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Modesto starts investigation after audit says it misspent as much as $1.94 million

Tenth Street Place, the government building housing Modesto City Hall and Stanislaus County administrative offices, at 1010 10th St. in Modesto on Thursday, Oct. 12, 2017.
Tenth Street Place, the government building housing Modesto City Hall and Stanislaus County administrative offices, at 1010 10th St. in Modesto on Thursday, Oct. 12, 2017.

Modesto is launching a personnel investigation after an audit faulted the city for how it spent federal housing money and recommended it repay the U.S. Department of Housing and Urban Development as much as $1.94 million.

City spokesman Thomas Reeves said in an email Thursday that Modesto would use an outside firm to conduct the investigation, which is expected to take about two months. He declined to release the name of the firm and the expected cost until the contract had been signed.

This comes as the city is expected to wrap up in the coming weeks its investigation into the breakdown of its purchasing practices. Reeves said Modesto has paid outside firms $80,792 to help in this matter.

The help includes the work of an auditing firm and another firm conducting personnel and forensics investigations. Reeves said city officials want an in-depth and thorough look at the purchasing problems.

The breakdown resulted in the city buying about $16 million more in goods and services than had been authorized over a number of years. City officials have said there was no evidence of fraud, and the city received the goods and services it purchased.

Reeves said the latest investigation will “ensure everyone involved in the (HUD) program is/was following the appropriate rules and procedures. It’s unclear whether or not (employees’) lack of training and/or blatant disregard for policies could have led to the critical audit findings.”

City Manager Joe Lopez declined to release the names of the employees, how many continue to work for the city and other details.

HUD’s Office of Inspector General released an audit July 3 of how Modesto had spent federal housing money during the 2015-16 and 2016-17 budget years.

The audit found, among other things, that the city “did not follow HUD’s and its own requirements for its rental and homeowner rehabilitation projects, ... provided false information to HUD, (and) spent HUD funds inefficiently.”

“These conditions occurred because of the City’s desire to show HUD that it was close to meeting timeliness requirements (for spending money), its disregard for HUD’s and its own requirements, its lack of sufficient knowledge and capacity, and the failure of its policies and procedures to ensure that it monitored all of its recipients of CDBD funds,” according to the audit.

Modesto will work with HUD to review the audit findings and determine how much money it will have to pay back. This is expected to take about a year.

Reeves said the city would release as much information as it can regarding the HUD and purchasing investigations once they are done.

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