We audited the Housing Authority of the City of San Buenaventura (Authority) in response to a hotline complaint alleging mismanagement and misuse of U.S. Department of Housing and Urban Development (HUD) funding. Our objective was to determine whether the Authority's financial activities, operations, and controls complied with HUD requirements. We found that the Authority did not use program funds in accordance with the requirements of its Annual Contributions Contract and HUD requirements. Specifically, the Authority disregarded its Payment-in-Lieu-of-Taxes obligations and requirements for fiscal years 2005 and 2006 to the City of San Buenaventura (City). The Authority also used at least $496,137 in Low Rent Public Housing program funds to purchase nonfederal housing without City or HUD approval. Additionally, it overspent its Section 8 Housing Choice Voucher program funding for fiscal year 2007 and used at least $165,647 of its Low Rent Public Housing program funds to cover the deficit in violation of HUD requirements, placing both programs at risk.

We recommend that the Director of HUD's Los Angeles Office of Public Housing require the Authority to (1) comply with the annual contributions contract and the cooperation agreement with the City by settling its Payment-in-Lieu-of-Taxes obligations to the City; (2) reimburse the Low Rent Program $496,137 from nonfederal funds for fiscal years 2005 and 2006 funds paid to the housing trust fund; (3) cease all transfers of Payment-in-Lieu-of-Taxes obligated funds to the housing trust fund and demonstrate that calendar year 2007 funding in the amount of $243,353 has not been transferred to the housing trust fund or return the funds to the Low Rent Public Housing program from nonfederal funds; and (4) implement written procedures and controls to ensure that sufficient and appropriate program funds are available before use and to prevent the use of Low Rent Public Housing and Housing Choice Voucher program funds to cover the expenditures of other programs.