The federal government provides Modesto with around $1.8 million annually to help low-income residents and to clean up neighborhoods. Instead, the cash gets funneled to cronies and soaked up in “administrative” expenses. HUD wants the misspent taxpayer money back.

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It’s hard to say which group was more unpleasantly surprised and upset by the audit report that HUD’s Office of Inspector General released on Thursday. Taxpayers coast-to-coast or city officials in Modesto, California.

Each and every year, federal taxpayers provide the sanctuary city with about $1.8 million in community development block grants intended to “help low- and moderate-income residents and neighborhoods” and “eliminate blight.” Instead, the cash has been going to sweetheart deals and “administrative” expenses. However, HUD is clawing some, if not all, of that misspent money back.

The OIG for the Department of Housing and Urban Development put Modesto’s 2015-16 and 2016-17 budget records under the microscope after hotline complaint tip-offs confirmed the OIG’s earlier suspicions that Modesto was a “high risk.”

Auditors were not happy with what they saw. A few of the many infractions listed were: “the city did not follow HUD’s and its own requirements for its rental and homeowner rehabilitation projects,” they “provided false information to HUD,” and “spent HUD funds inefficiently.”

HUD auditors have already demanded a repayment of $258,000 that their investigation proved was clearly plundered. They also started a formal process requiring Modesto officials to justify each and every other penny they spent. Another $1.69 million is already under suspicion.

A spokesman for the San Francisco HUD office, Ed Cabrera, explains the next steps.

“Consistent with OIG recommendations, HUD will go through its audit resolution process to determine if the city can substantiate its use of the HUD funds in question or if all or some of those expenditures will need to be repaid.”

Whatever figure the auditors arrive at after they get done turning Modesto’s treasurer upside down and shaking him, will need to come out of the city’s general fund, not be offset against federal obligations.

For instance, Modesto “failed to support that the $993,880 it spent on four projects to rehabilitate multifamily rental properties met HUD requirements.” They hid paperwork that shows how sweet the deals they made with their friends were.

Digging deeper will likely show some kind of kickback or other reciprocal quid-pro-quo.

Two of the construction deals “involved housing owned by Stanislaus County Housing Authority, and the other two are owned by the Stanislaus County Affordable Housing Corp.”

In total “disregard for HUD’s and its own requirements,” Modesto “did not do its own independent cost estimates to determine whether the costs were reasonable.”

They “relied” on their buddies at STANCO and the Housing Authority to make sure it was all legal. According to the report, “the two STANCO projects, which provide transitional housing, did not meet the national objective provided by the city.”

Auditors found that the city had a surplus of funds which the corrupt officials rushed to spend as fast as they could, only to justify a similar appropriation in the future. If they didn’t spend all they were given for the year, how could they justify needing that much again the following year?

“These conditions occurred because of the City’s desire to show HUD that it was close to meeting timeliness requirements (for spending money),” the audit report states. They had an extra $900,000 laying around that needed to be spent before April.

“I think we wanted to show there was a huge need for these funds in the community, and we had shelf-ready projects,” the city’s community development manager, Jessica Narayan, said, trying to justify the actions.

Jim Kruse, who is Deputy Director for the Housing Authority testified to OIG Investigators it was more a case of “the city approached the Housing Authority and said, ‘we’ve got some money to spend and are facing a deadline to do so.’”

He also claims they follow all HUD guidelines in their own projects.

HUD Secretary Ben Carson’s team didn’t mark that money for immediate seizure because there is still a chance “it could qualify under another HUD objective.”

Either way, the audit says it’s clear that Modesto put “HUD funds at risk.” None of the four questionable projects had a written agreement. The city “made payments before the work was completed, which violates HUD requirements and city policy.”

Last fall, Modesto administrators were embarrassed when they got caught double-dipping. The audit report sets out how “the city also drew $592,266 from two different HUD funding sources for the same project costs.

HUD already put Modesto on official notice that they and “other jurisdictions that receive CDBG funding,” would “start including another funding source in its calculations of when CDBG money had to be spent,” which Ms. Narayan confirmed.

She swears they didn’t actually pay both sets of bills so they are hoping HUD will still let them use the $257,737 still in their account on something else. It is going to be a tough sell.

“Breakdowns in its purchasing practices” led to “the city buying about $16 million more in goods and services that what had been authorized over a number of years,” HUD accountants remind.

The bean counters are still trying to figure out how much money was simply pocketed. “The City spent $186,480 on actual homeowner rehabilitation costs and $323,563 on delivery (administration) costs.”

Modesto leaders vow that they have already been working on correcting the deficiencies which they blame on “a restructuring of the city’s HUD program, high turnover and vacancies among HUD program staff, and problems with the city’s purchasing division.”

Managerial incompetence has nothing to do with it, they swear.

“There are now newly developed process flows, new policies and procedures, and training that will continue on an ongoing basis,” City Manager Joe Lopez promises. “The City has done much in the past few months to gain higher performance standards.”

Yeah, right.