us that, because the developer was\nHUD, public facilities loan\n500,000\nlimited as to the amount of land that it could own during\nHUD, supplemental grant\n204,000\nthe initial development period, it would not have been\nThe Soul City Company\n750,000\nequitable to allocate the development costs on the basis\nof the total planned-project size of 5,300 acres. The\nTotal\n$1,954,000\nofficial said that normally the developer owns all or most\nof the project land and therefore the allocation formula\nAs of July 1, 1975, the Soul City Sanitary District\ndoes not work a hardship on it. However, the Soul City\nand the Soul City Utilities Company had not spent any grant\ndeveloper does not own most of the land. Consequently, if\nor loan funds.\nthe normal allocation formula had been used, the ability of\nthe developer to draw down funds from the escrow account\nHUD basic grant and public facilities\nwould have been severely hampered.\nloan review, approval, and monitoring\nprocedures\nAudits of loan guarantee\nHUD awarded the basic grant and public facilities loan\nThere have been three audits of the loan guarantee\nafter the Secretary of HUD announced that grant and loan\nsince the date of the project agreement. Two of the audits\nprograms would be terminated on January 5, 1973.\npertained to examination of financial statements by a CPA\nand the other was a management-type audit by HUD's Office\nThe Secretary advised HUD regional and area offices\nof Inspector General. The CPA's audits disclosed no find-\nthat no water and sewer grants or public facility loans\nings. The HUD management audit disclosed that there had\nwould be approved after January 5, 1973, unless (1) the\nbeen inadequate communication and coordination between the\nproject application had been rated under the community\nNCA staff and their counterparts in HUD's headquarters and\ndevelopment project-rating system, (2) the application had\narea offices. In response to the audit report, the NCA\nbeen determined to be fundable in relation to other appli-\nstaff agreed with the finding and promised to take correc-\ncations and to funds on hand, (3) funds had been reserved\ntive action. In May 1975 NCA established an organizational\nfor the project, and (4) the project applicant had been\ncomponent, the Program Support and Field Liaison Division,\nnotified of approval, in writing, on or before January 5,\nto correct any lack of coordination and communication with\n1973.\nother HUD offices.\nNeither the grant nor the loan application met the\nabove criteria.\n--The Soul City Sanitary District submitted the grant\napplication in June 1973. HUD reserved grant funds\n54\n55\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nNCA does not monitor a grantee's performance under the\nfor the project on June 29, 1973, and awarded the\nsupplemental grants bec use the agency awarding the basic\ngrant in September 1973.\nwater grant will do SO.\n--The Soul City Utilities Company submitted its appli-\nNCA officials said that no audits had been made of the\ncation for a public facilities loan on June 20, 1973,\nsupplemental grant and that the agency awarding the basic\nand HUD earmarked funds for the loan on August 17,\ngrant was responsible for determining whether a final audit\n1973. As of July 1, 1975, HUD had not approved the\nwas required.\nloan request.\nGrants awarded to Henderson,\nHUD officials agreed with us that the applications for\nNorth Carolina\nthe water and sewer grants and the public facilities loan\ndid not meet the above criteria. However, they believed\nHUD and the Economic Development Administration (EDA)\nthat, because of the 1972 offer of commitment for the new\nawarded grants totaling about $6.2 million to Henderson to\ncommunity of Soul City--of which the water system was an\naid in construction of a regional water system to serve\nintegral part--HUD had a moral, if not a legal, obligation\nHenderson, Oxford, and Soul City. The regional system was\nto fund the water and sewer project. HUD successfully\nestimated in 1973 to cost $9 million. Since that time,\nappealed to the Office of Management and Budget for\ncosts have escalated to about $12.6 million. The following\nrelease of grant and loan funds for several new community\ntable shows the Federal, State, and local funding sources\nprojects, including Soul City.\nfor the regional system at the initial and revised cost\nlevels.\nConstruction of the sewer and interim water system will\nbe monitored primarily by the architect-engineer firm\nSources of Funding for Regional Water System\nemployed by the Soul City Sanitary District. HUD's moni-\ntoring will consist of periodic site visits and reviews of\nInitial\nRevised\nthe progress reports submitted by the architect-engineer\ncost level\ncost level\nfirm. As of July 1, 1975, no monitoring or evaluation had\nFunding source\nat June 1973\nat January 1975\ntaken place.\nEDA\n$1,500,000\n$ 2,140,000\nNo audits have been made of the HUD grant or public\nHUD:\nfacilities loan; however, final audits are required upon\nBasic grant\n2,500,000\n3,522,950\nproject completion.\nSupplemental grant\n500,000\n500,000\nState of North Carolina\n1,700,000\n2,795,000\nHUD supplemental grant review,\nHenderson\n2,000,000\n2,535,021\napproval, and monitoring procedures\nOxford\n800,000\n986,191\nSoul City\n-\n103,120\nNCA can award grants to State or local public bodies\nundertaking certain types of projects beneficial to the\nTotal\n$9,000,000\n$12,582,282\ndevelopment of a new community. The grants, referred to as\nsupplemental grants, supplement other Federal assistance for\nwater and sewer systems, highways, and other facilities\nDepartment of Commerce--Economio\nrelated to the development of new communities. NCA awarded\nDevelopment Administration\na $204,000 supplemental grant to the Soul City Sanitary\nDistrict for constructing the interim water and sewer\nIn June 1973 EDA awarded Henderson a $1.5 million grant\nsystem.\nto aid in developing and constructing a regional water\nsystem. In December 1974 EDA increased its grant award by\nNCA followed its normal review and approval procedures\n$640,000, for a total of $2,140,000, to help compensate\nin awarding the supplemental grant to the Soul City Sanitary\nfor increased costs of constructing the regional system.\nDistrict.\n57\n56\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nReview, approval, and monitoring\nprocedures\nThe grant awarded to Henderson has not been audited.\nA final audit is required and must be reviewed and approved\nEDA followed its normal procedures for reviewing and\nby the Department of Commerce's Office of Audits before EDA\nperformance. approving Henderson's proposal and for monitoring its\ncan make final payment to the grantee.