The city assigned MEDA its highest risk designation for nonprofits with city contracts. The designation could bring stricter monitoring and put millions of dollars in public funding at risk if the organization does not address the concerns. The Controller’s Office said MEDA has been working on corrective measures and could have its designation lowered or removed once it meets the city’s requirements.

MEDA said it reported the former employee’s actions to city officials, believes it was the victim of a crime and has taken steps to prevent a recurrence. Executive Director Luis Granados said the organization has been working with the Controller’s Office since April and remains confident its city contracts and affordable-housing loan agreements are secure.

The scrutiny has also affected a separate financing proposal. Supervisors Matt Dorsey and Danny Sauter delayed a vote on a city loan agreement of up to $22 million that would help MEDA acquire a 39-unit building and preserve it as affordable housing. Dorsey said the committee needed more information about the reported misconduct, while Sauter asked for several weeks to review the nonprofit’s financial difficulties.

MEDA has recently taken other steps to reduce expenses. The organization laid off 12 employees, primarily in administrative roles, and imposed pay cuts as part of a plan to cut expenses by 21%. Granados voluntarily accepted a 43% pay reduction for one year. MEDA attributed its financial strain to expansion costs outpacing revenue, slower-than-expected philanthropic support and delays in city reimbursements.

The nonprofit is also involved in affordable-housing development, including Marvel in the Mission, a nine-story project at 16th and Mission streets that recently broke ground.

The funding concerns come after San Francisco approved a $37.8 million refinancing package last year for 15 MEDA-owned apartment buildings in the city’s Small Sites program. The package included about $6.2 million in new financing for repairs and reserves. The program helps nonprofit organizations acquire older buildings and preserve them as permanently affordable housing.

MEDA’s Small Sites portfolio includes 89 residential units and nine commercial units. The refinancing lowered annual loan payments by about $340,000, but city officials have warned that substantial repair needs and rising operating costs could threaten the properties’ long-term financial viability. Affordable-housing specialists have also said rent restrictions can make it difficult for Small Sites properties to keep pace with rising insurance and maintenance costs.

The Mayor’s Office of Housing and Community Development said MEDA plays an important role in serving San Francisco communities and described the risk designation as a way to improve the nonprofit’s financial management and long-term stability. MEDA has said its real-estate operating budget is separate from its broader organizational budget and that its housing portfolio is in good financial standing following the refinancing.