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Judicial Watch • HUD OIG Acorn Inspection Audit Report 752011

HUD OIG Acorn Inspection Audit Report 752011

HUD OIG Acorn Inspection Audit Report 752011

Page 1: HUD OIG Acorn Inspection Audit Report 752011

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Issue Date 
November 2010 
Audit ReporL Number 
201 l-CU-1002 

most reasonable cost, and (5) enter into contract with each organization that pcrfom1ed 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 pmposes 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 nonaffiliatc 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 arc 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. 
What Recommend recommend that the Director HUD's Office Healthy llomcs 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. 

Auditee's Response 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, asked Associates' acting legal counsel provide written comments owdiscussion draft auclit report October 22, 2010. Associates provided its written response, dated October 22, 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' Office Healthy Homes and Lead Hazard Control with complete copy Associates' written comments pl.us the 332 pages documentation. 
TAB.LE CONTENTS 

Backgrowid and Objective 

Results Audit 

Finding Associates Inappropriately Used Its Program Funds 

Finding Assodates Used Funds for Unapproved and Improper Purposes 

Scope and Methodology 

Internal Controls 

Appendixes 
Schedule Questioned Costs and Funds Put Better Use 
Auditcc Comments and O!G's Evaluation 
Grant Agreements and HUD's 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 oflead-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 D'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 perfonnance. Technical assistance was provided during June 2006 site visit and on.site monitoring visit was conducted January 2010. Issues noted dming the visit included policies and procedures that did not detail the overall grant processes and that Associates' financial database did not include enough infonnation 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 Hornes prepared its March 12, 2010, draft report from onsitc 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; provide the materials necessary for the grant officer(s) complete fonnal modification, and 
(5) provide documentation for number paid and unpaid invoices. November the draft report had not been issued Associates. 
A.-.sociation 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 conununity, rural, and neighborhood organizations. Associates received three grants from HUD's Healthy Homes. According Associates' articles incorporation, its principle sources revenue arc 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 budgct. 
Program Program funds Program funds Program funds ear awarded ended Remainin 
2004  $2,000,000  $1.,41,376  $158,624  
2005  1,999,920  1,405,702  594,218  
Totals  

According Associates' grant agreements with 11UD, 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 organizatious use community-based strategies 1.everage resources for lead hazard education, identification, and control activities low-income neighborhoods. 
Associates coutracted with Citizens Consulting, Inc., for the maintenance its fiscal responsibilities and furnish administrative and other services and contracts for the annuaJ audits and tax return preparati.on. Citizens Consulting, Inc., was manage project contracts, funds, and financial management activities according Federal guidelines. Managing activities included drawing down funding based timesbeets, invoices, a.od allocations and completion program goals. 
Our objective was determine whether Associates expended program funds according HUD's 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 (1) properly procure the services affiliate2 and nonaffiliate organizations through free and open competition, (2) retain records and tiles 
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 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. 
Program  
Affiliate organizations not properly  funds  
disbursed  
ACORN Services, Inc.  $1,033,374  

ACORN Maryland 695,568 
ACORN Louisiana 692,007 
ACORN Associates (New Orleans) 102,088 
ACORN New Jersey 46,370 
ACORN Texas 41,543 

ACORN Ohio 38,293 
AGAP.E 24,926 
ACORN Arkansas 22,072 
ACORN Pennsylvania 22,072 
ACORN Delaware 22,071 
ACORN Georgia -19,472 
ACORN Kentucky  16,195 
ACORN Institute -communications  8,419  

ACORN Associates -audit reserve 7,018 
ACORN Institute 3,200 
ACORN Chief Organizer Fund 1,937 
ACORN Services, lnc.'s 
1,013 
ACORN Services, Inc. -representative 912 
Total 
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 nonaffil iate ($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 repo11s for the grants November 2010, was required maintain supporting docwnentation for the disbursements. previously mentioned, were unable identify the nongrant funds due the lack sufficient accounting records and Associates' eonnningling Federal and non-Federal funds. 
Associates failed retain cancelled checks and invoices supporting the expenditure $212,840 noted the following table. 
Program funds disbursed affiliate organizations Unsupported without adequate supporting documentation amount 

