Federal inspectors find Milwaukee's Housing Authority in disarray, 'at risk for serious fraud'

Editor's note: This story has been updated to include a statement from state Rep. Bob Donovan.

Shortly before New Year’s, a troubling letter went out to the head of Milwaukee’s housing authority and Mayor Cavalier Johnson.

It was a report from the U.S. Department of Housing and Urban Development, running 47 pages long. The housing authority was "at risk for serious fraud, waste, and abuse," HUD warned.

The agency's Section 8 office, which administers tens of millions of dollars in rent assistance, was severely short-staffed and lacked basic accounting safeguards, the report said.

A single staff member did the bookkeeping for — and issued — nearly $36 million worth of rent subsidies in 2021. And tenant Social Security cards were "displayed openly on unattended desks" as site reviewers walked through the office in October 2022.

In an internal meeting in mid-January, Milwaukee housing authority Secretary-Executive Director Willie Hines put it bluntly to his Section 8 staff:

“So now the wheel really has fallen off the cart,” Hines said, according to a recording of the meeting obtained by the Journal Sentinel. “It has, right?”

In April, another HUD report arrived, after auditors had sifted through the Section 8 office's bank statements, general ledgers and other financial records.

They found the housing authority's bank statements and internal books were millions of dollars apart. Housing authority staff couldn’t produce receipts to explain credit card expenses. Boxes of paperwork – some stacked nearly five feet tall – sat in stairwells and hallways.

Records were in such poor shape that auditors couldn't verify key financial balances for the Section 8 program.

The two reports, which the Journal Sentinel obtained through a public records request, reveal that federal regulators have been raising concerns for years about financial mismanagement inside the Housing Authority of the City of Milwaukee (HACM).

HACM provides housing assistance to more than 15,000 Milwaukee residents, according to the agency's estimates. One of its biggest responsibilities is the Section 8 housing choice voucher program, which subsidizes rent for people who are low-income, elderly or disabled.

For months, tenants and community organizers have accused the housing authority of shoddy record-keeping. Tenants say they've been hit with sudden, unfair charges, then threatened with eviction.

Common Ground — a coalition of local faith groups, businesses and other organizations — has been campaigning since March for an investigation of the housing authority's finances and rent collection practices.

Seeing these reports, organizers said they feel they've been told "a lie of omission."

"I think it proves everything," said Kevin Solomon, an organizer with Common Ground. "And I think it also shows it's time for new leadership: a new board and a new executive director and a new senior staff."

According to a HUD rubric for assessing Section 8 programs, public housing authorities that score less than 60% are labeled "troubled." Based on the last two audits, HACM's score is 28%.

Common Council President José Pérez, who has previously raised concerns about the housing authority properties in his district, was also surprised by the findings.

"Wow," said Pérez, after hearing excerpts from the audit report, adding: "I have not been privy to a report stating that."

In response, HACM leaders attributed many of the issues to recent technology upgrades, staffing challenges and the pandemic.

HACM has been transitioning to new accounting software since 2019. The pandemic added delays and complications to that transition, HACM leadership said.

The tight labor market has also squeezed the Section 8 office, HACM leaders said. Given the agency's budget constraints, it's hard to compete with pay in the private sector, spokesperson Amy Hall told the Journal Sentinel in August.

Hines, a former Common Council president who also served as HACM board chairman for more than 15 years, indicated he's hopeful for the future of the agency. HACM is working with the federal government on two corrective action plans to address the concerns the reports detailed.

On Wednesday, the HACM board approved a $600,000 contract with accounting firm CliftonLarsonAllen to conduct a five-year audit of its Section 8 program.

"Things are better, but we're still committed to improving ourselves," Hines said.

The mayor, through spokesperson Jeff Fleming, declined to be interviewed. Fleming said Hines speaks for the administration.

"I know the mayor has confidence in the leadership at HACM," Fleming said. "And while acknowledging that there have been significant identified problems, the focus is on remedying those problems. And the mayor has been assured that progress is underway."

High turnover and $3 million of 'book balancing'

Severe staffing shortages in the Section 8 office have created backlogs in paperwork and accounting, the reports showed.

