The Pennsylvania attorney general is investigating the charity at the heart of the federal corruption case against former State Sen. Vincent J. Fumo - an inquiry that could force the organization to shut down.

A spokesman for Attorney General Tom Corbett said the conduct of Citizens' Alliance for Better Neighborhoods "raises red flags all over the place."

Citizens' Alliance has spent hundreds of thousands of dollars in ways "that have nothing to do with the operation of a charity," said Kevin Harley, the spokesman.

He cited the nonprofit's heavy buying of tools and other items for Fumo, its luxury cars, and its secret funding of a lawsuit against a Fumo political enemy.

If the Attorney General's Office decides to move against Citizens' Alliance, it could do so by asking a judge to strip the South Philadelphia charity of its nonprofit status.

The judge could then appoint a trustee to return the organization's remaining millions to the original donors or distribute the money to other charities, said a source familiar with the review.

Despite the indictment of Fumo in connection with Citizens' Alliance, the charity is still operating. It is flush, with $18 million in assets, and remains controlled by a cadre of Fumo loyalists.

It has spent $2 million on legal fees to cope with the FBI probe, and the meter keeps running.

Executive director Christian A. DiCicco is mentioned in Fumo's indictment as having received improper benefits from the nonprofit. DiCicco was not charged. He says the allegations are groundless.

DiCicco, 35, a former Fumo aide and son of a city councilman, said last week the charity was cooperating fully with state investigators' civil inquiry. But he sharply criticized their probe.

He complained that Corbett wants to "come in after the federal trial and then basically try to victimize the victim."

"We are doing more. We have been more efficient," he said. "We are cleaning more alleys, turning more lots into community gardens, sweeping more sidewalks."

In 2006, DiCicco, a lawyer who is also a SEPTA board member, succeeded Ruth Arnao as executive director. Arnao is Fumo's codefendant on the charges of defrauding Citizens' Alliance of $1.4 million.

Prosecutors say that Fumo and Arnao illegally used the group to pay for political polling, a secret lawsuit against a Republican legislative enemy, and $100,000 in store shopping sprees, among other abuses.

Fumo's lawyers argue that he was entitled to the largesse because he was the charity's "benefactor." Through political maneuvering, Fumo got Peco Energy Co. to give the group $17 million, and the Delaware River Port Authority to donate $10 million.

More money flowed to the nonprofit even after word became public of its big endowment - and of the FBI investigation.

Records from the Penn's Landing Corp., a group partially financed by DRPA, show that it has given Citizens' Alliance $1.1 million since 2004.

Penn's Landing Corp. says that funding has now stopped, but it won't say anything further.

Favors or free labor?

Citizens' Alliance was founded by Fumo aides, including DiCicco's father, Frank, in 1991 when Philadelphia was going through its last major fiscal crisis.

Its mission was to revitalize neighborhoods in South Philadelphia and to do what the city wasn't doing: sweep streets, shovel snow, and pick up trash. It also spent heavily to support two charter schools. And it bought about 30 storefront properties as part of a dream to turn the Passyunk Avenue corridor into a center for high-end restaurants and hip stores.

But federal prosecutors and the FBI say it has also been used as a favor bank by insiders.

One, investigators allege, was Christian DiCicco, initially identified in the indictment as "Person No. 30."

It says DiCicco received free work from the charity on a South Philadelphia investment property he owned with his brother and father.

Former or current Citizens' Alliance laborers told jurors in Fumo's trial this month that they laid hardwood floors at the property at 12th and Federal Streets. They did the work on the charity's time, they said.

"Who told you to go to this property to do this work?" Assistant U.S. Attorney John J. Pease asked.

"I believe Christian DiCicco," said Ronald Guerriero, an ex-laborer.

Another former worker said he went there twice a week for two months to do wiring and hang drywall.

Prosecutors also presented evidence that DiCicco was given use of the charity's Cadillac Escalade, worth $54,000.

In the interview, DiCicco said that it "wasn't my decision" to buy so pricey a car.

DiCicco flatly denied that workers toiled free at his property. DiCicco said the charity employees were old friends, and one was a cousin. They labored during off hours and used vacation time, he said.

It was "friends helping friends," DiCicco said.

As for the worker who said he put up walls and did wiring, his testimony was wrong, DiCicco said. "It never happened," he said.

