“Separation of duties is one of the key concepts of internal control and is the most difficult and sometimes the most costly one to achieve,” Edwards wrote.

The report names the city’s Economic and Community Development Department as perhaps the biggest example of several city funds operating with “little or no oversight from the Finance Department, and inadequate internal control.”

City Council members received copies of the audit agenda late last week, President Pro Tempore James Timley said. One item quickly singled out by council members is ECD’s Home Investment Partnership Program, in which many of the flaws were repeated from the previous year’s audit. The repeat findings from previous years show that the administration didn’t heed previous recommendations, Timley said.

“I mean, this is horrible,” he said. “It’s a shame that we’ve got people who are department heads who don’t know federal regulations.”

In particular, Timley said the city will have to repay the U.S. Department of Housing and Urban Development just over $1 million in HOME grant funds.

That money was used for utility payments, property monitoring, repairs and unnecessary or excessive contractor charges, all considered “unallowable activities,” the audit agenda report says.

“It should be noted that a majority of the expenditures deemed to be unallowable were incurred by a sole contractor utilized by the city’s Economic and Community Development Department,” Edwards wrote.

City Councilman Rick Hutto said Macon Mayor Robert Reichert has risked federal wrath by ignoring the matter.

“The admin(istration) has done nothing to replenish or repay those funds spent on maintenance on houses, which is not an allowable expenditure,” Hutto said via e-mail. “And they are still spending it that way even though they were warned last year.”

Edwards’ report records the money as due back to HUD, but that doesn’t mean the city is being dunned by the federal government or will necessarily have to repay the money at all, said mayoral spokesman Andrew Blascovich. Nor is the city still spending HOME funds for that purpose, he said.

“To categorize it as ‘misspent’ is little bit inappropriate at this time,” Blascovich said.

HUD has provided HOME program funds for many years to build new low-cost housing in “at-risk neighborhoods,” but when the recession hit, the city had a number of houses — some built by the city, some by nonprofit partners — that remained unsold, Blascovich said. So the city stopped building new houses, and instead used HOME funds to keep those occasionally vandalized properties in good repair and ready for sale, he said.

In the previous fiscal year’s audit, the redirected funds came up as a concern, but that audit wasn’t complete until June 2010 — a full year after the relevant fiscal year ended, Blascovich said.

“We had to get a six-month extension on that because of some problems (the Finance Department) had,” he said.

When the question did surface at the end of fiscal 2010, the administration contacted HUD and was told “this is a gray area,” Blascovich said. The city was instructed to stop using HOME funds for maintenance. Since early in the current fiscal year, the unsold houses have been maintained with money from the city’s general fund, he said.

But although the auditor marked the HOME grant spending as potentially due for repayment, HUD itself has not asked for the $1 million back, Blascovich said. The city is still waiting on an answer, he said.

“The mayor has stayed in contact with HUD, trying to get resolution of this matter,” Blascovich said. He said Reichert even buttonholed HUD Secretary Raymond Donovan at a recent U.S. Conference of Mayors meeting but got no results.

Should HUD eventually ask for reimbursement, that could take place over a long period or be handled by denial of future funding, not necessarily a demand for cash up front, Blascovich said.

The audit agenda lists several other problems with HOME fund administration, such as failing to monitor subcontractors despite having ECD employees assigned to do that. Other items highlighted include inadequate oversight of airport improvement spending and a two-month delay by the Human Resources Department in turning $324,000 in checks over to the Finance Department for deposit.

“The current state of the economy coupled with the city’s profound cash flow problems would require all receipts to be deposited in a timely manner,” Edwards wrote.

The report went first to council members, since it’s City Council that hires the external auditor, Blascovich said. Its findings are scheduled to be presented in detail at a council work session Tuesday, he said.

To contact writer Jim Gaines, call 744-4489.