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2011 ACORN Audit Report

2011 ACORN Audit Report

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Issue Date
November 2010

Audit Report Number
201 1—CH— 1002

FROM:

Jon Gant, Director Healthy Homes and Lead Hazard Control,
Craig Clemmensen, Director Departmental Enforcement Center, CACB

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Heath Wolfe, Regional Inspector General for Audit, SAGA

SUBJECT: ACORN Associates, Inc., New Orleans, LA, Materially Failed Use Its Lead

Elimination Action Program Grant Funds Appropriately

HIGHLIGHTS audited ACORN Associates, Inc.’s (Associates) use its fiscal years 2004
and 2005 Lead Elimination Action Program (program) grant funds. Associates
was selected for audit based upon request from the U.S. Department Housing
and Urban Development’s (HUD) Office Healthy Homes and Lead Hazard
Control and multiple congressional requests. Our objective was determine
whether Associates expended program funds accordance with HUD’s
requirements.

 

Associates inappropriately expended more than $3.2 million from its fiscal years
2004 and 2005 grants for the elimination lead poisoning its housing
program. paid program funds more than million affiliate and
nonaffiliate organizations without properly procuring their services and did not
include the funds HUD—approved grant budget. For its 2004 and 2005 grants,
Associates failed (1) properly procure the services affiliate and
nonaffiliate organizations through free and open competition, (2) retain records
and files documenting the basis for contractor selection, (3) justify the lack
competition and basis for the award cost, (4) ensure that obtained the lowest,

most reasonable cost, and (5) enter into contract with each organization that
performed activity accomplish grant goals. Additionally, did not have
adequate supporting documentation for nearly $218,000 disbursements
affiliate and nonaffiliate organizations.

Also, program funds were not used for approved purposes. Associates used
nearly $1.2 million program funds for purposes not identified its grant
applications’ detailed budgets. The unapproved uses included campaign services,
grant fund—raising activities, lead—based paint remediation work, payroll taxes and
workmen’s compensation insurance, communication services, and financial— and
audit—related expenditures for services performed affiliate organizations and
more than $16,000 disbursed its nonaffiliate organizations. Further, more than
$600 improper expenses for bank service fees was disbursed from program
funds. The nearly $1.2 million program funds used for unapproved purposes
are associated with and included the $3.2 million expended without being
properly procured. The repayment total questioned costs will not exceed the
amount the funds drawn from Associates’ 2004 and 2005 grants. recommend that the Director HUD’s Office Healthy Homes and Lead
Hazard Control require Associates (1) provide procurement documentation
reimburse HUD from non—Federal funds more than $3.2 million program funds,
(2) provide documentation reimburse HUD from non—Federal funds for nearly
$218,000 program funds, and (3) reimburse HUD from non—Federal funds for
nearly $1.2 million for the unapproved and improper use program funds.
also recommend that the Director withdraw Associates’ ability draw down the
more than $750,000 program funds remaining its grants.

Further, recommend that the Director HUD’s Departmental Enforcement
Center pursue the appropriate administrative sanctions against Associates’ officers
for their failure adequately manage the program grants.

For each recommendation without management decision, please respond and
provide status reports accordance with HUD Handbook 2000.06, REV—3.
Please furnish copies any correspondence directives issued because the
audit. provided our review results the Director HUD’s Office Healthy
Homes and Lead Hazard Control and Associates’ acting legal counsel during the
audit. provided our discussion draft audit report Associates’ acting legal

counsel and HUD’s staff during the audit. held exit conference with
Associates’ acting legal counsel September 30, 2010. asked Associates’ acting legal counsel provide written comments our
discussion draft audit report October 22, 2010. Associates provided its written
response, dated October 22, 2010, and disagreed with our findings. The complete
text the written comments, except for 332 pages documentation that were not
necessary understand Associates’ comments, along with our evaluation that
response, can found appendix this report. redacted the names
employees cited Associates’ comments before including them this audit report. provided the Director HUD’s Office Healthy Homes and Lead Hazard
Control with complete copy Associates’ written comments plus the 332 pages
documentation.

TABLE CONTENTS

Background and Objective

Results Audit
Finding Associates Inappropriately Used Its Program Funds

Finding Associates Used Funds for Unapproved and Improper Purposes
Scope and Methodology

Internal Controls

Appendixes Schedule Questioned Costs and Funds Put Better Use Auditee Comments and OlG’s Evaluation Grant Agreements and HUD’ Requirements

BACKGROUND AND OBJECTIVE

The Program. The Lead Elimination Action Program’s (program) purpose provide grants private—sector and nonprofit organizations conduct activities that leverage additional
funding for addressing lead hazards privately owned housing units and eliminating lead
poisoning major public health threat young children. The program assists States, Native
American tribes, and local governments undertaking programs for the identification and
control lead—based paint hazards eligible privately owned rental and owner—occupied
housing units. The U.S. Department Housing and Urban Development (HUD) interested
promoting lead hazard control approaches that result the reduction elevated blood lead
levels children for the maximum number low—income families with children under years age for the longest period time and demonstrate techniques which are cost effective,
efficient, and replicable elsewhere.

Office Healthy Homes and Lead Hazard Control. October 30, 2009, the Director
HUD’s Office Healthy Homes and Lead Hazard Control (Healthy Homes) requested audit ACORN Associates, Inc. (Associates). The request was for assistance reviewing the
documentation for two program grants for fiscal years 2004 and 2005 totaling nearly million.
Healthy Homes repeatedly conveyed its concerns Associates regarding its grant performance.
Technical assistance was provided during June 2006 site visit and onsite monitoring visit
was conducted January 2010. Issues noted during the visit included policies and procedures
that did not detail the overall grant processes and that Associates’ financial database did not
include enough information track costs and leveraged resources. September 2010,
independent financial audit could not completed, and audit report could prepared due
the lack sufficient information. Associates failed submit complete contracts, work
specifications, inspections and risk assessments, and clearance reports for number units with
grant funds when requested HUD. Also, some work was performed homes for which
Associates did not provide adequate documentation property ownership. addition, risk
assessment reports and clearance reports were unsigned, and the original budget for Associates’
fiscal year 2005 grant included direct costs for staff outside the jurisdiction New Orleans that
did not achieve any outcomes for the grants.

Healthy Homes prepared its March 12, 2010, draft report from onsite visit performed
January and 22, 2010, which disclosed that Associates did not (1) carry out its obligations
completing lead hazard assessments, interventions, and leveraging activities; (2) accurately
describe its production results; (3) maintain separation its grants’ activities and finances; (4)
provide the materials necessary for the grant officer(s) complete formal modification, and
(5) provide documentation for number paid and unpaid invoices. November 2010,
the draft report had not been issued Associates.

Association Community Organization for Reform Now (ACORN). ACORN was established 1970 grassroots organization advocate for low—income families. 2009, ACORN
reportedly had 500,000 members and had expanded into national network organizations
involved the development affordable housing, foreclosure counseling, voter registration,

and political mobilization, among other things. ACORN organizations relied membership
dues and Federal and private foundation funding support various activities.

