Housing agency for poor took improper steps, audit finds

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The State Finance and Development Authority also approved projects that did not qualify for assistance, and failed to inspect or monitor many projects.

Don Hinson, executive director of the authority, said new procedures are in place and the nonprofit corporation has been dissolved.

The findings were part of a report by the Legislative Audit Council.

Rep. Joe Neal, a Columbia Democrat and among the lawmakers who requested the audit, said he felt the corporation was "suspect."

"It needed to stop," he said.

However, Hinson questioned the objectivity of the report and said he inherited "a ton of problems" when he arrived at the Authority in 2001.

"I hope we're down to more like a half a ton now," he said. "It's not there yet, but it's a lot better than it was when I walked in the door."

The legislative council praised the agency for improving its reach into low-income and minority groups with its homeownership program.

Some state legislators remain disturbed by the Legislative Audit Council report.

"If you can get that far out and allow the trust fund to be raided the way they have done, to have that amount of money misappropriated and have the wrong members serving on a board, abandon a project and create that much of a mess, then I think we need to revisit and take a look at that complete system," said Rep. John Scott, a Columbia Democrat and among those who requested the audit.

The housing authority was created in 1971 to provide decent, safe and affordable housing through a variety of government programs. Chief among them has been a homeownership program funded through the sale of tax-exempt mortgage revenue bonds and aimed at low-income and low-to-moderate income families.

The agency is funded through the sale of those bonds, from a portion of real estate taxes and from federal funds, which are used in a variety of housing programs, including those for renters.

The real estate tax money — about $6 million a year — operates the agency's Housing Trust Fund, created in 1992 to help provide housing for the state's poorest residents. The fund has operated in recent years with a surplus of more than $12 million. Lawmakers took $5 million from the fund last year to help plug a hole in the state budget. Critics of the agency have cited the surplus as evidence the authority has not used the money effectively for the state's poor.

Auditors examining spending from the fund reported problems in inspections, project completion, projects not meeting the agency's qualifying criteria and a lack of monitoring.

In 52 of the 72 projects reviewed by auditors, the LAC reported, there was no evidence of a site inspection by the agency.

"Without inspecting properties, the authority cannot ensure that work has been completed or evaluate the sponsor's work," the auditors reported.

They also found that emergency repair projects were not completed in six months as required by the agency.

Auditors also took issue with the practice — now abandoned — of the agency allowing "special projects" to be paid out of the fund, projects proposed by nonprofit organizations that didn't fit in any of the housing authority's six categories of programs.

From 1999 through 2002, the LAC reported, the agency spent $2.6 million on 10 special projects, ranging from $180,000 to renovate mobile homes to $500,000 to build dormitory rooms and classrooms for disabled students at the South Carolina School for the Deaf and Blind.

"The authority has used the funds for worthy projects," the LAC reported. "However, these services are not within the agency's mission and do not comply with agency guidelines. The funds used for special projects could be used for more immediate housing needs."

Worse, auditors found, the projects were not adequately being watched by the authority.

Hinson said procedures are in place to better monitor future projects. He said the authority also hopes to more efficiently process requests for money from the trust fund so that housing assistance can be provided more quickly.

Charles Small, chairman of the authority's board, said he thought auditors were "too tight" in their interpretation of the rules. But he said the agency is changing its procedures.

LAC auditors also were critical of a nonprofit organization created by the housing authority.

The agency created the State Housing Corporation in June 2002 to assist in developing affordable housing for the poor. But auditors found little justification for creating the nonprofit arm and said agency officials created conflicts of interest by staffing the corporation with state employees. They also questioned using the corporation to find new office facilities for the agency.

Four of the seven directors of the new corporation were associated with the agency, and Hinson served as the corporation's president from December 2002 through July 2003, the LAC found. The audit questioned whether officials serving both organizations might choose corporation projects "over more worthy projects."

Hinson, in a letter to the LAC, said the corporation has been dissolved "to end speculation about potential problems and to eliminate future distraction."

But he added that the authority's board believes the corporation was not "improper, illegal or ill-intended."

Hinson said the agency wanted to buy a building in an executive office park for about $5 million. He said savings from not paying rent would eventually cover the cost of the purchase.

But state officials who needed to approve the plan balked, Hinson said, because private tenants would also be in the building. So he said the authority decided to use the nonprofit corporation, which was already operating, to try to buy it.

Hinson said the deal fell apart when Gov. Mark Sanford and other members of the State Budget and Control Board ordered a moratorium on all agency leases.

He said the money loaned by the authority has been returned, except for the $66,000 already spent.