JEFFERSON CITY – Missouri Auditor Susan Montee weighed in Wednesday with sweeping criticism of the way business is done at the state agency that gives out millions of dollars each year in housing tax credits.

Montee said the Missouri Housing Development Commission is plagued by potential conflicts of interest and perceived favoritism in the way it chooses housing projects, treats employees and awards contracts for goods and services.

She said commissioners should fully disclose business relationships with developers and refrain from voting on projects linked to business partners. Elected officials on the commission should abstain from voting on a project if they received campaign contributions from the developer, she said.

“The perception is clearly out there that there is a system that encourages campaign contributions in return for projects,” Montee said at a Capitol news conference.

According to the audit, the agency’s top executives – Executive Director Pete Ramsel and Director of Operations Mary Helen Murphy — claimed reimbursements last year for $18,000 and $2,545, respectively, to cover their legal fees in an ongoing federal investigation of the agency’s practices.

Ramsel has confirmed he was contacted by the FBI last year but has declined to elaborate. In a response included with the audit, the agency said it was developing a new ethics policy.

The new commission chairman, State Treasurer Clint Zweifel, said Tuesday that passing a strong conflict-of-interest policy is his top priority. In a statement Wednesday, he thanked Montee for the audit and promised to thoroughly review her recommendations.

Montee said two former commissioners had financial ties that presented the possibility for “significant conflicts of interest.”

–Former Commissioner Robert C. Fulp of Springfield was a member of a limited partnership that included a Springfield developer, Mark Gardner.

Gardner’s firm, Carlson Gardner, received more tax credits for low-income housing than any other developer from 2005 to 2007, the Post-Dispatch reported in 2008.

–Former Commissioner Bill Luetkenhaus, a real estate broker in St. Charles County, sold properties for more than $6.7 million to two developers who periodically receive tax credits from the commission. The developers were Jeffrey E. Smith of Columbia, Mo., and Gundaker Commercial Group of Chesterfield.

Montee said the commission needs a clear policy to deal with such situations. The current policy “doesn’t require any kind of public disclosure” and leaves vague what steps should be taken if a disclosure is made.

Overall, the 49-page audit accuses the Kansas-City based state agency of sloppy recordkeeping, inconsistent hiring practices, a lack of competitive bidding practices and a litany of inappropriate expenses.

For example, the agency spent $15,000 for alcoholic beverage purchases at receptions during the 2006 and 2007 Governor’s Conference on Housing.

In response, MHDC contended that the money was not public money since the agency generates its operating funds from selling bonds and mortgage arbitrage.

Montee called that statement “kinda bizarre,” given that the commission is made up of four statewide elected officials and six gubernatorial appointees.