WASHINGTON -- A government audit said Tuesday that the advocacy group ACORN should pay back $3.2 million in federal funding, mostly because it hasn't shown that its lead removal work was performed at a reasonable cost.

The auditors also said some of the grant money was spent inappropriately, including for political campaigns and fundraising.

Congress already has cut off ACORN's federal funding after allegations of voter registration fraud and embezzlement. In March, the community activist group began closing its operations.

The Department of Housing and Urban Development's inspector general looked at spending designed to eliminate lead poisoning in low-income housing. The grants covered fiscal years 2004 and 2005.

The money went to ACORN Associates Inc., an organization that ACORN established to collect and administer grant money. That way, the money would be segregated from other money raised by ACORN.

Auditors questioned about $2 million because ACORN Associates didn't document open competition by contractors -- many of them ACORN affiliates throughout the country.

The inspector general said HUD should demand records that document why contractors were selected and records that justify the lack of competition.

Another $1.2 million was found to have been spent on ineligible activities, such as payroll taxes and workmen's compensation insurance. A small portion of that money, about $6,000, went for fundraising and political campaigns.

Attorneys for ACORN disputed the inspector general's findings. Arthur Z. Schwartz wrote that the audit was severely flawed and ignored that ACORN Associates "reached thousands of Americans and helped clean up thousands of homes."

Schwartz said ACORN Associates' contracting practices were known to HUD officials and expressly or implicitly approved before money was spent. He said many of the organization's records were destroyed during Hurricane Katrina.