oversight

HUD's Oversight of Legal Costs at Moving to Work Housing Agencies Was Not Adequate To Ensure That Costs Were Reasonable and Necessary

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             Office of Public Housing
           Investments, Washington, DC
    HUD’s Oversight of Legal Costs at Moving to Work
                  Housing Agencies




Office of Audit, Region 3     Audit Report Number: 2016-PH-0004
Philadelphia, PA                              September 29, 2016
To:            Dominique G. Blom, Deputy Assistant Secretary for Public Housing Investments,
               PI
               //signed//
From:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA
Subject:       HUD’s Oversight of Legal Costs at Moving to Work Housing Agencies Was Not
               Adequate To Ensure That Costs Were Reasonable and Necessary




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s oversight of Moving to Work housing
agencies’ expenditures for legal services.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
215-430-6734.
                       Audit Report Number: 2016-PH-0004
                       Date: September 29, 2016

                       HUD’s Oversight of Legal Costs at Moving to Work Housing Agencies Was
                       Not Adequate To Ensure That Costs Were Reasonable and Necessary




Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of legal
costs at housing agencies participating in the Moving to Work Demonstration program based on
(1) congressional concerns, (2) concerns from a previous external audit, 1 and (3) our initiative to
focus HUD management’s attention on problem areas on which we and others have reported
over the years. Our audit objective was to determine whether HUD oversight of legal costs at
Moving to Work housing agencies was adequate to ensure that the costs were reasonable and
necessary.

What We Found
HUD’s oversight of legal costs at Moving to Work housing agencies was not adequate to ensure
that costs were reasonable and necessary. As part of this audit, we completed three external
audits of Moving to Work housing agencies and found that they did not always make payments
for outside legal services in compliance with applicable requirements. Based on our testing, we
projected that at least $9.2 million of the $16.5 million that the three agencies paid for outside
legal services during the period October 2007 to September 2012 could be unsupported. HUD
did not provide adequate oversight of legal costs because officials did not believe that these costs
needed to be monitored since they were small in relation to HUD’s overall budget. Although
total legal costs at Moving to Work agencies declined from 2010 to 2015, the agencies continued
to incur relatively higher costs for legal services compared to non-Moving to Work agencies.

What We Recommend
We recommend that the Deputy Assistant Secretary for Public Housing Investments require
Moving to Work housing agencies to include a breakdown of their anticipated and actual costs
for legal services in their annual plans and reports.




1
    Audit Report 2011-PH-1007, The Philadelphia, PA, Housing Authority Did Not Comply With Several
    Significant HUD Requirements and Failed To Support Payments for Outside Legal Services, issued March 20,
    2011
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: HUD’s Oversight of Legal Costs at Moving to Work Housing Agencies
         Was Not Adequate To Ensure That Costs Were Reasonable and Necessary ............. 5

Scope and Methodology .........................................................................................12

Internal Controls ....................................................................................................14

Appendixes ..............................................................................................................15
         A. Auditee Comments and OIG’s Evaluation ............................................................. 15

         B. Agencies With the Highest Legal Costs .................................................................. 18




                                                            2
Background and Objective
The United States Housing Act of 1937, codified as amended at 42 U.S.C. (United States Code)
1437, established the Federal framework for government-funded affordable housing. Congress
established public housing agencies to promote the general welfare of the United States by
employing the funds and credit of the United States to assist in providing decent and safe
dwellings for low-income families.

