- The Washington Times - Thursday, April 2, 2015

Taking a cue out of the “Sopranos” playbook, a Union City, New Jersey, employee has admitted to defrauding the U.S. Department of Housing and Urban Development.

Union City Community Development Agency inspector Johnny Garces, 52, pleaded guilty this week to orchestrating a contract bidding scheme that misapplied $400,000 in federal funds, according to a statement from the U.S. attorney’s office in New Jersey.

From 2007 and 2011, Garces created bogus contracts and instructed contractors to submit fake bids to ensure that certain favored contractors secured HUD funds intended for community development projects.

Watchdog groups say the incident plays out like a TV drama but highlights serious oversight concerns within HUD’s operations.

“I thought no-show jobs in Jersey died with Tony Soprano, but it appears that Paulie Walnuts has taken over that end of the business,” said Ryan Ellis, tax policy director at Americans for Tax Reform.

For granting taxpayer funds to a fraudster whose schemes went undetected for four years, HUD wins this week’s Golden Hammer, a weekly distinction awarded by The Washington Times highlighting examples of fraud, waste and abuse.

Jereon Brown, a spokesman for HUD, said the department generally charges the grantee with oversight of contracts but in this case would now apply strict scrutiny over all funding and grants to Union City and would seek a refund of all money lost either from the city or Garces.

Garces could not be reached for comment. He resigned from his position March 27 and faces a maximum potential penalty of five years in prison and a $250,00 fine.

In a statement Tuesday, Union City Mayor and state Sen. Brian Stack said the city has been working with the U.S. attorney’s office for the past three years investigating suspected misconduct by employees of the Community Development Agency.

“The City is committed to rooting out any form of employee misconduct, not only in this agency but all parts of city government. Misconduct, by an employee will not be tolerated and if discovered, immediate action will be taken to terminate the employee and to notify the appropriate authorities,” Mr. Stack said in a statement. He added that the city will continue to cooperate with investigating authorities.

According to a spokesman for the U.S. attorney’s office, the $400,000 was used for city projects, but the prices were fixed by Garces and the contractors, who may have padded the invoices and charged for work that was not in the agreement.

Two contractors — Joseph Lado, owner of Lado Construction, and Leovaldo Fundora, owner of Falcon Remodeling Inc. — have admitted to participating in the scheme.

Garces had Mr. Lado and Mr. Fundora create fake proposals for projects that were higher than the costs of other bidders to ensure the grants were awarded to competing contractors, according to the indictment reviewed by NJ.com. Garces also would submit fake bids by nonexistent companies to secure contracts for Mr. Lado and Mr. Fundora.

The U.S. attorney’s office estimated that Mr. Lado and Mr. Fundora caused $70,000 and $120,000 in losses, respectively, but is continuing its investigation to conclude the total amount, according to the indictment.

Mr. Lado and Mr. Fundora could not be reached for comment.

Mr. Lado is facing a potential penalty of five years in prison, and Mr. Fundora could face 10 years.

Despite the charges, nothing in the federal statute prohibits the contractors from bidding on future projects, said Will Skaggs, a spokesman for the state’s U.S. attorney’s office.

Mark Calabria, director of financial regulation studies at the Cato Institute and a former deputy assistant secretary for regulatory affairs at HUD, said the agency has dumbed down its grant exercise to a simple paperwork routine, making it easy for fraudsters to cheat the system.

“A lot of the auditing that goes on is really just checking the box,” Mr. Calabria said. “Because we’ve got a very big pot of money with very little federal oversight, there’s always going to be a sense that the government is chasing its tail. They will change some rules, but fraudsters will figure out another way to rip the government off.”

Mr. Calabria said HUD likely is getting ripped off in other areas because it is unable to oversee every aspect of its grants and city officials are hesitant to expose wrongdoing for fear of being denied HUD funding in the future.

“If you were a general contractor and this was a private deal and one of your subcontractors did this, you as a general contractor are probably not going to get a lot of business in the future,” he said. “That’s why there isn’t an incentive to expose this, and that’s why I think there’s probably a lot more of it going on.”

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