Whenever the Secretary, after reasonable notice and opportunity for hearing to any designated agency or participating institution receiving funds under this chapter finds that—

(a) the agency or institution is not complying substantially with provisions of this chapter, with the regulations promulgated by the Secretary, or with the approved annual technical services program; or

(b) any funds paid to the agency or institution under the provisions of this chapter have been lost, misapplied, or otherwise diverted from the purposes for which they were paid or furnished—

the Secretary shall notify such agency or institution that no further payments will be made under the provisions of this chapter until he is satisfied that there is substantial compliance or the diversion has been corrected or, if compliance or correction is impossible, until such agency or institution repays or arranges for the repayment of Federal funds which have been diverted or improperly expended.