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Metro

Alleged diversion of Chelsea housing funds deprived tenants

Investigation by HUD today

Michael E. McLaughlin may have diverted millions.

K.Szymczak for The Boston Globe

Michael E. McLaughlin may have diverted millions.

Former Chelsea housing chief Michael E. McLaughlin appears to have diverted millions in federal money from construction projects for low-income family and elderly housing, records show, freeing up an enormous slush fund that benefited himself, his family, and his friends, while leaving tenants to make do in dreary apartments that have not been updated in 50 years or more.

A Globe review of almost $9 million in federal funding paid to McLaughlin’s agency since 2002 found that more than $3.5 million of it was slated for projects that were not done, despite written promises to use the money to pay for new kitchen cabinets, baseboard heating, boilers, elevators, waterproofing, and other capital improvements.

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Instead money went to ­lavish salaries and travel, to poorly documented everyday expenditures such as $530,000 paid to the city of Chelsea for trash pickup, and more unusual expenses such as the $165,000 the authority paid a social service agency that hired McLaughlin’s son Matthew to oversee maintenance work at the authority.

Today, investigators from the US Department of Housing and Urban Development are expected to descend on Chelsea Housing Authority headquarters, trying to account for all the federal money and requiring Chelsea to repay any money that was misused.

Chagrined HUD officials are urging the authority’s new leadership to admit past wrong­doing, rather than wait for the HUD investigators to find it.

“If any of these grant funds were used for any [unapproved] purpose . . . now is the time to make this disclosure,” Dwight D. Hebert, a HUD housing specialist, wrote to the ­Chelsea Housing Authority in an e-mail informing them of the new investigation.

The authority’s current leadership, which took over earlier this year after Governor Deval Patrick forced McLaughlin and his entire board of commissioners to resign in a scandal over McLaughlin’s outsized $360,000 paycheck, say they have nothing to hide.

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McLaughlin, however, may be another story, the new board chairman said.

“It’s very difficult to determine where the money went and what was done and not done,” said chairman Thomas Standish. “The facts demand an exhaustive review of all spending. . . . It’s outrageous what went on and equally so that it wasn’t detected.”

Thomas Hoopes, a lawyer representing McLaughlin, ­declined to comment.

Several state and federal agencies are already investigating McLaughlin and his inner circle. But the HUD investigation that starts today focuses for the first time on the way low-­income renters living in ­authority housing were victimized.

“Nothing works right,” said Jaileen Rivera, 24, a mother of two small children, standing in her living room in the 105-unit Scrivano development Sunday. “The heat makes loud noises and scares the kids. You can barely open the windows. There’s been nothing done to the kitchen whatsoever.”

Rosa Carrion, 58, has lived in Scrivano over the 12 years McLaughlin led the authority. In all that time, she has witnessed no upgrades. “Never,” she said, pointing to battered kitchen cabinets and counter.

But nobody seems to have complained, not tenants, most of whom never knew of the planned but undone projects, and not HUD, which provided the taxpayer funding for the phantom projects.

“Where was HUD?” asked one Chelsea Housing Authority employee who asked not to be named out of fear of retaliation. “They should have been looking. There was a complete collapse of controls and oversight.”

McLaughlin, with the cooperation of several top lieutenants, made outside scrutiny challenging. He obscured the lack of construction spending by moving money back and forth between construction and operations accounts and ­between federal and state ­accounts, according to records and interviews.

The Chelsea Housing Authority’s staff accountant, Vitus Shum, retired this year, and the staff senior accountant, James McNichols, a McLaughlin family friend, was forced to resign.

Over time, McLaughlin provided fewer details about how he planned to spend the federal money. In 2002 to 2006, he named specific projects, such as replacing kitchen cabinets at the 95-unit Mace development. In later years, McLaughlin and James Fitzpatrick, the capital project director, relied on general categories, such as “management improvements,” which HUD approved nevertheless.

Yet, a close inspection of paper­work McLaughlin filed with HUD, reveals that ­approved projects dating to 2002 were not done.

In 2011, buried in one paragraph of a 50-page document, McLaughlin promised “new baseboard heating” at the Scrivano project. But McLaughlin had been making the same promises at Scrivano year after year, word-for-word.

