In April 2023, federal auditors were confounded by $3 million in “unexplained variances” in HACM’s balances, and the prior finance team came up with nothing after an investigation lasting nearly two years. But HACM recently appointed Brad Leak to its finance team, moving to make him the CFO last month. Leak traced the misallocation within months, the Journal Sentinel reported.
The source of the financial discrepancy reportedly came from the misallocation of funds tied to U.S. Department of Housing and Urban Development (HUD)’s Housing Choice Voucher (HCV) program for rental assistance, widely referred to as “Section 8” vouchers. Leak addressed the allocation in the meeting according to local reporting by a CBS affiliate in Milwaukee.
“During interviews with the former finance director, it appeared that the reason for the transfer [was that] the agency was encountering serious cash issues at the time and needed to borrow from one program to the other,” Leak said.
Charlotte Hayslett, who chairs the board of commissioners for HACM, issued a tearful apology to the city’s residents at the meeting on Friday afternoon, the reporting said.
The funds were apparently directed toward payroll and “other items,” instead of to the HCV program. The funds were reportedly misused under the prior leadership team, which was in office from 2019 to 2022.
HACM also addressed the misallocation in an announcement this week, where it said it has partnered with HUD on a recovery plan.
“In addition to adopting the Milwaukee Recovery Plan with the HUD, HACM notified officials that previous fiscal management deficiencies and accounting errors had allowed restricted federal funds to be used incorrectly for some administrative costs and staff salaries,” the announcement said. “As a result of these previous decisions and a changed fiscal position, HACM also notified officials that its rating agency had adjusted its bonds to A‐ from its previous A+ ranking.”
The new interagency agreement requires “agency staff to follow a defined timeline and take distinct action steps to address a range of issues, including fiscal management, tenant services, housing conditions, facility operations, and related matters,” the announcement said. There is also a new fiscal auditing process in place, and effort will be made to upgrade the physical condition of HACM properties.
Leak said that without prompt action, HACM could be facing bankruptcy. When asked about this, he made clear that bankruptcy would have been a possibility if the leadership team had done nothing.
“So the intent was not to say we will be going to bankruptcy in 45 days, it was that if we did not swiftly act and during this week, we would be in the bankruptcy situation,” Leak said according to the CBS affiliate.
Some of the corrective actions include a 45-day delay in the payment of some expenditures, the firing of 20 staffers, a hiring freeze, a $1.6 million payment plan to the organization’s pension board, and a payment plan to the city for overdue taxes to the tune of $1.1 million.
