For federal auditor Gary Albright, it was the strangest request of his career. Shortly after Christmas 1993, he was summoned to City Hall for a meeting with David Leibowitz, a lawyer for Baltimore's Housing Authority. Mr. Leibowitz asked him to sign a vow of secrecy, pledging that any evidence Mr. Albright might find while auditing the agency's books would never be furnished to FBI agents looking into possible corruption within the authority.
"I couldn't believe it," Mr. Albright says. "I told him I would never sign a statement like that, and I left."
Mr. Albright's experience was one of several attempts by city managers to trip up federal accountants as they tried to figure out how tax money was spent by the Housing Authority of Baltimore City.
Auditors later found that the agency doled out more than $25.6 million -- with few questions asked -- to repair ramshackle homes for the poor.
In the end, they say, the authority didn't keep track of the cash or the work -- some of it performed by friends and relatives of housing chief Daniel P. Henson III, Mayor Kurt L. Schmoke, an authority board member and an agency analyst.
Internal housing records, memos, federal reports and interviews also show that Mr. Henson and his top aides:
* Withheld financial records of the repair program from auditors.
* Challenged the right of the federal government to audit the finances of the authority, even though the emergency repair program was funded with federal money.
* Issued a one-sentence memo to agency employees stating that all requests from federal auditors had to be first approved by Mr. Henson -- a memo interpreted by some employees as a gag order.
* Made a personal appeal to the chief of the U.S. Department of Housing and Urban Development, Henry G. Cisneros, during the authority's campaign to impede the audit.
"Henson tried to derail the audit, suspend it, postpone it. When that didn't work, he wanted to control it," says Edward F. Momorella, a regional inspector general who examines agencies for HUD. "He wanted to know who we wanted to talk to, and why. We told him we couldn't do that."
Mr. Henson says he did nothing wrong. He says he tried to postpone the audit because he had only been on the job about eight months by November 1993 and wanted time to straighten out the agency. Once the audit began, he says he cooperated.
"The way we started our relationship, clearly, was not on friendly terms," Mr. Henson says. "I still feel today that there was nothing that came out of this audit that was so time-sensitive and so revolutionary that it could not have waited."
A housing emergency
The problems with the program began almost as soon as it started in the summer of 1991. Hundreds of vacant houses blighted city neighborhoods, and thousands of families needed subsidized homes. The authority declaring a housing emergency in Baltimore, decided to spend $1 million to repair the run-down houses in a hurry.
It dispensed with competitive bidding, which is intended to ensure that the agency gets the lowest price for quality work. But bids take time, and the authority didn't want to wait.
Eight months after the program began, financial officers at the agency documented a series of problems -- some of which were identified again two years later by federal auditors.
Contractors inflated costs. Repairs were not monitored. And the agency fixed up homes that had been vacant for more than a year -- homes that didn't qualify for emergency, no-bid work. Finance officers said the authority should require bids for those homes.
Still, the bids were not sought. And the costs continued to soar.
By the fall of 1992, the authority asked a lawyer if it could spend $25,000 -- up from the original limit of $5,000 for each house -- because many homes were in worse shape than expected.
The lawyer, Sally B. Gold, said the cap could be raised. But she gave the agency a second warning about bids, advising that three should be sought for each job.
"We must continue to get vacancies turned around in a short period of time and families back living in them," she wrote to then-deputy director Juanita Clark Harris on Sept. 21, 1992. "We must also maintain the integrity of the contracting system."
Again, the warning about bids went unheeded.
Within five months -- and with only 128 homes renovated under the program -- Ms. Harris and her boss, executive director Robert W. Hearn, were fired.
In an interview late last year, Ms. Harris said she couldn't recall many details of the program. Mr. Hearn says he doesn't remember much either.
"I only know what I read," he says.
In January 1993. Mayor Schmoke named a new team to salvage the Housing Authority. He appointed two aides to key positions -- Danise Jones-Dorsey as the new deputy director, and Emmanuel Price to oversee daily operations. Neither had any housing experience.