Voter registration fraud allegations number States and widely distributed videotapes
depicting what appeared inappropriate behavior employees several local ACORN
chapters spurred calls identify Federal funding provided ACORN and ACORN—related
organizations and for legislation restrict eliminate funding.

Congress passed provisions restricting the funding ACORN and its affiliates, subsidiaries,
allied organizations the fiscal year 2010 continuing resolutions, which were followed
several fiscal year 2010 appropriations acts that prohibited any appropriated funds from being
awarded various ACORN ACORN—related organizations. ACORN officials reported
similar cuts private foundation funding. March 2010, ACORN officials stated that the
national ACORN organization would terminate its field operations and close all its field
offices because the loss Federal and other funding, although some its affiliate
organizations were remain open. September 2009, received four separate congressional requests review ACORN’s
activities. received additional requests June and August 2010. Our disposition those
requests will addressed separate report.

ACORN Associates, Inc. Associates was incorporated Arkansas nonprofit corporation
July 23, 1975, for the purpose establishing and developing fund provide training,
assistance, consultation, and other services aid the development and maintenance
community, rural, and neighborhood organizations. Associates received three grants from
HUD’s Healthy Homes. According Associates’ articles incorporation, its principle sources revenue are contractual fees, gifts, and grants. The grants from the program are reimbursable
grants eliminate lead poisoning major public threat children.

The following table shows the amount funds that HUD awarded Associates for the 2004 and
2005 program grants and the amount funds that Associates had expended October 31,
2010. Healthy Homes amended the grant agreements October 20, 2010, suspending any
further payments Associates. This measure was taken comply with section 163 the
Continuing Appropriations Resolution for the fiscal year 2010 Federal budgetl.

 

According Associates’ grant agreements with HUD, HUD emphasized the need for
competitive bidding process for the full implementation program activities. its approved
applications, Associates was contract with community—based organizations and ACORN Section 163 required that none the funds made available the resolution any prior Act may provided
ACORN, any its affiliates, subsidiaries, allied organizations.

implement the program. Program funds were used for training community—based
organizations use community—based strategies leverage resources for lead hazard education,
identification, and control activities low—income neighborhoods.

Associates contracted with Citizens Consulting, Inc., for the maintenance its fiscal
responsibilities and furnish administrative and other services and contracts for the annual
audits and tax return preparation. Citizens Consulting, Inc., was manage project contracts,
funds, and financial management activities according Federal guidelines. Managing activities
included drawing down funding based timesheets, invoices, and allocations and completion
program goals.

Our objective was determine whether Associates expended program funds according
HUD’ requirements.

RESULTS AUDIT

Finding Associates Inappropriately Used Its Program Funds

Associates administered its program contrary HUD’s requirements for its fiscal years 2004
and 2005 program grants. failed (l) properly procure the services affiliate2 and
nonaffiliate organizations through free and open competition, (2) retain records and files
documenting the basis for contractor selection, (3) justify the lack competition and basis for
the award cost, (4) ensure that obtained the lowest, most reasonable cost, and (5) enter into
contract with each organization that performed activity accomplish grant goals. Associates
lacked written procurement policies ensure that the grant requirements were followed.
result, more than $3.2 million program funds was not used accordance with the grant
agreements and HUD requirements.

 

Associates used more than $3.2 million program funds for affiliate and
nonaffiliate organizations accomplish program goals without properly
procuring their services through free and open competition. failed retain
records and files documenting the basis for the selection and justify the lack
competition and basis for the award cost, ensuring that the lowest, most
reasonable cost was obtained (see appendix this audit report for the program
requirements). Contracts were not entered into with each organization.
addition, Associates did not establish its own procurement policies follow
Federal requirements for the procurement services from its affiliate and
nonaffiliate organizations its grant agreements required.

According Associates’ HUD—approved applications, Associates agreed
contract with community—based organizations and ACORN implement the
program. Instead, Associates chose affiliate and nonaffiliate organizations
provide services accomplish program goals without properly procuring their
services and did not provide cost analysis for its procurement action enter
into contract with each organization.

According Associates’ records, disbursed more than $3,264,675, $17,597
more than received program funds. Contrary its grant agreements, Congress and Federal agencies, defining “affiliate” other substantive areas law, similarly provide that
“affiliate” entity (a) controlled another entity, (b) control another entity, (c) under common control
with another entity third party.

Associates commingled other funds with its program funds. were unable
identify the nongrant funds due the lack sufficient accounting records.

Associates disbursed nearly $2.8 million program funds affiliate
organizations without following HUD’s procurement requirements. The
following table shows the affiliate organizations that were not properly procured
and the amount program funds disbursed.

 

ACORN Maryland 695,568

Orleans)

 

AGAPE 24,926

 

ACORN Pennsylvania 22,072

 

ACORN Georgia 19,472

 

 

ACORN Institute communications

 

ACORN Services, Inc.
secretary/treasurer 1,013

 

Total $2,798,550

Associates also disbursed $466,125 program funds nonaffiliate
organizations without following HUD’s procurement requirements.

 

Associates failed maintain documentation support its disbursement
$217,995 program funds affiliate ($212,840) and nonaffiliate ($5,115)
organizations. HUD requires financial records, supporting documents, and all
other records pertinent award retained for period years from the
date submission the final expenditure report. Since Associates had not
submitted acceptable final expenditure reports for the grants November
2010, was required maintain supporting documentation for the
disbursements. previously mentioned, were unable identify the nongrant
funds due the lack sufficient accounting records and Associates’
commingling Federal and non—Federal funds.

Associates failed retain cancelled checks and invoices supporting the
expenditure $212,840 noted the following table.

 

ACORN Associates (New
Orleans) Contractual services

 

ACORN Delaware Contractual services

 

Citizens Consulting,

    

Total $212,840

Associates disbursed another $5,115 nonaffiliate organizations without
adequate documentation support the expenses. failed maintain invoices
and cancelled checks support the expenditures described the following
table.

v‘

   

      

Community Resources Consultant $2,500
BTS Laboratories, Inc. Lead risk assessment 984
Oden Environmental Service, Inc. Lead risk assessment 981
New Hampshire Department Health Technical training

Total November 2010, Associates had $752,842 program funds remaining
for its two current authorized grants (LALHO00l7—04 and LALHO0020—05).
Given Associates’ material failure manage its current authorized program
grants (see this finding and finding this audit report), HUD should terminate
Associates’ ability draw down the remaining program funds ensure that they
are not improperly used. This measure would prevent unnecessary program
expenditures for the remaining program grants.

 

Associates lacked adequate procedures and controls ensure that complied
with Federal requirements. selected affiliate and nonaffiliate organizations
without obtaining their services through free and open competition and did not
retain records and/or files document the basis for their selection, justify the lack competition, and document the basis for the award cost. Also, Associates
failed show that obtained the lowest, most reasonable cost for these services. addition, failed maintain documentation supporting its disbursement
program funds. Therefore, there was assurance that program funds were used
solely for approved purposes and the lowest, most reasonable costs. recommend that the Director HUD’s Office Healthy Homes and Lead
Hazard Control require Associates

1A. Provide documentation support that followed the grants’ procurement
requirements reimburse HUD $3,247,078 (actual amount drawn from
its 2004 and 2005 grants) from non—Federal funds for the procurement
transactions cited this finding.

