HUD Report Reveals Misspending by ACORN Affiliate; Seeks Repayment
The radical nationwide nonprofit network, the Association of Community Organizations for Reform Now - better known as ACORN - has wound down operations in an effort at damage control. A new government report suggests more spin will be needed. On September 21 the Office of Inspector General, U.S. Department of Housing and Urban Development (HUD), released an evaluation (see pdf) of certain expenditures of ACORN Housing Corporation (AHC), one of the largest affiliates under the ACORN umbrella. The review concluded that the Chicago-based nonprofit had misspent a sizable portion of the roughly $3.25 million it received from HUD during fiscal years 2008-09. While that $3.25 million figure in turn was only a little over a tenth of the more than $30 million in grants to AHC during that two-year period, the audit suggests that the entity, like its parent organization, has had a serious ethical blind spot. And HUD wants some of the money back.
As National Legal and Policy Center has reported many times over the past few years, ACORN is a key provider of money and manpower for the Democratic Party. With roots 40 years ago as a National Welfare Rights Organization project in Little Rock, ACORN eventually relocated its headquarters to New Orleans and grew to more than 1,200 chapters in over 100 cities. With a peak of at least 400,000 dues-paying members, ACORN, along with its web of about 360 subsidiary and affiliated organizations, always has thought in terms of political confrontation. The best way to fight poverty, according to founder-chief organizer Wade Rathke and numerous allies, was to pressure public and corporate officials into making visible concessions. If that took intimidation, they argued, that's what it took. ACORN comes firmly from the tradition of Saul Alinsky-style community organizing. And in that world, political agitprop, rather than markets, is how the poor achieve tangible gains. Even ACORN-controlled nonprofit businesses have been circumscribed by this philosophy.
Armed with its ‘by-any-means-necessary' philosophy of community power, ACORN activists in recent years have amassed a well-earned reputation for stretching the bounds of ethics and law via methods such as vandalism, property invasion, tax evasion, voter fraud and embezzlement. ACORN activists in Missouri, Nevada, Ohio and other states were prosecuted for generating phony voter registration cards, with any number of individuals pleading guilty. The State of Louisiana filed two tax liens against ACORN and an affiliate totaling more than $330,000, while the IRS hit up ACORN for tax liens amounting to more than $1.5 million. Wade Rathke in June 2008 was forced out of his own organization following revelations that he'd covered for his brother, Dale, when the latter, as ACORN chief financial officer, during 1999-2000 embezzled nearly $950,000. Neither has been prosecuted.
The national spotlight shined on ACORN ever more brightly after Barack Obama became president. Though never formally a member, Obama during his days as a Chicago lawyer in the mid-Nineties represented ACORN in its (successful) attempt to force the State of Illinois to comply with the new federal "motor voter" law that loosened voting registration requirements (and whose passage owed much to ACORN pressure). But with increased visibility came increased scrutiny. Rep. Darrell Issa, R-Calif., supervised the preparation of a detailed report released in July 2009 concluding that ACORN was structured as a racketeering enterprise. Two months later an ad hoc multi-city private sting operation caught local ACORN officials on hidden camera giving advice on how to get around the law. Quickly, the IRS and the Census Bureau canceled planned working relationships with ACORN. And Congress passed a resolution cutting off funds to ACORN.
ACORN, now based in New York City under new chief executive Bertha Lewis, launched a counteroffensive. Ms. Lewis commissioned former Massachusetts Attorney General Scott Harshbarger to lead a study to determine whether the nonprofit network had been involved in lawbreaking and what steps it might take to promote accountability. And ACORN, with the help of the far-Left Center for Constitutional Rights, filed suit in federal court to overturn the federal funding ban. Things looked good - for a while. Harshberger concluded that while ACORN suffered from a lack of internal controls, it had not broken any laws. And U.S. District Judge Nina Gershon in December 2009 issued a preliminary injunction blocking the congressional ban from taking effect, an injunction she made permanent this past March.
