Housing Authority Says City Didn’t Cash More Than $2 Million In Checks

College Court housing complex, Housing Authority of the City of Milwaukee. Photo by Jeramey Jannene.

The surprise assessment from the City Comptroller that the beleaguered Housing Authority of the City of Milwaukee owes the City of Milwaukee more than $4 million in staffing costs and unpaid invoices took another twist Wednesday night.

HACM, according to new CFO Brad Leak, previously tried to pay at least half the balance.

“We did find out that there were some checks,” said Leak to the HACM board Wednesday evening. “We did verify $2 million plus where the city did not deposit the checks for whatever reasons. We kept calling, we have follow up emails. Once we got in our cash crunch, we then canceled the checks… we just couldn’t find the right department that could apply our receivables.”

Leak, who started in November and wasn’t present for much of the issue, said he believes the problem could be related to the city’s use of an aging PeopleSoft enterprise resource planning system and not issuing an invoice. The city is in the process of spending up to $28 million to replace the system.

The CFO said he has a meeting scheduled for Monday with Comptroller Bill Christianson.

Christianson, in a presentation to the council in February, described the $4.1 million debt originating from the unusual, “graduating decoupling over time” relationship between the city and HACM. Housing authority employees used to be housing within the Department of City Development, but, starting approximately two decades ago, new employees were placed solely within HACM. The housing authority is required to pay for the remaining employees, down to approximately two dozen, but is allowed access to the city’s accounting system to calculate the amount itself.

Christianson, in identifying several other issues, found underpayments had occurred as far back as 2015 and no payments had occurred since 2021. Leak’s new revelation clouds that picture even more.

HACM, according to Christianson’s summary, owes the city $3.6 million for the staffing and an additional $500,000 for invoiced services.

It also has a $1.1 million payment in lieu of taxes (PILOT) debt, which was overdue as of March 1.

“[The U.S. Department of Housing and Urban Development] has recommended, kind of strongly recommended, that we work with the city to get an abatement for this year due to our financial situation and our ‘Troubled’ status,” said Leak of the PILOT.

Additionally, it must make an annual contribution of more than $1 million to the pension system.  That balance is now accruing interest at 6.8%, though, said Christianson, it is not formally due until December. Leak said $400,000 is due March 31.

“We are going to see what payment plan and relief we can receive,” said Leak of the various debts.

“We are not just going to be taking a word for a bill,” said interim secretary-executive director Ken Barbeau. “While I trust the records that maybe the city has, I also want to verify.”

A spokesperson for Mayor Cavalier Johnson said the mayor has appointed board members and encouraged them to be “thoughtful and independent” to governing the agency. Johnson will review any requests from HACM for relief. “It’s not automatic,” said the spokesperson.

Leak and Barbeau said the board would be presented with options and be able to give direction. “It will definitely have to come from this body,” said Leak.

And regardless of how much HACM ends up owing the city, it still faces a cash crunch.

“While we are still working hard, we still have some financial issues,” said Leak. The new CFO revealed in January that he had discovered an illegal internal funding transfer between federal programs, resolving a failed audit that had triggered a federal agency to label the agency as “Troubled” and subject it to corrective action. Layoffs, a hiring freeze, paying bills late, cutting spending and other changes were made to address the agency’s financial issues, which are now larger following Christianson’s discovery.

“We have a long haul. We really do,” said Leak.

Since his hiring as finance director, Leak’s watched those above him depart. Embattled secretary-executive director Willie Hines, Jr. retired, deputy director and former CFO Fernando Aniban announced his resignation and departed early in January and finance director Rick Koffarnus retired.

He detailed to the board Wednesday how he has implemented new controls to HACM practices.

Accounting Staff Within HACM

Leak said his desire to improve HACM accounting and finance practices is moving slower than he would like due to the agency’s lack of in-house expertise.

“We really have a deficit over the years of the staff that understand how to run housing authority finance,” said Leak, an outsider who came to the city after working for housing authorities and other government agencies on the East Coast.

He’s praised interim finance director Pam Watson at multiple points for the quality of her work, but noted on Wednesday that she had “no previous management experience or putting the financial statements together… she’s very, very bright.” Hunt was an internal promotion.

An unnamed consultant with no public housing experience was trained, but is now departing after being trained. “He got an offer at another firm,” said Leak. “We’re probably losing him.”

Other staff members worked on reconciliation, accounts payable and accounts receivable work. He said there are three full-time employees and two temporary employees doing that work.

Travaux, HACM’s affiliate that handles construction and redevelopment, also has a financial team of seven employees said Leak. “Travaux has minimal transactions per year.”

“That would be my guess as well,” said board member and public housing consultant Karen Gotzler. “Part of our bigger restructuring plan, I know I have had this conversation with several of you, and I’m just going to say it publicly again: I think it’s really important that our functions be better integrated. Personally, I would like to see all of the accounting staff on the housing authority payroll and reporting to [Leak]. And not that that they’re not reporting to you, but that it’s much more clear they’re reporting to you.”

Leak called the current structure “very disjointed.” Gotzler said she would like to see “consistency as well as some efficiency.”

Barbeau said part of the federally-required sustainability plan includes evaluating the structure. “That is one of the items we’re working on,” he said.

“It sounds like there is some excess staff capacity on the Travaux side,” said Gotzler. Many of the nearly two dozen layoffs that occurred in January were within Travaux.

Leak said his team is still having trouble rectifying the financial accounting of its approximately 20 partnerships used to redevelop aging buildings or develop new buildings at Westlawn Gardens.

“We’re having some tough times there getting the books reconciled, which then leads to some additional revenue to us. And that’s where we’re going to spend a lot of time in the next three months,” said the CFO. Often using low-income housing tax credits, HACM partners with a private organization through Travaux to redevelop a property.

Discussing the timing of year-end audits currently underway, the CFO said June would be the opportunity to reorganize.

“We’re putting in six, seven days a week, we’re putting in nine, 10 hours a day, it’s definitely not due to a lack of effort,” said Leak of the team’s effort.

UPDATE: An earlier version of this article incorrectly identified the interim finance director.