Yadkin County Alleges Fraud by Engineering Firm

The Yadkin County Board of Commissioners alleged in June to the N.C. Department of Commerce that Hobbs, Upchurch & Associates, a Southern Pines-based engineering and planning firm, falsified information in a $100,000 grant application for low-income home repairs, submitted for the county last year to the department.

Commerce spokesman Tim Crowley told Carolina Journal that his department has recently forwarded information on the Yadkin County situation to the State Bureau of Investigation. Fred Hobbs, the firm’s founder, could not be reached for comment today. Messages were left by CJ at his office.

The allegations, which include falsifying signatures, falsifying home inspection reports, and fabricating meeting minutes, were first submitted to Vickie Miller, director of the department’s Community Investment Division, in a June 2 letter from County Manager Aaron Church. Two of Miller’s employees visited Yadkin County on June 7 to investigate the allegations. Miller notified the county on June 13 that the grant had been frozen, prohibiting the county from spending any money on the home repair projects.

Church, contacted today by CJ, confirmed the allegations. He said the county had prepared a press release and had planned to issue it soon. Documents obtained by CJ indicate county officials have been unimpressed with the investigation conducted by Miller’s employees and remain concerned that her department would not take any action against Hobbs Upchurch.

After learning of CJ’s plans to run a story, Church conferred with other county officials and issued a press release (PDF) containing details of the county’s allegations against the engineering firm.

“Yadkin County was distressed to discover that fraudulent or misleading documents may have been submitted on its behalf,” Church said in the press release. “We have not approached Hobbs Upchurch & Associates with our findings so as not to impede a potential investigation by the State Bureau of Investigation or other law-enforcement entities. Hobbs Upchurch & Associates no longer administers grants on behalf of Yadkin County.”

He further wrote: “Yadkin County has many residents who are in desperate need of the home repairs that could be provided pursuant to this grant. The false or misleading information contained in the grant application has hampered the County’s ability to provide our residents with those repairs. We hope that the State will allow us to resubmit our application and move forward quickly with the servicing of the CDBG-ER grant.”

Later in the day, Michael L. Weisel of the Bailey & Dixon law firm issued a statement on behalf of Hobbs:

Today serious charges were leveled against Hobbs, Upchurch & Associates, a Southern Pines-based engineering and planning firm headed by Fred Hobbs. Mr. Hobbs stated, “We categorically deny all Yadkin County’s allegations as totally baseless and false.” He further added, “We have no knowledge of any investigation other than what has been speculated about in the press.”

Fred Hobbs stated, “We will issue a full and complete refutation of these unwarranted and unfounded allegations at the appropriate time and place.”

In a closed session June 20, the commissioners approved $10,000 to hire attorney Brian S. Cromwell, a former federal prosecutor with the Parker Poe Adams & Bernstein law firm, to conduct a separate investigation on behalf of the county. Cromwell’s completed report, submitted to Miller by Church on July 19, contained detailed information supporting the county’s initial claims.

“The Yadkin County Board of Commissioners and Yadkin County administrative staff were distressed and deeply concerned to learn of the allegations contained in this report,” wrote Church in his transmittal letter. “We also intend to cooperate fully should the Department elect to refer this matter to a law enforcement agency for further investigation as I suggested in June.”

In February, Gov. Bev Perdue announced that $14 million in grants would be distributed to 26 local governments to “develop infrastructure, housing, or special needs in the community.” Eight of those 26 awards went to local governments whose applications were prepared by Hobbs Upchurch.

The grant money was from federal stimulus funds that were administered by Miller’s division. Yadkin County was one of the recipients, receiving a $100,000 grant to repair eight low-income homes. The county’s grant application was prepared and submitted by Hobbs Upchurch. The firm had prepared the application at no charge to Yadkin County, expecting to earn fees of 10 percent to 20 percent for administering the grant. But Yadkin County selected a Kannapolis firm, Benchmark CMR Inc., to administer the project.