1B. Provide documentation support its disbursement program funds
the affiliate ($212,840) and nonaffiliate ($5,115) organizations
reimburse HUD $217,955 from non—Federal funds. also recommend that the Director HUD’s Office Healthy Homes and
Lead Hazard Control

1C. Terminate Associates’ ability draw down the $752,842 program
funds remaining its grants.

Finding Associates Used Funds for Unapproved and Improper
Purposes

Associates provided program grant funds affiliate and nonaffiliate organizations for
unapproved purposes and nonaffiliate organization for ineligible purposes. lacked
adequate procedures and controls ensure that complied with Federal requirements.
result, nearly $1.2 million program funds was not used effectively and efficiently
accordance with the grant agreements and HUD requirements.

 

Associates failed use nearly $1.2 million program funds for approved
purposes when expended program funds for organizational services not
included its HUD—approved program detailed budgets. According the
Director the Grants Services Division HUD’s Healthy Homes,
organization must identified the applicant’s approved budget before
receiving funds from grant (see appendix this audit report for the program
requirements). this case, Associates’ fiscal years 2004 and 2005 detailed
budgets did not include the use funds for campaign services, grant fund—raising
activities, lead—based paint remediation work, payroll taxes and workmen’s
compensation insurance, communication services, and financial— and audit—related
expenditures for services performed affiliate organizations and more than
$16,000 disbursed its nonaffiliate organizations. The unapproved use funds
was contrary Associates’ contract with HUD. Therefore, the costs were
ineligible.

Associates disbursed more than $1.18 million affiliate organizations for
services not identified its program’s detailed budgets. The following table
shows the program funds used for unapproved services provided affiliate
organizations and the amount program funds disbursed.

Program funds disbursed affiliate Amount
organizations Unapproved service type disbursed

 

ACORN Assoc1ates Orleans) Unknown 102,088

 

ACORN Inst1tute-commun1cat1ons Communications 8,4

 

ACORN Inst1tute Grant fund raising 3,200

 
    

   

ACORN Services, Inc. Non—emp1oyee
secretary/treasurer reimbursement

 

 

Total §1.182.887

Another $16,395 was disbursed three nonaffiliate organizations and individuals
for services that were not identified the detailed budgets for Associates’ 2004
and 2005 grants. These services included financial accounting, training, and other
unknown expenses. addition, program funds were used for $633 ineligible
bank service fees and overdraft charges.

 

Associates lacked adequate procedures and controls ensure that complied
with Federal requirements and that program funds were used for approved and
eligible purposes. The acting legal counsel retained Associates did not know
why the program funds were not used properly since was not involved with the
expenditure the funds. Associates’ acting legal counsel was hired after the
funds were expended. recommend that the Director HUD’s Office Healthy Homes and Lead
Hazard Control require Associates

2A. Reimburse HUD $1,199,282 ($1,182,887 affiliates plus $16,395
nonaffiliates) from non—Federal funds for the unapproved use program
funds cited this finding.

2B. Reimburse HUD $633 from non—Federal funds for the ineligible use
program funds for the bank fees/charges cited this finding. recommend that the Director HUD’ Departmental Enforcement Center

2C. Pursue appropriate administrative sanctions against Associates’ officers for
their failure adequately manage the program grants.

SCOPE AND METHODOLOGY accomplish our objective, reviewed Applicable laws; Federal Registers Volume 69, No. 94, dated May 14, 2004, and
Volume 70, No. 53, dated March 21, 2005; CFR (Code Federal
Regulations) Parts 24, 84, and 85; Office Management and Budget Circulars
A-1 and A—l33, and Government Accountability Office (GAO) publications
GAO—l0—648R, dated June 14, 2010, and B—320329, dated September 29, 2010. HUD’s files for the grants. Associates’ application procedures, lead remediation procedures, policy and
procedural manual and personnel policies, chart accounts, board members
listing, service contracts with Citizens Consulting, Inc., and ACORN Services,
Inc., incorporation documentation, Line Credit Control System voucher
payment requests, quarterly reports, employee listing for affiliate and nonaffiliate
organizations, lead elimination action program grant applications/agreements and
detailed budgets, check registers, bank statements, cancelled checks, and invoices
for grant years 2004 and 2005. also interviewed current and former employees Associates and Citizens Consulting, Inc.,
the acting legal counsel for Associates, its public accounting firm, and HUD’s staff. reviewed 100 percent the available hardcopy documentation for Associates’
disbursements for its fiscal years 2004 and 2005 grants. verified the accuracy Associates’
documentation reviewing its bank statements, canceled checks, and check registers. performed our onsite audit work from January through April 2010 Associates’ offices
located 2609 Canal Street, New Orleans, LA. The audit covered the period October 2004,
through November 30, 2009, and was expanded determined necessary. conducted the audit accordance with generally accepted government auditing standards.
Those standards require that plan and perform the audit obtain sufficient, appropriate
evidence provide reasonable basis for our findings and conclusions based our audit
objective. believe that the evidence obtained provides reasonable basis for our findings
and conclusions based our audit objective.

INTERNAL CONTROLS

Internal control process adopted those charged with governance and management,
designed provide reasonable assurance about achievement the organization’s mission,
goals, and objectives with regard Effectiveness and efficiency operations, Reliability financial reporting, and Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations well the
systems for measuring, reporting, and monitoring program performance. determined that the following internal controls were relevant our audit
objective: Effectiveness and efficiency operations — Policies and procedures that
management has implemented reasonably ensure that program meets
its objectives. Reliability financial reporting — Policies and procedures that
management has implemented reasonably ensure that valid and reliable
data are obtained, maintained, and fairly disclosed reports. Compliance with applicable laws and regulations — Policies and
procedures that management has implemented reasonably ensure that
resource use consistent with laws and regulations. assessed the relevant controls identified above. deficiency internal control exists when the design operation control does
not allow management employees, the normal course performing their
assigned functions, the reasonable opportunity prevent, detect, correct (1)
impairments effectiveness and efficiency operations, (2) misstatements
financial performance information, (3) violations laws regulations
timely basis.

Based our review, believe that the following items are significant deficiencies:

 

Associates lacked adequate procedures and controls ensure that complied
with Federal requirements. failed (1) properly procure affiliate and
nonaffiliate organizations through free and open competition, (2) retain
records and files documenting the basis for contractor selection, (3) justify the
lack competition and basis for the award cost, (4) prepare analysis
ensuring that the costs were the lowest and most reasonable, (5) enter into
contracts with each organization, and (6) retain supporting documentation for
its disbursement program funds (see finding 1).

Associates failed use program funds solely for approved and eligible

purposes. drew down funds for services not identified its 2004 and 2005
detailed budgets and used funds for ineligible purposes (see finding 2).

