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Detroit — A city program designed to support entrepreneurs and championed by Mayor Mike Duggan is under federal review over its record keeping and whether funds were used appropriately.

The city suspended use of federal funds for the Motor City Match program after being requested to do so last month by the Housing and Urban Development Department until city officials address its findings that suggest the program was not adequately targeting low- to moderate income areas. 

That September report followed the agency’s May 2018 monitoring of the city’s Community Development Block Grant records.

“I’m confident we’re going to satisfy HUD’s request,” said Arthur Jemison, the city's chief of services and infrastructure.

HUD will analyze the city’s response before determining the eligibility or appropriateness of Detroit's use of the funds, said Jim Cunningham, deputy regional administrator of HUD's regional office based in Chicago.

“While HUD does not want to speculate on any outcomes in this situation, the goal is to achieve compliance in the city’s administration of its CDBG program,” he said. “HUD has various methods of corrective actions for non-compliance with CDBG program rules and regulations and will take appropriate corrective actions when program violations are found.”

Michael Polsinelli, HUD field office director for the state of Michigan, said the review is not considered an investigation at this point.

"It has not risen to that level," he said.

To date, the city said it has funded $7 million to businesses through the program, resulting in 57 opened businesses and 85 others in various stages of development.

Duggan launched the Motor City Match program in 2015 to jump-start entrepreneurship in the city. The program was heralded by then-Vice President Joe Biden in January 2017, who said small businesses were central in sustaining Detroit growth.

“Motor City Match is doing that,” said the vice president, noting Duggan was the visionary who moved the program forward.

The program is funded through federal Community Development Block Grant dollars. The city provides the CDBG funds to the Economic Development Corp. to carry out Motor City Match's activities by providing financial and technical assistance to potential and existing small businesses.

In May 2018, HUD conducted what it calls routine monitoring of the city’s CDBG funding to ensure it was complying with eligibility and national objective requirements. Prior to that, the last monitoring was in 2015, according to HUD. Among the programs monitored was Motor City Match.

In the fall, HUD issued the report showing there were insufficient records to support Motor City Match program activities met an objective to target low-to-moderate income areas.

A second finding showed the city lacked records to show economic development underwriting and public benefit standard requirements for the program. According to HUD, the city also provided CDBG funds directly to for-profits without performing required financial underwriting.

The city responded the Motor City Match assistance was exempt from the requirements because for-profits qualified under the CDBG regulations as "microenterprise" businesses.

HUD said in its finding that while that may be the case, the city did not maintain records it should qualify for assistance under CDBG regulations. 

In a third finding, HUD said that the city did not maintain sufficient oversight to ensure costs complied with CDBG-eligible activity.

Among other cited deficiencies were that staffers worked both on CDBG-eligible and non-CDBG eligible activities and records were not maintained to document 100% of the employees' time. Only time spent on the Motor City Match program was documented. Also under review is a March 2017 payment for $153,000. HUD said only $20,000 of the total was directly tied to assisting 10 businesses. The rest was used for administration, project assessment and outreach and engagement.

"Most of the costs billed to CDBG were not distributed directly to a business," according to HUD. "Therefore, it's not clear if the costs were necessary, reasonable, or allowable for the provision of assistance to a private for-profit business."

Donald Rencher, director of Detroit's Housing and Revitalization Department, said his department has started to provide responses to HUD's findings.

“We’ve been working through that monitoring report and how we’ve actually taken documentation and provide evidence of invoices,” he said.

The city has requested until Dec. 15 to give a final response. HUD is evaluating the city’s extension request, Cunningham said. 

As the city works with HUD to address the report findings, city officials said this week they plan to request by the end of July a vendor to help the city administer the program. The city also hopes to shift the focus of the program to business expansion and technical assistance.

City officials said they met with HUD officials this month and will again in about two weeks to address their concerns.

They also plan to continue the Motor City Match program beyond its initial five-year run while working to address HUD's concerns regarding its record keeping and use of funds.

In March, the City Council approved the Housing and Revitalization Department's request for $800,000 in funding for the Motor City Match program from its general fund. The plan is to continue the program with a mix of CDBG funds and general fund dollars, Jemison said.

Motor City Match is the latest cornerstone initiative of the Duggan administration to come under federal scrutiny in recent years.

The city’s massive blight elimination program remains at the center of a federal criminal investigation after concerns were raised in 2015 over bidding practices and soaring costs. The program also has been the subject of state and local audits and reviews.

In April, federal prosecutors unsealed criminal charges against two people — a former employee of a prominent demolition contractor and an ex-building authority employee — accused of accepting hundreds of thousands in bribes and rigging bids to demolish homes in the city.

The Department of Justice at the time also said it did not expect to bring any more charges against public officials for wrongdoing in the demolition program.

Meanwhile, Duggan’s ties to a program run by Wayne State University and the prospect of preferential treatment are the subject of a probe launched this spring by Detroit’s Office of Inspector General.

The office opened an investigation on April 5 to determine whether Duggan and city officials potentially “abused their authority” by providing preferential treatment to Make Your Date, a program dedicated to preventing premature births. 

cwilliams@detroitnews.com

Twitter: @CWilliams_DN

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