The District could be forced to reimburse the federal government more than $28 million because the city has been unable to produce records of how the money was spent on a major economic development project in Southeast D.C.

But city officials say they're confident D.C. taxpayers won't be on the hook.

The U.S. Department of Housing and Urban Development said in a December letter that it was questioning "virtually all expenditures associated with" the redevelopment of the Skyland Shopping Center. (See related story: Skyland has troubled history.)

"Implementation of the Skyland project has been problematic since its inception in 2002," the government said in a compliance review that also accused the city of having been "less than diligent in following applicable ... federal requirements in the execution of the project."

Federal authorities say they provided more than $28.5 million in grants for the project, but when investigators sought documentation for expenses associated with the development efforts, D.C. officials came up empty-handed.

Missing records
Federal officials have asked the District to provide more than a dozen types of documents for review, including sales contracts, settlement sheets, appraisals, deeds, letters to property owners, and wire transfers or checks.

Michael Kelly, director of the D.C. Department of Housing and Community Development, said the city fell short because records were spread among an array of agencies, some of which no longer exist.

"The records were in several different locations," Kelly said. "It's the nature of how long Skyland has taken to get off the ground and the various agencies that were involved in this."

But federal officials cited the city and declared the expenses "unsupported."

"Failure to produce appropriate documentation in a timely manner may result in HUD advising the District to reimburse ... an amount up to $28,509,299," the department said.

Kelly described the episode as something that "became an easy write-up for them" and said he did not believe the District was at risk of having to pay back "a significant amount of money."

The dispute might not be resolved for months. Although the federal government set a 45-day deadline for the District to supply the records, D.C. requested an extension last week as it conducted what a spokesman described as "a forensic accounting exercise."

Kelly was adamant that the decision to involve forensic accountants was not an indication that officials suspected misconduct surrounding the grant money and said there was "absolutely no instance of any kind of fraud or any abuse of trust."

Federal officials said they approved the extension request "given the serious nature of the findings and the amount of money involved." The city now has until Feb. 28 to provide documentation on how the millions in federal taxpayer dollars were spent.

"You should be able to account for every penny you spend," said Ward 2 D.C. Councilman Jack Evans, whose chairs the committee with oversight of District finances. "There's a trail, and they need to put the trail back together."

Kelly said city officials were already looking for ways to improve the District's record-keeping practices.

"The lesson we have right now is we want to be able to have full transparency and full accountability," he said. "That translates into that type of recordkeeping will survive any type of future transfer of authority."