\nDepartment of Housing and Urban\nEDA's monitoring consists primarily of (1) site visits\nDevelopment--basic water and sewer grant\nby regional office employees, (2) correspondence with the\ngrantee, (3) review of construction progress reports, (4)\nIn October 1973 HUD awarded Henderson a $2.5 million\nrequest for progress payments, and (5) final project\nwater and sewer grant to aid in developing and constructing\ninspection. EDA officials told us that they relied on the\nthe regional water system. Because of the escalating cost\narchitect-engineer firm, hired by the grantee, for day-to-\nof the system, in October 1974 HUD increased its basic grant\nday monitoring. The architect-engineer firm is the project\naward by $1,022,950 for a total grant of $3,522,950.\nsupervisor and as such is responsible for insuring\nsuccessful project completion.\nReview, approval, and\nmonitoring procedures\nEDA regional office employees made seven site visits--\none before and six after the grant award--to the grantee to\nHUD followed its normal procedures for reviewing and\n(1) help the applicant prepare the grant proposal, (2)\napproving the grant to Henderson. However, the grant was\nattend a preconstruction conference, (3) discuss labor\napproved and awarded after the water and sewer grant program\nproblems at the construction site, (4) inspect the project.\nwas terminated in January 1973.\nand (5) discuss cost overruns.\nIn carrying out the Secretary's announcement, the HUD\nEDA officials said that both they and the grantee were\narea office notified Henderson in February 1973 that,\ncompletely satisfied with the progress being made toward\nbecause its application had not been approved by January 5,\ncompleting the regional water system. The officials said\n1973, it was being returned.\nthat construction was proceeding as scheduled--and in\ncertain instances ahead of schedule--and that the system\nAs discussed on page 56, HUD believed that it had a\nwas expected to be in operation by August 1976.\nmoral obligation to fund the water system even though the\ngrant application did not meet the criteria spelled out by\nThe following table shows, at May 31, 1975, the percent\nthe Secretary in January 1973.\nof completion and the estimated completion date of the\nmajor components of the regional water system.\nIn May 1973 HUD's headquarters directed its regional\noffice to give Henderson the necessary documents and advice\nPercent\nto enable it to resubmit its application in time for HUD\ncompleted\nEstimated\nto respond before June 30, 1973.\nComponent\n(note a)\ncompletion date\nOn June 5, 1973, Henderson resubmitted to the HUD area\nWater treatment plant\n35.3\nRaw-water intake facility\n5/75\noffice its application for a $3 million grant, and on\n57.1\nMain transmission lines\n3/76\nJune 29, 1973, HUD central office told the regional office\n88.7\nPipeline to Soul City\n7/75\nthat funds had been earmarked for the regional water system.\n82.1\nElevated storage tank at\n7/75\nSoul City\nHUD relies primarily on the architect-engineer firm,\n48.7\n8/75\nhired by the grantee, to monitor the progress being made\nᵃBased on costs incurred. According to EDA officials, the\non the project. Periodically HUD employees make site\nvisits to keep abreast of the progress being made.\npercent of costs incurred approximates the percent of\nphysical completion.\nAccording to HUD's project engineer, construction of the\nregional water system is proceeding on schedule and satis-\nfactorily. He said that there had been a minimum of problems\nand changes in design, considering the size of the project.\n58\n59\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nNo audits have been made of the HUD grant; however, a\nfinal audit is required before final payment can be made to\nWRPC paid the Clayton and Ballance law firm $12,700 in\nthe grantee.\nlegal fees under WRPC's contract with OMBE for services for\nthe Soul City project closing. WRPC also paid $117,200 in\nDepartment of Housing and Urban\nlegal fees to other law firms. OMBE's chief counsel ruled\nDevelopment--supplemental grant\nthat there was no violation of (1) the Federal conflict of\ninterest law and (2) any past or present contract with WRPC.\nIn June 1973 Henderson was awarded a HUD supplemental\nFederal statutes in title 18 of the United States Code--\ngrant system. of $500,000 to aid in constructing a regional water\nwhich governs criminal conflict of interest--apply only\nto Federal employees and former Federal employees and there-\nfore do not apply to employees of grantees or contractors\nThe review, approval, and monitoring procedures for\nmentioned in this allegation. On the basis of our review,\nthis grant were the same as for the supplemental grant on\nwe are not aware of any Federal laws, regulations, or grant\nthe interim system. Also NCA is not required to evaluate\nand contract provisions which prohibited the matter discussed\nthe grantee's performance or to audit the grant. These two\nin the above allegation.\nfunctions are the responsibility of the agency awarding the\nbasic grant.\n\"The corporate structure supported by the\nFederal aid is marked by nepotism ***.\"\nINTERLOCKING DIRECTORSHIPS AND NEPOTISM\nManagement officials were responsible for hiring members\nA number of allegations dealt with interlocking direc-\nof their family. However, Federal laws, regulations, and\ntorships among organizations at Soul City and with nepo-\ncontract provisions governing the awards to the Soul City\npositions. tistic practices of hiring family members in management\norganizations did not prohibit such practices. Additionally,\nthe family members holding management or professional posi-\ntions at Soul City had the education and experience to\nWe found that the allegations relating to interlocking\nqualify them for their jobs.\ndirectorships and the hiring of family members by manage-\nment officials were correct. However, we found nothing in\n**** he [Floyd B. McKissick] served as chairman\nthe rules, regulations, or grant and contract provisions\nof the board of Warren Regional Planning Corp.\ngoverning the awards made by Federal agencies, included in\n(WRPC) while drawing a salary from WRPC to direct\nthis report which prohibited interlocking directorships.\na government-funded project to promote an indus-\nSome grants prohibited the hiring of family members to\ntrial program for his real estate development.\"\nwork in the same department of an organization. None of\nthe family members worked in the same department. Further-\n\"Warren Regional Planning Corp. hired Gordon R.\nmore, the family members hired had the education and\nCarey, at $27,000 a year, to direct a contract\nexperience to qualify them for their jobs.\nto provide $274,000 in 'technical assistance' to\nMcKissick Enterprises. Carey is a vice president\nThe allegations and our evaluations follow.