State officials say a preliminary review of the city's finances revealed misspending on salaries and other expenses in the Head Start, Women Infants and Children nutritional support, home-weatherization and other programs, The Detroit News reported Monday.
The review comes as the city tries to persuade state officials to let it deal with its financial crisis without outside intervention.
If Gov. Rick Snyder determines the city needs oversight from an emergency manager, that person could forbid the city to administer federal funds, instead allowing Wayne County or a private company to do so.
That, a union leader said, could put decisions about services for poor people in the hands of those who don't understand Detroit.
"Once you start disconnecting from your residents, it creates an environment in which residents don't receive the level of service they should," said Greg Murray, vice president of the Senior Accountants, Analysts and Appraisers Association.
The state review scrutinized city finances last month.
Among other things, an 80-page KPMG audit found about $12.7 million in questionable salary costs under the city's community development block grant program in 2010 and $1 million in questionable costs in the WIC program.
Last year, the News said, a warming center emergency shelter didn't open until February because of a lack of funding, but a few months later, an audit found the city's Human Services Department had spent nearly $182,000 on office furniture in September 2010.