In PHA audit, tale of lawyer overload

In late 2009, a federal auditor drove around Philadelphia to inspect 67 homes occupied by low-income families receiving Section 8 housing subsidies through the Philadelphia Housing Authority.

He took along an appraiser.

To escort them, PHA dispatched an employee and Section 8 expert - plus three outside attorneys who charged $330 an hour, or about $8,000 a day.

For up to eight hours a day over two weeks, the entourage traipsed through homes, often getting in the way of families, never asking a question but sometimes taking notes.

This was the way PHA operated during the 13-year reign of Carl R. Greene, ousted last September as executive director. It was a fortress, guarded by battalions of outside lawyers who earned "outrageous fees," according to the acting inspector general of the U.S. Department of Housing and Urban Development, Michael P. Stephens.

The Inspector General's Office recounted the Section 8 escorts in a scathing, 114-page report released Thursday on PHA's reliance on outside lawyers.

From 2007 through 2010, these lawyers were paid $38.5 million by PHA, which receives most of its funding from the federal government. Two firms - Ballard Spahr and Schnader Harrison Segal & Lewis - got $1.1 million for handling routine matters for audits that at other housing authorities are typically handled by lower-level staff, according to the inspector general.

The Schnader firm earned most of that money - at least $672,000 for legal services for two audits, more than twice what it cost the inspector general's staff to perform the work, the audit report said.

The partner in charge of HUD audits at Schnader, James Eisenhower, declined to comment.

"These taxpayer dollars could have been much better spent housing low-income families rather than spent on outside attorneys to simply tour the homes of low-income families," the inspector general's audit said.

In trying to get to the bottom of what PHA was spending its money on, auditors said, they were stonewalled by the very outside lawyers they thought were part of the problem.

PHA denies this. In a rebuttal to the audit's finding, the authority said there was "not a scintilla of evidence" that PHA, through its outside counsel, had not cooperated with the Inspector General's Office. The housing agency argued that much of the legal billing information the auditors wanted was confidential, protected by attorney-client privilege.

But with the new leadership at PHA, that posture could shift.

HUD took control of the housing authority March 4, forcing the five-member board of commissioners, whose chairman was former Mayor John F. Street, to resign.

The federal agency's chief operating officer, Estelle Richman, a well-known public official from Philadelphia, will act in place of the board.

She will work with Michael P. Kelly, the new administrative receiver, who is also an expert in turning around troubled housing authorities. In a statement Friday, Kelly said that "based on PHA's new governance, we are currently taking a fresh look at PHA's legal bills to identify what, if any, additional information can be made available to the public."

During his 13 years at PHA, Greene dismantled much of the agency's general counsel office, outsourcing to hired attorneys everything from complicated financing deals to routine real estate transactions.

The board fired Greene after the disclosure that PHA had secretly settled three sexual-harassment complaints for $648,000.

Asked to comment on the audit, an attorney for Greene, Clifford Haines, said that "because of circumstances," his client was unable to respond directly to many of the statements about his work.

But he added that Greene's methods, including using outside lawyers for certain kinds of work, were "transparent and well-known to both HUD and public officials."

"Much of the recent criticism of Mr. Greene has not been just kicking a man when he was down," Haines said, "but flagrant abuse of the facts."

Haines, as well as PHA in its response to the audit, argued that outside lawyers had performed key services for the agency. PHA cited the recovery of $11 million in lawsuit settlements last year alone.

The audit exposed years of pent-up animosity between the Inspector General's Office and Greene and PHA's outside counsel.

In fact, in PHA's official response to the audit, its main defense is that auditors were trying to "punish" the agency for the ill will between Greene and the Inspector General's Office.

"Rather than approach this audit with impartiality, the auditors were influenced by past experiences with PHA and its outside counsel," the housing authority replied.

And because those audits were contentious, it made it "impossible for PHA to obtain an objective review," PHA said.

While associated with HUD, the Inspector General's Office is independent of the department. Its mission is to detect and prevent waste, fraud, and abuse and make recommendations to HUD.

Stephens, the acting inspector general, said PHA's spending on lawyers had been like no other housing agency's. Citing the Section 8 tour that involved three outside attorneys, he recently wrote, "Never, anywhere else in the country, have we been accompanied by even one attorney."

The rate of spending on law firms became such a concern for HUD that the department halted on Feb. 1 the use of any federal money to pay outside lawyers.

Much is at stake in the allegation by the Inspector General's Office that PHA wastes money on outside lawyers. It wants the agency to reimburse HUD for more than $30 million in legal fees if the Philadelphia agency can't document what all those lawyers were doing.

In the audit on legal fees, the office said PHA had farmed out to high-priced lawyers matters that other housing authorities could have handled in-house.

"The main difference between the authority and other entities we have audited is its excessive use of outside attorneys which have obstructed the progress of our audits," the report said.

PHA replied that the time spent on these particular audits could have been reduced had the auditor had a better understanding of the Section 8 program. "Instead, PHA staff and counsel had to repeatedly explain even the most rudimentary program requirements," PHA said.

Kelly, the new administrative receiver for PHA, already has taken steps to rebuild the agency's in-house legal staff and has created an office for audits and compliance. He said that since Greene's departure, outside legal fees had declined 15 percent.

"PHA has already reduced its reliance on outside counsel as a result of systems it has put in place over the last few months, and it expects that trend to continue," the housing authority said.