Mayor Schmoke called in another confidant to study problems at the authority: Claude Edward Hitchcock, a Baltimore lawyer routinely hired to handle legal issues for the city.
Named by the mayor in January to oversee $100 million in federal empowerment zone grants, Mr. Hitchcock was awarded a $50,000 contract to review the Housing Authority. His findings have not been made public.
The mayor and Mr. Hitchcock defend the secrecy, saying that the findings are protected by a lawyer-client privilege, even though public money funded the review.
In an interview earlier this month, the mayor said Mr. Hitchcock never put his findings in writing. Instead, he says, Mr. Hitchcock gave him an oral presentation. Mayor Schmoke now says he can't remember any details of the presentation.
More warnings
The no-bid program continued. So did the warnings. In February 1993, authority finance officers notified their superiors that the program -- originally expected to cost $1 million -- was exceeding $2 million. The agency was spending more than the $25,000-per-home limit and repair work was not being monitored. Finally, they said, families weren't being moved into repaired homes fast enough, increasing the likelihood of vandalism.
A month later, on March 4, 1993, Mayor Schmoke named one of his closest political allies, Mr. Henson, to head the Housing Authority.
The mayor described Mr. Henson -- formerly an executive at the development firm Struever Bros., Eccles and Rouse, and a regional director of the U.S. Small Business Administration -- as someone who "knows how to work the government bureaucracy at all levels."
Mayor Schmoke gave Mr. Henson his blessing to rapidly expand the no-bid program.
"The reason for authorizing Commissioner Henson to do what he did was so that we could get to a point of some stability where we were managing the situation much better," the mayor says.
Once on the job, Mr. Henson wasted little time. He addednearly two dozen contractors to the program. He gave them more than $23 million to fix up homes. And he chose to ignore Ms. Gold's legal advice to solicit bids.
"While a worthy suggestion, it was not necessarily one that I thought would solve the problem in a short period of time," Mr. Henson said in a recent interview.
He says he was unaware of other warnings from his staff about problems with the program, including those detailed in an internal audit completed weeks before his arrival.
Fighting the feds
On Nov. 2. 1993, Mr. Momorella, HUD's regional inspector general, notified Mr. Henson that his office planned to examine the Housing Authority's finances. Mr. Henson, known for his aggressive, in-your-face management style, went on the offensive.
First, he requested a meeting with HUD auditors and managers. The Nov. 5 meeting was far from friendly.
"Henson said he was concerned about the audit, and he wanted it postponed," Mr. Momorella says. "He wanted to know why they were selected, what's this in reference to, why were they being picked. He said he wanted to talk to higher-ups, and explore all political avenues."
The meeting went downhill from there. Mr. Leibowitz -- the City Hall lawyer representing the authority -- said he doubted the HUD inspector general had the right to even review the agency's finances, according to participants.
"Leibowitz didn't want U.S to come in," says Harry Staller, acting HUD regional administrator at the time. "He wanted control over what was happening, and he questioned HUD's authority to conduct an audit."
But by the end of the meeting, HUD managers and auditors thought the dispute was settled.
They were wrong. Two weeks later, Mr. Henson wrote a letter to Joseph Shuldiner in Washington, HUD's assistant secretary for housing, calling the audit a "witch hunt" and protesting its timing and purpose.
"I doubt, very strongly, that there is much that an auditor can tell me about problems in this agency that I am not in the middle of clearing up." Mr. Henson wrote on Nov. 15.
A month later, Mr. Henson issued an order to his staff.
"Until further notice, I am requesting that all information for the Inspector General office get my personal approval," Mr. Henson wrote to his division directors on Dec. 16.
Three senior housing managers told The Sun that they interpreted the memo as a gag order -- and it worked. They say they were intimidated, afraid to tell the auditors about problems.
Mr. Henson sees it differently.
"All we were trying to do here was coordinate something from a management perspective." he says.
