The Los Angeles Housing Department was in hot water Thursday after City Controller Wendy Greuel revealed that a 2008 loan it administered benefited a developer who was under federal investigation for misusing public funds. (Update): The Los Angeles Times reported later Thursday that the FBI was investigating the situation and that the amount of money that went to the project was more like $26 million.

The $10.3 million loan went to Bonnie Brae Village Partners, which is building 92 units of housing for homeless seniors in the Westlake district. Having a backer under federal watch was not the projects only impropriety, according to the audit released Thursday.

The housing department asked the state for $16.5 million in state bond proceeds on behalf of the project without performing a necessary review that would have revealed the federal investigation. The developer failed to disclose that the partner was under investigation. And an “agreement to enter into a Housing Assistance Payment (HAP) contract” was not executed, as is required, before construction began.

“While the developer initially failed to disclose that one of their financial partners was under federal investigation for misusing public funds, once the housing department discovered this, they proceeded with the project, which put the city at tremendous financial risk,” said Greuel. “The housing department's careless handling of this project defies comprehension. How they could be so cavalier and careless in handling taxpayer dollars is beyond me.”

LA Weekly