Amid poor organization and lackluster oversight, a Colorado Springs' housing division employee apparently lied to federal officials to keep up with grant deadlines, city auditors found.
The auditors painted a troubling picture of a division charged with executing Mayor Steve Bach's homeless initiative, which aims to boost emergency shelter beds, fund a day center and improve outreach and affordable housing options. However, city officials said reforms began as the auditors uncovered problems and the division is under new leadership.
Yet because of the missteps, housing programs were slow to get underway and federal officials could demand the city repay grants it used to help low-income residents.
Among the auditors' findings:
- Nearly $7 million over roughly four years went unspent because of a weak development process and the lack of a useful grant tracking system.
- Faced with losing nearly $70,000 in federal grants, a city employee altered portions of a contract document to falsely show a deadline had been met - a move that the city's auditor viewed as possibly criminal.
- The division claimed to have awarded contracts when the paperwork was not final.
The U.S. Department of Housing and Urban Development's regional community planning and development director learned of the audit "a couple weeks ago," and is reviewing it, said Charlene Guzman, a spokeswoman for HUD's Region 8 office.
The agency has yet to determine whether to conduct its own audit, but if HUD finds its funds were misused, that money would need to be repaid, she said.
"Those deadlines are in place for a reason," Guzman said. "And so that would fall underneath that category" of misused funds.
HUD awarded the city $20.1 million from 2008 through 2012 - much of which was used for affordable housing projects, emergency shelter initiatives and other programs affecting low-income families.
Many of the findings from the April audit report stemmed from issues in early- and mid-2013, and city officials took "appropriate and swift corrective action" upon being notified of the issues, according to the audit.
An employee responsible for ensuring grant compliance no longer works for the city, the report said, and job duties have been shifted. The city has hired a grants manager after learning of auditors' concerns, and the housing division is hiring a grants financial analyst, said Aimee Cox, who began overseeing the division on June 15, 2013.
Cox said the division has made several reforms during her tenure.
"What this brought forward was a lot of areas where we could improve our performance, and that's what we're working at very diligently," Cox said.
Federal housing grant recipients have requirements for committing money to ensure it's spent in a timely manner - and at times, federal officials suspected the city missed those deadlines.
In one finding from July 2013, a city employee appeared to lie to HUD when the agency demanded proof the city had committed enough money by a June 30, 2013 deadline, said Denny Nester, city auditor.
The employee told HUD a contracting error had occurred, and in handwritten scribbles, crossed out $344,600 on a contract and wrote in $430,750 - an amount that would, in theory, fill the funding gap.
Both the contracted developer - Rocky Mountain Community Land Trust - and the city's Procurement and Contracting Division later said the contract amount was the lower figure, according to city auditors.
Although a housing division file contained a letter to the developer stating that the award was being adjusted to the higher amount, the contractor told auditors they never received such a notice.
HUD gave Colorado Springs the revised $430,750 amount, Nester said.
Nester said he took the matter to the 4th Judicial District Attorney's Office last fall, but was told that prosecutors would not file charges against the employee because that person no longer worked for the city, and the employee did not appear to personally benefit.
City officials did not name the employee in the report.
The division's previous manager, Valorie Jordan, reported to Cox beginning on June 15, 2013. Jordan left on Sept. 13, the same day that Cox took over direct management of the division.
Jordan told the Gazette on Friday that she was in the job during the audit but neither auditors or city officials raised any concerns to her. She said she had not seen the audit and was not aware of any accusations against her. She declined to comment on specific issues raised in the audit.
"This is my first time hearing any of that," she said. "That an auditor had those types of concerns, then that should have been voiced while I was there."
She said she resigned from the job of her own accord.
In another point noted by the auditor, the housing division did not notify city administrators that HUD took back $77,500 in unspent funds for a shelter program.
Employees also couldn't explain why the division's accounts held about $1.7 million more than what they reported to HUD, auditors said. And one $300,000 contract in 2013 appeared to be backdated to meet a long-passed deadline.
In another instance last year, a division employee deposited a check late, allowing the department to manipulate grant spending requirements, the report found.
And in May 2013, the division told HUD officials that $1.625 million was under contract, even though no formal agreements were in place. Only one of four initial projects has since moved forward - a senior affordable housing development called the Hatler-May Village, which received a $300,000 loan, Cox said.
Three projects were placed on hold or were scrapped, she said.
Recently, another $912,500 loan went to Greccio Housing to acquire Santa Fe apartments. It's unclear if the remaining roughly $400,000 of that $1.625 million has been awarded by HUD.
"There were several things we questioned - red flags, as we call it as an auditor - that didn't make a lot of sense," Nester said.
Back on track
Cox said she meets monthly with the city finance department to review a checklist of reforms for the housing division. No longer does the person who oversees grant contracts also report those contracts to HUD, the report said.
The division also began a more proactive approach in seeking developers for affordable housing projects, she said.
Grantees ultimately have five years to spend money from HUD, and they can stockpile some grants if, for example, they are planning large projects, Guzman said.
But in the past, the city waited for developers to contact the city seeking funding - leaving nearly $7 million unspent over roughly four years, according to the report.
Now, the city is actively courting developers - a move meant to hasten spending of the federal grants, Cox said.
Cox's actions in fixing problems in the division earned praise from Steve Cox, the mayor's chief of staff and who is no relation to Aimee Cox.
"We are grateful that Aimee Cox got to the bottom of this situation and acted swiftly," Steve Cox said.
Nester welcomed the reforms and commended Cox for her approach.
"I believe she's trying to make the city more strategic in how they utilize those funds," Nester said. "And I think that that's something that was needed."
He plans to do a follow-up audit of the division in 2015.