The discrepancies began to surface when Benchmark began to plan for the repairs.

The allegations

The American Recovery and Reinvestment of 2009, an $850 billion program also known as the stimulus, was approved by a Democratic-controlled Congress and signed into law by President Barack Obama in February 2009. Money flowed to the states through several federal departments, including the Department of Housing and Urban Development.

HUD issued the additional funds for its already-established Community Development Block Grant Program. The N.C. Department of Commerce received a portion of those funds for a “scattered site housing” program that makes grants to low-income homeowners whose homes are in need of repair.

In June 2009, Hobbs Upchurch grant administrator Michael Walser contacted Yadkin County Planning Director Christopher Ong about the firm applying to the N.C. Department of Commerce for federal stimulus funds on behalf of the county. Some Yadkin County residents seeking home improvements already had learned of possible grants and had been in touch with Hobbs Upchurch by phone or mail, he said.

According to Cromwell’s report, the original pre-application forms provided to those who inquired did not contain a blank space for the applicant’s signature, and none of the applicants recalled a Hobbs Upchurch employee making a home visit to inspect their property.

Hobbs Upchurch submitted a 2009 grant on behalf of the county, but Commerce did not select the county in that round of awards. In 2010, Walser informed Ong that another round of awards was to be made available to those applicants that had not received awards in 2010. The Yadkin County commission gave approval for Hobbs Upchurch to apply for a grant.

The allegations are that Hobbs Upchurch did not actually meet the applicants in person and collect their signatures on income statements, nor did the company actually make inspections of each home to analyze the repairs that may be needed. Cromwell concluded in his report that the signatures on income statements were forgeries because they did not match signatures on other public documents, such as a deed of trust.

One of the applicants listed in the Hobbs Upchurch 2010 grant had died nine months before the company was supposed to have interviewed him. Another applicant’s home was destroyed by fire, but Hobbs Upchurch claimed six people were living there months later.

The 2010 grant application also documented that a required local selection committee had been chosen and gone through the process of selecting applicants. But according to the report, Ong and other Yadkin County officials claim a committee never met nor was even formed.

Commerce’s action

According to Cromwell’s report, two of Miller’s employees — Section Chief Vanessa Blanchford and Chief Rehabilitation Specialist Jim Liles — met with Yadkin County officials Ong and Church on June 7 to discuss the allegations and conduct site visits to the homes listed in the 2010 grant application. “Blanchard and Liles had direct contact with the applicants while Ong and Church remained in the vehicle,” stated the report, without further explanation.

The next day, according to the report, Blanchard told Ong and Church that six of the eight homeowner-applicants or their relatives verified the signatures on the income and needs surveys, implying that the county’s fraud claims were unfounded.

Recent problems

Hobbs is a former Democratic state senator who served one two-year term beginning in 1995. In 2010, then-state Republican Party Chairman Tom Fetzer filed a complaint with the State Board of Elections alleging suspicious giving patterns to Democratic politicians by employees of Hobbs Upchurch.

An elections board investigation found that over an 11-year period, through his employees, Hobbs illegally funneled $109,000 to Senate leader Marc Basnight, $20,000 to Gov. Bev Perdue, $6,000 to former Lt. Gov. Dennis Wicker, and $13,000 to former Gov. Mike Easley.

In December, Hobbs admitted he violated the law and paid a $150,000 civil fine, acknowledging he illegally used employees to provide campaign funds to Democratic politicians.

Also in December, the Moore County district attorney filed criminal charges against Hobbs for the same illegal contributions. Hobbs pleaded guilty in April to a misdemeanor campaign finance violation. He received a $20,000 fine and one year of probation, and was ordered to perform 100 hours of community service.

Hobbs’ firm is active in the government grant-solicitation business. Although the time period is not specifically stated, the company’s website boasts that it had obtained 554 grants valued at $573 million.

Don Carrington is executive editor of Carolina Journal.

Editor’s note: This article has been updated since its initial posting.