In a letter Monday to Grassley, HUD's deputy inspector general, Michael P. Stephens, urged that PHA be stripped of crucial flexibility to spend federal money.
Stephens said the authority was in default of its so-called "Moving To Work" agreement with HUD and should be removed from the program.
That would greatly rein in PHA and slow its ability to develop housing. PHA has a budget of about $400 million, most of it from the federal government.
Only 33 of the nation's 3,300 housing authorities qualify for the Moving to Work program, which frees them from tight reporting requirements and restrictions on how they spend federal funds for operations, capital projects, and low-income rent vouchers.
Instituted about a decade ago in a bid to deregulate public housing, the program allows agencies such as Philadelphia's to treat their funding like a block grant and decide what makes sense. That allowed Greene to operate with little oversight.
Stephens accused the PHA of violating its contract by engaging in "a long-standing pattern" of obstructing audits, mismanaging low-income rental vouchers, and misusing federal grant money.
"The conduct of the authority has in fact placed it in default," Stephens said.
Stephens told Grassley his office urged HUD officials to remove the Philadelphia authority from the program in letters sent Nov. 23, 2010, and Feb. 16, 2011.
In a reply to Grassley, also sent Monday, Peter Kovar, an assistant secretary at HUD, said PHA's conduct under Greene should not be the basis "for a current decision to alter [its] status."
Kovar noted that the agency was now under HUD's direct control. It has appointed a new top administrator, Michael P. Kelly, who reports to a one-woman board: Estelle Richman, HUD's chief operating officer.
Jereon Brown, a HUD spokesman, said he agreed "that there were serious concerns" at PHA but added that HUD was still trying to "restore financial order and soundness before returning it to local control."
"We believe the PHA is on the road to redemption," Brown said. "That does not mean that we are going to cease our efforts to uncover what has occurred because we believe that's essential to put in place the fixes that ensure that the things that were done improperly do not occur again.
"We're seeking to fix, not punish," Brown said. With Kelly on board, Brown said HUD was "on track" to return PHA to local control within a year.
Kelly said Monday that "PHA will continue to work closely with HUD. . . . I am assessing our operations and fixing problems that exist. We are committed to seeing PHA through full recovery."
Grassley, meanwhile, said HUD and other law enforcement agencies "need to step up and hold people accountable."
"The Inspector General's Office continues to work to root out fraud, waste, and abuse at the Philadelphia Housing Authority, despite obstruction at just about every turn," Grassley said. "The inspector general's conclusion that the housing agency violated its Moving to Work agreement is key to cleaning up the Housing Authority."
Contact staff writer Jennifer Lin at 215-854-5659, firstname.lastname@example.org or @j_linq on Twitter.