The Associated Press

FORT SMITH, Ark.—The federal government says a Fort Smith public housing agency bought land that cannot be used for housing and misspent $400,000 by hiring a contractor without going through the competitive bidding process.

The Office of Inspector General performed the audit at the request of the federal Department of Housing and Urban Development. Findings were issued Oct. 22, and HUD spokeswoman Patricia Campbell said last week that a determination on the audit findings has not been made yet.

She said the agency will work over the next two months on a plan to resolve any issues.

“Our purpose is not so much to punish, as to work with them so they are in compliance with the regulations,” Campbell said.

The audit says the Fort Smith Housing Authority wrongly pledged restricted assets as guarantees on two loans totaling nearly $2 million and that the agency spent more than $104,000 to buy land that was not zoned for housing. Auditors also found the Fort Smith agency misspent $400,000 in hiring a contractor without competitive bidding and not requiring the contractor to put up a bond equal to the contract amount.

Ken Pyle, the authoritys executive director, said the authority was preparing arguments to present to HUD.

“We, the housing authority, believe we are operating inside the rules now,” said Pyle, who joined the housing authority in March. “It’s my belief that no one ever intended to go outside the rules. I think it was a misunderstanding.”

Pyle agreed that federal procurement regulations were not followed in obtaining architectural and legal services and said the housing authority will repay $26,048. The authority also agreed to repay $4,400 spent on background checks into people who were not public-housing tenants.

The audit examined activities of the housing authority in connection with construction of a $4.2 million phase of the 50-unit North Pointe project. The development, which has been completed, will replace the citys Ragon Homes.

In 2006, the authority established a company called North Pointe Limited Partnership to finance, build, and operate North Pointe. Its main partner and majority shareholder was Alliant Credit Facility, according to the audit.

Two construction companies bid on the project, but both exceeded the construction estimate, the audit states. Rather than advertise for new bids or work with the companies to reduce their bids, North Pointe Limited hired a different company, ERC Construction Group of Barling, for $4.2 million without going through the federally required bidding process.

Also, ERC Construction was not required, contrary to federal regulations, to put up a bond equal to the contract amount. Instead, ERC provided a $630,000 line of credit, which the audit pointed out was less than 15 percent of the contract amount.

The inspector general recommended the authority justify its actions on the bidding process or return $400,000 of the contract amount to the Arkansas Development Finance Authority, the state agency that granted the authority the money.

In a written response to the audit, Pyle said that since North Pointe Limited is a private company, it was not required to follow federal procurement regulations. He also denied the auditors position that the partnership was under the control of the housing authority and should have been required to follow federal regulations.

Demolition work for the second phase has begun, but Pyle said the housing authority still was trying to put together the financing package.

The inspector generals audit also contended that the housing authority wrongly pledged restricted assets to guarantee two loans that went to North Pointe Limited. The first was a $75,000 loan Nov. 28, 2006, from Alliant Capital Ltd., Alliant Credit Facilitys main shareholder. Alliant Capital is a privately owned company. The second was a $1.9 million construction loan from Stearns Bank National Association on April 3, 2007, according to the audit. The loan was used to pay for part of the construction.

The audit says the housing authority would have been responsible for repayment of the loans and could have lost some of the assets if the partnership had defaulted.

Pyle responded that no restricted assets were used to guarantee the loans, adding that both loans have been repaid. He also argued that no HUD regulations barred pledging restricted assets for loans until June 20, 2007.

But the inspector general replied that the regulations previously existed and that only clarifications of existing regulations were issued on that date.

The audit also says the housing authority wrongly spent more than $104,000 on the purchase of land in north Fort Smith that was not zoned for housing. The authority tried to have the land rezoned but the application was denied by the Fort Smith Planning Commission.