APPENDIXES

Appendix

SCHEDULE QUESTIONED COSTS
AND FUNDS PUT BETTER USE

Recommendation Funds put
number Ineligible Unsupported better use $1,829,168 217,995 $752,842 $1,199,282 fl
Totals $1.199.915 $2.047.163 $752,842

Ineligible costs are costs charged HUD—financed HUD—insured program activity
that the auditor believes are not allowable law; contract; Federal, State, local
policies regulations.

Unsupported costs are those costs charged HUD—financed HUD—insured program activity when cannot determine eligibility the time the audit. Unsupported
costs require decision HUD program officials. This decision, addition
obtaining supporting documentation, might involve legal interpretation clarification departmental policies and procedures. Actual unsupported costs for recommendation totaled $3,247,078. For reporting purposes, this amount was reduced $1,417,910
because the associated costs were questioned for other reasons and are reflected totals
for recommendations 1B, 2A, and 2B. The repayment total questioned costs should
not exceed the amount the funds drawn from Associates’ 2004 and 2005 grants.

Recommendations that funds put better use are estimates amounts that could
used more efficiently Office Inspector General (OIG) recommendation
implemented. These amounts include reductions outlays, deobligation funds,
withdrawal interest, costs not incurred implementing recommended improvements,
avoidance unnecessary expenditures noted preaward reviews, and any other savings
that are specifically identified. these instances, HUD implements our
recommendation, will cease providing program funds entity that does not
adequately manage its program grants. This recommendation includes deobligation
program funds from current authorized program grants.

Appendix
AUDITEE COMMENTS AND OIG’s EVALUATION

Ref OIG Evaluation Auditee Comments

SCHWARTZ, LICHTEN BRIGHT
Attorneys Law

275 Seventh Avenue Suite 1760 Arthur Schwartz‘
New York, New York 10001 Stuart Lichtcn
Phone 212 228 6320 Facsimile 212 358 1353 Daniel Bright

‘Also admitted Pennsylvania
and the District Ooturnbia

October 22, 2010 E-mail (wwolfe@hudoig.gov)
and Overnight Mail

William Heath Wolfe

Regional Inspector General for Audit — Region
Office Inspector General

U.S. Department Housing and Urban Development
Ralph Metcalf Federal Building West Jackson Boulevard, Suite 2646

Chicago, Illinois 60604

RE: Lead Elimination Action Program Grant Draft Audit

Dear Mr. Wolfe:

Summary Response

ACORN Associates, Inc. (“AAI”) disagrees with the overall findings the audit for the
following three reasons:

Comment ACORN Associates did effective work remediating lead from housing, which
was the purpose the two grants question. Nowhere the Drafi report does HUD
question the effectiveness ACORN Associates lnc.’s work remove lead from homes.

Comment ACORN Associates worked with the staff HUD’s Office Healthy Homes
starting 2004 who were familiar with the work being done the project. The Office
Healthy Homes did not raise the issues this report with ACORN Associates until the very end this year period.

Comment Two-thirds the money spent ACORN Associates was spent according the budgets approved HUD’s Office Healthy Homes. The other third was spent almost
exclusively for lead remediation and thereby protecting children and adults from lead poisoning.

Ref OIG Evaluation

Auditee Comments

Comment

Comment

Comment

Comment

SCHWARTZ LICHTEN BRIGHT
Anomeys Law

William Heath Wolfe
October 22, 2010

ACORN Associates believed that this was line with the overall purpose the grant, and the
performance this work was approved HUD, either implicitly explicitly. All “procurement" was done line with approved grant proposals and was based the unique nature the field services being procured.

Introduction widely acknowledged that lcad—based paint particularly dangerous and toxic
environmental hazard, and that when found homes presents significant threat children.
Accordingly, HUD has for many years administered programs that provide grants community-
based organizations for the purpose eliminating lead hazards from homes and apartments.
the HUD acknowledges, the purpose the two grants question was “address... lead
hazards privately owned housing units and eliminate... lead poisoning major public health
threat young children.” this context that ACORN Associates, Inc. (“AAI”) began applying for and
receiving grants 2002 from the Department Housing and Urban Development under the
Lead Elimination Action Program (“LEAP”). Grants were received 2003, 2004, and 2005,
and massive organizing effort, well actual lead abatement program, continued until
2009 states across America.

AAI was non-profit entity created many years earlier the Association Community
Organizations for Reform Now, Inc. (“ACORN”), nationwide non-profit membership
corporation headquartered New Orleans, Louisiana. AAI was created receive and
administer various grants and existed that grant money would remain segregated from other
funds raised ACORN. various times over many years, AAI had small central staff and
its own employees, but generally did its work contracting with ACORN and other entities the actual field technical work. connection with HUD’s office Health Homes,
between 2003 and 2008, under the Administration George Bush, AAI'carried out the
program outlined its grant proposals (Exhibits and B), reached thousands Americans,
and helped clean thousands homes. AAI got its grant money through draw downs, after
making periodic reports about the work going on, and not until 2009 were any those draw
downs challen ed. The ACORN staff member administering the grant during most that
period, worked closely with staff HUD and regularly discussed the work
with them. not one point prior 2009 was AAI Ms.—advised that their method
procuring ACORN’s field work that ACORN’s subsidiary, ACORN Services, Inc., was

Ref OIG Evaluation

Auditee Comments

Comment

Comment

Comment

Comment

SCHWARTZ, UCHTEN BRIGHT
Attorneys Law

William Heath Wolfe
October 22, 2010

improper, that inadequate records were being presented support draw downs, that the work
being done was outside the scope the grant. should noted that the contractual relationship between AA] and ACORN, and the
performance the field work ACORN, was wholly line with the way that ACORN—related
entities which received grants functioned between 202 and 2009, and was consonant with the
way that many organizations carry out their work under federal grants. Whether expressly
implicitly, was understood that ACORN and ACORN staff were listed the grant proposal the entity carrying out the work and the employees staffing the grant, further
“procurement” efforts need undertaken. These grants largely involved community
organizing and education, and ACORN was uniquely qualified carry out that work the
scale called for the grant awards. was not until the draft report issued the OIG about the
2004 and 2005 LEAP grants AAI that anyone the federal government was critical the
“procurement” procedures followed AAI.

During the period these grants were being administered, AAl’s administrative
headquarters, New Orleans, survived three hurricanes, the worst which was Katrina.
During Katrina, 2005, the roof the building which the work was being done blew off, and
many records were destroyed. lesser scale this also happened when Hurricane Gustav hit 2006. 2008 ACORN, which its peak had l3,000 employees, was rocked internal
scandal. Its longtime CEO resigned and top-to-bottom review operations was undertaken
counsel and auditors. result these reports ACORN, early 2009, began period
reorganization. Part that reorganization was decision wind down and close AA] and
many other ACORN—related entities. AAI advised HUD that would not drawing down any
other LEAP fiinds, even though around $750,000 remained.