Going to the top
Next, Mr. Henson went to the top of the federal housing agency -- HUD Secretary Cisneros. "The secretary was at some event with Mr. Henson, and he expressed his concerns about the audit," says Susan Gaffney, the inspector general for HUD in Washington and one of the highest ranking officers at the agency.
"The secretary said, 'Susan, you need to work this out." We went to Baltimore, and we had a meeting with the mayor and Mr. Henson.'
The Dec. 22, 1993 meeting at City Hall was strained, and participants recall strong differences of opinion. Among them: Whether auditors would provide information and leads to FBI agents, assisting the federal corruption investigation .
In that probe, begun more than a year ago. the U.S. attorney's office in Baltimore and the FBI are investigating claims of bribery and corruption in the no-bid program.
So far, an agency supervisor and three contractors have been convicted of charges related to the no-bid program, and a federal grand jury is gathering evidence against several others.
"Mr. Henson's concern was that the FBI investigation was going on, and his people were putting up with that, and his staff couldn't differentiate between the FBI and the auditors," Ms. Gaffney says.
When Mayor Schmoke came into the room, the tenor of the meeting changed, Ms. Gaffney says. She says the mayor told her he understood the Inspector General's Office had every right to review the housing agency's finances.
"By the end of the meeting, there was a clear understanding that we were doing an audit, and the investigation would be done by the FBI," Ms. Gaffney says.
Apparently, not everyone understood.
A few days after the December meeting, Mr. Albright, the federal auditor, says he received a phone call from Reginald Scriber, one of Mr. Henson's top aides. He wanted to know if Mr. Albright could take a stroll over to City Hall for a meeting with Mr. Leibowitz. He did, and Mr. Leibowitz asked him to sign the secrecy vow.
"He said, if I wasn't working for the FBI, would I sign a statement promising not to turn over any information to the FBI that I might find in the course of the audit," Mr. Albright says. "I told him I would not do that."
Mr. Leibowitz wouldn't discuss that conversation or any others he had with the auditors.
"I have people in my office," he said. He did not respond to subsequent messages or a certified letter requesting an interview.
A lawyer for HUD says Mr. Leibowitz should have known better.
"It appears to me that by signing something like that, we would be suppressing evidence," says Emmett Roden, an assistant general counsel in Washington. "If he's a graduate of a law school, he should know we would never let anyone sign a statement like that."
In a recent interview, Mr. Henson said he never directed his agency's lawyer to ask federal auditors to sign the statement. He did say he believed the auditors were using the financial review as a ruse to investigate fraud complaints, which were already the focus of the FBI probe.
He says he was concerned that his staff might confuse the auditors with the FBI, and unwittingly incriminate themselves in the corruption investigation.
"All I'm trying to do basically is protect my people," Mr. Henson says.
The tension continued, even after the auditors went to work. A housing analyst refused to release a computer disk containing contractor costs, records show. Authority analyst Anita Chavis told an auditor he needed clearance from her boss, Mr. Scriber, before she would release the disk.
The agency eventually provided the information.
Neither Ms. Chavis nor Mr. Scriber responded to phone messages or certified letters seeking interviews.
Mr. Henson says the auditors received everything they requested. "I can't believe that overall, the auditors would feel that we did not cooperate with them to the best of our ability," he says.
In September, the auditors released their review of the 10 highest paid contractors in the program.
The audit shows that the program turned into an unchecked financial windfall for the companies, and the Housing Authority owes the federal government $725,759 for phony bills and overcharges.
Mr. Henson says the audit is full of accounting flaws. "I'm on record as saying we don't owe them anything," he says.
Mayor Schmoke says he's proud of the no-bid program and of his friend, Mr. Henson. He also said the program had drawn national praise.
"The reaction that I've received from mayors and public housing directors around the country is that they wish they had done the same thing," he says.
Would he repeat it?
"The answer is absolutely yes," the mayor says.
"As I look at the number of units that were done, the successes far outweighed the failures and any problems with the program.
"And it helped turn around situations in neighborhoods to such an extent that I think if I had to do it again, I would."