When a Delaware County nursing home owned by Leland Beloff, the ex-convict and former Philadelphia city councilman, asked the state for a $1.5 million grant in 2006, the money was supposed to address a pressing need for senior housing in the community.

The facility, Harlee Manor, got $1 million and used it to replace 53 traditional nursing-home beds with 17 personal suites.

State auditors have since concluded that the home, as a private for-profit entity, should never have been eligible for the funds. But their report's findings, and other records reviewed by The Inquirer, raise deeper questions about the grant.

State officials rejected Harlee Manor's first application for the money, the records show. But an identical request submitted weeks later - this time by a politically connected Philadelphia nonprofit, the Urban Affairs Coalition, and with support from a Democratic Party heavyweight - sailed through.

Plans the nursing home filed with Springfield Township show it projected the renovation to cost $527,000, barely half the grant total. Auditors later found receipts for only $438,000 to the contractor, and no breakdown for how the rest of the money was spent, their report says.

Since the renovations, the new wing, called Springfield Senior Commons, has more tenants. But in census counts by the state in the last five years, the facility has not approached its new capacity of 84 residents.

In fact, only once did it house more than 67 residents, its capacity before the expansion, and then by just two tenants, with 69 residents in 2011, according to Department of Public Welfare records.

The Harlee Manor grants, doled out in separate $500,000 checks in 2006 and 2007, were among eight grants called into question this year in a state audit of the Urban Affairs Coalition, a Philadelphia nonprofit that helps arrange funding for dozens of community organizations, and did the same for Harlee Manor.

The August 2006 state check for $500,000 was drafted to "Harlee Manor, Inc., Attn: Leland Beloff," the auditors said.

A copy of report

In their confidential report commissioned by Pennsylvania Inspector General Kenya Mann Faulkner, a copy of which was obtained by The Inquirer, the KPMG auditors questioned whether the grants were properly awarded, monitored, or spent by the coalition or the groups that ultimately got the funds.

For instance, they said they couldn't explain why a Philadelphia pastor and his assistant were placed on the Urban Affairs Coalition payroll or what they did to earn $365,000 paid with taxpayer funds.

The state Department of Community and Economic Development, which approved the grants, has since frozen funding to the Urban Affairs Coalition and another prominent Philadelphia nonprofit, the Ogontz Avenue Revitalization Corporation, while it conducts a review.

Tens of millions

Together, the two organizations have managed tens of millions of dollars in state aid for area community groups over the last decade. Both also have deep ties to State Rep. Dwight Evans, who for nearly 20 years was the ranking Democrat on the House Appropriations Committee, which controls the state budget.

Officials from the economic development and inspector general's offices won't discuss their probe or say when it might end. Urban Affairs Coalition representatives also have declined to discuss the matter, except to complain that state officials refuse to give them copies of the critical audit.

Beloff has not responded to requests for comment.

In a phone interview Saturday, his wife disputed suggestions that the grant may have been misspent. Diane Beloff said it went entirely to the renovations, which ultimately cost $1.5 million, or three times the initial estimate. She said that a "mix-up" over the nursing home's accounting led the inspector general's auditors to a faulty conclusion in May but that the confusion was cleared up this summer.

"We were requested to resubmit all receipts and information," she said. "We did so and they were satisfied with it."

Her 70-year-old husband, the onetime city councilman and state legislator, holds a notable spot in the annals of Philadelphia corruption. In 1987, he was sentenced to 10 years in prison for conspiring with mob boss Nicodemo Scarfo to extort $1 million from Willard Rouse, a prominent developer, in return for Beloff's support on Rouse projects.

Released in 1993, Beloff has since shied from the spotlight, but not politics. He and his wife have contributed more than $30,000 to state and local candidates and parties in the last decade, campaign-finance records show. Beloff has also found new life as a political consultant.

His bid for state aid appeared to attract the interest of U.S. Rep. Robert Brady, Beloff's longtime friend with wide influence in the region's Democratic circles as Philadelphia's party chairman.

The KPMG examiners found records showing that four times in 2006 and 2007, Brady's chief of staff, Stanley White, contacted or was contacted by the Urban Affairs Coalition or state employees with updates on the grant.

Brady told The Inquirer last month that he had no direct role in getting Beloff the money but said his office routinely acts "to help out a constituent" trying to get state aid. (Neither Harlee Manor nor Beloff's home in Gladwyne is in Brady's district, according to a map on his congressional Web page.)