Staff positions in the program had an 80% to 90% turnover rate from 2021 to 2022, HUD estimated.

In an interview Monday, Ken Barbeau, HACM's chief operating officer of program services, said some of those staffers assumed different positions and didn't leave the office altogether.

In December, when HUD auditors were on site, HACM was also months behind balancing its books, the report found. HACM staff couldn't provide documentation to explain more than $3 million in discrepancies in its bank balance.

HACM staff told auditors that when they couldn't determine what an expense was for, it was entered as a debit or credit to an account labeled "other revenue." The practice was "admittedly" done to "force book balancing," auditors wrote.

Hines said he believes the independent auditors will be able to resolve questions about HACM's accounting.

"We feel comfortable that what we did was accurate," he said.

Common Ground isn't satisfied.

The audits "[lay] out such jaw-dropping incompetence and mismanagement, that I think it must affect everything that Hines and the board are responsible for," said Jennifer O'Hear, Common Ground's executive director.

In a statement Thursday, state Rep. Bob Donovan, R-Greenfield, called for Hines' resignation and demanded more leadership from the mayor.

"The mayor has known about this for almost a year and we have heard nothing but crickets," said Donovan, who lost to Johnson in the mayoral election last year. "No plan or vision to address this chaos. Hines should step down."

'Regular and habitual' misuse of credit cards, missing receipts

When HUD auditors requested receipts and explanations for the housing authority's credit card charges, HACM staff told them those records weren't available, according to the April audit report.

Based on a review of credit card statements, HUD found "at least $49,876.16 in questionable and/or disallowed costs." Without supporting documentation, auditors added, "it is reasonable to question the validity of all costs billed to the credit card(s)."

Ineligible credit card expenses appeared "regular and habitual," based on that review.

HACM credit cards are typically used by property managers, along with the maintenance and mechanic division, HACM executives told the Journal Sentinel.

The third-party auditors "will get an opportunity to review that," Hines said.

HACM didn't have access to bank accounts for its own properties

The December report also revealed HACM didn't have access to the bank accounts for many of its properties that were formerly managed by Friends of Housing, a now-defunct nonprofit.

The sole signor on many of those accounts was the former director of Friends of Housing, according to the report.

"This is a serious concern to HUD," reviewers wrote, given that money earmarked for building maintenance wasn't accessible to HACM staff. At least one of those properties was visibly in need of maintenance, site reviewers reported.

"Equally concerning," reviewers added, "is that deposits are still being made" to these reserve accounts.

HACM had "not been successful" in switching over the signors on those accounts, the report said. HACM executives said they didn't know details about the attempts HACM staff had made to change those signors.

"One of the things we're grateful for is that HUD found some things that we need to work on, and that was one of them," Barbeau said. "I believe we've transferred all that."

Years of troubling audits

Federal regulators have been scrutinizing HACM's Section 8 program since at least 2015, when a HUD audit found problems with the agency's financial record-keeping.

Record-keeping issues arose again in the April report, and were a "repeat finding" from 2015.

Hines said he didn't recall discussions around the 2015 audit.

HUD Regional Administrator Diane Shelley referred back to statements she made to the Journal Sentinel in August. In the statement, Shelley said HUD had been engaged with HACM since 2019 to "correct course."

HACM is largely independent from the city, but the mayor nominates its board of commissioners.

Pérez said the council's oversight of HACM is limited.

"We don't control the budget," he said. "The only thing we do is confirm the appointments that the mayor gives us."

Members of the Common Council have called for inspections of HACM properties, Perez said — “and we’re going to figure out how to take accountability to another level to protect our constituents.”

Genevieve Redsten is a business reporter covering real estate. You can reach her at gredsten@gannett.com

THANK YOU: Subscribers' support makes this work possible. Help us share the knowledge by buying a gift subscription.

DOWNLOAD THE APP: Get the latest news, sports and more

This article originally appeared on Milwaukee Journal Sentinel: Milwaukee Housing Authority at risk of 'serious fraud,' HUD audit says