The home, Harlee Manor, should have been ineligible because it is a for-profit venture, auditors found. They also cited e-mails showing a top aide to U.S. Rep. Bob Brady, who was a Beloff friend, sought status reports on the grants.
The report, obtained by The Inquirer, was commissioned by the state Office of Inspector General Kenya Mann Faulkner and completed in May by the KPMG accounting firm.
In its wake, the state Department of Community and Economic Development halted grants to the Urban Affairs Coalition, a funding source for dozens of community groups in the city. A similar freeze has been imposed on the Ogontz Avenue Revitalization Corporation, a nonprofit Evans founded in 1983.
Steve Kratz, a department spokesman, confirmed the funding freezes but would not elaborate or discuss what he said was an ongoing review.
Urban Affairs Coalition president Sharmain Matlock-Turner said Friday that her group was committed to transparency and cooperated fully with the "multi-layer review" during the last 18 months.
Matlock-Turner said she could not discuss the report because DCED officials repeatedly refused to give her a copy.
"We are simply not in a position to specifically comment on an audit report that we have not seen," she wrote in an e-mail.
Evans, once Philadelphia's most powerful House Democrat, did not respond to requests left at his office and on his cellphone to discuss the audit or his role in the grants.
Faulkner's office investigates fraud and waste in state government. It cannot issue subpoenas or bring charges, but can refer cases to law enforcement agencies or the state ethics board. A spokesman would not say if either has occurred.
Still, its report offered a blunt look inside a common practice that Harrisburg watchdogs have long criticized.
For years, state legislators arranged grants - known as "walking around money," or WAMs - for pet projects in their districts. Much of it flowed in economic and community development grants.
The process was veiled in secrecy, controlled by the governor and legislative leaders in both parties.
For 20 years, Evans was the ranking Democrat on the powerful House Appropriations Committee, which reviews budget requests. He was ousted from that post in 2010 by fellow Democrats, some of whom complained about Evans' decisions on who got WAMs.
After taking office, Republican Gov. Corbett kept a campaign promise and banned WAMs, but some grants approved before his election are still being paid out.
Since 1999, the Ogontz Avenue Revitalization Corporation and Urban Affairs Coalition received more WAM grants than any groups statewide, the auditors said. OARC got $28 million in grants while UAC collected $24 million.
UAC has been a Philadelphia mainstay for decades, an umbrella organization that calls itself "a home for nonprofits" and offers "fiscal sponsorship and shared services" to more than 75 civic, neighborhood, and business groups. Matlock-Turner said the group manages between $20 million and $50 million a year.
UAC is itself a nonprofit, but gets a fee, usually between 5 and 8 percent of the grant, for arranging funding for other nonprofits, the auditors said.
UAC's website touts photos and tributes from political and community leaders, including former Gov. Ed Rendell and Mayor Nutter. Among its biggest boosters is Evans.
Matlock-Turner has called Evans her mentor. Each year, her group gives the Dwight Evans Living Legacy Award to a "policy leader who has committed to fostering the Coalition's mission."
Acting on concerns from within the DCED, the inspector general late last year asked auditors to examine eight grants totaling $5 million that went to or through UAC between 2006 and 2011, the report said.
They found flaws ranging from shoddy bookkeeping to "an overall lack of compliance" with regulations on how the money must be used and tracked.
Trino Boix, a lawyer and UAC operations director, told investigators that DCED didn't enforce its own rules, so the coalition did not believe it was imperative to expend funds or energy documenting compliance efforts, the report said. In an interview, Boix said that finding by auditors was completely inaccurate but declined to discuss the matter further.
From 2009 to 2011, auditors found, UAC used a $1.4 million grant earmarked for its staff and administration costs to pay $365,000 to the pastor and financial manager of Triumph Baptist Church, in the Hunting Park section of Philadelphia.
Matlock-Turner told investigators that she put the Rev. James Hall and his aide, Frances Stallings, on her payroll after Evans called her and "expressed his desire to have Triumph supported through this grant," the report said.
Auditors found paperwork showing Hall and Stallings received lump-sum payments in early 2010 for six months of back pay, then were paid every two weeks until July 2011. Hall got $3,333 per paycheck, and Stallings got $2,812.
