Federal auditor calls PHA legal payouts 'outrageous'

The federal government's top housing auditor on Thursday blasted the Philadelphia Housing Authority for paying "outrageous fees to law firms that were unnecessary."

In a statement accompanying a 114-page audit of PHA's legal spending, Michael P. Stephens, acting inspector general of the U.S. Department of Housing and Urban Development, called for "aggressive reform" at the scandal-ravaged Philadelphia agency.

Under federal law, the Inspector General's Office is independent of HUD, which temporarily took control of PHA last week after forcing the resignation of the board and its chairman, former Philadelphia Mayor John F. Street.

"Having reviewed many housing authorities over the years, it is clear that the board and executive director of the Philadelphia Housing Authority tremendously abused their positions," Stephens said.

"The outrageous fees paid to law firms were unnecessary and exorbitant and denied taxpayer funds to benefit the occupants of the Housing Authority."

The blistering audit looked at PHA's legal spending between April 2007 and August 2010, when Carl R. Greene ran the agency. He was fired the next month for concealing settlements of harassment complaints from women who had worked at the housing agency.

Stephens singled out board votes by Street, who approved giving contracts to the law firm - Wolf, Block, Schorr & Solis-Cohen - where his son Sharif worked at the time, between 2004 and 2008.

"Chairman Street's approval of contracts to the law firm that employed his son is an exceptionally distasteful conflict of interest," Stephens said.

John Street and his son did not respond to requests for comment on the statement by Stephens. Sharif Street has previously said that he was "very careful" to submit accurate billings.

PHA, in a response signed by Greene's interim successor, Michael P. Kelly, contended that the audit was "inflammatory" and biased against PHA because the Inspector General's Office had a long and "contentious" relationship with Greene.

A total of $30.5 million was paid during the three-year period to 15 legal firms. Of that total, auditors reviewed 472 invoices for $4.5 million in legal bills - but could substantiate payments only for $11,800 in billings.

The audit concluded that PHA must repay that money if it could not provide adequate explanations for those legal services. It also raised questions about the propriety of the remaining $26 million in billings.

"Our investigation on this issue continues," Stephens said. "It is my hope that HUD will aggressively reform the overall management of this important housing authority and return the focus to improving the lives of those citizens that we serve."

"The amount the authority paid for only one hour for one outside attorney could have been used to house a low-income family for a month," the audit report said, citing the example of outside lawyers who were charging $330 an hour.

The audit report said that the Inspector General's Office had little direct contact over the years with Greene because the PHA made "unreasonable and unnecessary" payments of $1.1 million to outside lawyers to "obstruct" the progress of current and past audits by the inspector general.

Auditors said they were denied access to records of legal costs, while other information was delayed, even after issuing a subpoena. They also complained of "unreasonable constraints" placed on their access to PHA personnel.

The inspector general said that PHA regularly approved "block billing," meaning that law firms simply listed an amount they were owed for "services rendered," or for legal advice without further elaboration.

Last week, when The Inquirer sought Kelly's explanation of billings for Sharif Street's work - totaling $778,000 - he said doing so would violate attorney-client confidentiality.

Auditors complained that PHA invoked the same rationale for refusing to provide information to them.

In addition to failing to document its legal expenses, the report concluded, PHA did not obtain required HUD approval on settlements to litigation.

The PHA response repeated John Street's assertion that he thought he had obtained a waiver from HUD to vote on the resolutions. The inspector general rejected that contention in the audit.

PHA also defended its past performance, saying it was responsible for "years of undisputed revitalizing of Philadelphia's public housing and improving conditions for residents."

"It is clear that the audit is designed to attack PHA and its counsel," who questioned the accuracy of previous audits, the PHA response said.

The agency argued that using outside counsel had saved the agency "untold millions of dollars annually on frivolous claims," including "$11 million in lawsuit settlements in the last year alone."

As to the audit's allegation that PHA failed to cooperate, PHA said it provided copies of hundreds of legal invoices and other documents "as quickly as possible."

In addition to PHA's written response to the report, the agency's spokeswoman, Nichole Tillman, issued a statement Thursday night:

"Despite areas of disagreement outlined in PHA's response, 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.

"We look forward to working with HUD to resolve all outstanding issues in order to regain the public's confidence in PHA's operations."

HUD's chief operating officer, Estelle Richman, was appointed last week to act as a one-woman PHA board, with Kelly reporting to her as an administrative receiver. They will run the agency for at least a year before HUD appoints a new board.

"We have complete confidence in Michael Kelly and Estelle Richman," said HUD spokesman Jereon M. Brown. "The changes already implemented by Mr. Kelly represent a significant step in the right direction."

In 2010, PHA spent more on outside legal fees than public housing agencies in other large cities, according to an Inquirer review. The Inquirer review, covering full-year billings from January 2007 until the end of 2010, found that $38.5 million was paid by outside counsel.

During Greene's 13-year tenure at the helm of the agency, PHA dismantled most of its legal department, farming out work to outside law firms.

In an e-mail reply, Clifford Haines, an attorney for Greene, said he would not comment on behalf of his client until he reviewed the audit.

He said of Stephens, "While I believe he's off the mark, I'd like to reserve comment until I see the whole audit."

U.S. Sen. Charles E. Grassley of Iowa, the ranking Republican on the Judiciary Committee, who has been scrutinizing PHA's finances, called the audit "one of the strongest" in memory.

"It sounds the alarm in plain words," Grassley said. He said the level of spending on legal services by the Philadelphia agency is "untenable.

"Taxpayers can't be on the hook for a blank check to law firms," Grassley said.