Congress established the Moving to Work Demonstration program in 1996 to give public
housing agencies and the U.S. Department of Housing and Urban Development (HUD) the
flexibility to design and test innovative, locally designed strategies in pursuit of the national goal
of delivering rental assistance more efficiently. The program’s intent is to pursue three statutory
objectives: (1) reduce cost and achieve greater cost effectiveness in Federal expenditures; (2)
give incentives to families with children in which the head of household is working, seeking
work, or preparing for work by participating in job training, educational programs, or programs
that assist people to obtain employment and become economically self-sufficient; and (3)
increase housing choices for low-income families. In pursuit of these objectives, Moving to
Work housing agencies are granted exceptions to many portions of the United States Housing
Act of 1937 and combine funds received for the Housing Choice Voucher program and public
housing capital and operating funds to use interchangeably. HUD’s Office of Public Housing
Investments, within the Office of Public and Indian Housing at HUD headquarters, is responsible
for program oversight. As of July 2016, there were 39 agencies participating in the program. 2

HUD funds used to pay legal fees have attracted the attention of Congress. Senator Charles E.
Grassley has written to HUD expressing his concerns about amounts paid to law firms. The
Senator noted that HUD did not maintain information about the amount billed and the kind of
work performed.

Office of Management and Budget Circular A-133, subpart C.300(c), requires housing agencies
to comply with laws, regulations, and the provisions of contracts or grant agreements related to
each of its Federal programs.

Regulations at 2 CFR (Code of Federal Regulations) Part 225, appendix A, require that costs be
necessary, reasonable, and adequately documented.

Regulations at 24 CFR 85.22 require costs of legal services incurred under HUD grants to be
reasonable. Regulations at 24 CFR 85.36 require housing agencies to ensure that contractors
perform in accordance with the terms and conditions of their contracts.

2
    Of the 39 agencies, 18 were extra large (combined number of public housing units and Section 8 vouchers
    administered was more than 10,000), 16 were large (combined number of public housing units and Section 8
    vouchers administered was between 1,250 and 9,999), and 5 were medium-high (combined number of public
    housing units and Section 8 vouchers administered was between 500 and 1,249).


                                                        3
Our objective was to determine whether HUD oversight of legal costs at Moving to Work
housing agencies was adequate to ensure that the costs were reasonable and necessary.




                                             4
Results of Audit

Finding: HUD’s Oversight of Legal Costs at Moving to Work
Housing Agencies Was Not Adequate To Ensure That Costs Were
Reasonable and Necessary
Moving to Work housing agencies incurred higher legal costs than other housing agencies, and
HUD lacked assurance that these costs were reasonable and necessary. Three external audits
found that Moving to Work agencies did not always make payments for outside legal services in
compliance with applicable requirements. Based on our testing, we projected that at least $9.2
million of the $16.5 million that the three agencies paid for outside legal services during the
period October 2007 to September 2012 could be unsupported. This condition occurred because
HUD officials did not believe that legal costs needed to be monitored since they were small in
relation to HUD’s overall budget. Although total legal costs at Moving to Work agencies
declined from 2010 to 2015, the agencies continued to incur relatively higher costs for legal
services compared to non-Moving to Work agencies. HUD needs to improve its oversight to
ensure that the costs are reasonable and necessary because Moving to Work agencies have a
greater risk for problems.

Moving to Work Housing Agencies Incurred Higher Legal Costs
Moving to Work housing agencies incurred higher legal costs than other comparable housing
agencies. The Financial Assessment Subsystem for Public Housing is HUD’s official system for
assessing the financial condition of housing agencies. It showed that 2,922 housing agencies
reported about $590.7 million in legal costs during fiscal years 2010 through 2015. During this
period, 35 Moving to Work housing agencies 3 reported about $131.3 million of this amount. As
shown in the charts below, the Moving to Work housing agencies accounted for 22 percent of the
total legal costs reported to HUD, yet they represented only about 1.2 percent of the total housing
agencies that reported legal costs.




3
    Of the 35 agencies, 16 were extra large, 15 were large, and 4 were medium-high.


                                                         5
                         Fiscal years 2010 through 2015 legal costs reported:
                                             $590.7 million

                                                                                       35 Moving to
                                                                                           Work
                                                              $131.3 million             housing
                                                                 22%                     agencies

                                         $459.4 million
                                            78%
                    2,887
                 non-Moving
                  to Work
                  housing
                  agencies




                                            Reporting agencies:
                                                   2,922                                35 Moving to
                                                                                            Work
                                                                                          housing
                                                                                          agencies

                                                                               1.2%
                                                                                            2,887
                                                                                            non-
                                            98.8%                                         Moving to
                                                                                            Work
                                                                                          housing
                                                                                          agencies



Of the 20 housing agencies reporting the highest overall legal costs, 9 were Moving to Work
agencies as shown in appendix B. Moving to Work agencies were responsible for $104.8 million
of $224.6 million, or 47 percent, of the total legal costs at these agencies.

