Philadelphia Housing Authority Didn't Support Payments for Outside Legal Services

Earlier this year, HUD audited the Philadelphia Housing Authority's (PHA) payments for outside legal services. The audit was a response to a citizen's complaint alleging the misuse of funds, a HUD auditor's concerns regarding PHA's use of outside attorneys on prior audits, and concerns over the large sums PHA paid for outside legal services reported in the media. In fact, PHA paid $30.5 million for outside legal services provided by 15 law firms during a three-year period. The objective of the audit was to determine whether PHA's payments to outside legal firms could be supported and if PHA complied with HUD regulations.

In March, the auditors found that PHA's payments to outside attorneys didn't comply with HUD regulations and other applicable requirements. Specifically, PHA didn't adequately support $4.5 million that it had paid to outside attorneys during the period April 2007 to August 2010, virtually the entire amount the auditors reviewed. This discovery raised questions about the propriety of the remaining $26 million in payments that the auditors didn't review.

According to the audit report, PHA made unreasonable and unnecessary payments of $1.1 million to outside attorneys to obstruct the progress of HUD audits. What's more, PHA didn't obtain HUD's written approval, as required, before accepting all settlement offers arising out of its lawsuits. Furthermore, although a previous HUD audit found some similar problems with PHA's payments to outside attorneys, PHA failed to implement the recommendations made in the previous audit.

Currently, the auditors recommend that HUD require PHA to:

• Provide adequate documentation to support $4.5 million in unsupported costs identified by the audit or reimburse the applicable programs from non-federal funds for any costs that it cannot support;

• Provide documentation to support the remaining $26 million in payments to law firms, if PHA cannot support the $4.5 million or reimburse the applicable programs from non-federal funds for any costs that it cannot support;

• Implement adequate procedures and controls to ensure that its payments for outside legal services comply with relevant laws and regulations, develop and implement controls to ensure that invoices for legal services are adequately verified and payments are made in accordance with the terms of the related contracts, and take appropriate measures to prevent and resolve conflicts of interest;

• Implement controls to ensure that HUD is notified of pending litigation;

• Obtain HUD's written approval before accepting a settlement offer arising out of litigation; and

• Implement controls to ensure that the use of attorneys is restricted on HUD audits and other HUD oversight activities.

Auditors also suggest that PHA revise its provisions in future legal service contracts to reinstate sections that it had removed, which required prior authorization for specific legal services, specifying work functions of various legal staff, and identifying activity descriptors needing additional explanation to be acceptable for payment. Auditors urge PHA to develop and implement a written policy and controls to ensure that contract requirements in its legal services contracts are enforced as well as allow HUD to periodically audit a sample of current and future legal contracts and payments to ensure that the responsible personnel enforce the requirements and reimburse law firms only for allowable expenses.

• HUD Audit Report 2011-PH-1007: Philadelphia Housing Authority, Philadelphia, PA (3/10/11).