Associates disbursed another $5, 115 nonaffiliate organizations without adequate documentation supp011 the expenses. failed maintain invoices and cancelled checks support the expenditures described the following table. 
Progrllm fllJlds $bt1r800 tJ oond'flinte ga.nizatins Without adtQuMt 1nJPl>IU'1ing docmwcnki1Jhm Community Resources Consultant BTS Laboratories, Inc. Lead risk assessment  Ultfa $2,500 984  
Oden Environmental Service, Inc. Lead risk assessment New Hampshire Department Health Technical training  981  
Total  

Associates lacked adequate procedures and controls ensure that complied 
with Federal requirements. selected affiliate and nonaffiliatc 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. 
Recommendations recommend that the Director HUD's Office Healthy Homes and Lead Hazard Control require Associates 
lA. 	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. 	Provide doctunentation support its disbursenient 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 	Terminate Associates' ability draw down tl1e $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 D'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 Inc. ACORN Associates (New Orleans)  Lead remediation work ($642,080), payroll taxes ($354,406), and workmen's compensation insurance ($36,888) Unknown  $1,033,374 102,088  
AGAPE ACORN Institute-communications  Communications Communications  24,926 8,419  

ACORN Associates, Inc. Audit reserve 7,018 
ACORN Institute  Grant fund raising  3,200  
ACORN Chief Organizer Fund  Campaign services  1,937  
ACORN Services, lnc.'s  Non-employee  
secretarv/treasurer  reimbursement  1,013  
ACORN Services, Inc. representative  Waste disposal  912  
Total  

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. 
28. 	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's 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-133, and Government Accountability Office (GAO) publications GA0-10-648R, 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, Linc 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) impainnents effectiveness and efficiency operations, (2) misstatements financial performance information, (3) violations oflaws regulations timely basis. 

Significant Deficiencies 
Based our review, believe that the following items are significant deficiencies: 
 
Associates lacked adequate procedures and controls ensure that c0mplied with Federal requirements. failed (1) properly procme 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, prepare analysis enslll'ing 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 
to. program soIy fQt: approved eligible purposes. drew down funds for services not identified its 2004 and 2005 detailed budgets and used funds for ineligible purposes (see finding!) 
 
APPENDIXES 

Appendix 
SCHEDULE QUESTIONED COSTS AND FUNDS PUT BETTER USE 
Rcconnnendation Funds put number Ineligible Unsupported better use 
Totals 	Ineligible costs are costs charged HUD-financed HUD-insured program activity that the auditor believes arc not allowable law; contract; Federal, State, local pol.icies 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 $3,24 ,078. For reporting purposes, this amount was reduced $1,417 ,910 because the associated costs were questioned for other reasons and arc reflected totals 
for recommendations lB, 2A, and 28. 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, .if HUD implements our recommendation, will cease providing program funds entity that docs not adequately manage its program grants. This recommendation includes deobligation program funds from current authorized program grants. 
Atlomeya Law ru. 

Appendix AUDITEE COMMENTS AND OIG's EVALUATION 

Comment 
Comment2 
Commcnt3 
SCHWARTZ, LICHTI'N BRIGHT 
11SS.'""1h-.. SUl10ll'l>O 
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Oetober22, 2010 Email (wwo!fe@hudoig.gov) 
Mail 
Wiiiiam Heath Wolfe Regional lnspe'tor Oene1a for Audit -Region Offioe lnstor Genc111I 
U.S. Deparanent ofHouslni; and Urll1111 Development RalphH. Meu:41lfFodral Buildiilg West Jackson Boulevard. Sui1e 2646 Chlcaio. Jllinois 60604 
Dear Mr. Wolfe: 
ACORN Assi;ioia1.c:s, Inc. ("AAI") disagrees with the overall findings the audit for lhe following Oueo reasons: 
ACORN Associates did effective work remediatiog lead from housing, which was the purpose the two grants question. Nowhere the Dtaft report oocs HUD question lhe effectiveness ACORN Associates Inc. work a?cDOVC lead from homes. 
ACORN Aisociates worked withthe S!Alf ofHUD's Offi.oe ofHealtby Homes Slarting 2004 who were familiar with work being done Ult project. The Office Hea!Oty Homes did not rail!e1he issues this report ACORN Associates until lhe vt:ry end n which maintained separate benl: a