HACM Illegally Reallocated Federally-Restricted Funds

Brad Leak (left) presents HACM’s financial condition to the board. Photo by Jeramey Jannene.

The new executives at the Housing Authority of the City of Milwaukee (HACM) didn’t take long to find the source of a major, multi-million dollar issue that has plagued the beleaguered agency for years.

From 2019 to 2022, the agency illegally transferred $2.8 million in federal funding from its Section 8 voucher program, which pays for residents to live in private housing, to cover administrative and overhead costs with its traditional public housing operation.

Now it needs to reverse it and finds itself with a $2.8 million hole.

“We have serious cash and liquidity issues,” said new CFO Brad Leak to the board during a special meeting Friday afternoon.

As a result, the agency has laid off 20 employees, frozen hiring, paid bills 45 days late, cut “nice to have” spending, restructured an overdue $1.6 million pension payment, identified $600,000 in uncovered development costs and is pursuing a payment plan for an overdue $1.1 million payment-in-lieu-of-taxes it owes to the city. It’s also expected to be slapped with a compliance action from the U.S. Department of Housing and Urban Development (HUD), which has already labeled the agency as “troubled.”

In an internal email, he said the agency would need to consider bankruptcy if no action was taken.

Leak, an outsider who came to the city after working for housing authorities and other government agencies on the East Side, was given the CFO title on Jan. 19. He joined the agency in mid-November.

Since his hiring he’s watched those above head for the exits. Embattled secretary-executive director Willie Hines, Jr. retired, deputy director and former CEO Fernando Aniban announced his resignation for Feb. 21, then pushed it forward to Jan. 8, and finance director Rick Koffarnus retired.

“Cash not being reconciled is a major indication of financial mismanagement, misstatement and indicates a serious lack of internal controls,” said Leak.

The funds transfers, said Leak, explain the reason a 2022 audit could not be completed: a $2.5 million variance could not reconciled. The audit resulted in HUD labeling the agency as “troubled” and requiring a recovery agreement, which board the approved earlier in Friday’s meeting.  The audit’s failure was also one of several drivers in the federal requirement to outsource management of the voucher program.

Leak said he does not expect criminal charges to be forthcoming, since the improperly used funding stayed within the agency. It was transferred to a central operation centers when financial shortfalls arose, attributed to overruns with development projects, like Westlawn, through the agency’s Travaux instrumentality and the COVID-19 pandemic.

“No one took anything home, that we can promise you. But we will have to answer to HUD when the time comes,” said Leak in a media scrum after the meeting.

Leak says he himself discovered the issue.

“Cash reconciliations are pretty straight forward,” said Leak. “You have cash in the bank, you have outstanding checks and you deposits in transit. Anything else has to go somewhere else and cash is somewhere else.”

Leak declined to identify the person responsible other than to call them “the former director of finance.” A job title only held by Koffarnaus in the time window described.

“Using federally-restricted funds for a different purpose other than related to the restriction is is improper and illegal under federal regulations,” said Leak.

How much Aniban and Hines knew is unclear.

“It makes me feel upset,” said acting secretary-executive director Ken Barbeau about the accounting issues. Hines served as COO during Hines tenure, but Aniban had oversight of the financial programs. Barbeau said he was unaware of the transfers until Leak brought it to his attention the week of the Jan. 17. “I don’t know who knew what because we are just digging into this.”

Barbeau, when he took oversight of the voucher program in 2022, said he inquired about the audit issue and was told”there are a lot of things that go into it and they were going to work on it, but it’s now two years later.” He said he wasn’t sure if “they,” Koffarnaus and Aniban, didn’t want to put out misstatements, didn’t want to get into the agency’s cash position or they were trying to cover something up.

He said the agency would work with HUD on next steps. And that a separate forensic audit, in addition to one for the voucher program, is being discussed.

“We are really committed to, as well as the board, to transparency and accountability,” said Barbeau, who answered reporters questions at length after the meeting, a departure from Hines. “And we are committed to building trust and rebuilding that trust with residents and the community. That is not going to be overnight and I understand it.”

Barbeau said the actions to reduce spending should have been done earlier.

Among those laid off from Travaux, an entity that manages development projects for the agency, was its leader Scott Simon. The position is not planned to be filled.

Board Weighs In

The board expressed its support for the measures taken. All but one member is newly appointed and the members, who serve without pay, have made it clear they want change.

Board members previously expressed frustration to Urban Milwaukee that at their first meeting in December they received an alarming letter from HUD that Hines and HACM had received in October. Part of Friday’s meeting included approving a federally-dictated recovery agreement and a sustainability plan related to the HUD’s October findings.

“We are not here any longer to go with any status quo. We are going to be completely transparent and it’s not going to look good,” said board member Alderwoman Sharlen P. Moore. She said the agency’s supporters and partners need to help right the ship. “Our housing authority is extremely important to the residents of this city.”

“Accountability breeds transparency,” said chair Charlotte Hayslett, a former HACM resident and employee. “To our residents on behalf of this commission, we apologize to you all… this is an embarrassment.”

Hayslett praised Common Ground Southeastern Wisconsin for “giving voice to the voiceless. If it wasn’t for you, people would still have been in place doing what they have been doing.” The organization launched a large campaign for improvement at the agency in March 2023. Its members, including some HACM residents, packed the room Friday.

Mayor Cavalier Johnson previously had criticized the coalition for what he said were “Trumpian” tactics and defended Hines, but on Friday board members praised the coalition. Hines, after vowing in September that he had many working years ahead of him, retired in December and collects a pension of nearly $12,000 per month.

“As soon as it was found, we came to you,” said Hayslett, speaking to the community about the financial issues. “It’s very humbling. We will work to earn your trust and restore that respect.”

“We have already uncovered some of our major issues,” said commissioner Karen Gotzler, a housing authority consultant. “I think we will all need to remember we are in the very early stages of discovery.”

“Back then, if they would have listened to residents they probably wouldn’t be in this predicament now,” said commissioner Jackie Burrell, a Westlawn resident. “So my thing right now is to make sure residents are being heard and you all take that into consideration.”

“Agreed,” said Barbeau.