SF City Hall Scandal Rooted in Unchecked Contract Approval

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A city report issued Monday identified major gaps in oversight it said fueled corruption at the Department of Public Works, including a 2011 decision by the then-mayor Ed Lee to give the now ousted DPW director complete authority to approve contracts. 

Mohammed Nuru faces federal wire fraud charges in the scandal that has led to the departure of four city officials so far this year, according to the report issued by the City Controller and City Attorney’s office. 

The report noted that back in 2011, the late mayor Lee turned over sole authority to approve contracts to Nuru, giving up any oversight role. 

That autonomy – with no independent oversight board over DPW – was a key factor in the burgeoning scandal that has led to seven people facing federal charges, the controller’s review found.  

Mayor London Breed issued a statement Monday saying her office has now taken back its approval authority that was relinquished by her late predecessor. 

The scandal has touched Breed’s office directly, with one former top member of her staff, Sandra Zuniga, among those facing federal money laundering charges. 

The Controller’s review noted that public works awarded 366 contracts worth $1.4 billion between mid-2017 through of the spring of this year. The bulk of those were awarded to contractors through competitive bidding. But not all.

One case of alleged abuse in that bidding process cited by the controller reportedly involved contractor Balmore Hernandez, first reported on by NBC Bay Area’s Investigative unit, who federal authorities recent charged with bribing Nuru to obtain insider information on upcoming contracts. 

Hernandez, the CEO of Azul Works Inc., allegedly received the insider details from Nuru, “giving him an unfair advantage” in seeking city contracts. Hernandez now faces federal charges in the scandal. 

While finding the bidding system needs reform to prevent fraud and abuse, the controller found more “weaknesses” in the procurement system for services that “create undue risk of abuse.”

For example, the city awarded 15 contracts worth $25 million related to homelessness “without adequate safeguards’’ the controller review found. 

While DPW has recently imposed contract process restrictions, the controller urged citywide reform. 

The controller said still more gaps exist related to gifts. While city officers and other executives have to report gifts, the rules “apply narrowly and may not restrict gifts” from the owners or employees of companies doing business with the city. 

There is also what City Supervisor Maty Haney calls the “BFF exemption,” which allows payments to officials by those with long-term friendships as long as they are not related to their position or a matter pending before the agency. 

“Loopholes in city and state restrictions in this area create avenues for unethical behavior and manipulation through the giving of gifts that are permitted and are difficult to enforce against,” the report concluded. 

“It’s almost as if the law is designed to allow for really bad behavior,” Haney said. “Again and again we see not just bad actors, but we see a bad structure, a bad set of policies, bad oversight. Which is uniquely awful in the Department of Public Works but in many cases extends across our city government.”

The mayor’s office issued a statement Monday announcing the mayor has now reasserted oversight over contract approval at the Public Works Department.

“We need to continue to identify problematic issues that erode public trust across our city. We have work to do, but we will do that work. Our residents and City workers deserve nothing less.”

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