The federal Department of Housing and Urban Development has begun a probe into the finances of Praxis Housing Initiatives, a multi-million dollar nonprofit provider of housing and services for homeless people with HIV and AIDS.

Last week, City Limits reported that the group’s executive directors had been funneling some of Praxis’ funding to pay for gifts and bail, and to start up and operate their own for-profit housing ventures, unbeknownst to board members or the Internal Revenue Service.

HUD, the primary funder of one of Praxis’ shelters, the Riverside Place Hotel on the Upper West Side, is now wondering where its money has gone. “Based on what was reported in City Limits last week and allegations of financial impropriety, the matter has been referred to our Inspector General,” said HUD spokesperson Adam Glantz. “We’re looking into how HUD funds were spent. And we’re taking this very seriously.”

If they follow the money, HUD inspectors might find that federal money earmarked for specific housing programs at the Riverside was transferred into the bank account of a for-profit homeless shelter that Praxis President G. Sterling Zinsmeyer and Executive Director Rev. Gordon H. Duggins control through a separate holding company.

Since Praxis’ inception in 1995, HUD has awarded the group two consecutive three-year grants — totaling $4.7 million — to support social services, renovation costs and supplies at the Riverside, a shelter for homeless men and women, many of whom have HIV or AIDS. Those grants ended in 2001.

According to internal documents obtained by City Limits, the Praxis execs pulled big sums directly from the Riverside’s bank account and transferred the money to the account of the Dawn Hotel, the for-profit shelter. Copies of the Dawn’s 1998 general ledger show that in just 48 days, the Praxis execs shifted $137,000 directly from Riverside to the Dawn.

“HUD can’t be too thrilled,” said Fred Rothman, former chair of the Tax-Exempt Organization Committee of the American Institute of Certified Public Accountants. “If money was earmarked for specific purposes, it shouldn’t be going to feather the nest of the private, for-profit enterprise.”

Urbach, Kahn and Werlin, the accounting firm in charge of managing Praxis’ HUD audits that year — as well as those of the Dawn — no longer does business with Praxis or the Dawn and would not discuss details of any previous audits.

In defense of Praxis, Amy Millard, one of the group’s attorneys, reiterated the same statement she made last week: “We’ve been cooperative with all investigators and continue to do so. We’re confident it will be established that [my clients] have at all times provided a great service to the population they’re dedicated towards serving.”

That claim is not entirely accurate, say several former Praxis employees and Riverside social workers. Shelter clients suffered from a lack of services despite the nearly $1 million from HUD earmarked for social services, they said. “There’s no way that much HUD money was spent in the Riverside,” said one caseworker, speaking on condition of anonymity. “The HUD grant had an extensive staffing budget, for at least seven or eight social workers, and the only worker there was me, or Eve [Abzug, another former Praxis employee]. Everything was nickel-and-dimed.”

Brought on to fundraise and run Praxis’ social services, Eve Abzug, daughter of late Congresswoman Bella Abzug, said her overall experience at Praxis was fine and declined to discuss the details of her program or the decisions of the directors.

In addition to HUD’s investigation, both the city Department of Investigation and the New York State Attorney General — responsible for prosecuting corruption at charities — continue to look into possible “fiduciary improprieties.”