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We audited the Housing Authority of the City of Calexico (Authority) in response to a request from our Office of Investigation and the FBI. Our objective was to determine whether the Authority complied with HUD's rules and regulations with respect to its public housing program.

We found the Authority improperly used Section 5(h) program funds for the acquisition and operation of the Second Street Apartments. In addition, it (1) did not provide replacement housing for the 37 Section 5(h) units it sold, (2) incorrectly reported three of the five grants reviewed as fully obligated in HUD's electronic Line of Credit Control System, (3) undertook force account activity without HUD's written approval, and (4) undertook five inappropriate procurement actions.

We recommend that HUD require the Authority to repay its Section 5(h) program $174,044 from nonfederal sources for the inappropriate acquisition and operation of the Second Street Apartments. Additionally, we recommend that HUD require the Authority to create and implement a new timeline for replacement of the Section 5(h) units and if the Authority does not follow this new timeline, recapture the $1.2 million available in its program bank account as of January 2008. We also recommend that HUD's Los Angeles Office of Public Housing require the Authority to recapture $247,101 in grant funds that the Authority did not fully obligate by the required deadline for grant years 2001, 2003, and 2005; require the Authority to provide supporting documentation for $827,756 in unsupported procurement actions or repay HUD from nonfederal sources; and require the Authority to repay HUD $184,588 from nonfederal sources for ineligible force account labor costs.