Detroit Land Bank finds $1 million of federal funds misused

- The Detroit Land Bank board released details Thursday morning of an internal demolition investigation, saying federal money was mismanaged and that some is even unaccounted for.

In total, the investigation found $1 million was misused. Here's how it breaks down.

Costs from 100 demolitions totaling $800,000 were improperly billed to the state and covered by federal funding. Another contract, worth $225,000, contained costs believed to be ineligible for federal funding. Lastly, the report also revealed the Detroit Building Authority didn't keep adequate records, and another three contracts totaling $78,000 can't be accounted for at all.

"Looking back, I feel tremendously responsible and very unhappy with what happened," says Erica Gerson, chair of the Land Bank board. "Our solution to it is to bring in an outside compliance operation."

This latest investigation was narrow and did not include the secret meetings with preferred contractors or price fixing. This focused on price caps. 

Most demolitions in Detroit are paid for with federal money. Federal rules state that the federal government will pay no more than $25,000 to demolish a house.

But when costs in Detroit exploded and the price went over $25,000, Land Bank staff shifted the extra cost to other houses. That's a no-no.

"As far as I know it is not a violation of the law," said Gerson. "It is an issue of violations. No one was brought any illegal activity to my attention and we believe that there was a staff member did authorize it."

LEDUFF: "You're not a lawyer, you can't say if it is a violation of procedures of the law, but (in the) a professional private sector, this stinks?"

"It is very disappointing," Gerson said. "

It should not have come as a surprise to madam chairwoman, over the past years we've brought you stories of skyrocketing costs, bidding practices and preferential treatment for some contractors.

"Treasury and (Michigan State Housing Development Authority) are going to continue their investigations, they may be addressing broader issues than what I am talking about with this report," Gerson said. "But I can't speak to that."

Though the city and Land Bank are separate entities, the Land Bank continues to pay the city's legal bills.

LEDUFF: "It's the Land Bank's money, why are we covering the mayor?"

GERSON: "Sorry I can't comment on that."

That legal bill has surpassed $81,000 and like the demolition costs in Detroit - it is sure to skyrocket.

The audit's release comes after the U.S. Treasury Department recently released $42 million in federal funding to allow Detroit to continue demolishing thousands of vacant houses. The city said funding was suspended in August while Treasury officials reviewed a state audit.

Federal authorities have been investigating the bidding process and costs associated with the demolitions.

FOX 2's Charlie LeDuff has also been closely following the rising costs in the demolition program. You can read some of his latest stories here:

Duggan: 'Very disappointed' at some Land Bank demo procedures
Detroit's latest demo drama - a lawsuit
How many of Detroit's demo'd home lots are full of rocks, clay, cement?

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