Based on a hotline complaint, we audited the Housing Authority of the City of McKinney (Authority). Our objective was to determine whether the Authority's transactions with its affiliated nonprofit, the McKinney Housing Opportunity Corporation (Corporation), complied with U.S. Department of Housing and Urban Development (HUD) requirements.

In violation of its annual contributions contract, the Authority inappropriately provided $915,487 in funds and real estate to its not-for-profit affiliate. Further, the Authority did not follow requirements when it made $79,059 in housing assistance payments to the Corporation between January 1, 2005, and June 15, 2007. Specifically, the Authority did not obtain independent determinations of fair market rents or compliance with housing quality standards for properties owned by the Corporation.

We recommended that HUD require the Authority to (1) repay $915,487 to its low-income accounts, (2) support $79,059 in housing assistance payments to the Corporation in the amount of $79,059 by obtaining independent determinations of fair market rents and compliance with housing quality standards, and (3) implement policies and procedures to ensure that it complies with HUD requirements.