Also 2009, the HUD field otficer, place result the new Obama
Administration increased the supervision over the FY04 and FY05 grants and began field audit effort close out the grants. AAI asked outside counsel work with Ms.—on the
audit, which was underway during the spring and summer 2009. September 2009 politically conservative zealot, coordination with Fox News,
released series doctored videos which appeared show ACORN staff giving improper
assistance prostitute and her boyfriend (whom Fox characterized “pimp”). The resulting
uproar included vote Congress freeze all funding ACORN and the freezing
withdrawal all grant money coming ACORN and related entities from local government

Ref OIG Evaluation

Auditee Comments

Comment

Comment

Comment

Comment

SCHWARTZ LICHTEN BRIGHT
Attorneys Law

William Heath Wolfe
October 22, 2010

agencies and charitable foundations. ACORN’s stream income stopped and laid off almost
all its staff. Ms.—]ost herjob this time well. January 2010 had fewer than
dozen employees spread across the U.S. ACORN Associates, Inc. ceased function. was this context, October 2009, that the HUD OIG asked audit the
2004 and 2005 LEAP grants result the request Congress member. AAI had
money, staff, and attorney. The undersigned, ACORN’s counsel, explained the
situation the IG, who persisted doing audit.

Also this context, the Louisiana Attorney General did wholly unconstitutional raid,
based inaccurate and anonymous tip that records were being stolen and were not secure,
and seized over 100 computers and servers, and over 100 cartons records. date, little
that material has been returned. ‘ January 2010 the auditors began work space provided ACORN’s
headquarters. They were given every box records about the grants that the entity which kept
AAl’s records (Citizens Consulting, lnc., which itself was down half-dozen employees) and
access AAI’s general ledger and bank account records. They did their work without speaking anyone who had administered the grant, either New Orleans the field. Occasionally,
they asked questions the attorney who had assisted the 2009 field audit the
undersigned, and, occasionally, they asked questions who came work for
CCI late 2008. Neither counsel nor Ms.—had any first-hand knowledge about the grant. time did the auditors speak with Ms: whose statement annexed Exhibit

Although Mslnd participated the post-draft report meeting, did
because our clients, CCI and ACORN, asked to, not because there was functioning entity
known AAI which asked to. (In June 2009, afier some legal wrangling, new Board for
AAI was created, whose only job was shut the corporation down.) this context that the IG’s report must viewed. ignores the success the project and includes discussion the work performed
and the enormous “deliverables” delivered (i.e., number people aided and
organized engage self-protective activities).

— ignores years practice and understandings about procurement rules and the fact
that the contracts between AAI and various other entities were known HUD and
expressly implicitly approved when funds were drawn down.

Ref OIG Evaluation

Auditee Comments

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SCHWARTZ, LICHTEN BRIGHT
Attorneys law

William Heath Wolfe
October 22, 2010

— ignores the loss records caused the disastrous hurricanes which hit
New Orleans.

— fails discuss the IG’s failure discuss the grant activities with gne single person
responsible for administration the grant.

The report reaches preposterous conclusion: that over $3.24 million was misspent —
even though the knows what every cent was spent and could not suggest alternative
way that AAI could have carried the grant. lays blame the feet the Bush
Administration HUD staff overseeing the grant and makes discussion what was worst
misunderstanding the relationship between the grant proposal and procurement rules.

General Comments

Given that this was the purpose these grants, shocking that far the single largest
category ACORN Associates Inc.’s expenditures that the labeled “improper” was, the
IG’s report admits, for “lead remediation work”. Nowhere the draft report does HUD
question the effectiveness ACORN Associates Inc.’s work remove lead from homes.
fact, AAI cmn document the successful remediation lead hazards hundreds homes, saving
thousands children from the threat lead poisoning. the work proceeded and AAI worked clear housing units from dangerous lead
contamination, the project director told the HUD Healthy Homes staff the ways which the
funds were being expended directly clearing the housing units lead. (Many the houses
used leveraged, donated labor help clear them from lead contamination.) that time, the
Office Healthy Homes staff did not object the funds being used this way and therefore
ACORN Associates continued remove lead from the community using the grant funds. HUD
sta_ and conducted audit during two-day on-site visit
during the course the grants and told the staff working the project that everything appeared order.

The second major charge that the levels ACORN Associates questions the
procedures AAI used procure contractors, including the contractors who employed the key
staff listed the approved grant proposals carry out the purposes these grants. the
expenditures questioned the lG’s report, $1,767,632.39 was used pay key staff and
contractors listed the budget approved HUD for the two grants. HUD approved AAI’s
proposal and budget its entirety, including the use the identified contractors and key staff. the lG’s office now has problems with these contractors and key staff, should direct its

Ref OIG Evaluation Auditee Comments
SCHWARTZ, LICHTEN BRIGHT
Attorneys Law
William Heath Wolfe
October 22, 2010
Comment questions and aim its fire the HUD officials who approved AAl’s proposal. Therefore AAI

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believes that this money was spent appropriately and should removed from the finding
sections the HUD report.

HUD additionally states that some documentation was missing for some expenditures.

AAI lost good deal its paper documentation during Hurricane Katrina when the roof came
off the building housing AAI and its accounting contractor, CCI. Many documents were lost that time. This loss documentation was reported the HUD Office Healthy Homes the
time the Hurricane. point was AAI given any instructions from the Office Healthy
Homes what actions take regarding the loss these documents.‘ Even including these
documents lost natural disaster, approximately 93% the expenditures had proper
documentation. point HUD’s draft report does HUD allege that the fimds were not used
for lead elimination.

Therefore ACORN Associates believes that the Lead Elimination Action Program grant
funds were used further HUD’s intended purpose eliminating lead from housing the
community, that HUD staff knew about the program being run accomplish this work, and the
report’s conclusions are unnecessarily baseless and alarming. the next part this letter, ACORN Associates will comment specific details the
original draft report that AAI believes are erroneous. Some these comments were previously
provided the HUD through e-mails and audit exit conference call during which some
changes were agreed to. Since AAI has not seen copy any revisions, all concerns are
addressed the Draft Report sent AA] counsel September 20, 2010. effort was made get some these and all submissions HUD associated with grant draw
downs, part effort rebuild file all HUD grants. The request was’ made under the FOIL. response,
HUD identified 15,000 pages documents but wanted $18,000 send them. See Exhibit The $18,000 was not
available.

Ref OIG Evaluation Auditee Comments

SCHWARTZ, LICHTEN BRIGHT
Atlomzys law

William Heath Wolfe
October 22, 2010 COVER PAGE

Comment  ACORN Associates would like this page show that this audit was only audit
procurement procedures and records, and that does not evaluate the expenditures the
contracting entities (principally ACORN and ACORN Services, Inc.) how much appropriate
and needed lead elimination work was done.

I]. HIGHLIGHTS SECTION

Comment the highlights section, under “What Found,” HUD states the AAI improperly
expended $3.2 million funds. AAI points out that these funds were expended for the
elimination lead poisoning and that the HUD inquiry only questions the procurement
Comment procedures used carry out the work. Over $1.7 million was spent, accordance with the grant
butlilgct, for the l;ey staff the projects set forth the approved gr{an1t)proposatll anéllbgidgelt one the principal contracts. Later int same section states ion
Comment program funds were not used for approved purposes. These funds are subset the $3.2
million and not separate amount. AAI has demonstrated HUD that funds were being spent lead remediation (which required paying for the salaries, payroll taxes and workmen’s
compensation insurance for the workers). HUD has misinterpreted “campaign services,” which
was phrase used describe general management support. time did the HUD ask
what campaign services meant the ledgers.

