The city's housing department released more than $200,000 this month to a troubled minority business organization, apparently without meeting conditions required by the overseeing federal agency.
On May 6, the city's Department of Housing and Community Development requested $220,358.11 from the city accounting office, according to documents obtained by The Evening Sun.
Four days later, HCD released the money to the Council for Equal Business Opportunity but before the U.S. Department of Housing and Urban Development had a chance to approve documents that would show whether the city is monitoring CEBO's expenses in the manner HUD had directed it be done.
Such approval is required by HUD as a result of the federal agency cutting CEBO's funding last November. The funding was cut after HUD determined that CEBO had failed to prove that Community Development Block Grant funds given the organization were providing permanent jobs for low- to moderate-income people.
After HUD officials in Baltimore cut off the organization's money, members of Maryland's congressional delegation successfully persuaded officials in HUD's central office in Washington to resume funding the group, which survives almost exclusively on government funds.
On May 2, HUD Assistant Secretary Anna Kondratas wrote to Rep. Kweisi Mfume, D-7th, and said the money would be refunded if three conditions were met.
Those conditions call for the city to submit to HUD "for its approval" a copy of a new contract between CEBO and the city housing department, as well as a timekeeping system to show how CEBO employees spend their time. The city also had to submit a plan for overseeing CEBO's activities with HUD money.
Jack Flynn, a HUD spokesman in Washington, said the agency's technical staff told him the contract and time-keeping system should have been approved by HUD before the city released money to CEBO.
But later, after a reporter told HUD the city had already sent the money to CEBO, Russell Paul, a HUD deputy assistant secretary, offered a different interpretation.
Paul said he viewed the May 2 letter to mean the city simply had to send the documents to HUD, without waiting for the federal agency's approval.
"In my opinion, the city should have waited for [HUD's] approval, but it's totally within its purview to proceed upon submission," Paul said. "In moving before our approval, they [the city] are accepting all the responsibility for the release of the funds. Any money that will have been spent will have to be justified."
Joe O'Connor, program manager in HUD's Baltimore office, confirmed that his office has not approved the CEBO documents, which they received May 10 from the city's housing department.
Bill Toohey, city housing department spokesman, said the city released the money because "we were anticipating approval and awaiting word from HUD. We feel we have met with the conditions."
Toohey said the city sent the CEBO documents to HUD the morning of May 10. That afternoon, he said, a check was hand delivered to CEBO.
In a later conversation, Toohey said the city had interpreted the HUD letter to mean that the city only had to send the documents to HUD, but didn't need to have them approved before releasing the money.
Michael A. Gaines, CEBO executive director, said he interpreted the letter as the city did, assuming that the money could be released once documents were sent to HUD without waiting for its approval.
He said CEBO is using the money for its day-to-day operations, including salaries for employees.
Over the last three years, HUD repeatedly has criticized the city's housing department for failing to monitor how CEBO has spent federal money.
When HUD cut off the CEBO funds last November, it also criticized CEBO for helping out-of-town businesses, for making loans to a member of its board and for dipping into a business loan fund to pay for its day-to-day operations.
CEBO has made $7 million in loans over its 20-year history -- including $1.4 million in bad loans that were not repaid, according to a recent report sent from CEBO to the city, which also disclosed that many of CEBO's loan records are missing or in disarray.