Head Start Must Repay Misused Federal Funds : Violations: The county orders the sole operator of the low-income preschool program in the San Fernando and Santa Clarita valleys to pay back $104,700.

The largest Head Start provider in Los Angeles County has been ordered to repay $104,700 for violating federal regulations by engaging in nepotism, overpaying staff members and renting office space and vans from its own employees.

The order by the county Office of Education to return the government funds follows an eight-month investigation of the Latin American Civic Assn., the sole provider of Head Start services in the San Fernando and Santa Clarita valleys and the biggest of the county’s 27 providers. Head Start is a program for low-income preschoolers.

Prompted by complaints from parents and employees, the county re-examined financial records of the San Fernando-based agency, which provides meals, medical services and instruction to 1,800 poor children at more than two dozen centers from North Hollywood to Newhall.

The subsequent report dated Nov. 20 concluded that during the past three fiscal years the agency:

* Leased vans and administrative offices from San Fernando Leasing and Rental Inc., a private company controlled by the agency’s executive director, Ralph Arriola, in violation of federal conflict-of-interest regulations. The total rental payments the agency must repay are $44,866 for the offices and $20,132 for the vans, according to the report.

* Hired Arriola’s wife, Helen, as a consultant in violation of regulations against nepotism. The agency must repay the $16,264 it paid her.

* Overpaid three unidentified employees, including two nurses, for working a 40-hour week when they actually worked fewer hours. The total overpayment that must be repaid is $23,853.

* Spent $583 for interest payments on the vans in violation of federal regulations prohibiting Head Start programs from doing so.

The county, which administers the program for the federal Department of Health and Human Services, also classified the association as a high-risk agency and will continue to scrutinize it for an undetermined period of time, said Steve Horowitz, a spokesman for the county office of education.

An association spokesman said the agency will file an appeal of the ruling ordering the repayments by the end of the month.

The county then will review the case and decide on a final repayment amount, which the agency must submit by the beginning of March, Horowitz said.

The association may not use federal funds it received this fiscal year to repay the disallowed expenditures, said Jerry Gomez, program specialist with the federal Administration for Children and Families, which oversees Head Start.

Failure to promptly repay the funds will result in additional interest charges and possible legal action, said Donovan Main, assistant county counsel in charge of management services for the office of education. The agency’s board of directors could be held personally liable for repaying the funds, Main said.

Members of the association’s board of directors could not be reached for comment.

But Arriola, head of the agency for the last 15 years, acknowledged in a Sept. 25 interview with The Times many of the allegations contained in an earlier county fact-finding report and audit dated Aug. 25.

Arriola acknowledged hiring his wife and controlling San Fernando Leasing. But Arriola, who is paid $51,000 annually to run the agency, denied that he profited from the violations.