Comment

Comment  Additionally, since ACORN one corporation which maintained separate bank accounts
for each its chapters, the HUD IG’s auditors were confused thinking that checks written
different bank accounts were actually paid different entities. The same problem occurred with
ACORN Services, Inc. and ACORN Institute, Inc. The correct number “afliliat ”
organizations that should mentioned here (ACORN, ACORN Chief Organizer Fund,
ACORN Services Inc., ACORN Institute, and Agape Broadcasting), plus one bank account
within ACORN Associates Inc. The specifics are the chart below, bank accounts listed which
should attributed single entity:

Legal Entity Bank account listed

ACORN ACORN Association (New Orleans)
ACORN ACORN Arkansas

ACORN ACORN Delaware

‘ ACORN ACORN Georgia
ACORN ACORN Kentucky

ACORN ACORN Louisiana

Ref OIG Evaluation Auditee Comments

SCHWARTZ LICHTEN BRIGHT
Mlomeys law

William Heath Wolfe
October 22, 2010

ACORN ACORN
ACORN ACORN New
ACORN ACORN Ohio
ACORN ACORN
ACORN ACORN Texas

ACORN Inc. ACORN Inc.
ACORN lnc. ACORN Inc.

ACORN Institute ACORN Institute
ACORN Institute ACORN Institute communications

 

Similarly, page the draft highlights was stated “... for nearly $2l 8,000
disbursements affiliates and  .” Here again, this should say affiliates being ACORN,
Agape, and Citizens Consulting, lnc. since the listed are bank accounts ACORN and not
separate organizations.

 

Comment This point important because the services ACORN could offer the states set out the grant proposal were unique. It, and its subsidiary ACORN Services, Inc., were the only
entities which could provide the staff, supervision, and coordination required carry out the
grant work states.

111. BACKGROUND AND OBJECTIVE Comments the paragraphs page starting with “0j]ice
Healthy Homes”
Comment the draft report, the Office Inspector General includes information told

them the Office Healthy Homes, including information from on-site visit January
2010. There was AAI staff starting the fall 2009, after the new board (which was put
place the summer 2009 order better close the lead elimination grants) terminated
the project director. Therefore during the visit the Office Healthy Homes there could have
been “technical assistance” provided.

Also this section there are statements from the alleged draft Healthy Homes
programmatic audit that AAI has never been provided with. AAl'believes that hundreds
housing units were cleared lead and thousands families were organized address lead

Ref OIG Evaluation

Auditee Comments

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SCHWARTZ, LICHTEN BRIGHT
Attnmeys law

William Heath Wolfe
October 22, 2010

paint hazards, and that the documentation exists show this work. AAI has not seen the draft
report from the visit and therefore cannot properly comment the findings which are dicussed this financial audit report.

Until fall 2009, the Office Healthy Homes seemed satisfied with the work done the project and therefore the statement that that office “repeatedly conveyed its concerns
Associates" does not seem correct for the majority the time and expenditures under the grant.
The undersigned made inquiries HUD between March 2009 and September 2009 and was told
that the field audit closing out the grant was proceeding properly. time did the Healthy
Homes staff raise issues counsel. Despite this fact, the late summer and fall 2009
ACORN Associates, Inc. did ask New Orleans-based attorney work with HUD close out
both the 2004 and 2005 grants. information instructions came from the HUD
Office Healthy Homes about other information needed properly close down these grants,
despite repeated requests. important also note that Inspector General’s subpoena seeking audit
these grants was served early October 2009, flowing from Congressional requests. Healthy
Homes staff (according the Report) requested audit the OIG had already begun
one. The Healthy Homes office, did ask for audit, only did after becoming aware that
the grant administrator was longer employed and that some AAl’s records had been seized the Louisiana Attorney General. Comment the section titled “ACORN Associates, Inc.”

HUD lists the amount funds originally granted under the fiscal year 2004 and
2005 grant years. Under the direction its caretaker board, AA! had already notified HUD that was not expecting requesting any further draw downs which freed HUD reallocate the
$752,842 not drawn down.

The final sentence should also adjusted reflect the actual focus the audit
since, explained the the closing conference, the lG’s objective was determine
whether the services procured AAI were procured accordance with HUD requirements.
There was focus what happened the funds after they were transferred ACORN,
ACORN Services, other contracting entities.

Ref OIG Evaluation

Auditee Comments

Comment

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SCHWARTZ LICHTEN BRlGHT
Attorneys Law

William Heath Wolfe
October 22, 2010

IV. FINDING Allegations regarding procurement discussed above, the first paragraph under Finding the language should
changed affiliates opposed the incorrect listed there the draft.

Additionally, while the IG’s office was not shown any AAl’s procurement
policies documents about AAI’s procurement activities, the auditors did not interview the
former staff who would have been familiar wifli those policies, and could have discussed (as she
does her attached comments) the likelihood that these records were destroyed Hurricanes
Kaitina and Gustav.

ACORN Associates, Inc. used the approved grant budgets (such Exhibits and template for spending the funds just did under the FY03 grant that had received
(which has not been audited the 1G). The FY03 grant was closed out the same staff the
Office Healthy Homes which also supervised the FY04 and FY05 grants. The AAl’s grant
proposals that were approved the Office Healthy Homes, included the resumes ACORN
staff who would much the work the grants were awarded. ACORN paid these staff
members for their time and ACORN was reimbursed once grant money was drawn down. Since
the Office Healthy Homes never raised concerns about this openly documented
reimbursement process outlined connection with the FY03 payments, AAI continued with the
same relationship and payment procedure connection with the FY04 and FY05 grants. These
payments ACORN for staffing for the grants and for the outreach contract specified the
FY05 grant amounted $1,742,606.39 which was less than the amount the approved budget. additional $24,926.00 was paid out that was also included the approved grant budget for
staffing services from KNON radio (also known Agape) which was also less than the amount the approved budget.

While the HUD auditor did ask AAl’s counsel there was documentation about
procurement procedures (he knew nothing outside what was the records New
Orleans), one who would have had knowledge those procedures while working the
project was questioned, even though contact information for those staff (including Ms.-
would have been provided HUD auditors upon request.

Ref OIG Evaluation

Auditee Comments

Comment

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SCHWARTZ, LICHTEN BRIGHT
Attorneys law

William Heath Wolfe
October 22, 2010 Allegation that disbursement affiliate and nonaffiliate organizations
lacked support documentation. order respond this section, afier receiving the draft audit, AAI asked the specify which payments reflected expenditures prior Hurricane Katrina. AAI has not
received this (or any) particularization from the lG’s office, limiting our ability respond.
AAI had received this information from the auditors, then could have identified expenditures
for which back-up documentation was likely have been lost during Hurricane Katrina. its
own, AAI could only identify the check Agape Communication for $14,959 written prior
Katrina and therefore the documentation was likely lost the storm. (The Agape check was for
the staff KNON which was clearly listed stated the grant proposal and budget being
for marketing and outreach for the project.) HUD also did not give specific list checks for
which there were cancelled checks. Cancelled checks could have been procured from the
bank had AAI been given list the ones required.