Investigators found "no evidence or supporting documentation to validate what the two employees were doing . . . through the entire grant period," their report states.
Hall and Stallings declined last year to meet with auditors, referring them instead to lawyers.
In an interview with The Inquirer at their church office Thursday, Hall said he and his aide "never used the money" for their personal benefit or considered themselves UAC employees. Both said they deposited the checks into accounts controlled by the church and a development corporation it runs.
"We were only following instructions" from UAC, Stallings said.
When investigators asked what Hall and Stallings did to earn the money, UAC officials produced paperwork indicating the pair were overseeing the development of the Triumph Community Family Life Center.
Auditors said the center's planned programs were the same ones run by the church, and at least half were ineligible because they constituted religiously affiliated activity. One program, "Praise and Dance," requires its participants to attend church and Bible study.
In the interview, Stallings said Triumph had hoped to develop its Family Life Center on property next to the church, but scrapped those plans because the parcel needed extensive cleanup.
Instead, she said, the grant money helped fund their work on plans for a 50-unit senior housing development at 18th and Courtland Streets. "The grant was for pre-construction work," Stallings said, unfurling a multipage architectural sketch plan. Hall said they hope to break ground on the housing project next year.
A spokeswoman for the city's Licenses and Inspections Department said on Thursday that there are no permit applications for a project on the site.
Triumph Baptist is outside Evans' legislative district, but Hall's influence extends across the city. A friend of civil rights leader Jesse Jackson and past president of the city and state Baptist pastors association, the 80-year-old Hall nurtured what was once a church of a few dozen members into a congregation that nears 5,000.
Hall and Stallings said they did not know that Evans helped fund them. But Stallings noted, "He's always helped us."
The auditors also questioned two $500,000 grants approved for Harlee Manor renovations.
The assisted-living facility in Springfield, Delaware County, is run by the family of Beloff, a former councilman and state representative convicted in 1987 of conspiring with Scarfo to extort $1 million from a developer.
According to the auditors, for-profit entities like Harlee Manor are barred from economic-development grants.
Richard Guinan, a former DCED operations director, allegedly told auditors that the grants were approved by a department lawyer under the reasoning that some of the money did go to a nonprofit: UAC, which collected a management fee.
The lawyer, Jill Busch, didn't recall that conversation, the report said, but told auditors the pass-through concept "probably resulted from a legislator wanting to get funding to a for-profit entity."
Guinan could not be reached for comment last week. Busch declined to discuss the report.
The auditors also noted e-mails about the grants between UAC officials and Stanley White, the chief of staff to Congressman Brady. In one, UAC president Matlock-Turner directed an aide to tell White the coalition got the Harlee Manor grants. In an e-mail months later, White asked for an update on the funding.
Beloff did not reply to messages left last week at his Lower Merion home and at Harlee Manor. White did not respond to requests for comment.
Reached by phone, Brady said he vaguely recalled the Harlee Manor funding request, and said it wasn't unlike others his office gets. "If a constituent calls us and says, 'We're trying to get funding,' we'll inquire and try to help," he said.
The congressman said he didn't realize Beloff won the grant but said he had no role in the process.
"I never had a conversation with Lee Beloff," Brady said.
The auditors also questioned whether UAC intentionally skirted bidding regulations when it coordinated a $400,000 grant for the North Philadelphia East Falls Neighborhood Initiative. According to the report, UAC doled out the money to nonprofits in multiple checks under $10,000, the threshold that requires public bidding.
For instance, it said, the Sultan Jihad Ahmad Community Foundation, a group that combats youth violence, received 12 checks from UAC under $10,000, including five on the same day in April 2008.
Auditors also questioned the foundation's use of $20,000 to take 250 adults and kids to Hershey Park. The report didn't say when the trip occurred, but said it was paid with grant funds that had been designated for professional services or consultants. Messages left at the foundation offices were not returned last week.
The report also chided UAC's record-keeping, saying it sometimes sent revised budgets to the state development office on the last day of a multiyear contract to reflect how the money was actually spent.
The auditors also found that some nonprofits did not spend all of their grant money, and did not return the leftover balance to the state, as required.
Contact John P. Martin at 215-925-2649, at email@example.com or follow @JPMartinInky on Twitter.