\nand stockholder in McKissick Enterprises ****\n\"Carey and Warrenton lawyer T. T. Clayton are\nThe allegations are correct, except that Mr. Carey's\nMcKissick's partners in the Soul City develop-\nentry salary at WRPC was $25,000 a year. In May 1975, long\nment. While directing the WRPC project to\nafter the fact, the legal counsel for OMBE concluded that\nprovide technical assistance to McKissick\nneither Mr. McKissick nor Mr. Carey violated conflict of\nEnterprises, Carey farmed out the legal work\ninterest laws in past or present OMBE contracts. For the\n(paid for by the Government) to T. T. Clayton's\nreasons stated previously the Federal criminal statutes\nlaw firm.\"\ngoverning conflicts of interest do not apply to this situ-\nation. Based on our review, we are not aware of any Federal\nThis allegation is accurate. Messrs. Gordon Carey and\nlaw, regulations, or grant and contract provisions which\nT. T. Clayton are two of the partners in McKissick Soul\nprohibit the matter discussed above.\nCity Associates, which is a limited partner in The Soul\nCity Company. While Mr. Carey was the director of WRPC,\n60\n61\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\n--The lease-purchase agreement in which a leading\n\"***A Government-funded health clinic ***\nmember of the black community is a principal was\nis to be developed by Madison and McKissick\nnecessary to insure timely completion of the facil-\nDevelopment Co., Inc. *** McKissick is a\nity, the maximum focus of community interest and\ndirector of that for-profit development con-\ncommunity participation in the project, maximum\ncern and he is also a director of HealthCo,\nemployment of minority workers and subcontractors,\nInc., which would operate the clinic.\"\nand maximum economic benefits to the inhabitants of\nthe project target area.\nIn July 1973 OEO approved a lease-purchase agreement\nbetween HealthCo and Madison & McKissick Development Company,\n--The terms of the lease-purchase agreement were\nInc. The lease-purchase agreement provided that:\nreasonable and compared favorably with terms of\nlease-purchase agreements entered into for other\nGrant funds of $250,000 would be paid to the devel-\nprojects in the past.\noper and the developer would be responsible for\nfinancing the $250,000 balance of the construction\n--The transaction was in accordance with all other OEO\ncosts.\nguidelines, standards, and procedures.\n--The developer would construct the facility and lease\nAt the time of our review, construction of the clinic\nit to HealthCo for 20 years.\nhad not been started. PHS is now the grant administrator.\nPHS officials told us that the clinic had not been con-\n--The monthly lease payments to the developer would\nstructed because HealthCo had not submitted final construc-\nconsist of interest, amortization of principal, and\ntion plans for approval and the developer had not obtained\na 5-percent developer's fee until the $250,000\nits share ($250,000) of the funds. Also the officials said\nborrowed by the developer was repaid.\nthat approval for construction of the facility would not be\ngranted until there was evidence that Soul City would become\nThe OEO acting associate director for the Office of\na reality. They said that relocating HealthCo away from the\nHealth Affairs, in a letter to HealthCo, commented on the\nSoul City site was being considered because of HealthCo's\n\"apparent conflict of interest\" between HealthCo and the\nlow patient workload. A final decision will be made before\ndeveloper.\nthe end of the current program year--December 31, 1975.\n\"In granting this approval, full cognizance is\nIn August 1975, after we completed our audit, we were\ntaken of the apparent conflict of interest\ntold that HealthCo submitted to PHS architectural drawings\narising from the fact that Mr. Floyd B. McKissick,\nfor a permanent clinic of about 7,000 square feet with an\na member of the HealthCo Board of Directors, also\nestimated construction cost of about $220,000 rather than\nhas a substantial interest in the Madison &\nthe initially proposed clinic of 16,000 square feet with\nMcKissick Development Company. In such a situ-\nan estimated cost of $500,000. According to HealthCo's\nation, this rental/purchase of space would\nexecutive director, Madison and McKissick Development Com-\nnormally be prohibited by OEO Instruction 6909-1.\npany, Inc., will not be the developer. A new developer\nIn this case, however, this specific transaction\nwill be chosen after PHS approves the construction plans.\nis approved as permitted by Parts IV and V of\nOEO Instruction 6909-1 due to the circumstances\n\"McKissick Enterprises borrowed $386,000 from\nand for the reasons set forth below as a matter\nChase Manhatten Bank in New York City and\nof record.\"\nbought the Satterwhite farm on Feb. 19, 1969.\nTax stamps affixed to the deed indicate a\nThe reasons given for approving the lease-purchase\npurchase price of $390,000.\nagreement were:\n\"The farm, together with a few hundred addi-\nThe cost of the project was comparable to that of\ntional acres, was sold by McKissick Enterprises\nother projects and did not result in any undue\nto The Soul City Co. five years later for\nfinancial advantage accruing to the developer.\n$650,000 according to tax stamps on the deed\ntransferring the property.\n63\n62\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nOn March 6, 1974, Floyd B. McKissick Enterprises, Inc.,\nsold three tracts totaling 2,087 acres for $600,556 to The\nbut that there was no conflict of interest. We are not\nSoul City Company. HUD appraised the land at $727,300 as\naware of any Federal law, rules, regulations, or contract\nof the same date.\nprovisions governing the award to WRPC which would prohibit\nthe matter discussed above.\nThe allegation relates to the $390,000 McKissick Enter-\nprises paid for the first tract and does not include the\nLACK OF PROGRESS AND POOR MANAGEMENT PRACTICES\n$74,584 paid for two additional tracts.\nSome of the allegations were directed to Soul City's\nMcKissick Enterprises purchased the three tracts in\noverall lack of industry, shops, homes, and other physical\n1969 and 1971 for $464,584. McKissick Enterprises' total\ndevelopments despite its 6-year history and expenditure of\nnet cost to buy and hold the property for several years\nover $5 million of Federal funds. Other allegations related\nwas $598,320, as shown below.\nto the lack of progress and poor management practices of\nthree of the Soul City organizations.\nLand purchase cost\n$464,584\nInterest on mortgage\nPhysical development\n121,507\nReal estate taxes\n5,281\nLand improvement cost less\n\"After six years ***.\ndepreciation\n28,790\nLess revenue earned on farming\n\"More than $5 million from federal grants, con-\nduring holding period\ntracts and government-backed loans had been\n- 21,842\nspent at Soul City.\nTotal\n$598,320\n\"There is no industry there, no shops, no\nhouses--no Soul City.