The federal government has notified Honolulu officials that they may have to return $7.9 million if the city fails to act on possible misuse of U.S. Department of Housing and Urban Development grant monies.

As Civil Beat reported last month, federal officials examined two programs that benefit most from Community Development Block Grants, commonly known as CDBG monies: ORI and Palolo Homes.

They found ORI, a Central Oahu daycenter that serves elderly and disabled people, was not in compliance with several of the rules associated with accepting the grant money.

“What they have told us is that the city and ORI need to repay the CDBG account $7.9 million unless the city takes immediate corrective action,” Honolulu Managing Director Doug Chin told Civil Beat on Tuesday. “They’re giving us 30 days to get back to them and propose how we’re going to correct this.”

Asked whether the noncompliance issues stemmed from deliberate or unintended misuse of federal monies, Chin said he wasn’t prepared to comment. He confirmed HUD also raised questions about a potential conflict of interest with one city staffer who works on CDBG-related projects. (Read more about that issue in our coverage later this week.)

HUD is mandating corrective actions that include better documentation of how ORI facilities built using HUD money are used, and proving that use is consistent with HUD eligibility criteria.

“The impression I have is if HUD obviously if they’re going to give out CBDG funds, they want it to be used for the purposes under the federal guidelines,” Chin said. “They go through a schedule of findings of different ways that ORI has not been compliant over the years.”

The Honolulu Department of Community Services oversees the city’s use of CDBG money. Its director, Sam Moku, says one of HUD’s key criticisms was that ORI failed to disclose records.

“When HUD went out there to do the monitoring, ORI did not want to let them see their record-keeping,” Moku said. “From ORI’s perspective, they felt it was more of a privacy issue. That’s something I believe we can, with the city and with ORI, we can work on resolving that issue, the privacy issue, by redacting information…. We need to know that the people they’re serving who are elderly or disabled, that they are qualified.”

Moku says he explained the HUD findings to ORI executives in a Monday meeting.

“They’re very open and willing to work with us to take the corrective actions,” Moku said.

Representatives of ORI could not be reached for comment Tuesday afternoon.

Moku says he knew the HUD monitoring would likely require some corrective action on the city’s part — a HUD official told Civil Beat almost all monitoring leads to corrective actions — but says he was surprised by the severity of federal officials’ findings.

“The shocking part was, when HUD came to the conclusion that ORI was not compliant, that ‘We want the money back,'” Moku told Civil Beat. “For me, that was the shocking part. HUD came down pretty hard.”

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