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Mark Townsend of the Portland Hotel Society in shown in front of the boarded-up Pennsylvania Hotel on Hastings Street in Vancouver, August 9, 2006.Rafal Gerszak/The Globe and Mail

The unconventional partnership between government and the activist non-profit that runs a supervised-injection site and housing for hundreds in the city's Downtown Eastside appears headed for a major rupture after a forensic audit.

Housing Minister Rich Coleman said within 10 days, his ministry will decide what action to take on the PHS Community Services Society – usually referred to as the Portland – because of significant problems discovered.

"This particular organization had some concerns raised many years ago and there are some now. So we're going to deal with it. If we make a move, it will be public," the minister said.

PHS director Mark Townsend said the news comes as a surprise to him, because the organization has been working with the Deloitte auditors since last fall and complying with requests to organize its accounting differently.

"There was a sense that progress had been made," Mr. Townsend said. He sent a letter to Mr. Coleman and BC Housing asking for a clarification of what is being planned after hearing about the minister's comments.

But Mr. Coleman said the issues facing the organization and BC Housing, which has millions of dollars worth of contracts with PHS, are not minor. "I think this is serious," he said.

The minister said there are a number of options on the table, from "can you manage better" to "can you explain some of the uses of public money" to more serious steps. It's anticipated that documents related to PHS finances will be made public next week.

Mr. Coleman wouldn't say definitively that PHS will be put in receivership. "It's one of the options, but not necessarily," he said.

Four years ago, a similar organization suffered that fate. The Downtown Eastside Residents Association (DERA) was founded by NDP MP Libby Davies among others in 1973 and was a powerhouse in the troubled area for decades. But it had its housing projects taken over by a court-appointed receiver in 2010 after the association was accused of mishandling public money.

The 20-year-old PHS is even larger than DERA was, managing 950 units of housing spread out over 16 sites for some of the city's most difficult-to-house residents. With revenues of $34-million in its most recent fiscal year, according to filings with Canada Revenue, the organization runs the city's main supervised-injection site, the Pigeon Park credit union, a health clinic, and half dozen social enterprises ranging from a laundry to a chocolate-making operation.

It also holds various pieces of real estate and values its total assets at $59.6-million, according to the Canada Revenue filing.

News that BC Housing was doing a financial review of PHS first broke last November. Shortly after that, Vancouver Coastal Health confirmed it was doing a formal audit. PHS gets $18-million in government money between the two of them.

The health authority said Tuesday it has completed its audit but has not yet shared the results with PHS. PHS has agreements worth $8.5-million from the regional health authority through 19 contracts.

PHS has gone far beyond the scope of other non-profit housing providers in the area, creating a half dozen social enterprises and frequently doing public battle with various levels of government, sometimes its own funders, to advocate for new programs or save existing ones.

It launched the lawsuit against the federal government that resulted in a Supreme Court of Canada ruling in 2011 that guarantees the ongoing operation of the supervised-injection site.

With a report from Justine Hunter in Victoria