ALBANY - While thousands of people waited years for affordable apartments in New York City, the agency that regulates low-cost housing allowed ineligible renters to move into the projects, according to a report released Wednesday.

State Inspector General Kristine Hamann's report also expressed concern that the “disproportionate” number of employees of the agency who also live in the projects could lead to abuse and conflicts of interest. One state Division of Housing and Community Renewal employee was convicted after moving himself into an apartment he was not eligible for.

Mark Marcucilli, assistant director of DHCR's Housing Management Bureau, pleaded guilty in 2006 to charges he defrauded the agency by falsely claiming his father lived with him in a low-cost complex in lower Manhattan. Marcucilli's income was too high for him to qualify for the apartment as the sole occupant.

The DHCR was “grossly deficient” in monitoring the state's Mitchell-Lama program, failed to enforce many regulations, and lacked internal controls on its activities, according to the report.

Started in 1955, Mitchell-Lama has provided land and government financing to developers for building low- and middle-income housing subsidized by the state.

The program includes about 190 housing projects, most of them in New York City.

Hamann, appointed by Gov. Eliot Spitzer, investigated the program's operation between January 2003 and October 2006, when it operated under the administration of Republican Gov. George Pataki.

Investigators found that DHCR failed to enforce rules that were “designed to ensure proper financial management and fair assignment of apartments.”

“These failures were obscured and, in fact, encouraged by the lack of any formal system to monitor receipt and review of required documents, sloppiness in record-keeping, and inadequate supervision of employees.”

The review also found a lack of financial oversight. In one case, Co-op City - the state's largest Mitchell-Lama development - cost the state more than $100 million to prevent bankruptcy of the company that operates the complex without a strict accounting of whether the payments were justified.

“DHCR, through its own shortcomings, has allowed housing companies to flout rules regarding apartment allocation, financial reporting, and contracting,” the report said. “DHCR's deep and systemic failures have resulted in deterioration of facilities, waste of taxpayer money, increase in charges to tenants, and the allocation of apartments to unqualified applicants at the expense of those legitimately entitled to those same apartments.”