Ailing Germantown agency sparks city policy change

After 125 years and as much as $100 million in public and private funds, Germantown Settlement is on the verge of closing its doors forever, a victim of bad management and dubious spending.

And Philadelphia’s top watchdogs missed nearly every warning sign that the venerable housing and social-service agency had veered so far off course.

Distressing as it is, the Settlement fiasco may have at least inspired a new city policy aimed at keeping city contractors honest.

In mid-November, federal bankruptcy Judge Stephen Raslavich ordered that Settlement’s main subsidiary, the Greater Germantown Housing Development Corporation, liquidate its assets to pay off creditors, who include federal, state and city taxpayers.

The U.S. trustee in the case, George Conway, filed a motion to the same effect for the parent company, Germantown Settlement, later in the week.

The agency’s collapse stems from financial mismanagement that has become infamous within city departments.

“Germantown Settlement was the kingpin of delinquency,” said Thomas Sheaffer, director of policy and evaluation and fiscal director for the Office of Health and Opportunity.

A strong tradition fades

In its heyday, Germantown Settlement was a national model for community development, transformed from white Quaker roots into to a magnet for public and private funds aimed at improving life in the low-income, African American communities of Germantown.

But local activists and former employees have long complained that Settlement’s political connections and gamesmanship kept the money flowing long after the organization stopped making good use of it.

Federal Housing and Urban Development audits from 2007 and 2008 found over $1 million in missing or misappropriated funds for just two Settlement buildings.

Since 2006, state, federal and city tax liens against Settlement and its related agencies have totaled close to $2 million.

Millions in public funds came to Settlement through the city’s Redevelopment Authority while a founding board member for Settlement’s housing wing, Herb Wetzel, held various positions at the RDA, including director.

And last month Settlement’s Executive Director Emanuel Freeman, whose last recorded salary from the agency was $156,000 (his wife, also an employee, collects $73,000) attempted to buy back the agency’s most commercially viable property using a for profit housing company he formed with Wetzel years ago.

Slow to turn off the tap

Sheaffer’s Office of Health and Opportunity has provided a major chunk of public funding to Settlement’s social service activities over the years.

In 2009 that was about $1 million in city funds. The agency’s most recent federal tax return from 2007 lists about $4.8 million in government funding for that year, not including its housing development wing.

Large public and private subsidies to the nonprofit became the norm sometime in the mid-1990s. But even as Settlement’s fiscal record-keeping fell apart in the last decade, millions in city dollars continued to pour in.

Sheaffer called Settlement the worst case of delinquent records he has ever seen. Yet his department kept the checks coming anyway.

The reason: The city had no policy about what to do when vendors didn’t submit required paperwork, according to Sheaffer.

“Yeah, we knew,” he said. “There was always one reason or another why we didn’t have [the records] and because there was a lack of a policy we didn’t lower the boom.”

Another possible explanation, commonly held among a growing number of local activists mobilized against Settlement through the Germantown Community Connection, is that its longtime Executive Director, Emanuel Freeman, was politically connected and could keep the public money flowing despite fiduciary concerns.

Watchdogs dither and bicker

Between 2006 and 2009, Settlement properties in Germantown fell into visible decay, and the agency defaulted on millions in bank and government loans in addition to its failure to pay local, state and federal taxes.

Yet, like the Office of Health and Opportunity, the city Inspector General and the City Controller also did next to nothing.

Amy Kurland, the inspector general, decided to stop an investigation when she took the job in 2008. This, she said, was not because she thought Settlement was doing OK; just the opposite.

“When I became the inspector general in January of ’08, I did a review of all the cases we had in the office and I discovered that there had been some recent allegations [about Settlement],” she said. “The allegations were very wide ranging and I believed by looking at them, that there was possible federal criminal activity… and I referred the matter to the U.S. Attorney’s Office so that they could coordinate the investigation.”

Kurland said referring cases to other agencies is not ideal, but that it was a necessity at the time, due to short staffing in her shop.

“Now normally we don’t refer cases out,” she said. “But at that time we didn’t have the capacity and I felt like this case should be looked at right away.”

Rumors of a federal investigation have circled Settlement since at least 2008, when school district probes into the Germantown Settlement Charter School resulted in a School Reform Commission vote to close it down, based in part on financial concerns.

The city finally shut off the tap in June of last year for Settlement’s social service wing. Deputy Mayor Donald Schwarz made that call.

City Controller Alan Butkovitz didn’t take action until after that time.

As part of his duties, Butkovitz must look at the grant money that the city gives out each year, but that examination doesn’t have to cover each recipient. So his office investigates a random sample of grant recipients – a window, essentially, on a much larger field of awarded city grants.

And for more than three years, that window never opened to the trouble at Settlement.

“Until it came up in our sample… we were not aware that the audit was not submitted,” said First Deputy City Controller Harvey Rice.

So, the controller’s office didn’t notice the missing records until it looked at a sample of city records from 2008, which it studied in 2009. In July 2009 Butkovitz called for a halt to the flow of city funds to Settlement. By that time, Schwarz had already made that call for the Nutter administration.

Yet, oddly, $107,000 in funds still flowed to the agency up through November, Rice said.

The money was payment for services already rendered by Settlement, according to Rice.

Rice calls the controller’s office “the last line” in getting city contractors to live up to their end of things, but Sheaffer thinks Butkovitz could have been more pro-active regarding Germantown Settlement.

“It is the city departments’ job to make sure that the audits are in,” Sheaffer acknowledged. But, “I think they [the controller’s office] know when the audits are in… To my knowledge they never came to us and said, ‘I see that Germantown Settlement hasn’t submitted an audit in three years, what are you gonna do about it?'”

Tougher rules, at last

In 2009, the city’s desire to apply for federal stimulus funds was what prodded the city to review Settlement’s records with a sharper eye. The city knew the feds would take a close look at the record of all vendors that might get a piece of the stimulus.

Sheaffer said his office was at the time undertaking new, tougher standards for record-keeping by vendors.

“Now we’ve got some clear policies and procedures and I think that everybody is happy about that,” he said.

Creditors, including the city, state and federal government as well as numerous private concerns, will only see a portion of the estimated $16 million in Settlement debts if both bankruptcy liquidations go through. And Settlement will likely close up shop soon.

But the habit of delayed action when it comes to Settlement appears to be continuing. A scheduled HUD sheriff’s sale of the two Elders Place buildings was stopped Nov. 19. Neither the lawyer representing HUD at the proceeding, nor city-based HUD officials could provide an explanation for that cancellation.

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