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Staff Photo by Matt Hamilton / Chattanooga Mayor Tim Kelly was cleared by the city's internal audit office after a review of whether there was a conflict of interest in displacing a homeless encampment at the former Southern Honda Powersports location on Workman Road before selling the property.

Chattanooga's internal audit office has cleared Mayor Tim Kelly of any potential conflict of interest after reports a homeless encampment was removed from a property that he later sold for nearly $3 million.

The office's findings came two weeks after the Times Free Press, based on emails and documents obtained through a public records request, inquired about the city's actions leading up to the mayor's private transaction.

The newspaper reported that government officials and homeless organizations beginning in the spring discussed working to address litter issues and later the displacement of an encampment at the former location of Kelly's Southern Honda Powersports at 1394 Workman Road.

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Read the auditor's review of the Workman Road homeless encampment investigation

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The encampment on the property was cleared as of August, according to internal emails obtained by Times Free Press, ending a four-month effort to address the homeless issue while the mayor was in the process of selling the property.

"We found no evidence or indication that Mayor Kelly used, or attempted to use, his position as mayor for personal financial gain, or to receive preferential treatment from any city official or employee," read the three-page report released late Thursday.

The mayor's office declined an interview with Kelly for the original Times Free Press story, but he was interviewed for the internal review.

"Mayor Kelly stated unequivocally that he has not been involved with the Workman Road properties since becoming mayor," the report states. "He explained the properties were placed under the control of a business management team. He was not directly involved in the management, maintenance or sale of the properties; nor did he recall ever receiving any notices from the city concerning potential litter violations. He insisted that he is completely divested from the operations of Southern Honda Powersports."

Kelly had promised on the campaign trail to place his assets in a blind trust to avoid conflicts, but the Times Free Press learned in reporting the story that such a blind trust has not yet been put in place, although it's in the works. The newspaper also reported that Kelly's signature was on the documents executing the land sale to a company called 1394 Workman LLC.

According to the audit, Kelly "was unaware that a blind trust had not been established to administer his business investments."

The auditor's report was requested by Kelly and released by his office.

(READ MORE: Auditor to review sale of Chattanooga Mayor Tim Kelly's land for possible conflict after homeless encampment cleared)

"The issues discussed in this report are not the result of an audit performed in accordance with generally accepted government auditing standards," the report said. "Had we performed such an audit, additional issues might have been reported."

When asked why a full audit wasn't performed, City Auditor Stan Sewell in a Thursday email said that such audits don't occur often and take significantly longer to complete.

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Staff photo by Logan Hullinger / The former location of Southern Honda Powersports on Workman Road. Chattanooga Mayor Tim Kelly sold the property after the city and homeless organizations cleared the encampment.

"Audits require a very lengthy process (e.g. even when an audit is complete, we have to provide a draft report and wait two weeks before issuing it)," he said.

The office publishes 50 to 60 non-audit reports annually, while it only conducts seven to 10 full audits, Sewell added.

Kelly's administration had maintained all along that there was no ethical or legal issue with the land sale.

(READ MORE: Chattanooga coalition says new vandalism ordinance could target city's homeless)

"As expected, the report's findings find that Mayor Kelly and this administration followed protocol, made decisions consistent with previously established policy and procedure," said Joda Thongnopnua, the mayor's chief of staff, in an email.

He added on Twitter: "We are pleased to see the independent report echoes what our administration has said publicly from the start."

The report walks through efforts by David Carmody, CEO of Southern Honda Powersports, regarding the land in question.

"In or around July 2021, after Southern Honda Powersports had moved to another location, Mr. Carmody contacted [Office of Homelessness and Supportive Housing] Program Outreach Coordinator Casey Tinker to discuss potential options for relocating the homeless encampment that remained on Mayor Kelly's property," the report states. "According to Mr. Tinker, Mr. Carmody did not wish to have the occupants of the encampment removed by police for trespassing. Mr. Tinker subsequently met with Director of Community Development Sam Wolfe to develop a plan to offer relocation assistance and other services to the individuals impacted by the removal of the encampment.

(READ MORE: Chattanooga government does not reflect the city's diversity, new data show)

"Consistent with OHSH's policy and procedures for homeless intervention, approximately 20-25 displaced individuals from the encampment were transported to a local hotel and offered lodging and other supportive assistance, funded by a Homeless Emergency Solutions Grant from the U.S. Department of Housing and Urban Development. No police officers or emergency responders participated in the removal of the encampment."

The investigation by the auditor included reviewing the city's code of ethics, interviewing Kelly and city employees and reviewing policies about nuisance violations and litter removal, the last of which was what officials have said was the main reason for clearing the encampment.

Contact Logan Hullinger at lhullinger@timesfreepress.com or 814-319-5158. Follow him on Twitter @LoganHullinger.

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