Moving to Work housing agencies incurred higher legal costs than other comparable housing
agencies. As shown in the chart below, the average legal service cost per unit 4 at Moving to
Work agencies was significantly more than the average legal service cost per unit at comparable
non-Moving to Work agencies.




4
    Per unit amount is based on total legal costs for fiscal years 2010 through 2015 divided by the combined number
    of low-rent units and Section 8 units reported to HUD as of April 2016.


                                                          6
                                Average cost per unit
                       Moving to Work agencies vs. Non-Moving
                                  to Work agencies
                     $800                                   $727
                     $700
                     $600
     Cost Per Unit




                     $500
                     $400      $333                                         Moving to Work agencies
                     $300                     $251                          Non-Moving to Work agencies
                                      $169       $177
                     $200                                        $151

                     $100
                      $0
                              Extra large     Large      Medium-high
                            Housing agency sized based on number of units



Audits Identified Unreasonable, Unnecessary, and Unsupported Legal Costs
The risks of HUD’s failure to provide oversight of legal fees at Moving to Work housing
agencies was illustrated in our audit report 2011-PH-1007. 5 The audit found that the
Philadelphia Housing Authority, a Moving to Work agency, paid excessive legal fees totaling
more than $30.5 million to 15 law firms over a 41-month period. The evidence provided during
the audit showed that virtually all of the $4.5 million in payments reviewed was unsupported.
Additionally, an apparent conflict of interest existed in the awarding of five contracts totaling
$29 million for legal services to a firm that employed the son of the chairman of the Authority’s
board of commissioners, who voted in favor of awarding the contracts. Evidence provided after
the audit showed that the Authority improperly used Federal funds to pay two law firms at least
$48,500 to engage in prohibited lobbying activities. HUD worked with the Authority to address
the recommendations in the audit report and directed it to repay more than $8 million for legal
services that it determined to be unreasonable and unnecessary. Other audits found that other
Moving to Work agencies had engaged some of the same law firms.

As part of this audit, we completed audits of three Moving to Work housing agencies: the
Chicago Housing Authority, the Housing Authority of the City of Pittsburgh, and the District of
Columbia Housing Authority. The audits found that those agencies did not always make
payments for outside legal services in compliance with applicable requirements. Based on our

5
    See footnote 1.


                                                             7
testing, we projected that at least $9.2 million of the $16.5 million that the three agencies paid for
outside legal services during the period October 2007 to September 2012 could be unsupported.
The following paragraphs summarize the results of our audits.

Chicago Housing Authority
The Chicago Housing Authority made $503,744 in unsupported payments for outside legal
services from a sample of legal services valued at $916,076. 6 The Authority made unsupported
payments for legal services that

    •    Were performed by unapproved personnel.
    •    Lacked complete documentation, including contracts, purchase orders, checks, and other
         financial records.
    •    Reflected general descriptions of services.
    •    Lacked prior approval for (1) the use of consultants, (2) legal research hours and costs,
         (3) service extension from HUD, and (4) deposition costs; charges for time spent making
         telephone calls and on correspondence to copy services providers; and support for copy
         expenses and payment approvals.
    •    Reflected charges for intraoffice conferences, duplication of services by multiple staff,
         legal services without required advance approval, and improperly billed legal services
         due to incorrect billing rates.
    •    Included block-billed entries.

Based on our testing, we projected that at least $5.8 million of the $7.5 million in payments the
Authority made for outside legal services during the period October 2007 through September
2012 could be unsupported.

