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NIAGARA FALLS – The Niagara Falls Housing Authority should repay the federal government $1.5 million in Hope VI grant funding, according to a new audit.

The Office of Inspector General of the U.S. Department of Housing and Urban Development said the Housing Authority did not follow federal regulations and grant requirements in how it used some of the grant funds to build the Beloved Community, a replacement for the Center Court properties in the city’s North End.

Of the $1.5 million total, the authority withdrew roughly $1 million more than was necessary for the $30 million 115-unit first phase of the project, and withdrew about $400,000 more than it needed for the next 100 units built, according to the audit. The authority also earned almost $27,000 in interest on those funds.

The difference in the funding for the first phase happened because the authority was reimbursed for more than the grant was supposed to cover, the audit said. The difference in the next phase occurred because the authority withdrew its full allotment but the development costs came in under budget, it said.

“The authority did not always administer its Hope VI grant program and activities in accordance with requirements,” the Office of Inspector General wrote. The office has recommended that HUD officials request the funding be paid back, though the agency has the final say about whether to take any action regarding the funds.

The Falls authority, in written responses to the federal office, denies any wrongdoing and asserts that it was working with HUD and was closely supervised by the agency during the project.

“The Niagara Falls Housing Authority was fully capable of administering the grant in accordance with federal regulations, and we didn’t depart therefrom,” Executive Director Stephanie W. Cowart told The Buffalo News on Wednesday. “We followed all of the HUD guidance and requirements to the letter of the law. You will find HUD defended the Housing Authority in this review.”

When asked about the authority’s assertion that it had the agency’s consent for much of what was cited as a problem in the audit, HUD spokesman Adam Glantz said in a statement: “HUD’s Office of Public Housing is in the process of reviewing the report and recommendations completed by the Office of Inspector General and will have up to 60 days to provide a written response and recommendations as to how to proceed.”

The audit reviewed approximately $12.8 million in spending of the $20 million grant originally awarded. The Housing Authority, which partnered with Norstar Development USA on the project, was awarded $20 million through HUD’s Hope VI program in 2006, at which time 282 housing units were planned over three phases of construction. The 134 units on about 18 acres at the former Center Court, built in 1943, were torn down.

Several phases of construction were planned, at a projected cost of more than $72 million, including 31 houses as well as plans for housing in LaSalle. Those last two steps never came to fruition, something noted by the auditors. Because of various issues, including ash contamination in the ground from an old dump at the project site, the authority reduced the number of planned units to 246.

Read the federal audit with this report at buffalonews.com. email: abesecker@buffnews.com