Too many employees, too much money going out and too little oversight led to the Chattanooga Housing Authority’s $4.5 million fiscal downfall, according to a letter authority officials sent to the U.S. Department of Housing and Urban Development.

“The source of the excess expenses was employee-related costs caused by excessive head count, an unwarranted year-end performance bonus, and excessive employee benefits,” the letter states.

Betsy McCright, the Chattanooga Housing Authority’s interim executive director, wrote the letter, dated May 30, in response to a HUD request for a “detailed explanation” of how CHA’s deficit occurred. The request was made by HUD’s Memphis Public Housing Field Office Director Karl H. Kucen.

In his request, he also asked about the financial position of the Chattanooga public housing program and CHA’s plans to reduce salaries.

The authority’s administrative salaries increased from $2.2 million in 2006 to $4.4 million the next year, records show.

Mr. Kucen and Charles T. Barnett, HUD’s program center coordinator, are scheduled to be at Chattanooga Housing Authority headquarters today for an update on CHA’s financial recovery plan.

Chattanooga Mayor Ron Littlefield said he is confident that HUD and local housing authority officials are taking the necessary steps to restore the agency financially.

“I have not received any indication from HUD that they think this is something not solvable,” Mr. Littlefield said. “It’s a matter of examining what went wrong and criticizing, if necessary, the course of action that the board and the present management is taking.”

The internal control procedures attached to the housing authority’s board of commissioners, the interim executive director and the acting chief financial officer remain the same as in the past, Mrs. McCright stated in the letter. But from now, the controls will be followed and “only the highest level” of professional ethics will be exercised, she wrote.

In 2007, the housing authority spent $2.1 million more than designated in funds to cover employee-related costs, according to the letter. The shortfall was funded by:

n $732,000 in unauthorized transfers of Housing Choice (Section 8) program cash from January 2007 to December 2007.

n $1.5 million in certificates of deposit held as investments from Jan. 1, 2007, to July 18, 2007.

Another $1.1 million was spent for employee benefits from Jan. 1, 2008, to April 25, 2008, according to the letter. This money was covered by $1.2 million in unauthorized borrowings from restricted funds held for the Mayfair on Market development project, the letter states.

Housing officials are communicating regularly with Mayfair on Market representatives about funding and progress on the project and “there is a very cooperative spirit,” said Bill Lord, CHA’s chief information officer.

The housing authority also spent an additional $1 million in 2006 to prepare public housing rental units for occupancy.

“All unauthorized borrowings were initiated by the Chief Financial Officer,” said Mrs. McCright in the letter. “The internal control procedures residing in the Chief Financial Officer position were not followed and purposefully violated and overridden by actions initiated by the Chief Financial Officer.”

Housing officials said there is no legal action pending against Kari Blakney, the housing authority’s former chief financial officer.

Ms. Blakney could not be reached for comment.

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