Also this month, three veteran Citizens' Alliance board members testified that the charity routinely operated without any input from them on key expenditures, including those that benefited Fumo.

After The Inquirer raised questions about the charity, they testified, the board hurriedly approved years of past spending.

The board members said they OKd the spending resolutions - without reading them.

Donald W. Kramer, a Philadelphia lawyer and expert on nonprofit organizations, said any state move to shut the charity would be "highly unusual."

He said it would send a strong message to nonprofit boards.

"One of the problems with charities," Kramer said, "is that there are not enough visible consequences for totally failing to pay attention."

Large legal fees

At The Inquirer's request, DiCicco last week made public the group's latest financial disclosure form.

His openness contrasted with the past record of the charity. According to testimony last week, the nonprofit failed to file any public disclosure with the IRS for the first eight years of its existence.

The new IRS report for calendar year 2007 showed that the organization spent about $1.3 million on its own operations last year.

That included DiCicco's pay of $152,000.

In 2007, Citizens' Alliance handed out $93,000 in grants to other charities while spending five times as much - $506,000 - on legal fees.

Over the last three years, Citizens' Alliance has paid at least $2 million to lawyers representing Arnao and other Citizens' Alliance workers caught up in the probe, reports show.

There is an irony in its payments to defend Arnao. Citizens' Alliance is defending her against charges of looting Citizens' Alliance.

Even though Arnao quit the organization in 2006, it paid her $46,000 more last year, the IRS filing said. The charity paid her $100,000 in 2006, a year in which she worked five months for the group. The 2006 and 2007 payments included severance.

If Fumo and Arnao are found guilty, the nonprofit says in the public disclosure, it will try to recover the lost money. It could also dun Arnao for the money put up for her defense.

Though Fumo allegedly controlled Citizens' Alliance, he held no official position with it and the charity has not been paying his legal bills.

With the spending on lawyers and investment issues, Citizens' Alliance's net worth fell 30 percent between 2004 and 2007: from $26 million to less than $18 million.

Financial matters aside, DiCicco, in the interview, said he was worried about hostile government action.

For one thing, he said he still feared that the IRS might take action against the nonprofit.

And he was critical of the state probe, saying the attorney general appears to be "piggybacking on the whole federal trial." The state inquiry began quietly a year ago.

"They are looking at everything from meeting minutes to expenses," he said

Corbett, a possible GOP gubernatorial candidate in 2010, has significantly raised his profile as a result of Bonusgate - his nearly two-year investigation into whether state legislators misused public funds for political purposes.

Among other issues, attorney general spokesman Harley said, the office's Charitable Trusts and Organizations Section, which oversees nonprofits, is concerned about Citizens' Alliance's spending on defense lawyers.

He said the attorney general was also troubled by the nonprofit's surreptitious funding of a 2001 lawsuit challenging whether the state Senate's top Republican could serve a dual role as lieutenant governor.

Defense lawyers argue that the lawsuit was a legitimate effort to protect the separation of powers.

Harley was skeptical. "You would be hard-pressed to show how that had anything to do with the charitable mission of a South Philly charity supposed to help the community," he said.

Filling a service void

For the time being, DiCicco said, his organization and its 14 workers are still toiling away on the streets of South Philly.

This year, according to its Web site, the nonprofit has hauled away 64 tons of trash, cleaned 218 alleys and 23 lots, and planted 250 trees.

On Passyunk Avenue, far from Harrisburg or the drama in federal court, some say Citizens' Alliance fulfills a vital role.

Ask the city to pick up a sofa from your curb and it will take a week or more. The nonprofit will get it done in a day, said Lynn Marie Rinaldi, the owner and chef at Paradiso Restaurant. The elegant restaurant was reborn in a vacant furniture store that Rinaldi bought in 2006 from a Citizens Alliance subsidiary.

Just last week, Rinaldi said, she watched Citizens' Alliance laborers hang Christmas lights along the avenue.

"Let's face it, with the city cutting its services more and more, Citizens' Alliance filled that void," she said.

"A lot of people in this community will miss the service if it goes but, unfortunately, they won't realize what they had until it's gone."

Contact staff writer Mario F. Cattabiani at 717-787-5990 or mcattabiani@phillynews.com.