HUD plans probe in city Investigators to search for fraud in spending of federal funds

Congress spurs inquiry

San Francisco, New Orleans also will be targeted in inquiry

March 08, 1998|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

Federal investigators are preparing to launch a major criminal probe of "abuse, fraud and corruption" in the spending of federal housing dollars in Baltimore.

Spurred by Congress, the inspector general of the Department of Housing and Urban Development is targeting Baltimore, San Francisco and New Orleans for separate inquiries that could extend over the next several years. As many as 20 new investigators will be working in each city.

Officials would not explain why Baltimore was selected. But the disclosure comes in the wake of a series of stories in The Sun over the past three years that highlighted problems in city spending of federal housing funds. It also follows federal audits that criticized city spending on housing.

Michael Zerega, a spokesman for Inspector General Susan Gaffney, said it was premature to talk about the probes.

Mayor Kurt L. Schmoke did not respond to a request for comment.

City Housing Commissioner Daniel P. Henson III said: "We've had a great cooperative effort in Baltimore" with HUD and the inspector general "to stamp out fraud, abuse and waste."

"If the effort here is to provide more money for people and less money for crooks, then I'm all for that," Henson added.

Last month, Gaffney sought applications from her nationwide staff for a criminal investigator to head an Urban Fraud Investigative Team (UFIT) in each city and for an auditor to be the deputy team leader.

The job posting said each UFIT will "conduct investigations of individuals, groups, or entities suspected of violations of the criminal laws of the United States concerning HUD programs and operations, with emphasis upon abuse, fraud and corruption."

Congress handed Gaffney an extra $9 million last year to launch the probes. Rep. Jerry Lewis, who heads the House subcommittee that approves the HUD budget, was a key figure in providing the funds.

"I've asked the [inspector general] to help us take a hard look" at HUD spending, the California Republican said in an interview. "Some of those programs, it would appear, have worked very well. Some haven't worked at all."

Lewis said he had no role in selecting the targeted cities. Nor, he said, has he drawn any conclusions about those cities.

But looking at HUD spending nationwide, he said, "There's a lot of money lost as well as wasted."

He said he is especially concerned about money flowing to contractors who work for housing agencies.

In July, Lewis' subcommittee added the $9 million to the Clinton administration's budget request for Gaffney's operation. The money, a committee report stated, was to be used to "conduct a comprehensive and in-depth review of selected cities to identify and prosecute fraud affecting HUD programs and funds."

Congress adopted the budget in October.

The inspector general currently has a handful of staff members in Baltimore. With the launch of the new probe, as many as 20 investigators, plus support staff, could be added here, a source said. Planning for the probes in all three cities is under way.

Investigations could cover a wide range of targets, from public housing tenants who lie about their income to get subsidies, to housing agency employees, to the $100 million empowerment zone. The corruption team also could reach beyond city operations. For example, they could include HUD mortgage guarantee and loan guarantee programs handled through private lenders.

The Schmoke administration's housing agencies spend $350 million a year, most of that money flowing from HUD.

In the past six years, the city has come under sharp criticism from HUD auditors for misspending. A 1992 audit said the city had misspent $6.7 million in HUD funds.

That was followed by another audit and a series in The Sun that said the housing authority improperly awarded $25 million in no-bid contracts for rehabilitation of public housing units, paid too much for the work and failed to see that contractors completed their work. Several contractors and housing authority employees were indicted and convicted in federal court.

Last year, The Sun reported that the city's effort to deal with vacant and abandoned houses has enriched a small circle of demolition contractors while contributing to neighborhood blight. The newspaper also reported on the millions of dollars in public funds channeled to private developers for housing rehabilitation projects that often cost $130,000 or more per rowhouse.

In December, HUD's regional inspector general in Philadelphia said he planned a preliminary review of the city's rehabilitation program to see whether a full audit was warranted. Asked Friday whether that review had begun, Edward F. Momorella, the regional inspector general, would not comment.

Pub Date: 3/08/98

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