Philadelphia Housing Authority Failed to Account for Millions in Federal Funding

March 14, 2011 — -- The nation's fourth-largest housing authority failed to adequately account for millions of dollars in payments made to outside law firms, according to a newly released federal audit. Auditors also found that the Philadelphia Housing Authority (PHA) paid $7 million to a firm that employed a relative of a board member, and spent more than $1 million on lawyers to obstruct federal investigators.

The findings are the latest blow to a housing authority that has attracted scrutiny from Congressional investigators over allegations of waste, misconduct, and questionable spending, and the newest sign that federal officials are taking a harder look at a housing authority they once hailed as a success. The problems of PHA and other local housing authorities funded by the U.S. government were detailed in a joint "Nightline" investigation by ABC News and the Center for Public Integrity.

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The Department of Housing and Urban Development's Office of Inspector General concluded that PHA had paid $30.5 million to 15 law firms in a three-year period while providing inadequate documentation. It conducted a detailed audit of $4.5 million of those fees and found "the authority did not support $4.5 million that it paid to outside attorneys during the period of April 2007 to August 2010, virtually the entire amount we reviewed, raising questions about the propriety of the remaining $26 million."

Auditors said that the housing authority had paid invoices submitted by firms with "little or no description of the work performed," using a practice, known as block billing, prohibited under HUD rules.

The Inspector General's office also discovered that the housing authority had employed law firms to stymie the progress of previous audits with $1.1 million in "unreasonable and unnecessary" costs. The report also cited an "apparent conflict of interest" with $7 million in payments to a law firm that employed the son of the housing authority board chairman and former city mayor, John Street.

A separate forensic audit of the agency is now underway.

"If we discover during the audit that PHA has inappropriately used taxpayer dollars to fund [other] activities at the expense of those greatly in need of housing, HUD will respond to the full extent permitted by law," said Melanie Roussell, a HUD spokeswoman, in a statement in December.

The housing authority receives most of its $345 million annual budget from the federal government. The joint investigation by ABC News and the Center for Public Integrity found that HUD has struggled to combat waste, mismanagement and corruption in the more than 3,000 public housing agencies it funds nationwide, including PHA.

"Taxpayers can't be on the hook for a blank check to law firms. Every dollar wasted is taken from the people waiting in droves for housing help in Philadelphia," said Senator Chuck Grassley, who has been investigating HUD's oversight of housing authorities. "[HUD] Secretary Donovan needs to take immediate action to recoup as much misspent money as possible and make sure this doesn't happen again."

The PHA has disputed the accuracy of the audit, saying the audit makes "inflammatory statements" about the PHA that are "factually inaccurate," and that the inaccuracies and a lack of objectivity have "led to serious misrepresentations."

"They weren't trained on how to identify mold. They didn't know what mold looks like. Many of the inspectors actually say that they didn't know there was testing available to test a home for mold," said Mike Trunk, an attorney for the family.