Housing Authority of the City of Pittsburgh
The Housing Authority of the City of Pittsburgh made $141,164 in unsupported payments for
outside legal services from a sample of legal services valued at $758,165. 7 The Authority made
unsupported payments for legal services that

    •    Included block-billed entries.
    •    Were provided by two outside law firms to assist it in preparing a response to a HUD
         Office of Inspector General (OIG) audit report.
    •    Were performed by unapproved personnel.
    •    Were not identified in the contract.

Based on our testing, we projected that at least $743,899 of the $2.9 million in payments the
Authority made for outside legal services during the period October 2007 through September
2012 could be unsupported.

6
    Audit Report 2015-PH-1805, The Chicago Housing Authority, Chicago, IL, Did Not Always Make Payments for
    Outside Legal Services in Compliance With Requirements, issued April 20, 2015
7
    Audit Report 2015-PH-1808, The Housing Authority of the City of Pittsburgh, PA, Did Not Always Make
    Payments for Outside Legal Services in Compliance With Applicable Requirements, issued September 30, 2015


                                                      8
District of Columbia Housing Authority
The District of Columbia Housing Authority made $1 million in unsupported payments for
outside legal services from a sample of legal services valued at $1.6 million. 8 The Authority
made unsupported payments for legal services

    •    For which the Authority did not maintain documentation to support the payments.
    •    Performed by unapproved personnel.
    •    Performed outside the contract period.
    •    That included block-billed entries.

Based on our testing, we projected that at least $2.6 million of the $6.1 million in payments the
Authority made for outside legal services during the period October 2007 through September
2012 could be unsupported.

Moving to Work agencies have a greater risk for problems because Congress exempted them
from much of the Housing Act of 1937 and associated regulations as outlined in their Moving to
Work agreements and they have considerable flexibility in determining how to use Federal
funds.

HUD Lacked Oversight of Legal Costs
HUD officials stated that they did not monitor or review housing agencies’ legal costs for
reasonableness because the amount spent on legal costs is small in comparison to HUD’s overall
budget. They further stated that they normally relied on independent public accountants to
identify instances of noncompliance with Federal regulations regarding the necessity,
reasonableness, and propriety of payments for legal services. We agree that the amount spent on
legal costs overall is small in relationship to HUD’s overall budget. However, oversight of legal
fees is needed at Moving to Work housing agencies because of the freedom and flexibility they
are afforded. Further, unreasonable and unnecessary payments existed at some of these agencies,
which had spent considerably more on legal costs than agencies not participating in the program.

We also found no evidence that the independent public accountants reviewed legal costs to
determine compliance with Federal requirements regarding necessity, reasonableness, and
propriety of such costs. We reviewed their audit reports and found that the only references to
legal costs were those included in notes to the financial statements regarding contingent
liabilities related to litigation.

Moving to Work Agencies’ Legal Costs Had Declined
HUD’s Financial Assessment Subsystem for Public Housing showed that Moving to Work
agencies’ legal costs had declined from $28.1 million in 2010 to $15 million in 2015. 9 The
following chart provides details.


8
    Audit Report 2016-PH-1801, The District of Columbia Housing Authority, Washington, DC, Did Not Always
    Make Payments for Outside Legal Services in Compliance With Applicable Requirements, issued April 4, 2016
9
    As of September 2016, there were three agencies that had not yet reported their legal costs in the Financial
    Assessment Subsystem for 2015.


                                                        9
                         Total legal costs reported for fiscal years 2010 through 2015
                      $120,000,000


                      $100,000,000


                       $80,000,000
   Dollar Amount




                       $60,000,000


                       $40,000,000


                       $20,000,000


                                  $-
                                          2010          2011            2012         2013          2014           2015
                   All agencies        $90,603,516   $99,363,064   $104,492,875   $97,562,875   $103,631,638   $95,022,861
                   MTW agencies*       $28,125,694   $31,261,013   $20,075,171    $20,731,792   $16,145,474    $14,977,563
                   Non-MTW agencies    $62,477,822   $68,102,051   $84,417,704    $76,831,083   $87,486,164    $80,045,298

*Moving to Work housing agencies.

