HUD Outlays Paid for Phony Work Orders

Thinking it was renovating homes that the government owned, the nation's housing agency paid for substandard and never-performed work that left properties in deplorable condition, congressional investigators say.

Despite "repair" bills paid by the Department of Housing and Urban Development (search), the report - obtained Wednesday by The Associated Press - showed pictures of New York City properties with filthy bathrooms, stained ceilings, missing tiles and bare metal doors.

Payments included $1,590 for a small kitchen cabinet, $3,978 for an outdoor stoop with uneven patches of concrete and $1,082 for a few wooden dowels to help prop up a bannister.

The General Accounting Office (search) report said $16.3 million in payments could not be supported and an additional $181,450 may have been fraudulent in the fiscal years ending Sept. 30, 2002, and 2003.

"HUD's lack of oversight means that for far too many families, home sweet home is not so sweet," said House Government Reform Committee Chairman Tom Davis, who requested the report.

"Tenants should not have to live in squalor simply because HUD continues to do business with poor performers, or because HUD doesn't even know if the work it's paying for with taxpayer dollars is getting done," said Davis, R-Va.

HUD, through its Federal Housing Administration (search), helps finance home purchases by insuring private lenders against losses. If buyers default, HUD assumes title to the properties and hires contractors to manage them and make repairs.

"HUD did not monitor contractor performance and take prompt action to correct known deficiencies," the GAO said. "As a result, we found a number of instances where HUD paid for contractor services that were substandard or not performed at all."

Federal Housing Commissioner John Weicher, in an interview, disputed several conclusions in the report.

He said $15.2 million in payments to six contractors, called questionable by the GAO, went for work that was performed. He rejected the investigators' conclusion that there was no supporting documentation, calling this a dispute over which file drawer contained the proper documents.

Weicher added that HUD withheld $900,000 from a contractor that left properties in deplorable condition, hired a new contractor and referred the case to the department inspector general.

The GAO said it questioned payments because contracts were modified without supporting documents. It cited a $1.3 million payment in June 2002, supported only by an invoice that said "Lump Sum Payment for Change Order."

The investigators also questioned payments for: water and sewer work performed before the properties were in the federal inventory; a settlement with a contractor for a lead paint abatement program that exceeded the contractor's request; and reimbursement to a contractor who paid someone $1,300 to vacate a property that was not in the HUD inventory.

In another instance, HUD paid a "lawn service and repairs" bill that was initialed three times by the same person, certifying receipt of competitive bids, completion of work by a subcontractor and an inspection of the job. The contractor that received the payments could not identify the initials and then advised HUD the work orders had been falsified.

In June 2003, the GAO visited nine HUD-owned single-family properties in New York City. The investigators said they "determined that all of the $136,264 payments tested were potentially fraudulent payments."

"All of the invoices that we tested indicated that the work performed was purported to have been for emergency repairs, meaning that no HUD preapproval was required, nor was the property manager required to obtain competitive bids," the report said.

"Many of the work projects for the same addresses were split among multiple invoices, most likely to stay below the dollar threshold requiring HUD approval." Approval was required for jobs expected to exceed $2,500.

The work on the New York properties included a "new" bathroom floor that had old tiles, many of them missing; a bathtub so stained that the white color only appeared in the top half; a "new" kitchen ceiling that was left unpainted; and a "plastered and painted" ceiling with a large, unpainted stain.

HUD also reacted slowly to problems, the report said. The agency became concerned about one contractor's work shortly after the business was hired in 1997 to manage multifamily properties. Despite several years of questioning the business' billing practices, HUD didn't end the relationship for seven years.