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

Associates inappropriately expended more than $3.2 million from its fiscal years 2004 and 2005 grants for the elimination of lead poisoning in its housing program. It paid program funds of more than $3 million to affiliate and nonaffiliate organizations without properly procuring their services and did not include the funds in a HUD-approved grant budget. For its 2004 and 2005 grants, Associates failed to (1) properly procure the services of 19 affiliate and 20 nonaffiliate organizations through free and open competition, (2) retain records and files documenting the basis for contractor selection, (3) justify the lack of competition and basis for the award cost, (4) ensure that it obtained the lowest, most reasonable cost, and (5) enter into a contract with each organization that performed an activity to accomplish grant goals. Additionally, it did not have adequate supporting documentation for nearly $218,000 in disbursements to 11 affiliate and 4 nonaffiliate organizations.

Also, program funds were not used for approved purposes. Associates used nearly $1.2 million in program funds for purposes not identified in 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 by affiliate organizations and more than $16,000 disbursed to its nonaffiliate organizations. Further, more than $600 in improper expenses for bank service fees was disbursed from program funds. The nearly $1.2 million of program funds used for unapproved purposes are associated with and included in the $3.2 million expended without being properly procured. The repayment of total questioned costs will not exceed the amount of the funds drawn from Associates’ 2004 and 2005 grants.

We recommend that the Director of HUD’s Office of Healthy Homes and Lead Hazard Control require Associates to (1) provide procurement documentation or reimburse HUD from non-Federal funds more than $3.2 million in program funds, (2) provide documentation or reimburse HUD from non-Federal funds for nearly $218,000 in program funds, and (3) reimburse HUD from non-Federal funds for nearly $1.2 million for the unapproved and improper use of program funds. We also recommend that the Director withdraw Associates’ ability to draw down the more than $750,000 in program funds remaining in its grants.

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