HUD Letters Reveal Ticked off Inspectors: Alleged Lax Effort by CHA in October Audit

January 17, 2013
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When auditors from the regional office of Housing and Urban Development (HUD) showed up last October on the doorstep of the Chelsea Housing Authority (CHA) to dig into the alleged past abuses of former Director Michael McLaughlin, HUD says the CHA wasn’t prepared, didn’t cooperate and seemed not to care that they were in line for major penalties and immediate repayment orders of up to $7 million.

The alleged lack of effort was enough to get the CHA downgraded by HUD last month and thrown onto the federal “troubled” list. It also has HUD Regional Director Marilyn O’Sullivan possibly calling for the immediate repayment of more than $7 million that allegedly went unaccounted for during the McLaughlin era (from 2002 to 2011).

HUD IS STEAMED

O’Sullivan’s scathing letter, one of three, was received on Dec. 27th and was addressed to Executive Director Al Ewing and detailed numerous missteps in an attempted audit last October.

“The CHA failed to offer any documentation to support any expenditures charged to the CFA (Capital Fund Program) for the subject years (2002 to 2011),” read the letter from Sullivan, detailing the disastrous October audit of the CFA. “When I offered an additional 30 days for your agency to review records to see if documentation could be produced to support these expenditures I at first received no response from you or your staff, and then when pushed, was informed by you that you did not think it was worth your time to review the records. Quite frankly, I was astounded by the lack of knowledge, interest, responsibility and ownership displayed by both you and your senior staff members at this meeting – particularly given the extreme financial impacts the recapture of these funds have on the CHA.”

She continued, “The CHA did not comply with the administrative requirements for the grants and did not retain and make accessible records documenting the use of grant funds. The consequences for these egregious actions are severe.”

The recapture of that funds includes $7,005,981 of federal money designated for Capital Improvements that were apparently spent inappropriately – or at the very least – without proper documentation. That amount includes nine HUD grants sent between 2002 and 2009.

CHA HOPES TO SMOOTH OVER RELATIONSHIP

For its part, the CHA has held two special, emergency meetings that included Ewing and all Board members. They have discussed how to respond to the three letters and how to move forward. On Tuesday night, the CHA put the finishing touches on what is expected to be a response that attempts to smooth over the rocky relationship between the Authority and its federal partner, HUD.

It is also expected to lay out the groundwork for a long-term plan to get the CHA off the federal troubled list – a list that limits what kind of federal funding the Authority can receive.

Ideally, the CHA would like to move forward and put the McLaughlin era behind it. So, too, would the City of Chelsea – which has gotten quite a lot of negative publicity and public skepticism over the CHA debacle, potentially hurting the City’s reputation of a “New Chelsea” that is free from the embarrassing corruption of the past.

Ewing and Board Chair Tom Standish said last week that they are moving forward and have a response that they believe will satisfy HUD, which is not quite as ready to move on from the McLaughlin era as the CHA and City are.

But for federal agencies like HUD, part of the equation for moving forward is cooperating fully with the task of digging up the past.

According to the HUD letter, that’s exactly what did not happen last October, and exactly what has HUD so steamed that it is prepared to financially cripple the CHA if it does not start doing exactly what HUD wants it to do.

UNPREPARED FOR AUDIT?

O’Sullivan wrote that the CHA was notified in September that a comprehensive audit of past expenditures from the Capital Fund would be conducted on Oct. 2nd. The Authority was instructed to have all documentation immediately available for auditors when they arrived.

That did not happen, according to O’Sullivan.

HUD auditors were apparently not provided with any information upon arrival and were told by the CHA that it was unaware of any records for the expenditures, as they had been overseen by McLaughlin and the former Director of Finance.

“We were directed to work with the Director of Modernization for further assistance,” the letter read. “The Director of Modernization did share his records which contained less than 100 pages of non-original documentation and did not support nine years of federal funding for the purposes of modernization.”

HUD auditors were also directed to the files of the former Director of Finance, but the CHA had not reviewed those files and didn’t know what was there and what wasn’t.

That led HUD auditors to begin searching electronic records, and CHA staff were apparently unable to help get those records in any way – making HUD officials have to call the CHA’s software provider for help.

“Although the CHA was cooperative, it was evident that CHA staff did not have the capacity to produce the electronic records needed to illustrate and document the use of CFP funds and many other basic financial transactions,” read the letter. “HUD staff members contacted the CHA’s software provider directly and with their assistance, they were able to recover electronic records of CHA financial activity starting on 1/1/2002 through 9/30/2012.”

CHA COMES CLEAN WITH HUD

After a review of those records, auditors allegedly found egregious uses that did not match up with submissions to HUD. The CHA was informed of this in a meeting on Oct. 9th – being told that financial records contradicted annual plans, Capital Fund annual statements and Five Year Action statements. CHA officials at that meeting apparently indicated that there was an explanation for the discrepancy. However, when given 24 hours to back up that explanation, the CHA failed to act.

At an exit interview the next day, on Oct. 10th, O’Sullivan indicated that the CHA came clean.

“During that meeting the CHA admitted that it did not follow the Annual Plans as approved by HUD and did not conduct any formal public solicitations and procurements in compliance with applicable statutes and regulations,” read the letter. “The CHA further admitted that it conducted no federal modernization with the subject funds during the 11-year tenure of the Director of Modernization. In addition, the CHA failed to offer any documentation to support any expenditures charged to the CFP for the subject years.”

It was at that time that O’Sullivan relayed what was told above, about being astounded and, perhaps, requiring the repayment of more than $7 million.

Given what the CHA has been through in the past year, the telling of the botched audit tale by O’Sullivan is surprising given the CHA has tried so deliberately to be open, prepared and aggressive in moving forward. Such contrary actions, at least as alleged, seem to make one wonder just how serious the agency is about accepting the punishment for the past and moving away from it.

In the coming days, that is exactly what the CHA’s response will dictate and, hopefully, explain to the public and to HUD. Until that time, the recent actions have pushed HUD to put the former shining-star housing agency on the federal troubled list – a place no one wants to be.

TROUBLED LIST FOR CHA, RECOVERY MANDATED

In another letter on Oct. 30th to the CHA, nine points from an independent audit were outlined for immediate corrective action. The CHA responded on Nov. 20th, and in a letter received also on Dec. 27th, HUD found the CHA responses to be inadequate in all but one of the nine points.

It was seemingly a second strike for the CHA on HUD’s scoreboard.

Finally, a letter received on Jan. 3rd indicated that the CHA had been put on the troubled list as of Dec. 12, 2012. That came due to a failing score from the various audits of the CHA where the agency scored a total of 56 out of 100. Nevertheless, that same letter indicated that the Capital Fund audit fracas would likely reduce the score by another 10 points, sending the total down to 46 out of 100.

The individual scores broke down in the following way:  audited financials (0/25), physical condition (21/40), management (25/25), and Capital Fund (0/10).

“The Board of Commissioners/Governing Body of the Chelsea Housing Authority should take immediate action to identify the source(s) of the performance deficiencies and develop and implement a plan to recover its…score and ensure long-term sustainability at an acceptable level of performance,” wrote O’Sullivan.

The letter also identified some reasons why the Authority lost points on the physical inspection of properties. Those reasons included broken windows/seals that were supposed to have been replaced years ago with Capital Fund money and major health/safety violations. The physical inspection was done last year on May 30th.

O’Sullivan, finally, indicated that the CHA has 30 days from Jan. 3rd to come up with a comprehensive Recovery Plan designed to specifically show how the Agency will correct problems and get off the federal troubled list.

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