\nOn the basis of the above, McKissick Enterprises\nrealized a profit of $2,236 on its sale of land to The Soul\nThis allegation is basically accurate but can be mis-\nCity Company.\nleading without the complete story.\n\"* * *Warren Regional Planning Corp. got\nAlthough about $4.6 million of Federal and federally\n$274,000 in 1973 to provide 'technical assist-\nguaranteed funds had been spent by Soul City organizations\nance' to Floyd B. McKissick Enterprises, Inc.\nthrough March 1975, physical development was essentially\nWRPC spent the money to prepare the legal,\non target considering that the loan guarantee for the\nplanning, and other documents McKissick\nprime developer, The Soul City Company, was consummated\nEnterprises needed to close the $14 million\nonly 1 year earlier on March 6, 1974.\nHUD loan agreement.\nThe Soul City Company\n$1,921,721\n\"McKissick is chairman of both the nonprofit\nSoul City Foundation, Inc.\nb939,216\nWRPC and the for-profit McKissick Enterprises.\"\nWRPC\nC962,136\nHealthCo, Inc.\nb842,051\nIn June 1973 OMBE modified and expanded the contract\nwith WRPC to provide technical assistance to McKissick\nTotal\n$4,665,124\nEnterprises for the HUD closing. The modification added\n$274,000 to the contract. The funds were used to pay\naFederally guaranteed loan.\nsubcontractors for planning and engineering, accounting and\nfinancial services, insurance counseling, printing costs,\nbFederal grants.\nand legal fees for closing.\nCFederal agreements and contracts.\nOMBE's chief counsel ruled that no provision of the\ncontract with WRPC had been violated. He concluded that\nthere was an identity of interest among the participants\n64\n65\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nExcept for the $568,875 the Soul City Foundation spent\nAs of December 31, 1973, HealthCo incurred expenses\nto construct the recently completed industrial building,\ntotaling $339,968. The total costs increased to $555,800\nSoultech I, the Federal and federally guaranteed loan funds\nat July 31, 1974, primarily due to purchasing equipment,\nwere not spent to construct industrial buildings, shops,\nsupplies, and other items necessary to open and operate the\nor houses. The Soul City Foundation, WRPC, and HealthCo\nclinic.\nspent the funds for establishing a health-care program for\na two-country area, a learning laboratory, and a cultural\nHealthCo was scheduled to provide health services\narts program; assisting minority businesses in a six-county\nbeginning September 1973 under the original grant. Services\narea; and planning programs for the Soul City project.\ndid not begin until August 5, 1974, some 11 months late,\nbecause PHS officials would not approve a temporary or per-\nThe $1,921,721 of federally guaranteed funds The Soul\nmanent clinic until after the HUD bond closing. The bond\nCity Company spent were primarily for land purchases and\nclosing took place in March 1974, and PHS then authorized\ndevelopment activities. The project agreement with HUD\nHealthCo to set up a temporary clinic.\nprohibits The Soul City Company from using guaranteed funds\nto build residential, commercial, and industrial structures.\nFrom August 1974 through August 1975, HealthCo treated\nThe Soul City Company is responsible for planning the Soul\n4,743 patients. Expendtures--after deducting patient\nCity project; constructing streets; providing such neces-\nfees and third-party payments--totaled about $414,000.\nsities as water, sewage disposal, and electricity; and\nAs shown below, the average patient load increased steadily\nselling land to other developers. (For further details on\nfrom the date the clinic opened in August 1974 until May\nthe project status see p. 6.)\n1975. Since then the patient load has remained fairly\nconstant.\nHealthCo\nAverage number of\nHealthCo was faulted for (1) having spent an inordi-\npatients treated\nnately large amount before opening its doors to the public\nPatients treated\ndaily\nand (2) not having treated an acceptable number of patients\nsince starting operations. We found the allegations to be\nAugust 1974\n151\n7\nessentially correct, but time has altered some of the\nSeptember 1974\n146\n7\nconditions.\nOctober 1974\n175\n8\nNovember 1974\n162\n8\n\"HealthCo. spent $339,968 in 1972-73 on a\nDecember 1974\n163\n7\nregional health clinic for Vance and Warren\nJanuary 1975\n289\n13\ncounties. Most of the money went for salaries.\nFebruary 1975\n278\n14\nNot one patient was treated during that period.\nMarch 1975\n338\n17\nApril 1975\n462\n21\n\"The clinic eventually opened on Aug. 5, 1974,\nMay 1975\n659\n31\n11 months behind schedule * *\nJune 1975\n634\n32\nJuly 1975\n644\n29\n\"In its first month of operation, the clinic\nAugust 1975\n642\n31\ntreated 155 patients and collected $688 in\nincome. HealthCo had cost the Government\nTotal\n4,743\na total of $646,968 by that time.\"\nHealthCo received an 18-month grant from OEO effective\nAs shown above, in August 1974, when it opened, the\nJuly 1, 1972. This grant provided for a 14-month planning\nHealthCo clinic treated an average of seven patients a day.\nand preparation period and a 4-month operational period.\nThis same workload level prevailed through December 1974.\nResponsibility for administering the grant was transferred\nFrom August through December 1974, the average patient-visit\nto PHS on July 6, 1973. PHS awarded HealthCo an additional\ncost was $258. By May 1975 the clinic was treating 31\n12-month grant upon expiration of the original 18-month\npatients a day, and the workload remained at that level\ngrant.\nthrough August 1975.\n66\n67\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nIn August 1975, with such a patient load, the patient-\nWe verified that WRPC had done work on the tasks\nvisit cost was $44, after deducting fees collected from\nenumerated in the contract. In making the various studies\npatients and third-party payments. The clinic's staff con-\nreferred to above, WRPC contacted many corporations. The\nsisted of 2 full-time physicians, 1 full-time dentist, 2\ncontacts were made to determine what presentation should\nfamily-nurse practioners, and 18 other support and\nbe used when actual recruiting began. During the contacts,\nadministrative employees.\nWRPC did try, unsuccessfully, to recruit those corporations\nwhich expressed interest in Soul City as an industrial site.\nWarren Regional Planning Corporation\n\"Without OMBE's knowledge, Warren Regional\nWRPC was faulted for\nPlanning Corp. loaned money, obtained from\nan OMBE contract, to McKissick Enterprises.\n--Failing to recruit industry for Soul City.\nThose loans, which have been repaid,\ntotaled $27,486.\"\n--Making improper loans to Floyd B. McKissick Enter-\nprises, Inc.\nThe allegation is correct. The loans were made to\nenable Floyd B. McKissick Enterprises, Inc., to continue\n--Paying for a life insurance policy on Mr. McKissick\nits efforts to perform the activities necessary for it to\nafter he was no longer WRPC's director.