CHAMPAIGN – The 45-year-old Urban League of Champaign County is shrinking fast.

Mounting financial problems have prompted the league to sell off property, jettison programs, cut staff and even consider closing altogether. Once a $5 million operation with 60 employees, it's down to nine workers and counting.

Sandra Jones, the interim director and former board chairwoman – who works for free because the agency can't afford to pay a director – said an internal audit to be released soon will again raise questions about the agency's financial viability. Board members are actively discussing the Urban League's future, and Jones expects to know in a month if it will continue at all.

"We've talked about this since last November," after the resignation of longtime President and CEO Tracy Parsons, Jones said. "The answer is you can't make decisions pro or con until you know what the facts are. It continues to be a fact-finding mission."

Parsons declined to be interviewed for this story.

The agency's problems date back to late 2006, when the Illinois Department of Healthcare and Family Services yanked two grant programs worth $3 million, eliminating 60 percent of the league's budget and forcing it to lay off 14 employees.

The state questioned the Urban League's fiscal oversight and demanded it repay more than $400,000 spent on energy assistance and home-weatherization programs.

The Urban League challenged parts of the claim and said the state still owed it $375,000 for work performed before the grants were canceled. The dispute remains tied up in an administrative process and the state Court of Claims. Urban League attorney Jim Kearns said he's heard nothing from the state for more than a year.

Since then, the league has downsized dramatically, closing its education department, selling property and laying off more staff. It adopted a narrower focus, on business and work-force development and housing programs.

With one exception, it's applied for no new grants, and fundraising – a staple of Parsons' tenure – has stopped. The league failed to file its audit with the state, meaning it no longer could solicit donations. There are no plans for the annual December gala that raised $45,000 in years past.

The league's board spent the last year trying to figure out where the agency stands financially, Jones said. The audit for fiscal 2007 – which ended 15 months ago – took much longer than expected because auditors found that grant spending wasn't "booked" correctly and had to trace all the transactions, she said.

Grant applications specify how an agency will use money for a particular program. If that changes – more is spent on supplies than initially predicted, for example – grants should be amended, Jones said. That wasn't always done, "even though both parties knew what was happening," she said.

The Urban League has gone back to all of its funding agencies to ensure that "we're in agreement," she said.

Jones said auditors made clear they found no evidence of fraud, "but there were significant lapses in managerial judgment."

Greg Gonda, who co-chairs the board's finance committee, said board members are waiting to see the final audit before deciding the league's future.

Jones said the audit will show the agency's assets match expenses "just barely," but it will question the league's ability to sustain itself "unless there are some basic changes in our financial circumstances," she said. And she expects the next audit, for fiscal 2007-08, to show more of the same.

"We're in a very sad situation, because the very survival of the league is in question," said Larine Cowan, University of Illinois director of affirmative action and part of a group of past board presidents advising Jones. "The league has played a vital role, not only for African-Americans but I think for everybody in our community, to deal with issues of equality and empowerment and civic engagement and civil rights and social justice."

In May, the league laid off its fiscal director and an assistant, deciding to outsource its financial services. Jones said it had become clear that "records were not detailed enough."

"The driving need for this organization is financial accountability and accurate record-keeping," so the board can make solid financial decisions, she said. "It's a bigger job than any of us expected."

"One thing I've realized is how incredibly difficult it is to run a nonprofit," she added.

There are bright spots. A housing program for low-income families still has a dozen clients in various stages of homeownership.

A new minority business center, while not as grand as initially envisioned, has quietly gotten under way through a grant with Parkland College to bridge the "digital divide." The computer lab is open to the public for job searches or classes on computer skills or resume-building. Business owners also can get advice from retired business executives volunteering through the Chamber of Commerce.

But the agency's travails have Jones and other board members battling constant rumors – among them, that the FBI or state is investigating the agency because of the questions over the two state grant programs. Jones said she hasn't been able to verify that with city or law enforcement authorities, and knows of no investigation.

The Department of Healthcare and Family Services declined comment, citing the ongoing case in the state Court of Claims.

"The community wants to know what is the status of the Urban League, and there are clouds hanging over its head," Jones said. "I think there are still unanswered questions about what happened there."

Educational consultant Vernessa Gipson, who oversaw the Urban League's educational programs, said the league is getting "mixed reviews" in the black community, though she doesn't hear that much talk.

Some people are mistrustful – and Jones acknowledges this – because the agency is being run by a white woman. Others believe the board has "good business sense" and will "do what's right for the league as a whole," Gipson said.

"People don't know what's going to happen," she said. "We're waiting to see."

"A town of this size is fortunate to have an active Urban League," added former board Chairman Thom Moore, a retired UI professor. "It would not be good if it disappeared."

Not much good news has emanated from the Urban League of Champaign County in the past 12 months:

The league failed to file its annual financial report and audit for fiscal 2007, due last January, with the Illinois attorney general's office, canceling its registration as a nonprofit organization, a spokeswoman said. That means it could no longer solicit donations for charitable purposes, and it has raised no money since then.

With no audit, the league lost its remaining $55,000 of United Way funding for work force development and first-time homebuyers. The United Way requires agencies to submit annual audits. United Way CEO Lyn Jones said the league can reapply once its audits are up to date.

The league closed the 40-year-old Community Day Care center last winter and later eliminated its education department, transferring supervision and $80,000 in United Way funding for three programs – family outreach, Teen Reach and summer Freedom School – to the Regional Office of Education.

The Internal Revenue service imposed more than $130,000 in tax liens on the league because of unpaid payroll taxes in late 2007 and the first quarter of 2008.

To pay that debt and others, the Urban League recently sold the Community Day Care property and surrounding lots to the city of Champaign for $250,000. The money paid off the federal tax liens and loans used to pay property taxes in recent months, according to Urban League interim Director Sandra Jones.

The league also agreed to sell its downtown Champaign headquarters as soon as it can find a smaller location. The deal paid off the old mortgage and gave the league a new loan and $90,000 cash, allowing it to pay off other debts.

Now the league is selling another piece of property that's losing money, Crestwood apartments in east Urbana, part of an affordable housing program run by the Urban League Development Corp. The 20-unit apartment building, which takes in low-income renters, is half-empty because tenants have defaulted on their rent, Jones said. The league still owes $800,000 on the building, which is listed at $1.1 million, its appraised value, she said.