The nursing home, which sits on a sloping tract along West Sproul Road a few hundred yards from Springfield Country Club, was founded in 1968 by Beloff's parents, former Common Pleas Court Judge Emanuel Beloff and his wife, Jean. The couple named the home for their sons, Hardie and Leland, who later took over and expanded the family business.

In its annual license-renewal letters to Harlee Manor, the Department of Public Welfare has noted Beloff's criminal convictions and reminded him that he is prohibited from having any access to its residents' money or personal accounts.

"Failure to implement this condition will result in licensing action against the home," the letters say.

More than a decade ago, Harlee Manor began to shift its focus from nursing-home services to independent senior living.

The transformation reflected a trend across the industry. As health-care costs rose and new senior-housing options emerged, traditional nursing homes saw their profit margins dwindle, if not disappear. Assisted-living or so-called personal-care homes cater to a less dependent and often wealthier clientele and are more lucrative for operators, industry insiders say.

According to township records, Harlee Manor in 2001 proposed building Springfield Senior Commons, with a price tag of $4.5 million, and completed it a year or so later.

In 2005, the company drew up plans for a second expansion, this time by demolishing 53 nursing-home rooms and converting 11,000 square feet into 18 new senior suites.

The plans, submitted to the township by Bensalem-based contractor H.C. Pody, outlined a budget of $527,710, plus an additional $10,000 for permit fees.

In April 2006, Harlee Manor asked the department of economic development for $1.5 million for the project, department records show.

The company reported $12.5 million in sales, but said it was losing clients "due to private pay long-term care residents moving to assisted living facilities."

On its application form, the nursing home noted it was a for-profit entity, that the project would not create jobs, and that money was for housing construction.

That request, reviewed by the department's center for private financing, was denied. The records don't specify the reason.

A notation on the denied application said a DCED staffer had recommended the nursing home try the Pennsylvania Economic Development Financing Authority, which arranges low-cost loans to private companies.

It's unclear if the facility explored that option. "Never heard back from applicant," a DCED staffer noted in the file before closing it that June.

By that time, Harlee Manor had found another route to the same money. According to the records, an identical grant application was filed in May 2006 and reviewed by another DCED division, the Community Revitalization Office.

That application included the same description of "the Harlee Manor project" but identified the applicant as the nonprofit Urban Affairs Coalition. The grant purpose changed from housing construction to "Community Services," the application shows.

According to the auditors' report, the second application was filled out not by Urban Affairs Coalition employees but by Richard Guinan, then the operations director for the state Department of Economic and Community Development. "This is not the typical course of action," the auditors noted.

(Guinan, whose wife, Vivian, was the comptroller for the state Democratic Party, has not returned calls for comment.)

The grant was approved, funded through a program reserved for nonprofits.

The department released the records in response to a request by The Inquirer under the state's Right to Know law. It denied a similar request for its internal correspondence related to grant review and approval.

Twice in ensuing years, the economic development office asked the Urban Affairs Coalition for a list detailing how the money was spent but did not get one, the KPMG report says. They did find records showing $438,561 paid to the contractors over the life of the project.

On May 11, 2007, Springfield Township issued a permit for 17 new occupants at the commons, increasing its total to 84, or larger than most personal-care homes operating in the state, records show.

That fall, the state received an application for another $500,000 for the Harlee Manor project. Like the first, this one came from the coalition but was filled out by a DCED worker, the auditors found.

It was approved.

But also like the first, this one lacked details on how the money was spent, the auditors said.

A separate company

According to their report, Beloff's brother sent state officials a letter last year explaining how the second $500,000 check was spent. Hardie Beloff said the grant was used to reimburse Sproul Manor Partnership, a separate company controlled by the brothers that owns the property, for money it had lent to cover renovation costs when the first grant ran out.

But the KPMG auditors said the second grant check was deposited in the general operating account for Harlee Manor, not in a Sproul Manor Partnership account.

"The Commonwealth should consider how Harlee Manor and Sproul Manor are related," their report concluded, "and whether the funds were used in accordance with the purpose of the grant."

In both cases, the Urban Affairs Coalition also got paid by the state. As a liaison for dozens of community groups, the coalition collects management fees from the state equal to 5 to 8 percent of a grant. For helping coordinate the two Harlee Manor grants, it got $50,000, the audit said.