The Manitoba government has appointed an accounting firm to temporarily run a personal care home near Winnipeg that was found to have mismanaged public funds, engaged in nepotism and tried to cover its tracks.

The Middlechurch Home of Winnipeg, located in the West St. Paul area, had its financial statements audited after a staff member filed a complaint about the facility in November 2011.

The Middlechurch Home of Winnipeg, which receives nearly $10 million a year from the Manitoba government, was being investigated earlier this year for possible financial irregularities. (CBC)

The CBC News I-Team reported in April that the home, which has approximately 200 residents and receives nearly $10 million a year from the provincial government, was being investigated for possible financial irregularities.

A report by the provincial ombudsman has cited "gross mismanagement of public funds at Middlechurch," Health Minister Theresa Oswald announced Monday.

"There were some issues concerning hundreds of thousands of dollars that were invested in a company of a relative of the executive director, and that's inappropriate," Oswald told CBC News.

Oswald said as a result, the province has appointed Ernst and Young, an accounting firm, to act as Middlechurch's interim manager.

"The ombudsman has made it clear the administrators at Middlechurch failed to provide adequate governance and accountability, and that's why we're taking action," she said in a release.

Failed to provide spending oversight

The ombudsman's report says Middlechurch's executive director had bent the rules to hire her own daughter-in-law as a volunteer co-ordinator.

The report also says the executive director interfered in how contracts were awarded, and concealed that she was a shareholder and officer of one company that received more than $435,000 in work.

The ombudsman also says the seniors' home's board of directors gave the executive director a salary bonus to get around a wage freeze that had been ordered by the regional health authority.

The executive director and board of directors committed significant breaches to its own policies, as well as the Winnipeg Regional Health Authority's policies, according to the report.

The investigation found that the board systematically failed to provide enough oversight "in the expenditure of large amounts of public funds" and did not "exercise due diligence with those funds," the province said in the release.

Management of Middlechurch will be turned back to the board of directors "as soon as the minister is satisfied there is proper governance oversight," the release said.

The ombudsman's report is being referred to police for further review, and other care homes will undergo accounting reviews, the government added.

The identity of the staff member who filed the complaint is protected under Manitoba's whistleblower legislation.

With files from The Canadian Press