02/23/04 — Project Homestead; warnings unheeded

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Project Homestead; warnings unheeded

By Staff and Wire
Published in News on February 23, 2004 1:58 PM

GREENSBORO -- In-dependent auditors for a non-profit homebuilder warned for six years against its sending top leaders on more than a dozen Caribbean cruises and giving employees cash advances.

The warnings -- along with encouragement for Project Homestead to stop allowing spending on personal needs from its accounts -- were never passed on to Greensboro officials, who gave the non-profit more than $17.6 million since 1991 under the city's affordable-housing program.

Accountants with Costello Hill & Co. were legally and ethically forbidden from informing authorities on its client, which built or rehabilitated about 700 homes in Greensboro and another 300 in Goldsboro, Kinston and elsewhere in North Carolina.

Goldsboro also stands to lose. The city gave Project Homestead 25 acres on which to build homes in Harris Estates off Harris Boulevard. Any lots on which houses were not built were to revert to the city, but that stipulation was not filed with the register of deeds, and Project Homestead borrowed more than $60,000 and gave a deed of trust to the Bank of Americal. Project Homestead has since gone into bankruptcy, and the city's claim to the land is in question.

Furthermore, the city of Goldsboro got a $630,000 grant from the state with the understanding that a minimum number of homes in the project would be sold to flood victims, but that requirement was not met. The city may have to repay a portion of the grant.

The yearly audits were required by law and by the Greensboro's agreement with the nonprofit.

But the Costello Hill audit reports, copies of which went to Greensboro officials with each Homestead annual financial statement, mentioned none of the concerns accountants raise privately.

Costello Hill issued an unqualified, or "clean," opinion about Homestead's financial statements, saying that they "present fairly, in all material respects, the financial position of Project Homestead ..."

Meanwhile, accountants warned in letters to Project Homestead's board of directors between May 1997 and May 2002 that the agency should stop letting employees charge personal items to company credit cards without proper documentation.

In one 2001 letter to Project Homestead's directors, Costello Hill urged the board to consider how the public might react to information about the non-profit providing its executives with expensive cars and paying for "management retreats" on cruise ships.

"We assume that since these expenditures were authorized, you consider them to be appropriate for Project Homestead ... We believe that donors and the general public would consider these expenditures to be extravagant for a nonprofit organization which solicits public donations ... We suggest that you consider whether the benefit to the organization from such expenses is worth the risk of significant decreases in public support," the letter said.

Accountants warned the board to stop cash advances to employees, including Homestead's president and founder, the Rev. Michael King, who later committed suicide. Auditors also expressed concern about King's 2000 salary of $158,750 and his top assistant's annual pay of $122,250.

Jacky Dowd, the city's retired internal audit director, said she asked King for copies of the letters every year, but was rejected.

Assistant City Manager Ben Brown said the letters read "like a mirror image" of the city's recent audit of Homestead. Brown said after reading them he does not understand how Costello Hill could have given a "clean" opinion of Homestead's finances year after year.

He said he would not rule out recommending that the city take legal action against the accounting firm.

"I think we should take whatever action is appropriate" to recover improperly spent city money, he said.

Gregory Ashley, a Costello Hill accountant and spokesman for the firm, declined to be interviewed, citing privacy laws and professional ethics guidelines. David Delman, head of Delman and Company, an accounting firm that kept Homestead's books, also declined to comment.

Costello Hill had no obligation to inform the city of its findings, said Mig Murphy-Sistrom, who heads the not-for-profit accounting committee for the North Carolina Association of Certified Public Accountants. The auditors were prohibited by law and ethical considerations from disclosing its concerns to anyone other than Homestead officials, she said.

Homestead filed for bankruptcy liquidation in January, shortly after a city audit revealed financial irregularities.

King died Dec. 6 of an overdose of antidepressants at his lakeside home in Rockingham County. His death was ruled a suicide.