We initiated the audit of the U.S. Department of Housing and Urban Development’s (HUD) efforts to recover the City of New London, CT, Housing Authority (Authority) due to its longstanding troubled status. The Authority has had significant management deficiencies for more than 10 years, and HUD identified the Authority as “overall troubled” in May of 2004. Our objective for this audit was to evaluate HUD’s effectiveness in identifying and helping to correct deficiencies at the Authority.

HUD had detected significant deficiencies but had not been effective in recovering the Authority from its longstanding troubled status. Although HUD provided extensive technical and monetary assistance and entered into a number of binding memorandums of agreement requiring improvement, the Authority’s condition continued to decline, it could not meet its debt obligations, and it remained troubled. The Authority has been troubled primarily due to the poor management of its Federal and State housing programs. In addition, its Federal housing projects did not meet HUD’s minimum housing standards.

HUD failed to take action in a timely manner when the Authority failed to make substantial progress in correcting its deficiencies. As a result, the Authority’s financial condition declined, creditors were not paid, liens were placed on its housing projects, and its rent receipts may be placed in receivership unless more than $1.7 million in unpaid utility bills is paid by January 2010. In addition, the Authority improperly used more than $524,000 in Federal funds for State programs, $105,000 for unsupported payments in lieu of taxes, $99,000 in Federal capital funds for State security patrols, and $97,000 for unsupported and unreasonable renovations and painting.

We recommend that the Director of HUD’s Boston Office of Public Housing ensure that the Authority (1) establishes and implements a financial/business plan to pay its creditors, avoid having a local receivership lien placed against its rents , and remove liens; (2) enters into an agreement to repay more than $900,000 in water and sewer bills; (3) properly accounts for its revolving account, stops using Federal funds for State programs, and repays its Federal programs an estimated $524,879; (4) repays or supports $97,106 paid for unreasonable and unsupported contract maintenance costs; and (5) repays or supports $99,939 in Federal funds paid for State security patrols.

We recommend that the Director of the Office of Field Operations (1) implements a formal process to report troubled housing agencies to the Assistant Secretary for Public Housing for a determination of the corrective actions required by HUD regulations and Federal statutes and (2) notifies the Deputy Assistant Secretary for Public Housing that the Authority is in danger of having a local receivership lien placed against its rents.

We recommend that the Director of the Departmental Enforcement Center pursue all administrative and/or civil monetary penalties for the regulatory agreement violations disclosed in this finding. In implementing this recommendation, the Deputy Director should consider all of the issues discussed in this report and audit report 2009-BO-1010.

In addition, the Authority has exceeded the maximum statutory recovery period, and our prior audit report number 2009-BO-1010, issued August 7, 2009, recommended that the Deputy Assistant Secretary for Field Operations inform the Assistant Secretary for Public and Indian Housing of the Authority’s inability to improve its score or meet the goals of the memorandum of agreement with HUD and determine the statutory remedies required under section 6(j) of the U.S. Housing Act of 1937. Therefore, the findings in this report should also be considered when implementing that recommendation.