We believe this decline was caused in large part by congressional interest in housing agencies’
legal costs as well as our continued interest and audits. For the Moving to Work agencies, it is
important to note that the decline in legal costs started in 2011 and the largest decrease in legal
costs occurred from 2011 to 2012. As noted above, we issued a significant audit report on the
legal costs of the Philadelphia Housing Authority on March 10, 2011.

Conclusion
HUD’s oversight of legal costs at Moving to Work housing agencies was not adequate to ensure
that costs were reasonable and necessary. Our audits found that Moving to Work agencies did
not always make payments for outside legal services in compliance with applicable
requirements, resulting in payments for unreasonable, unnecessary, and unsupported costs. This
condition occurred because HUD officials did not believe that legal costs needed to be monitored
since they were small in relation to HUD’s overall budget. Although total legal costs at Moving
to Work agencies declined from 2010 to 2015, agencies continued to incur relatively higher costs
for legal services compared to non-Moving to Work agencies. HUD needs to improve its
oversight to ensure that the costs are reasonable and necessary because Moving to Work agencies
have a greater risk for problems. If HUD required Moving to Work agencies to provide a
breakdown of anticipated and actual costs for legal services in its annual plans and reports, it
could better provide transparency over legal costs.



                                                                   10
Recommendations
We recommend that HUD’s Deputy Assistant Secretary for Public Housing Investments

      1A.    Require Moving to Work housing agencies to include a breakdown of their
             anticipated and actual costs for legal services in their annual plans and reports.




                                                11
Scope and Methodology
We conducted the audit from October 2012 through July 2016 at our office located in
Philadelphia, PA. The audit covered the period October 2007 through March 2016.

To accomplish our objective, we reviewed

   •   Relevant background information, including prior HUD OIG audit reports, U.S.
       Government Accountability Office reports, and congressional inquiries;
   •   Applicable HUD rules, regulations, handbooks, notices, and guidance;
   •   HUD’s organizational chart and employee listing related to the program;
   •   Public housing agencies’ annual contributions contracts; and
   •   Moving to Work agreements, annual plans, and reports.

We interviewed headquarters and field office staff of HUD’s Office of Public and Indian
Housing, the Real Estate Assessment Center, the Office of Public Housing Investments, and the
Regional General Counsel.

We nonstatistically selected as our sample five housing agencies within Region 3: the Housing
Authority of Baltimore City, the District of Columbia Housing Authority, the Harrisburg
Housing Authority, the Philadelphia Housing Authority, and the Housing Authority of the City
of Pittsburgh. We selected these agencies due to our experience with them regarding their
payments for legal costs. Although this approach did not allow us to make a projection to the
population, it was sufficient to meet the audit objective.

We obtained nationwide data from HUD’s Financial Assessment Subsystem Financial Data
Schedules for legal costs. Public housing agencies are required to submit their fiscal year end
financial information to HUD through this system. The line for reporting legal costs represents
legal fees or services incurred on behalf of the agency, projects and programs related to the
agency, and project and program operations. The reported legal costs may include costs for in-
house counsel and outside legal services as well as services provided by other legal services
providers, such as transcription services, court stenography services, etc. We also obtained the
following from the agencies in our sample:

   •   Copy of payments register(s) showing the amounts remitted to vendor payees;
   •   List of law firms, consultants, nonprofit organizations, and subcontractors with which the
       agencies contracted and the amount paid;
   •   List of legal costs incurred;
   •   Contracts register, listing the vendors with which the agencies had contracts during the
       audit period;
   •   List of legal settlements as a result of litigation brought against the agencies; and
   •   Copies of audited financial statements and independent public accountant engagement


                                                12
       letters for each fiscal year within the audit period.