\nclose the HUD bond guarantee. All loans were repaid in\nMarch 1974, immediately after the HUD closing. At the time\n-Receiving $274,000 for legal and other services to\nof the loans, Mr. McKissick was chairman of the board of\nsupport the profit seeking organization, Floyd B.\nWRPC.\nMcKissick Enterprises, in its quest for Federal\nbacking for its bond sale. These expenditures may\nAlthough WRPC's contract required WRPC to provide\nhave been included in The Soul City Company's\ntechnical assistance to Floyd B. McKissick Enterprises,\npredevelopment costs.\nInc., it did not permit it to loan money to Floyd B.\nMcKissick Enterprises or to any other minority business.\nIn our opinion, WRPC should not be blamed for not hav-\nBecause it failed to request OMBE approval before making\ning recruited industry to Soul City inasmuch as it was never\nsuch loans, WRPC exceeded its authority under the OMBE\nWRPC's purpose to recruit industry. The other allegations\ncontract by making such loans.\nmade are essentially correct.\n\"Warren Regional Planning Corp. used OMBE\n\"Warren Regional Planning Corporation (WRPC)\nfunds to pay more the $2,000 in premiums on\nwas given $257,000 in 1972-73 to plan an\na $200,000 insurance policy on McKissick's\nindustrial program for McKissick's develop-\nlife. McKissick's wife was the primary\nment and to persuade industries to locate\nbeneficiary.\"\nthere. That agency did a lot of planning,\nbut recruited no industry ***.\"\nIn March 1972 WRPC took out an insurance policy on\nthe life of Mr. McKissick, the director of WRPC. The insur-\nThis allegation is only partially correct. WRPC was\nance policy was considered a fringe benefit to Mr. McKissick.\ngiven an OMBE contract in 1972 to plan an industrial program\nIn the event of Mr. McKissick's death, WRPC would have\nfor Soul City. The contract did not provide for recruiting\nreceived an amount equal to the paid-in premiums and\nindustry for Soul City.\nMrs. McKissick would have received the balance.\nThe contract required WRPC to (1) make studies of the\nThe Department of Commerce audit report dated August 31,\nindustrial development feasibility of the area, (2) deter-\n1973, questioned $2,088 of the $3,016 paid-in premiums.\nmine the number, size, and type of plants Soul City should\nultimately have, (3) design a physical plan for industrial\n**** After July 1, 1972, Mr. McKissick was\nsites, and (4) make various feasibility studies to determine\nnot contractually authorized to perform under\nthe organizations to promote and develop the industrial base\nthe OMBE contract. Accordingly, the premiums\nand the methods of financing the projects.\nrelated to this period are considered to be\nunallowable costs.\nGERALD FORD LIBRARY\n68\n69\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAfter the Department of Commerce audit, WRPC paid\n$1,392 additional in premiums. However, WRPC discontinued\nwith the approval of OMBE, WRPC's contract was amended\npaying premiums on this policy after September 1973.\nin June 1973 to allow an expenditure of $274,000 for direct\nsupport of the sponsor's efforts to obtain final Federal\nSince Mr. McKissick was no longer contractually\nbacking of The Soul City Company's bonds. Our review showed\nauthorized to perform under the OMBE contract after July 1,\nthat WRPC spent about $223,000 for this purpose.\n1972, the premiums of $3,480 paid after that date were not\nallowable costs under the terms of the contract. The\nAlthough it is true that the $223,000 expenditure\nAtlanta Regional Manager, Office of Audits, Department of\ndirectly supported a profit-seeking company, it was not\nCommerce, said a final determination would be made on the\nincluded in the predevelopment costs The Soul City Company\nquestioned costs when the final audit on the contract is\nclaimed. Neither was the expenditure used as a basis for\nmade.\nincreasing the stated value of the owner's equity in Soul\nCity properties or for drawing down proceeds of bond sales.\n\"The U. S. Department of Housing and Urban\nDevelopment (HUD) permitted Soul City's\nIn an effort to determine whether the predevelopment\ndeveloper to draw funds last year from HUD\ncosts had been incurred, we statistically sampled $360,916\nguaranteed loans to pay more than $1 million\nof the predevelopment costs and found two minor discrepan-\nin predevelopment costs. The department did\ncies. The net effect of the discrepancies was that the\nso without determining if a part of these\ndeveloper could have included $388.22 additional as pre-\ncosts already had been paid by another\ndevelopment cost on the cost certificate.\nfederal agency.\nThe results of our tests indicate that the developer\n\"The Office of Minority Business Enterprises\nincurred the predevelopment costs certified to HUD and\n(OMBE), a U. S. Department of Commerce agency,\nthat they were not previously paid by another Federal\ngave the Warren County, N. C., new town\nagency.\nproject a $274,000 contract on June 25, 1973.\nThe money was to cover fees for attorneys,\nSoul City Foundation\narchitects, engineers and other predevelopment\nexpenses.\n\"The federal government gave $90,000 to Soul\nCity Foundation to identify and apply for more\nOn March 6, 1974, HUD approved the Soul City's cost\nfederal, State, and private monies * * *.\"\ncertification of predevelopment costs amounting to\n$1,421,676. On the basis of the approved cost certifica-\nThe allegation identifies only one of the four grant\ntion, The Soul City Company was permitted to draw down\nobjectives.\n$685,428 from its escrow account.\nOEO awarded a $90,000 social advocacy planning project\nWe made some tests to determine whether the predevelop-\ngrant to the Soul City Foundation in December 1972. The\nment costs certified to HUD (1) had been paid by another\ngoals of the advocacy project were to (1) plan a lifestyle\nFederal agency and (2) had actually been incurred. Neither\nfor the new community which would be responsive to the needs\nFloyd B. McKissick Enterprises (the project sponsor) nor\nof low-income residents, (2) prepare a program for identi-\nThe Soul City Company (the project developer) had directly\nfying, recruiting, and relocating low-income families, (3)\nreceived any Federal funds through grants, contracts, or\nidentify the resources, both human and financial, in the\nloans in relation to the Soul City project. However, four\npublic or private sector to carry out the designed programs,\nother Soul City organizations receiving Federal funds did\nand (4) assemble a detailed report designed to enable other\nmake disbursements to the project sponsor for rent and for\nnew communities to strengthen the participation of low-income\nexpense reimbursements. The sponsor properly reduced appro-\npersons.