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US may tell Chelsea to repay $7m in grants

Former Chelsea Housing chief Michael E. McLaughlin.

Kayana Szymczak for The Boston Globe

Former Chelsea Housing chief Michael E. McLaughlin.

Federal housing officials may demand that the Chelsea Housing Authority return $7 million in grants, charging that the agency filed false and deliberately misleading reports to obtain the money under disgraced former director Michael E. McLaughlin.

Housing and Urban Development officials have been trying for months to document what happened to the millions in grants that were supposed to pay for modernization of low-income apartments from 2002 to 2009, but that McLaughlin apparently diverted to pay everyday expenses and higher salaries for himself and key lieutenants.

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Now, HUD’s regional director says she is “astounded by the lack of knowledge, interest, responsibility, and ownership” among current Chelsea housing officials about past misuse of money, and is considering the rare step of asking for the money back.

“The consequences for these egregious actions are severe,” wrote HUD regional director Marilyn B. O’Sullivan in a Dec. 27 letter to the Chelsea housing agency. “And further penalties may be imposed against the authority including . . . the possible recapture of all funds” that the federal government provided to modernizing the apartment of about 950 residents.

O’Sullivan’s letter underscores the dramatic decline of the Chelsea Housing Authority from only a few years ago, when HUD ranked it as one of the top-performing public housing agencies. But Chelsea housing has been reeling since late 2011, when McLaughlin resigned amid the uproar over his inflated $360,000 annual salary. On Wednesday, McLaughlin was charged by federal authorities with four felony counts of deliberately concealing his full salary from regulators.

Today, HUD lists Chelsea Housing Authority as a “troubled” agency, based on its 2011 performance, when McLaughlin was its top manager.

Albert Ewing, McLaughlin’s successor as housing chief, said in an interview that he understands HUD’s frustration, but that the authority is hardly in a position to raise $7 million to satisfy the federal government’s demand without devastating consequences for its low-income and elderly residents.

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“We don’t have it,” he said.

In a Jan. 16 letter to HUD, the authority revealed for the first time that it is considering filing legal claims to recoup funds from McLaughlin. In addition, the letter says the housing agency is considering going after John Marotto and Martin Scafidi, whose Massachusetts firms provided accounting and auditing services. Once criminal investigations are concluded, the letter says, the housing authority plans to “seek recovery of damages and penalties for professional malpractice by these individuals.”

In the letter, Ewing said “repayment would have a devastating impact upon the most vulnerable residents in the city of Chelsea.” He termed McLaughlin’s 10-year tenure at the housing authority as one of “gross dereliction of . . . its fiduciary duties and a violation of the public trust [that] cannot occur in the future.”

The letter also pointedly listed various agencies and professionals that also failed to take action over McLaughlin’s apparent misuse of millions of dollars — including HUD itself.

Chelsea Housing Authority managers are “dismayed that the [federal capital fund] was mismanaged for so many years . . . in spite of the services of [Marotto], decades of audits by [Scafidi], the services of the [state] auditor, and, importantly, the on-going HUD regulatory oversight,” said Ewing.

In the interview, Ewing said HUD has pressed the agency for documentation that would show how McLaughlin spent millions given to the Chelsea housing agency for new kitchens, baseboard heating, boilers, elevators, waterproofing, and other capital improvements.

“But the records do not exist and I can’t produce something that doesn’t exist,” he said.

Ewing became executive director on the same day in November 2011 that McLaughlin quit amid an uproar that McLaughlin had deliberately concealed his inflated salary from state regulators. Ewing, a longtime aide to McLaughlin, immediately signed a long-term contract that paid Ewing $135,000 a year, a $40,000 raise, and provided other benefits such as a car.

During the McLaughlin years, Ewing was not responsible for the agency’s finances, but managed tenant selection. Since McLaughlin’s resignation, the agency’s director of finance and senior accountant also have been forced out, leaving limited institutional memory of the agency’s budgeting and accounting practices. Ewing and other Chelsea housing officials say McLaughlin and the other now-departed managers controlled the federal modernization funds.

In an interview, Rhonda Siciliano, a spokeswoman for HUD, downplayed discussions of HUD’s pursuit of millions of dollars in repayment from the Chelsea housing agency.

“It would be premature to say we are going down that path,” she said. “That has not been finalized yet. We are working with [the Chelsea Housing Authority]. We are continuing discussions.’’

HUD provides about two-thirds of the housing authority’s $15 million annual budget.

HUD’s supervision of thousands of housing authorities nationwide has caught the eye of Senator Charles Grassley of Iowa, the ranking Republican on the Judiciary Committee. In a statement released to the Globe, Grassley’s scoffed at HUD’s system of ranking performances of housing authorities, noting that Chelsea was ranked a “high performer” despite all the festering problems.

“HUD’s ‘high performer’ designation is often meaningless — Chelsea is the perfect example,” the statement said. “This ‘high performer’ ended up with criminal charges against the executive director and a HUD order to repay $7 million. Some of the biggest housing authority scandals around the country have involved HUD’s high performers.

“HUD doesn’t check behind the housing authorities’ self-reported numbers and takes them at face value,” the statement continued. “HUD needs to reform its ratings system immediately. It must conduct a lot more oversight on the front end to ensure proper spending instead of trying to put the horse back in the barn after the fact.”

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

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