In addition, we conducted external audits at three Moving to Work housing agencies (the
Chicago Housing Authority, the Housing Authority of the City of Pittsburgh, and the District of
Columbia Housing Authority) to determine whether the payments they made to outside legal
services complied with applicable requirements. While performing the external audits, we used
statistical sampling procedures to estimate the potentially unsupported payments related to the
universe of payments based on issues identified.

We relied on the information in HUD’s automated financial data schedules for fiscal years 2010
through 2015. The risk of inaccurate data was low due to system controls and separation of
functions between the data source and the HUD officials responsible for maintaining the system.
We performed minimal testing by comparing the system data to underlying audited financial
statements of our sample of agencies. Our limited testing indicated no material errors or
omissions. We believe the data were sufficiently reliable to meet our audit objective.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                  13
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   Effectiveness and efficiency of operations,
•   Reliability of financial reporting, and
•   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

•   Policies and procedures – Controls that HUD implemented to ensure that legal costs incurred
    by Moving to Work housing agencies were reasonable and necessary.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   HUD lacked controls to ensure that legal costs incurred by Moving to Work housing agencies
    were reasonable and necessary.




                                                  14
Appendixes

Appendix A
                      Auditee Comments and OIG’s Evaluation



Ref to OIG               Auditee Comments
Evaluation

             We provided HUD a copy of the draft report for review. We had an exit
             conference with HUD’s Deputy Assistant Secretary for Public Housing
             Investments and staff and discussed the audit’s results and
             recommendation. HUD provided oral comments during the exit
             conference. HUD chose not to provide written comments for this audit report.
             HUD agreed with the paraphrased oral comments provided below.
             HUD’s position was that it was not unexpected for legal costs at Moving to
             Work agencies to be higher than non-Moving to Work agencies. Although the
Comment 1
             Moving to Work program did not provide any flexibility related to legal costs
             specifically, the Moving to Work agencies have the flexibility to create
             innovative strategies, such as affordable housing development and sponsor-
             based housing, as part of their program, which may have necessitated additional
             legal costs. The agencies are required to serve substantially the same number of
Comment 2    families, a comparable mix of families, and maintain housing quality, making a
             large scale shift of housing dollars to legal services difficult. HUD’s position
Comment 3    was that the draft report presented an incomplete picture of the Moving to Work
             program relative to non-Moving to Work agencies. Moving to Work agencies
             account for 12 percent of the overall public housing and housing choice voucher
             portfolio. HUD stated that among housing agencies with the highest legal costs,
             there was a range of both Moving to Work and non-Moving to Work agencies
             across a variety of sizes, with some large agencies outspending some agencies
             that are extra-large. HUD stated that this raised the possibility that local factors
             like the cost of legal services and different State and local regulations, in
             addition to the differences in housing programs, contributed to differences in
             total spending on legal services. For these reasons, HUD believed that Moving
Comment 4    to Work housing agencies should not be subjected to additional administrative
             burden than non-Moving to Work housing agencies as it relates to reporting
             legal costs.




                                              15
                         OIG Evaluation of Auditee Comments


Comment 1   HUD stated that although the Moving to Work program did not provide any
            flexibility related to legal costs specifically, the agencies have the flexibility to
            create innovative strategies, such as affordable housing development and sponsor-
            based housing, as part of their program, which may have necessitated additional
            legal costs. We agree. Further, as stated in the report, Moving to Work agencies
            have a greater risk for problems because Congress exempted them from much of
            the Housing Act of 1937 and associated regulations as outlined in their Moving to
            Work agreements and they have considerable flexibility in determining how to
            use Federal funds.

Comment 2   HUD stated that Moving to Work agencies are required to serve substantially the
            same number of families, a comparable mix of families, and maintain housing
            quality, making a large scale shift of housing dollars to legal services difficult.
            However, as HUD has also indicated, the Moving to Work agencies have the
            flexibility to create innovative strategies, such as affordable housing development
            and sponsor-based housing, as part of their program, which may necessitate
            additional legal costs. Therefore, the amount of legal costs that the agencies incur
            can increase to meet the perceived need for those services.

