The Seattle Times reported the audit focused on millions of dollars in loans since 2008 to the Lynnwood Municipal Golf Course from the city's utility fund.
The state auditor said the loans were not allowed because the golf course can't afford to pay them back.
The city is considering closing the struggling golf course.
The audit released Monday also pointed out management problems at the 21-year-old golf course.
City leaders said they will decide in the next three months whether to keep it open.
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