By now, however, the ACORN brand name could not be rehabilitated. In March, as Judge Gershon was clearing the way for a resumption of federal appropriations, Bertha Lewis announced that ACORN formally would go out of existence at the start of April. The announcement proved only somewhat premature. At least half of ACORN's 30 state chapters would sever ties with headquarters, reincorporating themselves under new names. Another omen came on August 13 when the U.S. Second Circuit Court of Appeals overturned part of Judge Gershon's decision. The federal funding ban, unanimously concluded the three-judge panel, did not constitute an unconstitutional bill of attainder; i.e., punishment without trial. "Despite that evidence of punitive intent on the part of some members of Congress...there is no congressional finding of guilt in this case," wrote Judge Roger Miner. "The plaintiffs do not assert here that they have yet to be disbursed at the agency's discretion." The court remanded the case back to district court to consider whether ACORN's free speech and due process rights were violated. Just three weeks ago, on November 2, ACORN made its shutdown official, filing for Chapter 7 liquidation.
ACORN Housing Corp., anticipating the worst, has retooled its image. The 501(c)(3) nonprofit entity, founded in 1985, recently redubbed itself Affordable Housing Centers of America (AHCOA). Despite its name change, lawmakers have every reason to remain concerned, especially since HUD or other federal agencies had bestowed at least $50 million upon it during 1994-2009. At the request of Rep. Issa, Sen. Mike Johanns, R-Neb., and other key lawmakers, HUD's Office of Inspector General, Inspections and Evaluations Division, conducted an evaluation of grants awarded under the department's Housing Counseling Program to ACORN Housing Corp. The purpose would be to determine whether department money has been used in compliance with program requirements. HUD focused on the slightly more than $3.25 million going for homebuyer and homeowner counseling.
The OIG report reviewed AHC counseling services from all funding sources during fiscal 2008-09. That meant not only the $3.25 million from HUD, but also the $27.3 million from non-HUD sources, the overwhelming portion of which came from the Washington, D.C.-based congressionally-chartered nonprofit organization, NeighborWorks. HUD auditors met with AHC's executive management, comptroller and accounting consultant to obtain documentation of billing processes and internal controls. They also interviewed current former regional directors, office managers, housing counselors and clients. The audit drew three general observations: 1) salary expenses were not fully supported; 2) ineligible salary expenses were charged; and 3) federal procurement standards were not used. Each is worth briefly summarizing.
Salary expenses were not fully supported. The HUD auditors discovered that payroll records did not comply with standards set forth in Office of Management and Budget Circular A-122. Moreover, AHC's caseload allocation for HUD-chargeable salary expenses lacked sufficient documentation. The overwhelming majority of time sheets did not account for daily activities by housing counselors. HUD thus had no way of knowing if the $2.544 million it paid for housing counselor salaries and expenses reflected grant-eligible services.
Ineligible salary expenses were charged. The audit concluded that ACORN Housing Corp. had charged $65,548.37 in ineligible salary expenses to the FY 2009 HUD grant. This sum consisted of $51,830.82 in salary expenses for counselor services incurred in FY 2008 but billed to FY 2009, plus another $13,717.55 for salaries for six employees who already had been terminated.
Federal procurement standards were not met. AHC did not meet procurement standards specified in Title 24 of the Code of Federal Regulations (CFR) in obtaining accounting and legal services, leasing office space and seeking health care and retirement benefits from "associated" nonprofit organizations. These services, noted the Office of Inspector General, were obtained by AHC without ensuring open and free competition.
The report stated that for Affordable Housing Centers of America to continue as a HUD-approved housing counseling agency, it must bring its operations "into full compliance with applicable laws, regulations, and policies governing HUD's Housing Counseling Program." The lack of documentation and analysis make it difficult, if not impossible, to determine if AHC "had obtained services for the lowest, most reasonable cost."
The OIG recommended that HUD's Office of Single-Family Housing require AHCOA to support salary expenses or reimburse the HUD Housing Counseling Program for unsupported amounts, and from non-federal funds. At minimum, the audit said, the reimbursement should include $159,683, a sum representing the two test pay periods. In addition, AHCOA should reimburse the program $65,548.37 from non-federal funds as a result of its carrying forth ineligible salary expenses to the next year. Finally, AHCOA should implement a time and activities reporting system that complies with OMB Circular A-122 and a procurement system that complies with 24 CFR Part 84. Until these problems are rectified, recommended the OIG, the Office of Single-Family Housing should consider placing Affordable Housing Centers of America on "inactive" status, while providing technical assistance as needed. Considering that outright lawbreaking may have occurred, the recommendations shouldn't seem unreasonable.