Kirk Dorn, a former PHA official who helped oversee the festivities, said the gala had capped a full program of diversity training - which he said would be an "allowable" use of federal money.
While he said he was unsure federal money had been used, he added: "We did the training, and we stand by it."
The U.S. Department of Housing and Urban Development in Washington, which provides most of PHA's money, was not buying that explanation. Shown pictures of Greene posing with the belly dancers, HUD spokesman Jereon Brown said: "We, of course, fail to see how belly dancing enhances diversity training."
Brown said spending on the party, which included a buffet of Italian, Asian, and other ethnic food for about 200 PHA managers and employees, would be reviewed as part of HUD's forensic audit of PHA's finances.
Brown stressed that if PHA had funded any inappropriate activities, it had been "doing this at the expense of people in the need of housing."
"We don't see a value-added to do this, particularly when you're looking at the expenditures being . . . federal or state and other money," he added
HUD launched its forensic audit after its Inspector General's Office and the FBI began a criminal probe of the agency following revelations in August that Greene had settled a series of sexual-harassment complaints against him without informing PHA's board.
Beyond the settlements, federal investigators are looking into PHA's use of nonprofit groups to collect money from employees for parties in Greene's honor, according to sources.
The PHA board fired Greene in September, ending his 12 years as the city's autocratic yet highly acclaimed public housing czar. The board's chairman, former Mayor John F. Street, called him a "true serial sexual harasser" in announcing his dismissal.
Greene, who has been in seclusion since August, receiving medical care for stress-related maladies for at least part of that time, has sued the board, saying his reputation had been "irreparably damaged" and asking for damages that could exceed $600,000. He has denied the harassment allegations by current and former female employees of the housing agency.
Greene's attorney, Clifford E. Haines, said his client was not the organizer of the event.
"Carl Greene had a single-minded interest in public housing," Haines said. "He did not spend his time overseeing every single event or every nail that went into the board."
According to four current and former PHA officials, who asked not to be identified because they said they feared possible retribution, the event was almost entirely organized by midlevel managers after Greene told them at a meeting that there should be some type of celebration of diversity.
Dorn, who left his post as a PHA executive and spokesman in January 2009 but continued to handle media relations for the agency under a contract until several months ago, said the belly dancing and other entertainment in March 2006 had been the "capstone" of a large program on diversity training that involved far more than the costumed finale.
At the gala, he said, employees made presentations on different nations and their cultures. The festivities included midlevel managers dressed as Swiss Alps yodelers, sombreroed Mexicans, Uncle Sam, and a Spanish dancer.
"The entertainment represented various nations," Dorn said.
A PHA employees' newsletter later published an array of photos from the festivities. It praised managers responsible for the activity, saying they had "brought diversity awareness to a new level at PHA."
"Employees and our special guests had an uplifting experience celebrating PHA's world of diversity," a caption under the photos said.
Greene loved parties
The four current and former PHA officials said Greene had suggested the event at meeting of more than 100 midlevel managers. The gala was supposed to support PHA's new publicity campaign, "Leveraging Our Diversity."
The current and former officials said Greene had designated two managers to coordinate employees planning the event.
One of the former managers said her group had been intent on pleasing Greene, who she said "loved parties." She cited Greene's birthday parties at PHA, holiday festivities, and other galas at the housing agency for years.
She said members of her group had decided to wear outfits that would reflect different nations.
They went to Pierre's Costumes in Old City.
"We do a lot of business with PHA," Pierre's Bobby Goodrich said.
He said his company also provided Santa suits and other outfits for PHA holiday events.
Reviewing photos in the PHA newsletter, Goodrich identified costumes from his company.
PHA spokeswoman Nichole Tillman said the total cost for costumes had been $540.
The rentals surprised Brown at HUD.
"Those are rented costumes? You're kidding me," he said. "Of course this becomes part of the forensic audit."
Organizers of the event wanted dancers to fill several rooms at the PHA's Wilson Park Community Center, a $3.5 million, 16,000-square-foot South Philadelphia facility complete with a recording studio, computer labs, a dance studio, and an all-purpose room.
One manager hired modern dancers to perform in the dance studio. Another hired a salsa instructor to work in the recording room. Others got Chinatown dragon dancers and African dancers for the multipurpose room.
Tillman said the belly dancers had cost $1,200.
"Belly dancing is a part of the Middle Eastern culture," she said. "There were other acts representing a wide variety of cultures, including Asian, African, and American."
The leader of the belly dancers, who goes by the stage name Naija, characterized the event as "a big blowout."
Naija, who has lived her entire life in Delaware County, said Friday, "I wish those were still around." She said her business had suffered in the recession with companies cutting back on their spending.
The highlight of her presentation that night was balancing a plate full of burning candles on her head while dancing, she said.
Tillman said the event's total cost was $17,150, including food, training materials, and presentations from other cultures.
Brown, the HUD spokesman, said federal auditors had a "variety of options" when they found inappropriate spending.
"It can be recouping money," he said. "If there's a pattern of blatant misuse of funding, you could ask that that person be removed."
HUD also has taken over the management of some agencies when the agencies appeared unable to resolve their problems. In the last few years, it has done that in Miami, Detroit, New Orleans, St. Louis, and other cities.
Brown said he could not disclose what auditors had found in Philadelphia or if HUD action was being considered.
Any action would be far away. In the past, HUD has had regular audits of PHA and even has sued. PHA lawyers has said they beat back virtually all HUD actions.
A month after the 2006 celebration, a PHA official formed the nonprofit Pennsylvania Institute for Affordable Housing Professionals. In March 2007, the nonprofit held a similar "Diversity Networking Event" at the Wilson Park facility for the benefit of PHA's management staff.
An advertisement promised "multicultural performances, dance instruction, international cuisine . . . and more."
The nonprofit - which received funding through PHA employees, contractors, and unions - is a focus of the wide-ranging federal criminal probe, sources said.
Contact staff writer Mark Fazlollah at 215-854-5831 or email@example.com.