Once again, the chart should only show affiliates (ACORN, Agape, and
Citizens consulting). FINDING Alleged improper use program funds the first paragraph, ACORN Associates disagrees with the wording the third
and fourth sentences. The “acting legal counsel ACORN Associates” (presumably the
undersigned) stated that had personal knowledge about the reason for any expenditure and
had records other than those the reviewed. The only expenditure was asked about was
the Chief Organizer expenditure $1,937. stated that provided overall supervision
ACORN staff but knew specifics other than that. admission about improper use was ever
communicated. Furthermore, the conclusion that funds were not used for approved purposes
strongly disputed, the assertion that funds were utilized ineffectively ‘inefficiently. the $1,183,887 identified the chart this section, the following errors the
audit are noted: All the funds ACORN Services, Inc. ($1,035,299) was money paid
ACORN Services for lead remediation work often involving community
volrmteers and efforts tenants — this had been disclosed HUD’s Office
Healthy Homes and was eligible grant-appropriate activity.

Ref OIG Evaluation

Auditee Comments

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SCHWARTZ, LICHTEN BRIGHT
Attumeys Law

William Heath Wolfe
October 22, 2010 The funds listed written ACORN Association should show being
written ACORN Associates audit reserve account there were funds listed the budget for auditing and these funds went the central escrow account
for the grantee which was used pay for audit services. This bank
account AAI and not separate entity. The check Agape Communication was pay for the staff time for Dave
Walkington ($24,926) listed the grant proposal and grant proposal
budget. The check ACORN Association ($102,088) just payment one
ACORN’s bank accounts reimbursing ACORN for staff salaries — this was
approved use under the grant proposal and grant proposal budget.

Conclusion
This audit was flawed numerous respects: The audit fails identify, verify, and credit the work done pursuant the grant; The audit was done without the aid anyone who had been staff who had
first—hand knowledge; The audit was premised largely the notion that the contract was not contract perform the work set out the grant proposal the manner set forth that proposal; The audit failed take into account the impact Hun-icanes‘ Katrina and Gustav the ability AAI protect grant—related records; and The audit was audit defunct entity without the ability resources
properly respond the investigation being conducted.

Ref OIG Evaluation

Auditee Comments

SCHWARTZ, UCHTEN BRIGHT
Attorneys Law

William Heath Wolfe
October 22, 2010

This audit severely flawed and the issuance the report will disservice the
public, the scores people who worked the project, and the hardworking HUD Healthy
Homes officials employed during the Bush Administration who encouraged and assisted this
worthy public undertaking done the name AAI ACORN.

Yours truly,
Arthur Schwa

AZS zdr

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OIG Evaluation Auditee Comments

The audit objective was determine whether Associates expended program funds accordance with HUD’s requirements. did not assess the use the
program funds for lead remediation because was not approved use the
program funds. According the notice funding availability and Associates’
grant application for both grants, only leveraged funds were used for lead
remediation. audited Associates’ use program funds and not HUD’s Office Healthy
Homes and Lead Hazard Control.

Healthy Homes never approved official budget workplan for the grants
because never received them from Associates. requested but Associates did not provide documentation support that
followed the grants’ requirements for procurement. Healthy Homes awarded
grants six separate entities six States. The services were not unique
Associates and its affiliates.

The only contract provided during the audit was Associates’ records and was
between Associates and Citizens Consulting, Inc., for accounting, bookkeeping,
corporate, and administrative services.

Associates’ acting legal counsel stated April 14, 2010, electronic message
that was sure that the OIG auditors were going find bad record keeping.
also stated that the person administering that grant was horrible about her record
keeping and was eventually fired because it. documents were provided support any contractual relationship between
Associates and ACORN.

The grants emphasize the need for competitive bidding process for the full
implementation program activities described the work plan/ statement
work. The procurement standards CFR 84.40 were required the grants.

Healthy Homes awarded grants six separate entities six States. The services
were not unique Associates and its affiliates. documentation was contained HUD’s files provided Associates
support that Associates notified HUD that would not draw down additional
funds.

Associates was selected for audit based upon request from Healthy Homes and
multiple congressional requests.

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Comment interviewed the former project director for Associates that Associates’ acting
legal counsel makes reference “at time did the auditors speak with”. The
former project director contended that all records were maintained during her
employment. After her employment was terminated, she said that Associates and
Citizens Consulting, Inc. staff destroyed the records. also spoke with the
director Citizens Consulting, Inc., staff attorney for Advocates for Justice,
P.C., and Associates’ acting legal counsel. did not have contact information
for any other staff that may have administered the grants. The contact
information was requested, but never provided the director Citizens
Consulting, Inc., staff attorney for Advocates for Justice, P.C., Associates’
acting legal counsel.

According document retrieval experts, damaged documents should retrieved soon safe enter the damaged area. experienced archive restoration
company should have been contacted immediately retrieve these fragile
documents. With HUD’s permission, Associates could have revised the grants
incorporate these retrieval costs into the grants.

The conclusion was based upon the documentation provided Associates and
the grants’ requirements. documentation support these statements were contained Associates
Healthy Homes files, provided with the auditee comments. Additionally, these
statements could not verified interviews with Healthy Homes’ staff.

Healthy Homes’ staff had discussed the matter and indicated its willingness
modify the grant agreements light Hurricane Katrina’s impact the target
area. did not assess the use the program funds for lead remediation because
was not approved use the program funds. According the notice
funding availability and Associates’ grant application for both grants, only
leveraged funds were used for lead remediation.

According the notice funding availability and Associates’ grant application
for both grants, only leveraged funds were used for lead remediation. determined whether Associates expended program funds accordance with
HUD’s requirements. The grant agreements included the procurement standards CFR 84.40.

The $1.2 million subset the $3.2 million. However, more than million
was paid affiliate and nonaffiliate organizations without properly procuring
their services and did not include the funds HUD—approved grant budget.
Actual unsupported costs for recommendation totaled $3,247,078. For
reporting purposes, this amount was reduced $1,417,910 because the

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associated costs were questioned for other reasons and are reflected totals for
recommendations 1B, 2A, and 2B. The repayment total questioned costs
should not exceed the amount the funds drawn from Associates’ 2004 and 2005
grants.

Associates’ acting legal counsel stated September 2010, interview that the
Chief Organizer Fund was corporation created for ACORN’ former chief
organizer’s use only. Associates’ check register showed number checks with
the purpose “Chief Organizer Fund’s organizer/campaign services.” documentation was provided with Associates’ comments support
Associates’ contention that there were chapters within ACORN. Therefore,
did not change our reference regarding affiliates. gathered relevant information from number sources during our audit.
Associates’ acting legal counsel correct that used unissued draft report
from Healthy Homes from its January 2010 onsite review. did not subpoena any records for this audit. initiated our audit December 10, 2009, after receiving October 30,
2009, request from Healthy Homes. provided supporting schedules that included the respective date, check
number, amount, and payee. These documents included copies Associates’
check registers. removed the sentence from the charge paragraph for finding

The entity name was corrected this audit report. May 2010, Associates’ acting legal counsel stated that Associates was
discontinuing its operations because our audit. the September 30, 2010, exit
conference with Associates’ acting legal counsel, stated that Associates only

existed paper and would filing for bankruptcy. November 2010,
Associates’ acting legal counsel filed the petition for bankruptcy.

