Official Raps Critical Audit on Compton Development

The chairman of a nonprofit housing firm accused of losing at least $5 million in taxpayer money since 1978 has charged that a recent federal audit is inaccurate and unduly critical because the auditor was in a hurry and failed to talk with the right people.

“Despite our many requests for her to interview members of the original . . . staff, she never did,” said James Woods, chairman of Hub City Urban Developers Inc.

In a Jan. 6 letter to Mayor Walter R. Tucker, Woods defended the firm and disputed the audit, prepared last fall by the U.S. Department of Housing and Urban Development and sent to the city in December.

From 1978 to 1984, the firm obtained a $2-million HUD grant and $3 million in city loans to build 133 prefabricated houses in a blighted area of town. But when the money ran out, only a few houses were under construction. Now HUD is investigating with help from the FBI.

The audit found that the city failed to adequately monitor Hub City’s spending and that the firm failed to keep complete financial records. For some years, there were no records at all, making it impossible to determine how the money was spent.

Auditor ‘Missed Opportunity’

In his letter, Woods complained that HUD auditor Jenny Lare “missed the opportunity to obtain valuable insight about the operation of the (housing) factory” because she was rushing to finish before moving to a different job within the federal agency. Members of the original staff would have been better able to recall how the government money was spent from one day to the next, Woods reasoned.

Lare, who was in the audit division of the HUD Office of Inspector General when the audit was done, declined to comment last week.

But Miguel P. Barrios Jr., the regional inspector general for HUD in San Francisco, denied Woods’ charge.

“The allegation is unwarranted,” Barrios said. The official acknowledged that Lare, who was for many years an auditor for the Internal Revenue Service, has since transferred to the Inspector General’s investigative division. However, he said the transfer in no way affected the Hub City audit.

Hub City, which was founded by some of Compton’s most prominent citizens, spent all its funds but never produced the houses or jobs that were supposed to have sprung from the creation of an on-going modular housing factory.

In his letter to the mayor, Woods said that Hub City was doomed to fail because the government insisted on an unworkable production schedule. HUD, he said, insisted that the production process be divided into six phases and that 17 houses be completed and sold before the next phase could begin.

“In order for a factory to be successful,” Woods wrote, “it is necessary for operation to be continuous. . . . In retrospect, this was the major reason for the failure of Hub City to complete the mission.”

Woods said in a telephone interview last week from Washington, where he was attending the inaugural of President George Bush, that at the time he “kept saying” that the production schedule was a bad idea.

“By that time it was too late,” he said. “But I’m not going to try to lay the blame on everybody. I did the best I could.” Woods also said during the interview that he does not believe that fraud was involved in any of Hub City’s financial problems.

“It was poor management by everybody, HUD and the city and Hub City and I’ll include (myself in that),” said Woods, who was on the board of Hub City when it began the housing project but was not the chairman.

The $2-million federal Urban Development Action Grant (UDAG), Woods said, was spent setting up a housing factory on East Alondra Boulevard. “Two million (dollars) to set up a factory is nothing,” he said.

Woods said he doesn’t know how the $3-million in city loans were spent. At that time, he said, he was doing a lot of traveling overseas and wasn’t as involved with the board as he is now.

HUD wants Compton to take over Hub City’s assets to recover the $2-million grant that the city steered to the firm. In his letter to the mayor, Woods called the federal idea “counterproductive.”

“The government will get (its) money back,” Wood declared in the interview.

The firm has income from a continuing joint venture with a private contractor who is building townhouses on the project site. The federal audit, however, is critical of the way the firm is spending that money and says any income should be going toward repayment of the original $2-million grant.

“There’s not a bit of that money going for anything other than paying bills,” Woods said during the interview. He was referring specifically to the parts of the audit that questioned how Hub City’s current income is being spent.

Woods Criticized

Woods, who is not supposed to receive any money for his work as chairman of the Hub City board of directors, was criticized by the auditor for getting a $1,000 payment from the firm. He has said the amount was reimbursement for money he spent to clean up Hub City’s factory site.

The federal government and the city, he said, are not the only ones owed money. The state and several vendors, said Woods, must also be paid. In his letter to the mayor, Woods said Hub City has repaid $45,000 of a loan it got from the state Department of Commerce. There is still about $100,000 owing on the loan, he said in the interview. Hub City has also paid a $12,000 debt to Southern California Edison Co., he said.

If the federal government would let the firm get on with business, he said, it will repay the UDAG grant to the city, something he said has already started. The joint venture on the townhouses with AFCOM, a private housing development firm in Seal Beach, calls for the city to get about $6,000 on the sale of each home. That will take care of about $600,000 of the $2-million UDAG debt.

To repay the rest of the money, Woods said Hub City wants to give the city a five-acre parcel it owns along the Artesia Freeway.

Woods said the land is worth perhaps as much as $1.5 million now, according to an appraisal, because it is next to two of the city’s largest redevelopment projects, a hotel and an auto sales plaza.

Offended by Audit

Woods owns a construction company and an automotive parts business, and is chairman of the Los Angeles County Airport Commission. He said he is offended because the federal audit implied that Hub City was mishandling the income it has now instead of repaying the UDAG grant.

“All I’m trying to do,” he said, “is pick up the pieces and get things going . . . and make everybody whole.”

Mayor Tucker did not return several calls for comment.

Timothy Iverson, director of Compton’s office of Economic and Grants Management Services, said the city is anxious to get the problem solved. It has 60 days to notify HUD how is plans to recover the $2 million.

He wants the city to participate in other UDAG programs, he said. “Of course it will not necessarily help us if we haven’t resolved this or attempted to resolve this in a satisfactory manner to HUD. This would dampen our chances (of getting another grant),” Iverson said.

Councilman Maxcy Filer, meanwhile, said he is unconvinced by Woods’ explanation that an unworkable production schedule ate up all Hub City’s money.

“His explanation is too thin,” said Filer. “That doesn’t answer the questions that were asked in the audit.”

Filer does not accept Woods’ complaints about the auditor either. “The auditor had no ax to grind. . . . (She) came in to do a job that couldn’t be done because the books were just not there,” Filer said.