Politics & Policy

ACORN Is Up to Its Old Tricks

A federal law is no match for creative accounting.

There is an old claim, oft-repeated as gospel truth, that the only living thing that would survive a nuclear attack is the cockroach. The power of modern weaponry has likely rendered this false, but in its place we might well put the disgraced “community organizing” organization, ACORN. Reports of ACORN’s demise are greatly exaggerated, a fact by which nobody with even a cursory familiarity with their practices should be surprised. The evidence suggests that the group has weathered the fallout from its scandals with a remarkable fortitude — it is not just surviving, but thriving; and it is doing so with thousands of those federal dollars that it is explicitly banned from receiving.

Since it was ignominiously stripped of all federal funding in 2009, ACORN has steadily maintained its extensive network of “affiliates” — more specifically, tax-exempt progressive 501(c)3 and 501(c)4 organizations, most of which have been renamed since the scandal hit. For 40 years, it appears, ACORN employed many of these groups to funnel millions of federal dollars its way — and it continues to do so today. It appears to be getting away with it. When somebody buys a gun for a convicted felon, it is called a “straw purchase,” and it is prosecuted to the fullest extent of the law. When ACORN takes money prohibited to it by employing others as collection agents, it is called “accounting.” This is the financial equivalent of being dishonorably discharged, but continuing to serve, and anyone who respects congressional authority should be outraged.

#ad#The system ACORN has developed is ingenious. A 501(c)3 is defined by the IRS as a “Religious, Educational, Charitable, Scientific, Literary . . . Public Safety . . . National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organization.” 501(c)3 groups are prohibited from electioneering or endorsing candidates by virtue of their tax-exempt status, and are severely limited in their capacity to lobby. They are also explicitly barred from using any federal funds to support what little lobbying they are permitted to do. Prima facie, they are useless to those with overtly political aims.

But while 501(c)3 organizations — such as ACORN’s new (i.e., renamed) groups, the Affordable Housing Center of America (AHCOA) and the New York Agency for Community Affairs (NYACA) — are heavily restricted in the political sphere, such impediments can be easily circumvented. This is generally achieved via a mechanism known as “fiscal sponsorship.” Fiscal sponsorship works pretty much how it sounds: In order to help out third-party organizations (“fiscal agents”) that either do not qualify for 501(c)3 status or are waiting for certification, established 501(c)3 groups are permitted to underwrite certain “projects” that they consider to be vital to their mission. In theory at least, this can be a useful and positive tool, one that allows the easy funding of temporary ventures and the sharing of administrative costs, expertise, and infrastructure. (Think, for example, of a college wishing to fund a student documentary.)

But fiscal sponsorship also presents 501(c)3 groups with a highly efficient and sophisticated means of laundering money. Indeed, a leading nonprofit tax attorney, John Edie, suggests that the mechanism is predominantly used for that purpose: “If you’re going to use a fiscal agent, to me you’re saying, ‘Well, I’m going to launder the money through somebody.’” In this particular case, that “I” is any one of the 501(c)3 groups that ACORN has established to do its dirty work, and that “somebody” is ACORN central.

#page#ACORN’s central challenge is how to get the federal funds from an affiliate to itself. The answer, it seems, is to have AHCOA and its ilk permanently “fiscally sponsor” something — anything, in fact. NYACA, one of ACORN’s 501(c)3 friends, has been recently targeted by the DOJ on precisely these grounds, with the DOJ’s inspector general alleging that “all of [NYACA’s] grant funds were essentially transferred from NYACA’s bank account to ACORN’s account.” (Abuse of this largely unregulated mechanism is not limited to ACORN: In 2010, the American Educational Trust sent cash to the Free Gaza Movement in order to help sponsor the “Freedom Flotilla.” And we all know how that ended: In addition to contravening the stipulation that the funds be used only for a tax-exempt purpose, this also violated the U.S. Neutrality Act and led to the deaths of twelve people. Not bad for a day’s work.)

#ad#NYACA aside, ACORN’s apparent misuse of fiscal sponsorship has gone largely unnoticed. But there are people on the case. Most prominent among them is Dan Epstein, executive director of the good-government group Cause of Action and a former counsel for oversight and investigation on the House Oversight Committee. In an October 21, 2011, letter to the inspector general of the Treasury, Epstein declared that the “evidence uncovered tends to suggest that ACORN instructed its affiliates to funnel tax-deductible and/or taxpayer dollars to ACORN over a forty year period,” including since the 2009 ban. The letter accused ACORN of “shameful deception” and bluntly requested that the IRS “investigate ACORN and its allies for tax fraud.” Cause of Action has estimated that between 40 and 60 percent of all money sent to ACORN’s affiliates ends up with the parent company through this mechanism, although given the poverty of much of the internal auditing, it is difficult to put an exact number on the deceit. Unfortunately for taxpayers, it seems that nobody is particularly interested in the subterfuge, and in recent months things have actually taken a turn for the worse.

