Milwaukee Housing Authority executives are scrambling to cut costs, after the agency’s new chief financial officer discovered that more than $2.8 million in rental assistance funds were misused by his predecessors.

Between 2019 and 2022, the Housing Authority’s former director of finance improperly pulled restricted federal funds out of the Section 8 rent assistance program to cover cash needs in other divisions of the agency, according to the CFO’s discovery.

Those transfers were used to cover a number of expenses — including administrative payroll and costs from construction projects that had gone over budget.

As a consequence, the Housing Authority says it is running an average of 45 days behind on paying its expenditures. The agency also has fallen behind on its pension fund contributions, and costs from its development projects currently exceed the amount covered by construction loans.

Now, executives are making major cuts to help “stop the bleeding.” On Thursday, 20 Housing Authority employees were laid off to bring down expenses.

New finance hire solved $3 million mystery

The dramatic discovery — disclosed publicly during a special meeting of the Housing Authority Board of Commissioners on Friday afternoon — solves a mystery that confounded agency leaders, the mayor’s office and federal regulators for nearly two years.

In April 2023, federal auditors reported finding more than $3 million in “unexplained variances” on the Housing Authority’s bank balance. After nearly two years, the agency’s finance team had failed to reconcile that cash balance.

Brad Leak — who joined the Housing Authority’s finance team in November and was promoted to be its chief financial officer on Jan. 19 — was able to trace that cash within a matter of months.

The revelation also comes after a dramatic leadership shakeup inside the agency.

All but one member of the Housing Authority Board of Commissioners are new appointees, and a slew of top executives have either retired or resigned in recent months — including Willie Hines, the agency’s controversial top executive and Fernando Aniban, the Housing Authority’s second-in-command and former chief financial officer.

Other recent departures include Finance Director Rick Koffarnus, Housing Choice Voucher Program Director Jackie Martinez and Warren Jones, vice president of construction for the Housing Authority’s development arm.

No evidence employees pocketed funds, more investigation promised

The use of restricted federal funds for unauthorized purposes is “improper and illegal under federal regulation,” Leak said in his address to the board Friday.

But Leak and Acting Secretary-Executive Director Ken Barbeau say they have not found evidence that the funds were pocketed for personal expenses — only that they were improperly transferred within the agency.

A recent forensic audit, which reviewed every financial record within the Section 8 rent assistance program, also did not find any evidence that employees had pocketed agency money.

That forensic audit, however, did not review financial records in other divisions of the Housing Authority — including within its real estate development arm Travaux, Inc.

Now, as these findings come to light, board is discussing the possibility of another forensic audit to examine other parts of the agency, Barbeau said.

Board chair vows ‘it’s a new day’ for the Housing Authority

Chairperson Charlotte Hayslett, who grew up in public housing and joined the board in November, became emotional as she apologized to residents on behalf of the organization.

“This is an embarrassment,” Hayslett said, adding: “It’s a new day here. I can’t impress upon you enough: It’s a new day here.”

As Hayslett thanked him for immediately coming forward with his findings, Leak wiped away tears.

Hayslett also spoke directly to local nonprofit Common Ground, which has spent the past two years organizing public housing residents and lobbying for reform of the Housing Authority.

“Thank you for that bullhorn,” she said. “Had it not been for you giving voice to the voiceless, people still would’ve been in place doing what they were doing.”

In a statement Friday, Common Ground leaders called for since-departed executives to be held accountable.

“We smelled smoke,” Common Ground tenants and organizers said. “Here’s the fire.”