U.S. audit sharply questions PHA spending

In a blistering review of the Philadelphia Housing Authority's use of 2009 stimulus funds, federal auditors Tuesday questioned $27.4 million in spending on repairs for homes and said the agency made "unreasonable" payments to lawyers who impeded the audit.

The auditors, from the office of the inspector general of the U.S. Department of Housing and Urban Development, said PHA did not sufficiently track costs and should have to reimburse the federal government for any spending it cannot document.

The audit, covering a period when ousted Executive Director Carl R. Greene ran PHA, found that the agency typically did not take even the basic steps of obtaining required permits for electrical, mechanical, or plumbing work.

While Greene won plaudits during his 13-year tenure for razing dilapidated and crime-ridden public housing projects and replacing them with new housing, this audit examined the agency's management of its 7,300 scattered properties, only 4,000 of which are occupied.

It found that not only did PHA overspend for repairs, but that the workmanship was sometimes shoddy. Problems included ungrounded electrical outlets and heaters that did not properly vent fumes, the audit said.

"The authority's tenants were subjected to health and safety-related hazards, and the authority failed to use its ... funds properly," the audit charged.

Greene's attorney, Clifford Haines, said the criticism "cannot undo the spectacular success story of the public housing in Philadelphia while Carl Greene served as the executive director."

In addition to expressing concerns about spending for repairs, the inspector general criticized PHA's payments to outside lawyers. Last year, the agency spent $10.3 million on outside lawyers, more than any other major housing authority, an Inquirer review found.

In a separate audit of legal spending in March, the acting inspector general, Michael P. Stephens, condemned what he called "outrageous" overspending on lawyers.

The new audit noted that during HUD inspections of the scattered-site properties, PHA hired two outside lawyers to accompany inspectors.

In its one-page response to the audit, Michael P. Kelly, PHA's administrator, said the housing agency disagreed with many of the findings and believed that all federal funds spent on repairs "have been accounted for" and that the agency "received appropriate value for work completed."

As the nation's fourth-largest housing authority, PHA received $126.5 million in stimulus funding in 2009 as part of the American Recovery and Reinvestment Act. One of the projects to be funded was the rehabilitation of 340 units of scattered-site housing.

The audit sparked immediate comments from congressional critics of PHA's operations.

"This audit is the latest example of the Philadelphia Housing Authority's, and ultimately HUD's, failure to protect residents and taxpayers," said Sen. Charles Grassley (R., Iowa).

Grassley, the ranking minority member on the Judiciary Committee, blamed the Obama administration for weak controls on the 2009 stimulus program, which provided $4 billion for public housing agencies nationwide.

"The millions of stimulus dollars wasted in Philadelphia call into question whether the rest of the $4 billion was wasted just as badly," said Grassley, who has closely monitored PHA's spending since the fall.

The audit focused only on the $27.4 million spent for repairs for PHA's scattered-site housing around the city between March 2009 and June 2010.

Greene was fired by the PHA board in September 2010 after the disclosure that he had secretly settled, for $648,000, three harassment claims filed against him by female employees.

Haines, the lawyer for Greene, said the inspector general "ought not be in the business of his scathing attacks on the legal community because they have so often proven him wrong."

"He has repeatedly complained that lawyers interfere with his work, but those lawyers have successfully established that his complaints to HUD about how federal funds have been spent are without merit," Haines said. "There is no reason to believe that this audit is any different than the many that have preceded it."

The audit also blamed the problems on PHA's defunct five-member board of commissioners, which until March was chaired by former Mayor John F. Street.

"The authority's board of commissioners failed to meet its fiduciary responsibility to ensure that the authority complied with all federal laws and regulations," the audit said.

Street did not directly address that criticism. But in an e-mail Tuesday, he said HUD's inspector general had shown a "bias against PHA for some time."

"Carl Greene had a very hostile relationship with the I.G., who is now taking it out on PHA even though Carl Greene is long gone. To be sure, this audit will generate more work for lawyers," Street said.

HUD took over PHA in March after Street and the board resigned, appointing former Philadelphia Managing Director Estelle Richman as the local agency's receiver. Richman, who is also HUD's chief operating officer, acknowledged Tuesday that "there were problems with the manner in which the previous ... leadership tracked" money.

"The new leadership has now assured that all funds and projects have been tracked," she said. "Where vendors had not completed projects, made unauthorized substitutions or badly completed projects, they were required to complete, fix, restore those projects at their own costs."

The audit's harshest criticism of lawyers was leveled at the Ballard Spahr law firm, which it said had wrongly contended that PHA was not required to provide details on specific repairs.

The housing agency has paid $11.7 million to Ballard Spahr since 2007, more than any outside firm earned during that period.

The auditors also said a lawyer with another firm, Schnader, Harrison, Segal & Lewis L.L.P., demanded to know why the audit was being conducted and said he believed it was based on complaints by neighbors of PHA housing.

The report said the lawyer, who was not named in the audit, "demanded that we respond to this charge."

The inspector general replied that his office "had a statutory responsibility" to review HUD funding under the stimulus act.

Ballard chairman Arthur Makadon could not immediately be reached for comment. Neither could James J. Eisenhower, a Schnader Harrison partner who worked extensively with PHA.