\npriate expense accounts for all but two expense reimburse-\nments totaling $350.45 from these organizations. The\nOur review of the grantee's performance showed that the\nfailure to properly credit the sponsor's expense account\ngrantee had done some work toward achieving each program\nresulted in a $350.45 overstatement of predevelopment cost.\nactivity except that of identifying, recruiting, and\nrelocating low-income families. Due to the delay in the HUD\n70\n71\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nTotal\nclosing and the heavy workload of the small staff, the Soul\nTotal\nNorth\nestimated\nNumber\nCity Foundation decided not to plan and develop a program\nProject\nof miles\nFHWA\nHUD\nFederal\nCarolina\ncost\nto meet this grant goal.\nRS-51 (3)\nOTHER ALLEGATIONS\n(note a).\n0.5\n$ 31,500\n$ -\n$ 31,500\n$ 13,500\n$ 45,000\nRS-1709( (1)\n1.2\n236,785\n31,159\n267,944\n66,986\n334,930\nThe following allegations did not readily fit into the\nRS-1710(1)\n0.7\n67,268\n33,841\n101,109\n25,278\n126,387\nabove categories and are discussed separately below.\nTotal\n2.4 $335,553 $65,000 $400,553 $105,764 $506,317\n\"The Office of Federal Elections lists\nMcKissick as a $500 contributor to the Black\naCanceled April 30, 1975.\nCommittee for the Reelection of the President\non May 22, 1972 * * There is a Federal\nlaw prohibiting political contributions by\nOn March 27, 1973, representatives from Soul City,\nGovernment contractors at any time between\nFHWA, HUD, and the North Carolina State Department of Trans-\nthe commencement of negotiations and the\nportation met to discuss Soul City's highway needs. At\ncompletion of their contract.'\nthis meeting HUD said it could provide funds to help\nfinance Soul City's highway needs if the funds were com-\nOn May 22, 1972, Mr. McKissick personally donated $500\nmitted by June 30, 1973. At this same meeting, the North\nto the Black Committee for the Reelection of the President.\nCarolina secretary of transportation directed his staff\nWe verified that the cash was not paid out of the resources\nto realine its priorities to help get Soul City roads con-\nof any Soul City organization. Title 18, section 611,\nstructed. Before this time North Carolina's 7-year highway\nUnited States Code, prohibits contributions by firms or\nplans for 1973-80 and 1974-81 did not include any highway\nindividuals contracting with the United States. At the\nconstruction in the county in which Soul City is located.\ntime of his donation, Mr. McKissick was an officer or\nRoad project RS-1710(1), a proposed new road, was accepted\ndirector of three Soul City organizations which were nego-\ninto North Carolina's rural secondary road system on May 17,\ntiating for over $15 million in Federal assistance from\n1973. Projects RS-51(3) and RS-1709(1) had been part of the\nHUD, OMBE, and OEO but he personally was not contracting\nsystem for some time. HUD committed funds to supplement the\nwith the United States. It appears to us that the Federal\nthree projects on June 29, 1973, and FHWA approved the\nlaw was not violated. However, whether there was a viola-\nprojects on August 2, 1973. In October 1974 contracts\ntion of title 18 of the United States Code is a matter for\ntotaling $461, 317 were awarded for projects RS-1709 (1) and\nconsideration by the Department of Justice since title 18,\nRS-1710(1). Project RS-51(3) was canceled on April 30,\nsection 611, is a criminal statute and not within the\n1975. The other two projects are currently under\npurview of our Office.\nconstruction.\n\"State and federal highway officials did\nSince the two road projects under construction are\nMcKissick a $535,317 favor by building roads\nincluded in North Carolina's secondary road system, they\nthrough his development. Without this assist-\nare eligible for Federal highway funds. The funds pro-\nance the Soul City Company would have had to\nvided by HUD were properly authorized under section 718\npay for its own roads. The company could have\nof the Urban Growth and New Community Development Act of\nused Government-backed loan money to build\n1970. The Soul City Company will be responsible for\nthem, but it would have had to repay the\nbuilding the residential roads in the Soul City project\nfunds.'\nusing HUD-guaranteed loan funds.\nAs of March 31, 1975, approved highway projects within\n\"The U. S. Department of Commerce paid a New\nthe geographic limits of the Soul City project were to be\nYork firm $85,157 in 1972 - 73 to publicize\nfinanced as follows:\nthe operations of Soul City * ***.\n72\n73\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\n\"Ten months after it got its federal contracts,\nALLOWABILITY OF EXPENDITURES OF SOUL CITY ORGANIZATIONS\nthe publicity firm [Eden Advertising and\nCommunications, Inc.] quietly went out of\nbusiness * * *.\nUsing statistical-sampling techniques, we selected 349\nexpenditure transactions completed before April 1, 1975,\n\"The payments to Eden were supposed to have\nfrom the Soul City organizations and sought to determine\nbeen based on Eden's cost of publicizing Soul\nwhether the expenditures had been made in accordance with\nCity. Although Eden was paid $85,157, it\nthe terms and provisions of the grant, contract, or loan\nonly claimed cost of $42,017. Of the first\nguarantee and whether they were adequately supported by\nfigure, Commerce auditors accepted only\ndocumentation. We also sought to verify that the goods and\n$7,429 as allowable under the terms of the\nservices procured had been received and had been used for\ncontract.\"\ntheir intended purposes.\nOn December 12, 1974, the Commerce Department's Office\nWe also scanned the accounting records of each organi-\nof Investigations turned over its findings to the Depart-\nzation and selected, on a judgment basis, 113 transactions\nment of Justice's criminal fraud section in Washington, D.C.\nthat were (1) large dollar values, (2) between other\nThe Eden file has since been sent to the U.S. attorney in\norganizations at Soul City, or (3) alleged to be improper.\nNew York, and a decision on whether to prosecute Eden is\npending.\nFor this test, we excluded compensation paid to\nemployees of the Soul City organizations. Because payroll\ncosts accounted for a large percentage of the total costs\norganizations incurred, we felt these expenditures\nwarranted separate handling. The results of these payroll\ntests are discussed later.\nRESULTS OF STATISTICAL AND JUDGMENT SAMPLES\nThe following table shows the number and dollar value\nof all cash transactions to April 1, 1975, and our samples.\nTotal transactions\nStatistical\nJudgment\n(note a)\nsample\nsample\nOrganization\nNumber\nValue\nNumber\nValue\nNumber\nValue\nThe Soul City\nCompany\n885\n$4,547,432\n90\n$673,400\n12\n$134,100\nWRPC\n1,321\n872,600\n80\n72,900\n49\n99,000\nHealthCo\n1,527\n513,200\n100\n40,400\n42\n93,900\nSoul City\nFoundation\n1,601\n1,496,600\n79\n15,400\n10\n27,400\na\nIncludes Federal, State, and private funds.