In a report released earlier this week, HUD said that the Orange CountyHousing and Community Development and the Santa Ana-based Mercy HouseCoalition had spent almost $300,000 without providing the necessary evidencethat the expenditures met Federal guidelines. Mercy House Coalition is agroup of four local nonprofit housing agencies.

In one case cited by HUD, a family that earned $73,514--roughly 50% more thanthe typical Orange County household--was accepted into a program designed tohelp house the poor. The government auditors also say Mercy House workersdidn't properly account for their time and were paid higher-than-averagesalaries.

The Federal Government wants $70,000 of the money back, says Mimi Lee,district inspector of HUD audits. Officials of both Mercy House and theHousing and Community Development Department say they've done nothing illegaland that they will appeal to higher-ups at HUD.

The county "strongly disagrees with the conclusions and we are anxious towork with our HUD representatives on concluding this matter," Housing andCommunity Development community-relations manager Ken Domer says in a writtenstatement. "The Mercy House Coalition is a model organization--as well as oneof the oldest--for serving Orange County's neediest populations. We fullyexpect that HUD will assist the county in finding a positive resolution inthis matter."

County officials say the family that received housing aid even though itearned $73,514 needed financial help because the husband had recently losthis job and the wife had suffered a stroke. They also say Mercy Houseofficials kept proper track of their work hours, but did so only on a monthlybasis.