Commerce Department officials are expected to sign documents today permitting the Harambee House to continue operation as a major black business venture, while allowing the hotel's operator to pay off government debts over a longer period of time.
A decision was made not to foreclose on the venture, representing a $10 million federal investment, after an audit of the hotel's books showed many irregularities but no evidence of substantial fraud.
Details of the audit by Touche, Ross & Co., made available to The Washington Post, reveal that Harambee House lost an estimated $2.3 million in the final months of 1978.
In addition, some $109,000 in accounts receivable have been written off as uncollectible. But this was attributed to sloppy record keeping and billing procedures-a major problem in the hotel's management until recently.
"We didn't find anything particularly alarming . . . we will go forward with the restructuring," said Deputy Assistant Secretary George T. Karras of the Commerce Department's Economic Development Administration, who has been overseeing the Harambee project ever since supper club owner Edward Murphy proposed it a decade ago.
Although the federal government has stated that it will provide no additional funds to prop up the hotel, which suffered from years of construction delays and massive operating problems during the past 12 months, the decision by EDA to "work out" Murphy's loan agreements is a significant step in keeping the hotel in business.
In addition, Murphy's Hotel Corp., which runs the inner-city luxury hotel at 2225 George Ave. NW, must come up with outside private financing. Agreements for $500,000 of such capital, which were to be signed last month, still have not been completed.
But Walker Williams, the new president of Murph's Hotel Corp., said yesterday that both Opportunity Funding Corp. and the Witherspoon Development Corp. are expected to sign papers next Thursday. Each plans to invest $250,000 in the hotel.
"The deal is still on, the hotel is functioning," Williams said, noting that Harambee occupancy today is 100 percent and that all rooms are booked next week. He attributed delays in signing up the private investors to the United Air Lines strike, which prevented some scheduled meetings with out-of-town lawyers, and to the hotel's problems in the past year, detailed in recent Washington Post articles.
"It (the investment) shouldn't be done on the face of it, because of the numbers, but it is being done for other reasons," by the two social-purpose investors, Williams added.
The numbers to which Williams referred are contained in a government-ordered audit of hotel operations, showing that despite government subsidies since last fall of some $1.2 million, Harambee lost an estimated $2.3 million during the nine months after it opened in March 1978.
The Touche, Ross audit was submitted to the government on April 1 after EDA warned that unless there was a than $100,000 in missing money-the agency would move to liquidate the property and recover as much as possible of its investment.
EDA sources said the audit was "highly qualified," since financial records were in "disarray."
In effect, Touche, Ross said that Harambee House records are in such bad shape, they can't really tell where all the money went . . . they say they can't certify that the figures are accurate. What the audit amounts to is their best guess," an EDA official said.
Among categories the accountants reportedly could not verify were gross revenues, expenses and "the monumental losses," Based on the information Touche, Ross had to work with, the audit showed the hotel currently with a negative net worth and negative working capital position.
Among other points raised in the audit:
Some $20,000 was placed in a special category by the accountants, who noted that EDA was investigating the use of that money.
One of the uncollectable accounts is a Harambee House "Winner's Club," which operated inside the hotel but which is insolvent for all practical purposes.