Appendix
GRANT AGREEMENTS AND HUD’S REQUIREMENTS

$2.1

HUD agreement HUD l044, paragraph cites special consideration which HUD
emphasizes the need for competitive bidding process for the full implementation program
activities described the work plan/statement work. this regard, full compliance with
procurement standards set forth CFR 84.40 applicable.

commingle any fund computed under this grant with any other existing future operating
accounts held the grantee.

HUD’s regulations CFR 84.40 state: “Sections 84.41 through 84.48 set forth standards for
use recipients establishing procedures for the procurement supplies and other
expendable property, equipment, real property, and other services with Federal funds. These
standards are furnished ensure that such materials and services are obtained effective
manner and compliance with the provisions applicable Federal statutes and executive
orders.”

HUD’s regulations CFR 84.43 state: “All procurement transactions shall conducted
manner provide, the maximum extent practical, open and free competition. The recipient
shall alert organizational conflicts interest well noncompetitive practices among
contractors that may restrict eliminate competition otherwise restrain trade. order
ensure objective contractor performance and eliminate unfair competitive advantage, contractors
that develop draft specifications, requirements, statements work, invitations for bids, and/or
requests for proposals shall excluded from competing for such procurements. Awards shall made the bidder offeror whose bid offer responsive the solicitation and most
advantageous the recipient, price, quality and other factors considered.”

HUD’s regulations CFR 84.44 state: “All recipients shall establish written procurement
procedures. These procedures shall provide minimum: (1) recipients avoid purchasing
unnecessary items, (2) where appropriate, analysis made lease and purchase alternatives determine which would the most economical and practical procurement for the Federal
Government, and (3) solicitations for goods and services will have clear and accurate
description the technical requirements for the material, product service procured,
requirements which the bidder/offeror must fulfill, description technical requirements
terms functions performed performance required, specific features “brand name
equal” descriptions that bidders are required meet when such items are included the
solicitation. (d) Contracts shall made only with responsible contractors who possess the
potential ability perform successfully under the terms and conditions the proposed
procurement.”

HUD’s regulations CFR 84.45 require the recipient perform some form cost price
analysis connection with every procurement action.

HUD’s regulations CFR 84.46 state: “Procurement records and files for purchases
excess the small purchase threshold shall include the following minimum: (a) basis for
contractor selection; (b) justification for lack competition when competitive bids offers are
not obtained; and (c) basis for award cost price.”

HUD’s regulations CFR 84.53(b) state: “Financial records, supporting documents,
statistical records, and all other records pertinent award shall retained for period
three years from the date submission the final expenditure report or, for awards that are
renewed quarterly annually, from the date the submission the quarterly annual
financial report, authorized HUD. The only exceptions are the following. (1) any
litigation, claim, audit started before the expiration the 3-year period, the records shall
retained until all litigation, claims audit findings involving the records have been resolved and
final action taken.”

Office Management and Budget Circular A-1 paragraph 2l(b), states: “Recipients’
financial management systems shall provide for the following: (3) effective control over and
accountability for all funds, property and other assets. Recipients shall adequately safeguard all
such assets and assure they are used solely for authorized purposes. Paragraph states these
standards are furnished ensure that such materials and services are obtained effective
manner and compliance with the provisions applicable Federal statutes and executive
orders.”

Paragraph Circular A-1 states: “The recipient shall maintain written standards
conduct governing the performance its employees engaged the award and administration
contracts. employee, officer, agent shall participate the selection, award,
administration contract supported Federal funds real apparent conflict interest
would involved. Such conflict would arise when the employee, officer, agent, any
member his her immediate family, his her partner, organization which employs about employ any the parties indicated herein, has financial other interest the firm
selected for award. The officers, employees, and agents the recipient shall neither solicit
nor accept gratuities, favors, anything monetary value from contractors, parties
subagreements. However, recipients may set standards for situations which the financial
interest not substantial the gift unsolicited item nominal value. The standards
conduct shall provide for disciplinary actions applied for violations such standards
officers, employees, agents the recipient.”

Circular A-1 10, paragraph 43, states: “All procurement transactions shall conducted
manner provide, the maximum extent practical, open and free competition. The recipient
shall alert organizational conflicts interest well noncompetitive practices among
contractors that may restrict eliminate competition otherwise restrain trade. order
ensure objective contractor performance and eliminate unfair competitive advantage, contractors
that develop draft specifications, requirements, statements work, and invitations for bids
and/or requests for proposals shall excluded from competing for such procurements. Awards

shall made the bidder offeror whose bid offer responsive the solicitation and
most advantageous the recipient, price, quality and other factors considered. Solicitations
shall clearly set forth all requirements that the bidder offeror shall fulfill order for the bid
offer evaluated the recipient. Any and all bids offers may rejected when the
recipient’s interest so.”

Circular A-1 10, paragraph 61, states that awards may terminated whole part the
Federal awarding agency recipient materially fails comply with the terms and conditions award.

The 2004 Lead Elimination Action Program grant application states that the selection process for
subgrantees and subcontracts will comply with all Federal regulations.

The 2004 and 2005 Lead Elimination Action Program grant applications state that Citizens
Consulting, Inc., will manage contracts and assist any contracts with partners, funds, and
financial management activities accordance with HUD regulations. system was developed track and document activities and expenses. monthly basis, funds will drawn based documentation include timesheets, invoices, receipts, and allocations support the
draw.

Section the Federal Register Volume 70, No.53, dated March 21, 2005, states that its
application, applicants are identify the organizations entities that will assist the applicant
implementing the program.

HUD’s regulations CFR 2424.10 state that HUD adopted, HUD’s policies, procedures,
and requirements for nonprocurement debarment and suspension, the Federal regulations
CFR Part 180.

HUD’s regulations CFR 24.1 state that the policies, procedures, and requirements CFR
Part 2424 permit HUD take administrative sanctions against employees recipients under
HUD assistance agreements that violate HUD’s requirements. The sanctions include debarment,
suspension, limited denial participation and are authorized CFR 180.800, CFR
180.700, CFR 2424.1110, respectively. HUD may impose administrative sanctions based
upon the following conditions:

~:» Failure honor contractual obligations proceed accordance with contract
specifications HUD regulations (limited denial participation);

~:o Violation any law, regulation, procedure relating the application for financial
assistance, insurance, guarantee the performance obligations incurred pursuant grant financial assistance pursuant conditional final commitment
insure guarantee (limited denial participation);

~:o Violation the terms public agreement transaction serious affect the
integrity agency program, such history failure perform unsatisfactory
performance one more public agreements transactions (debarment);

 Any other cause serious compelling nature that affects the present

responsibility person (debarrnent).