The Philadelphia Housing Authority will pay back the government $8 million in expenditures on outside lawyers that were deemed "not necessary and reasonable" by federal auditors.
The repayment represents more than one-fourth of what PHA spent on outside law firms from April 2007 through August 2010 under former Executive Director Carl R. Greene.
At the same time, HUD has agreed to return control of the authority to a local board of commissioners, ending two years of federal oversight.
Estelle Richman, PHA's sole, HUD-appointed commissioner, said the settlement over legal fees was the final issue holding up returning PHA to local control.
PHA will be governed by a nine-member board appointed by Mayor Nutter and approved by City Council.
Nutter called the turnover "an important milestone."
"I think we have a new era of accountability," he said.
A new PHA board chair is expected to be nominated at Friday's monthly board meeting.
The HUD inspector general launched an audit of PHA's legal spending in September 2010 following Greene's departure.
PHA's legal costs were "totally out of line with what is spent by other housing authorities," Richman said. "Much of the work that should have been done internally was being contracted out."
In the period from 2007 to 2010 reviewed by the inspector general, PHA spent $30.5 million on outside firms. Top among them was Ballard Spahr, the Philadelphia law firm where Gov. Ed Rendell worked before and after his tenure in Harrisburg.
In Congress, Sen. Charles Grassley, an Iowa Republican who heads the Judiciary Committee, applauded the settlement.
"The HUD inspector general and HUD were right to question where that money went and request repayment for inappropriate expenses," Grassley said. "Housing authorities have to remember that their money generally comes from the public. Their spending has to be documented and transparent for maximum accountability."
The HUD inspector general's office released its audit of PHA's legal bills in March 2011. Thursday's settlement closes the matter.
Among the abuses cited in the audit: submitting "block billings" without itemization of services; contracting lawyers to do work that could have been handled by lower-level PHA staff; duplicating services by hiring multiple firms for the same assignment; and obstructing the work of auditors by hiring lawyers to monitor them.
Clifford Haines, a lawyer for Greene, said PHA's former chairman, John F. Street, and the previous board approved the decision to employ the firms. Street was PHA chair during and after his eight years as mayor.
"No one has yet pointed to an iota of bad advice or sloppy work done by any of them," Haines said. "Much of their work was directed at protecting PHA from unreasonable actions either by the HUD inspector general or the department itself, saving Philadelphia millions of dollars."
To settle the audit, PHA will transfer money from nonfederal accounts to its reserve of federal funds, said PHA's new president and chief executive, Kelvin Jeremiah. The money, he added, will not leave Philadelphia but will replenish accounts for spending on housing.
PHA serves 80,000 people. Most of its $383 million budget comes from the federal government, but PHA also earns development fees and interest income.
PHA's spending on lawyers had been a source of friction between Greene and HUD going back more than a decade.
Greene was terminated from PHA in September 2010 after the board discovered that he had settled three sexual harassment complaints without their approval. HUD lost confidence in the board, which agreed to step down in March 2011.
Greene sued PHA for wrongful termination and the sides settled for $650,000 in February.
Under Greene, there had been a "complete breakdown in management, and the policy and procedures of the infrastructure of the organization," Jeremiah said.
He said that in the last two years, PHA has rebuilt its legal staff and hired a general counsel as well as staffed a new office of audits and compliance.
"We've addressed the deficiencies that existed prior to receivership," Jeremiah said. "We've put in place the controls that are necessary and don't anticipate past deficiencies to occur again."
Richman said PHA "is in a good place."