But HUD, which runs a $7 billion housing program ­nationally, relies on auditors who are paid by local authorities to tell HUD if federal funds are being misspent.

In Chelsea, auditor Martin Scafidi raised no alarms. Annual independent audits produced since 2003 by Scafidi, a certified public account­ant, contained little that was critical of the Chelsea agency. In an interview last year, Scafidi said he was among those “betrayed” by McLaughlin.

McLaughlin’s reign at the housing agency abruptly ended last year when the Globe first reported McLaughlin’s $360,000 annual salary, among the highest in the country. Even New York City’s housing chief, who oversees almost 20 times more public housing, is paid only $200,000.

Auditor Scafidi lost his job in the fallout, and his replacement, Michael Guyder of ­Hurley O’Neill & Co., quickly found problems with Chelsea’s construction spending. Last month, Guyder reported that in 2011, the Chelsea Housing ­Authority may have used as much as $356,000 in federal capital funds for ordinary operational costs, such as trash collection, freeing up money in the operational budget for higher salaries for McLaughlin and seven lieutenants, who were paid salaries ranging from $95,000 to $103,000.

Another newly hired accountant, Richard Conlon, found another serious problem: double-billing two government agencies for the same expense. In 2007 the agency accepted payment from HUD for $180,000 for an electrical upgrade to one of its state-funded developments, even though the state had already covered that cost. HUD has told Chelsea it wants that money back.

Hebert, the HUD housing specialist, will have many ­expenses to question, based on a monthlong Globe investigation that included examination of more than 11,000 payments from federal funds over nine years, more than a dozen ­audits, hundreds of pages of board of commissioners meeting minutes and other documents obtained under the state public records act.

The biggest beneficiary of McLaughin’s creative accounting appears to be McLaughlin himself. Hired in 2000 at a salary of $77,500, McLaughlin’s pay, by the time he was forced to resign last year, was $360,000, not counting three checks totalling $334,997 that he wrote to himself on the day he resigned for what he said was unused sick, vacation, and personal time. State officials managed to stop payment on two of the checks totaling $198,883 before McLaughlin could cash them.

If McLaughlin had been paid in line with state guidelines, his annual pay would never have topped $160,000, and his pay for his 12-year tenure would have been $1 million less than the $2.7 million he ­received in salary.

Another major beneficiary was McLaughlin’s close friend, deputy, and traveling companion, Linda Thibodeau, who was paid more than $820,000 from 2002 to 2011, when she was forced to resign after a housing specialist appointed by the state concluded that Thibodeau had few duties.

Based on an examination of McLaughlin and Thibodeau’s cellphone records, the Globe reported last year that McLaughlin did not go to Chelsea at all on almost half the working days in 2011, spending 47 weekdays in Maine and Florida with Thibodeau and another 21 work days at out-of-state conferences, usually with Thibodeau.

McLaughlin’s son Matthew also appeared to benefit, at least indirectly. Michael McLaughlin paid directly from the federal capital fund more than $165,000 to Roca, a Chelsea nonprofit social service agency that had newly hired Matthew, in 2006. Matthew McLaughlin was hired as a $65,000-a-year project director overseeing services to his ­father’s agency that included painting, furniture moving, raking leaves, and other odd jobs.

Two months after Matthew McLaughlin’s hiring, the Chelsea Housing Authority signed the first of three contracts awarded to Roca for maintenance work at the authority. Matthew McLaughlin cosigned a formal letter to his father thanking him for his support. “You and your staff are incredibly helpful,” the letter said.

McLaughlin also used the federal capital fund to make substantial payments for trash collection to Chelsea City Hall, though city and authority officials could not produce a contract requiring the payments. Though technically independent, McLaughlin benefitted from good relations with the city since the city manager names four of his five board members who are then confirmed by the City Council.

McLaughlin paid more than $530,000 to the city from 2003 to 2011 for trash service, accounting for about 10 percent of Chelsea’s total trash-hauling payments even though authority residents represent just 5 percent of the population.

Sean Murphy can be reached at smurphy@globe.com.

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