In January 2011, the Government Accountability Office (GAO) concluded that AHCOA was not in fact “affiliated” with or “allied” to ACORN, and thus was not covered by the ban on federal funding. AHCOA received $650,000 in grants from the U.S. Department of Housing and Urban Development (HUD) between August 8 and September 2, 2011. But a September 27, 2011, letter from Daniel Epstein to the comptroller general at the GAO called into question the manner in which that decision was made and the evidence submitted to the hearing. Epstein noted that the internal audits on which the GAO relied were lacking in crucial material — material that had earlier led HUD’s Office of the Inspector General, in a separate investigation, to declare that AHCOA’s funds were not being used in compliance with the law.

Moreover, the GAO treated AHCOA as a new corporation, instead of just a renamed one. The law states that “a formerly allied organization or affiliate is considered presently allied or affiliated unless that corporation has been dissolved or has had its status revoked.” “AHCOA,” Epstein writes, “met neither of these conditions.” What’s more, AHCOA is still very clearly affiliated with many organizations owned by ACORN, including Beverly Homes LLC and the Texas ACORN Housing Association, and currently works with “twenty-three ACORN-related entities.”

Contra the GAO, so intertwined are ACORN and supposedly separate AHCOA that Neighborworks — a “national network of more than 240 community development and affordable housing organizations” — issued a special audit in December 2010 alleging: “Although AHC[OA] and ACORN might be incorporated as separate entities in form and structure, the financial transactions noted below evidence extensive relationships between both organizations that may undermine claims of an ‘arm’s length relationship’ between them.” It also noted that “AHCOA’s issuance of multiple contracts to ACORN gives the appearance that contracts have been distributed among separate entities, ‘when they are actually one and the same.’” Not only did the GAO’s poor decision effectively allow ACORN to receive federal dollars in violation of the 2009 ban, but in coming to its ruling, the GAO ignored a provision in that ban that prohibits ACORN from rebranding itself in order to get around the law. Daniel Epstein’s letters and other such inquiries have been met mostly with form letters whose authors could barely contain their indifference. On January 25, 2012, however, the GAO responded to Cause of Action’s enquiry. Unfortunately, it seems to be going in the wrong direction.

#page#ACORN has ostensibly convinced the GEO that it doesn’t exist. Responding to Epstein’s complaint, the GAO contended that ACORN is “in Chapter 7 (dissolution) bankruptcy,” and therefore can’t be affiliated with anything. This is an absurd position to take: Leaving aside that, according to the Arkansas secretary of state’s office, ACORN is still in good standing as an active corporation, the GAO’s decision ignores the fact that the word “ACORN” is something of a red herring: ACORN, like any taxable corporate enterprise, is a nexus of contractual arrangements between individuals, designed for limited liability. ACORN has renamed itself, but the nexus of transactions still remains and is active. Anyone looking for a large building with “ACORN” written on the side will be disappointed, but to conclude anything from the absence of such is to miss the point entirely.

#ad#Heads are starting to turn: Representative Darrell Issa (R., Calif.) has written to the Attorney of New York’s Eastern District, complaining that ACORN-affiliated 501(c)4 group New York Communities for Change (NYCC) is soliciting donations from union members under false pretenses, and questioning whether federal funds are being illegally directed to Occupy Wall Street and others. An illustration of ACORN’s diffuse rebirth: NYCC is headed up by Jon Kest, formerly of NY ACORN, and the group works out of ACORN’s offices in Brooklyn, retaining swathes of ACORN’s former staff. According to one Fox News report, “sources inside NYCC allege that the group has hired approximately 100 former ACORN-affiliated staff members from other cities, paying some of them $100 a day, to attend and support Occupy Wall Street.” My request for a comment from NYCC was met with only with “the statement [NYCC] sent to Fox News when they raised these false allegations in October,” which reads that “[NYCC] is a new organization that fights for low- and moderate-income families. We don’t pay protesters and any monies raised by NYCC’s canvass are used in support of our ongoing issue campaigns.” The statement didn’t address my questions about fiscal sponsorship.

As of yet, however, Issa’s complaint has had nothing to do with the issue of fiscal sponsorship, and he is still scratching at the surface. Both Fox News and Andrew Breitbart’s Big Government have looked into this issue — as have a variety of other groups — but given the apparent complexity of the ruse, it is becoming clear that only a more comprehensive enquiry will suffice. Congressional authority is being flouted and, in a nation of laws and not men, it does not matter whether the infraction is to the tune of a billion dollars or a single cent. Congress might start by enforcing the existing laws, for then, and only then, will John Boehner’s promise that “the writing is on the wall for ACORN” be true.

– Charles C. W. Cooke is an editorial associate at National Review.

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