We audited the Los Angeles Multifamily Hub's monitoring of its annual contributions contract with its performance-based contract administrator (contractor), Los Angeles LOMOD (LOMOD). Our overall audit objective was to determine whether the U.S. Department of Housing and Urban Development (HUD) appropriately monitored LOMOD with respect to the annual contributions contract. The Los Angeles Multifamily Hub did not properly monitor its contractor. The Los Angeles Multifamily Hub did not follow up on the findings in its 2004 annual compliance review of LOMOD in a timely manner, it made inappropriate decisions regarding the assessment and reversal of disincentives, inappropriately moved LOMOD to the "full implementation" stage of its contract for two required performance standards (activities) without properly supporting the decision, improperly allowed retroactive rent increases, and did not monitor LOMOD's activities with regard to the performance standard relating to review of monthly vouchers. We recommend that LOMOD not be reimbursed for the $105,059 reduction in incentive fee for those findings in the 2004 compliance review that were improperly reversed; that HUD assess $1,360,160 in disincentives against LOMOD for incorrect work products; that HUD monitor LOMOD's rent adjustment and contract renewal transactions under standards 3 and 14 until HUD can ensure that LOMOD has met the acceptable quality level for three consecutive months; and that HUD begin monitoring LOMOD under standard 6 relating to the review, authorization, and payment of monthly vouchers to owners so that it doesn't put $13.6 million at risk each month.