\nThe results of applying the audit criteria to the\ntransactions in our statistical samples showed that 86,\nor about 25 percent, of the transactions we reviewed did\nnot meet 1 or more of the tests for allowability. When\nprojected to the universe, on the basis of a 95-percent\nconfidence level, the number of transactions which did\nnot meet 1 or more of the tests for allowability ranged\nfrom 1,063 to 1,926. (See pp. 77 and 78.)\n74\n75\nLL\n9L\nNEA\nWRPC:\nLabor\nHEW, OE\nOEO and CSA\nSoul City Foundation:\nHEW, PHS\nOEO\nHealthCo:\nOMBE\nTotal\nDevelopment\nPlanning and\nHUD, Community\nHUD, NCA\nThe Soul City Company: :\nOrganization\n349\n79\n1\n3\n14\n61\n100\nT9\n39\n80\n40\n40\n06\nTotal\n17\n4\nI\nI\nI\n1\n3\n9\nL\n2\n3\n2\n1\n1\ngrant provisions\ncompliance with\nNot in\n67\n28\nI\nI\n1\n4\n23\n15\n4\n11\n24\n8\n16\nI\nI\ndocumentation\nInadequate\n11N\n2\nI\nI\nI\nI\nIN\nT\n1\nI\nI\nI\n#\n,\nI\nI\nnot received\nGoods or services\nNumber of transactions in statistical sample\n(°6L d\n86\n32\n|\nI\n1\n5\n26\n26\n12\n14\n27\n10\n17\nof errors\nnumber\ndid not meet 1 or more of the tests for allowability. (See\n1\nTotal\npercent, of the 113 transactions in our judgmental sample\nthe statistical sample, we found that 39, or about 35\nUsing the same criteria for allowability as we used in\nI\nI APPENDIX\nI APPENDIX\nI APPENDIX\nNumber of transactions\nNumber in\nRange of number in\nStatistical\nsample not\nuniverse not meeting\nOrganization\nUniverse\nsample\nmeeting criteria\ncriteria (note a)\nI APPENDIX\nFrom\nTo\nThe Soul City Company\n885\n90\n1\n(b)\n(b)\nWRPC\n1,321\n80\n27\n315\n583\nHealthCo, Inc.\n1,527\n100\n26\n270\n525\nSoul City Foundation\n1,601\n79\n32\n478\n818\nTotal\n5,334\n349\n86\n1,063\n1,926\n78\nᵃBased on a 95-percent confidence level.\nᵇNumber of errors in sample too small to warrant projection.\nI APPENDIX\nNumber of transactions in judgment sample\nNot in\nTotal\ncompliance with\nInadequate\nnumber\nOrganization\nTotal\ngrant provisions\ndocumentation\nof errors\nI APPPENDX\nThe Soul City Company:\nHUD, NCA\n12\n-\n-\nWRPC:\nHUD, Community\nPlanning and\nDevelopment\n29\n9\n4\n13\nOMBE\n20\n10\n1\n11\n49\n19\n5\n24\nHealthCo:\n79\nOEO\n12\n3\n1\n4\nHEW, PHS\n30\n7\n2\n9\n42\n10\n3\n13\nSoul City Foundation:\nOEO and CSA\n10\n-\n2\n2\nTotal\n113\n29\n10\n39\nI APPENDIX\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nDollar Value of Questionable Transactions in Samples\nWarren Regional Planning Corporation\nStatistical\nJudgment\nOf the 129 transactions in our samples of WRPC, 22\nsample\nsample\ntransactions involving expenditures totaling $28,859 were\nNumber of transactions sampled\nnot in compliance with agreement or contract provisions and\n349\n113\n29 others totaling $38,295 lacked necessary documentation.\nDollar value of transactions\nsampled\nOf the 22 transactions found not in compliance with\n$802,000\n$354,400\ngrant contract provisions, 11 had previously been questioned\nNumber of transactions:\nby the Office of Audits, Department of Commerce. For\nNot in compliance with grant\nexample, using OMBE contract funds, WRPC made two payments\nprovisions\ntotaling $1,016 for travel expenses of Mr. McKissick. These\n17\n29\nLacking adequate documentation\nexpenses were for travel after Mr. McKissick left WRPC's\n(note a)\npayroll. The Department of Commerce audit report dated\n67\n10\nGoods or services not received\nAugust 31, 1973, questioned the costs and stated the expend-\n2\n-\nitures were for Mr. McKissick's travel and subsistence after\nTotal\nhe was no longer contractually authorized to perform under\n86\n39\nthe OMBE contract. As of September 1, 1975, Commerce had\nDollar value of questionable\nnot decided on the final disposition of the August 31, 1973,\ntransactions (note b)\naudit findings. We were told that a final determination on\n$ 44,331\n$ 51,883\nthe questioned costs would be made after we completed our\nreview.\nᵃDocumentation was not adequate for only part of the\nexpenditures in some cases.\nOther transactions found not in compliance with con-\nbIn some cases only part of the transactions were questioned.\ntract or agreement provisions included (1) interest and\npenalties paid to the Internal Revenue Service for late pay-\nment of taxes withheld from employees' salaries, (2) loans\nThe Soul City Company\nto Floyd B. McKissick Enterprises, (3) expenditures for\nentertainment, and (4) consultant services not approved as\nOur review of the 102 transactions in our samples of\nrequired. For example, WRPC used HUD funds to pay $349.71\nThe Soul City Company disclosed only one for $35 which did\nin interest and penalties to the Internal Revenue Service\nnot meet the criteria. However, in our samples we found\nand to the North Carolina Department of Revenue. Provisions\nthree transactions totaling $189, which HUD would not\nof the HUD agreements did not allow interest and other costs\npermit to be paid from the guaranteed bond proceeds because\nresulting from violation of or failure to comply with\nthe transactions were not in accordance with the project\nFederal, State, and local laws and regulations.\nagreement.\nThe absence or insufficiency of documentation to\nAccording to the project agreement, only land acquisition\nsupport the propriety of expenditures was a serious problem\nand development expenses can be paid from federally guaran-\nat WRPC. No documentation was available for 14 expendi-\nteed bond proceeds. The Soul City Company must use equity\nture transactions, and there was inadequate documentation\nfunds (its own funds derived from private sources) to cover\non file for 15 transactions.\nother types of expenditures. In January 1975 The Soul City\nCompany made a $180,0 loan commitment to the Soul City\nWRPC could not locate any documentation, other than\nFoundation to provide the necessary funds to complete the\ncanceled checks, for 14 transactions.\nfirst industrial building in Soul City, Soultech I. During\n1974 The Soul City Company paid annual dues and other fees\n-Documentation for two transactions was not adequate\ntotaling $9,000 to the League of New Communities. Because\nto enable us to verify the accuracy of certain\nHUD determined that these expenditures were not in accordance\ncosts, such as insurance premiums, employees'\nwith the project agreement, The Soul City Company was forced\nsalaries, office supplies, utility services, and\nto use its equity funds.\nequipment rentals, which had to be prorated among\nvarious programs administered by WRPC.\n80\n81\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\nAPPENDIX I\n-Thirteen travel vouchers were not prepared in\naccordance with regulations. The vouchers did\nThe two transactions for which goods or services were\nnot contain the necessary information to verify\nnot received totaled $418.75. The transactions were for\nthe propriety of the amounts paid.