The city has voluntarily suspended its housing rehabilitation program and returned all money for the program--some $575,000--to the federal government, following a federal inspection that turned up "serious" record-keeping errors, a federal official said Tuesday.
The official, Herbert Roberts, a divisional director for the Department of Housing and Urban Development in Los Angeles, said the errors were discovered as part of an "intensive" three-week review that began last week of the city's Community Development Block Grant program. The $575,000 returned by South Gate was the entire federal allocation for the housing rehabilitation program in the 1984-85 fiscal year, a part of the larger block grant program.
The review, which will go back two or three years, is routinely done every two or three years in all cities that receive federal money, Roberts said. The block grant program received $1.6 million in fiscal 1984-85.
The $575,000 for the rehabilitation program probably will be returned to the city when the program is reinstated, Roberts said. But if work done under the program cannot be documented to the federal government's satisfaction, the city eventually may have to pay back some of the $575,000 as well as money from previous years, Roberts said.
Complaint Being Investigated
As part of its review in South Gate, the federal government also is investigating a resident's complaint about the city's awarding of a $25,000, interest-free housing rehabilitation loan last year to a city employee and his wife.
While the resident complained to federal officials that the loan was improper, HUD regulations do not prohibit city employees from receiving such loans, if properly disclosed to the federal government, Roberts said. However, Roberts said that the loan to Abraham Torres, a $21,000-a-year maintenance worker, and his wife, Kaye, was not disclosed to the federal government.
In an interview, Kaye Torres said she and her husband deserved the loan.
City officials also acknowledged in interviews that the couple received favorable treatment in getting their loan approved ahead of 14 other persons who had applied for loans. But city officials attributed the favorable treatment to a mistake in communication between two city officials.
In a review of city records last week, two HUD inspectors found that the city had inadequate documentation of construction bids for rehabilitation work, as well as inspections and payments to contractors, Roberts said.
No Evidence of Fraud
The official characterized the mistakes as "negligence" and "shortcuts" and said his inspectors have not turned up evidence of any fraud.
"The city appears to have failed to follow its own established procedures for administering the rehabilitation program," Roberts said. "If they (city officials) had followed the system they had in place the program would be handled well."
City Atty. Bruce Boogaard conceded this week that mistakes were made in administering the program and were discovered in February by city officials. Boogaard blamed the mistakes on a former city official who administered the program for six years.
The official, William Underwood, a $33,342-a-year housing rehabilitation specialist, was fired in February after city officials charged that he made "inaccurate allegations and innuendoes about the home improvement program and the City Council's attitude towards it," Boogaard said.
The administrative mistakes in the rehabilitation program were discovered only after Underwood was fired and other city officials had to take over the program, Boogaard said.
Underwood could not be reached for comment. He is appealing the city's decision to fire him.
Boogaard said that city officials decided to suspend the housing rehabilitation program Friday because it did not have an administrator for the program and because city officials needed time to investigate the full extent of mistakes made in the program.
In the current, 1984-85 fiscal year, the program received $575,000 in federal funds for low-interest loans, interest-free deferred-payment loans, grants and rebates to residents, all for home improvement work. None of it has been spent, said Boogaard.
In the 1982-83 and 1983-84 fiscal years, the city received a total of $500,000 in federal money for the rehabilitation program but spent only $300,000 of it.
Under the program last April, officials approved a deferred-payment, interest-free $25,000 loan to Abraham and Kaye Torres. Torres has been a city employee for approximately 10 years, and his wife is a member of a citizens' group that helped elect three council members to office last year.
The loan prompted Lillie Guastavino, a South Gate resident, to write a Jan. 20 letter to HUD officials in Washington, complaining that one of the officials who approved the loan, Boogaard, had a conflict of interest because he is a friend of the Torreses and was a member of the same residents' group that Kaye Torres belongs to.
"I felt it was wrong," Guastavino said in an interview. "I was merely asking for an investigation."
Boogaard denied he had approved the loan, saying he merely approved a title report for the loan that listed the owners of the property and outstanding liens. The city attorney produced documents that showed the loan was approved by Community Development Director Robert Philipp and principal planner Valdis Pavlovskis.
In interviews, Philipp and Pavlovskis confirmed that they approved the loan.
Under HUD regulations, city employees can receive housing rehabilitation loans unless they are directly involved in administering the loan program, said HUD official Roberts.
Federal regulations do require that federal officials be notified in writing if loans are granted to a city official, Roberts said. But the city never sent such a letter, although it did put a notice of the loan on file in the city clerk's office, Boogaard said.
In an interview, Boogaard defended the loan, saying, "It's not illegal, and it's not against HUD guidelines (although) it is unusual because it is the only loan approved involving a city employee."
Boogaard, who acknowledged that he was a friend of the Torreses, added that he did not see any reason why an employee of the city should be treated as a "second-class citizen" and be denied a loan.
Under the program, the interest-free loan is to be repaid only if the home is sold or if one of the Torreses dies, Boogaard said. The loan program, with its repayment and deferred-interest provisions, was designed by the city. The Torreses used the money to remodel a bathroom and restore a converted garage to its original function, said Boogaard.
But Boogaard said city officials had made a mistake in approving the Torres loan last April that resulted in the couple being placed ahead of 14 other persons who had applied for interest-free loans.
He said the approval was made after a "miscommunication" between Chief Administrative Officer Bruce Spragg and Philipp. The mistake occurred when Spragg directed Philipp to "process" the Torres loan application, and Philipp thought that meant to give it priority and approve it, according to Boogaard and a May 1, 1984, memo from Philipp to Spragg.
In an interview, Philipp confirmed Boogaard's account.