Comment 3   HUD stated that the draft report presented an incomplete picture of the Moving to
            Work program relative to non-Moving to Work agencies. Specifically, HUD
            indicated that Moving to Work agencies account for 12 percent of the overall
            public housing and housing choice voucher portfolio. We agree that Moving to
            Work agencies account for 12 percent of the total portfolio. However, we
            disagree that the report presented an incomplete picture of the Moving to Work
            program relative to non-Moving to Work agencies. As stated in the report,
            Moving to Work agencies accounted for 22 percent of the total legal costs
            reported to HUD, yet they represented only about 1.2 percent of the total housing
            agencies that reported legal costs.

Comment 4   HUD stated that Moving to Work agencies should not be subjected to additional
            administrative burden than non-Moving to work agencies as it relates to reporting
            legal costs. We do not believe that the additional reporting we are recommending
            will create an administrative burden. Rather, a breakdown of anticipated and
            actual costs for legal services should be readily available in a well-managed
            housing agency. In addition, the taxpayer deserves full accounting and
            transparency over these costs in light of the fact that much of these legal costs
            should be covered by existing in-house legal staff already employed by housing
            agencies. As stated in the report, Moving to Work agencies have a greater risk for
            problems. They were 1.2 percent of all the housing agencies that reported legal
            costs to HUD and they spent $131.3 million on legal costs which was 22 percent
            of the total spending on legal costs by the housing agencies that reported them to


                                              16
HUD. Their spending per unit on legal costs was significantly more than the
average legal cost per unit at comparable non-Moving to Work agencies. In
addition, our three external audits have shown that Moving to Work agencies do
not always make payments for outside legal services in compliance with
applicable requirements. Therefore, requiring Moving to Work agencies to
provide a breakdown of anticipated and actual costs for legal services in its annual
plans and reports, could better provide transparency over legal costs.




                                  17
Appendix B

                           Agencies With the Highest Legal Costs
                              (fiscal years 2010 through 2015)
                                                                             Moving to Work
                                               Housing        Total legal
                  Housing agency                                             housing agency
 No.                                          agency size     costs paid
                                                                               legal costs
  1    * Philadelphia Housing Authority       Extra large    $29,913,770       $29,913,770
  2      Housing Authority of the City of     Extra large
         Los Angeles                                          26,674,734
  3      Newark Housing Authority             Extra large     20,892,652
  4      New York City Housing                Extra large
         Authority                                            18,727,412
  5    * Housing Authority of Baltimore       Extra large
         City                                                 14,798,023       14,798,023
  6    * District of Columbia Housing         Extra large
         Authority                                            12,952,324       12,952,324
  7    * Chicago Housing Authority            Extra large     11,898,863       11,898,863
  8      Cuyahoga Metropolitan Housing        Extra large
         Authority                                            9,779,115
  9    * Housing Authority of the City of     Extra large
         Pittsburgh                                           8,584,383         8,584,383
 10      Jefferson County Housing                Large
         Authority                                            8,458,347
 11    * Atlanta Housing Authority            Extra large     8,096,244         8,096,244
 12      Boston Housing Authority             Extra large     7,691,175
 13      Housing Authority of New             Extra large
         Orleans                                              7,218,191
 14    * Housing Authority of the City of        Large
         New Haven                                            6,819,951         6,819,951
 15    * San Diego Housing Commission         Extra large     6,509,669         6,509,669
 16      Richmond Redevelopment &               Large
         Housing Authority                                    6,494,634
 17    * Oakland Housing Authority            Extra large     5,264,747         5,264,747
 18      Housing Authority of the             Extra large
         Birmingham District                                  4,782,046
 19      Metropolitan Development &           Extra large
         Housing Agency                                       4,527,119
 20      Puerto Rico Public Housing           Extra large
         Administration                                       4,480,043
                                                 Totals      224,563,442       104,837,974
* Identifies the nine agencies participating in the Moving to Work program


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