\n(1) payment of $15.08 for a motel room which was guaranteed\nbut not used and (2) back pay of $403.67 for a suspended\nHealthCo\nemployee who was reinstated after a hearing.\nOur audit of the 142 transactions in HealthCo disclosed\nSoul City Foundation\n19 expenditures totaling $7,593 were not in compliance with\ngrant provisions, 18 expenditures totaling $6,043 with\nOf the 89 transactions in our samples of the Soul City\ninsufficient documentation, and 2 expenditures totaling $419\nFoundation, 4 transactions totaling $71 were not in compli-\nfor which goods or services were not received.\nance with grant provisions and 30 totaling $4,128 with\ninsufficient documentation on file. Examples of the lack of\nTransactions not in compliance with grant provisions\ndocumentation follow.\ninclude (1) improperly computed travel claims, (2) required\nOEO or HEW approval not obtained, (3) penalties and interest\nThirteen travel vouchers were improperly filled out.\npaid to the Internal Revenue Service for late payment of\nThe vouchers did not contain necessary information\ntaxes withheld from employees' salaries, and (4) payment of\nto verify the propriety of the amounts claimed.\na Soul City Foundation liability. Following are examples\nof transactions questioned.\nThe Soul City Foundation could not locate any docu-\nmentation, other than canceled checks, for four\n-Travel claims were made which included incorrect\ntransactions.\nmileage rates, mileage computation errors, and\nincorrect subsistence allowances.\n--Documentation on file did not adequately support the\namounts paid for 13 transactions involving telephone\nOn Feburary 15, 1973, HealthCo paid taxes and\nbills, office equipment services, and insurance\ninterest totaling $731 to the Employment Security\npremiums.\nCommission of North Carolina. This amount repre-\nsented the assessed tax for the first three quarters\nPAYROLL AUDIT RESULTS\nof 1972. Our analyses revealed that the taxes were\nfor Soul City Foundation employees.\nWe randomly selected a pay period in 1974 and reviewed\nall payroll transactions. Each transaction was reviewed in\nOur review disclosed 18 transactions which were not\naccordance with the following criteria.\nadequately supported.\n-The position; salary; and, if required, the individ-\nEleven travel vouchers were improperly filled out.\nual holding the position was in accordance with the\nThe vouchers did not contain the necessary informa-\nFederal grant, contract, or loan guarantee.\ntion to determine the propriety of the amounts\nclaimed.\n--An approved time and attendance sheet was on file\nfor each employee paid.\nDocumentation was not available for two transactions\nto determine why the expenditures were made.\nThe gross wages were computed correctly.\nDocumentation for four transactions was not available\nIn general, we found that payroll costs were correctly\nto determine whether HealthCo paid WRPC and Floyd B.\npaid and properly controlled.\nMcKissick Enterprises the correct amounts for its\nshare of telephone bills and insurance premiums.\n-Documentation for one transactions was not available\nto determine whether the items purchased were actually\nreceived.\n82\n83\nAPPENDIX I\nAPPENDIX I\nSCOPE OF REVIEW\nWe directed our review to determining the project's\nhistory; current status; and sources and amounts of Federal,\nState, and local financial aid going directly to Soul City\nor the surrounding municipalities for the benefit of Soul\nCity. We also examined various allegations relating to the\nproject and tested the allowability of expenditures for four\nSoul City organizations.\nWe reviewed the basic laws, legislative history,\nregulations, policies, and instructions governing the new\ncommunities program. We reviewed pertinent documentation\nrelative to reviewing, approving, and monitoring procedures\nfor grants, contracts, agreements, the loan, and the loan\nguarantee awarded by the Federal agencies. Also we reviewed\naudit reports prepared by CPAs and agency internal auditors\nand determined the status of the findings therein. We inter-\nviewed officials of the agencies which provided assistance\nto Soul City and officials of the Soul City organizations.\nWe made our review at\nHUD, Washington, D.C., and Greensboro, North Carolina;\nDepartment of Commerce--OMBE, Washington, D.C., and\nAtlanta, Georgia;\nDepartment of Commerce EDA, Atlanta, Georgia;\nCSA, Washington, D.C., and Atlanta, Georgia;\nHEW OE and PHS, Atlanta, Georgia;\nNational Endowment for the Arts, Washington, D.C.;\nDepartment of Labor, Atlanta, Georgia;\nEnvironmental Protection Agency, Atlanta, Georgia;\nDepartment of Transportation- FHWA, Raleigh, North\nCarolina; and\nThe Soul City Company, the Soul City Foundation,\nWRPC, HealthCo, Floyd B. McKissick Enterprises,\nMcKissick Soul City Associates, Soul City Sanitary\nDistrict, and Soul City Utilities Company at Soul\nCity.\n84\nAPPENDIX I\nAPPENDIX I\nSCOPE OF REVIEW\nWe directed our review to determining the project's\nhistory; current status: and sources and amounts of Federal,\nState, and local financial aid going directly to Soul City\nor the surrounding municipalities for the benefit of Soul\nCity, We also examined various allegations relating to the\nSoul City organizations.\nproject and tested the allowability of expenditures for four\nregulacions, policies, and instructions governing the new\nWe-reviewed the basic laws, legislative history,\ncommunities program. We reviewed pertinent documentation\nfor grants, contracts, agreements, the loan, and the loan\nrelative to reviewing, approving, and monitoring procedures\nguarantee awarded by the Federal agencies. /Miso we seviewed\nand determined the status of the findings therein. NE inter-\naudit reports prepared by CPAB and agency internal auditors\nviewed officials of the agencies which provided assistance\nto Sout^City and officials of the Sool City organizations.\nWe made our review at\n--BUD, Washington, over, and Greensboro, North Carolinar\n-Department of Commerce--ONBE, Washington, D.C., and\nAtlanta, Georgia;\nDepartment of Commerce--EDA, Atlanta, Georgia;\n--CSA; Washington, D.C., and Atlanta, Georgiar\nHEW--OB and PHS, Atlanta, Georgia;\n--National Endowment for the Arts, Washington, D.C.I\n+-Department of Labor, Atlanta, Georgia:\nEnvironmental Protection Agency, Atlanta. Georgiar\nCarolinar and\nDepartment of Transportation--PHXA, Releigh, North\nThe Soul City Company, the Soul City Foundation,\nWRPC, HealthCo, Floyd B. McKissick Enterprises,\nMuXlssick Soal City Associates, Soul City Sanitary\nDistrict, City, and Soul City Utilities Company at Soul\n84\nAN EQUAL OPPORTUNITY EMPLOYER\nUNITED STATES\nPOSTAGE AND FEES PAID\nGENERAL ACCOUNTING OFFICE\nU.S. GENERAL ACCOUNTING OFFICE\nU.S.MAIL\nWASHINGTON, D.C. 20548\nOFFICIAL BUSINESS\nTHIRD CLASS\nPENALTY FOR PRIVATE USE,$300"
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