Philadelphia Housing Authority Failed to Account for Millions in Federal Funding

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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.

CLICK HERE to watch a "Nightline" report on troubled public housing.

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."

PHA Executive Director Carl Greene: 'Serial Sexual Harasser'

PHA Executive Director Carl Greene was forced out of his $306,000 per year job in September after the housing authority's board of commissioners concluded that he was a "true serial sexual harasser" who had secretly paid more than $500,000 in housing authority funds to settle harassment claims against him.

Officials at HUD initially sought to downplay the scandal, stating that Greene's "personal problems" should not detract from the "good job" the housing authority had done during his tenure.

Now the department's recent actions appear to acknowledge that the troubles in Philadelphia may not be confined to Greene's personal behavior. In February, HUD suspended funding for the housing authority's current legal contracts, and moved just last week to replace Street and the rest of the housing authority's board of directors.

"We believe the Philadelphia Housing Authority's recovery will proceed much faster if the current Board steps aside and allows HUD to step in temporarily to work in concert with its interim executive director to restore confidence in the agency and to protect the funding for the residents who rely on its services," said HUD Deputy Director Ron Sims in a statement.

Nichole Tillman, a spokeswoman for the housing authority, said that "PHA has already made sweeping management changes and is now under direct HUD control. We have also established a course for structural changes that the audit recommends, including establishing an Office of General Counsel and bringing a much larger share of legal work back in-house."

The allegations of financial improprieties in Philadelphia first surfaced in 2003, when former PHA attorney Michael Pileggi sued the housing authority over claims he had faced retaliation after refusing to lie to HUD lawyers who had raised questions over the "escalating cost of legal services" in a 2002 letter.

"There [were] a lot of monies spent unnecessarily on some cases that probably could have been resolved for much less," said Pileggi, who accused Greene of using a technicality in the housing authority's residency requirement to fire him before a meeting with HUD officials.

The lawsuit was settled out of court for an undisclosed amount. Pileggi now represents several former and current employees who say they were demoted or fired after going up against Greene.

"He had a lot of power. He was able to spend a lot of money in the right places and maintain that power base," said Pileggi.

Under Greene's leadership, the Philadelphia Housing Authority spent lavishly on gifts for managers and a party with belly dancers, but allegedly ignored complaints of unsanitary conditions that nearly killed a 12-year-old tenant.

CLICK HERE to read a statement from Carl Greene's lawyer.

Sandra Henriquez, assistant secretary at the Department of Housing and Urban Development, told ABC News that HUD officials were unaware of the problems in Philadelphia until local newspapers broke the scandal. She added that Greene's problems should not detract from the accomplishments made during his tenure.

"I would say the Philadelphia Housing Authority did a good job. I want to make that a separate conversation, and not overshadowed by whatever someone's personal problems might be," said Henriquez in the Nightline interview.

Longstanding Problems At PHA

Greene had been widely heralded for his leadership in revitalizing many of the city's crime-ridden public housing projects, but former employees and housing residents say that Greene's highly-publicized success masked longstanding internal problems at the agency.

A 2007 lawsuit exposed deficiencies within the housing authority's program to help low-income families afford safe and sanitary housing in the private rental market.

Twelve year old, Ebony Gage, suffered severe brain damage from an asthma attack while living in a home under the authority's subsidized housing program, more commonly known as Section 8.

Gage's mother, Angelique McKinney, told ABC News that poorly trained housing authority inspectors failed to detect dangerous mold that had built up from years of unrepaired water leaks throughout the house. She says that the housing authority employees handling her case were unresponsive to her pleas for help.

"Nobody cared. The representatives down there, they look at you like, 'Oh well, it's not our problem,'" said McKinney.

CLICK HERE to watch a video about Ebony Gage.

Deposition testimony in the case revealed that several housing inspectors and other Section 8 program employees were largely unaware of the harmful effects of mold.

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"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.

Philadelphia Housing Authority Paid $9.6 Million

The housing authority settled the case for $9.6 million last May, but did not admit any wrongdoing.

"There were no judicial findings or admissions supporting the allegations," said PHA spokeswoman Nichole Tillman. "PHA continues to be concerned about the health of its residents and goes above and beyond what is legally required. PHA has long had mold inspection and remediation procedures in place."

In another pair of lawsuits filed this fall, former employees and Section 8 landlords claimed that they were coerced into making payments to non-profit "slush funds" set up by Greene and top aides to fund parties and lobbying.

The housing authority's interim executive director, Michael Kelly, told ABC News that he believes the agency to be in good shape, but said that he is working to build a "culture of respect" among employees.

"There are opportunities to build up the culture of the organization and to build up the public confidence by making sure what we do here is done in a very transparent and accountable manner," said Kelly. "This is not an agency that will tolerate this kind of management by coercion."

Greene's attorney, Clifford Haines, said in a letter to ABC News that Greene's decision to give "briefcases" to "the people who performed exceptionally well" "makes PHA no different from hundreds of other agencies, business and corporations throughout the Commonwealth of Pennsylvania and the country that occasionally reward their employees."

Haines also said that allegations alluded to in ABC News reporting "are now the subject of litigation either by Mr. Greene or others." Said Haines, "The formal discovery process will reveal facts that strongly contradict what has been said and published by members of the press."

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