Denver Auditor Dennis Gallagher is raising red flags about a $2.6 million contract for work he says the city already does.

"I have some serious questions and reservations about this contract that I would like to have addressed before I sign it," the auditor wrote today in a letter to Jacky Morales-Ferrand, director of the city's Division of Housing & Neighborhood Development.

Morales-Ferrand could not immediately be reached for comment.

At issue is an agreement between the city and SEEDCO Financial Services Inc. to oversee community development block grant money the city receives, said Denis Berckefeldt, the auditor's spokesman.

"They will now do what the (Office of Economic Development) has done in the past, which is to look for projects to fund, do some kind of vetting process of the projects and then make the grant or the loan," he said.

"We think that that's a duplication (but) the really serious issue is the amount of the overhead cost," he said.

The contract calls for administrative costs of $455,000 for about six months, according to the auditor.

"I find that staggering and not at all a prudent use of either city money or CDBG money, particularly because included in that six-month overhead are items such as $37,500 in travel expenses for SEEDCO New York City employees to travel to Denver to help administer this program," the auditor wrote.

The auditor is also raising questions about a possible conflict of interest involving Peter Chapman, who worked for the city until he went to work for SEEDCO as executive director of the program.

"I am very concerned about the appearance to the citizenry of a conflict of interest related to his employment and therefore the efficacy or value of the program as a whole and the city's development efforts," Gallagher wrote.

According to the auditor's letter, Chapman "was primarily responsible for the creation of the program and its most significant advocate before City Council" and "served on the selection committee that selected SEEDCO to operate the program."

chacond@RockyMountainNews.com or 303-954-5099