The liberal grass-roots group ACORN is reeling after scandals that have hurt its fund-raising ability and prompted its big New York and California chapters to quit and set up fresh organizations.

Conservatives have used controversies surrounding the Association of Community Organizations for Reform Now, which endorsed President Barack Obama during his 2008 campaign, to paint Democrats as a party linked to corruption.

Accusations against ACORN gained force last September when a YouTube video was disseminated showing ACORN workers giving advice on how to flout the law to two conservative activists who posed as a pimp and a prostitute.

In its wake, the U.S. Congress voted by wide margins to prohibit the federal government from funding ACORN, and the U.S. Census Bureau ended its partnership with the group.

ACORN was already embroiled in an embezzlement controversy and during the 2008 election it was hit by accusations it attempted to register voters fraudulently.

Our ability to do our work has been damaged and we cannot do as much as we once did to organize people at the grass-roots level, ACORN spokesman Kevin Whelan said in an interview.

The atmosphere of controversy has made it harder to raise funds, he said, adding that investigations had largely vindicated the group.

ATTACKS, INTERNAL PROBLEMS

ACORN's powerful New York chapter left to form the NY Communities for Change on Monday, following the lead of the California state chapter, which in January became the Alliance of Californians for Community Empowerment with 48,000 members.

The attacks and internal problems were becoming too much of a distraction and were making it too difficult to carry on the work we do on behalf of low-income families in California, said Amy Schur, executive director of the California alliance.

We might have been able to fix the problems within ACORN but when you combine internal challenges with a vicious political attack ... it made it just too hard to feel we could move forward effectively, she said.

ACORN plays a significant political role in low-income neighborhoods and in 2008 signed up 1.3 million people, mainly from ethnic minorities, to register to vote in areas where Democrats poll well.

The association, promotes affordable housing and fights home foreclosures as well as giving tax advice, has close ties to labor unions and backs key elements of Obama's domestic agenda including healthcare reform.

It says on its website that it has 400,000 member families in 1,200 neighborhood chapters located in 75 cities and 40 states. It has headquarters in New York, New Orleans and Washington, D.C.

Conservative critics as well as some former members said on Monday any bid to rebrand ACORN was merely cosmetic.

This is a public relations exercise ... ACORN is not dead and it is not going to change its ways any time soon, said Matthew Vadum, senior editor at the Capital Research Center in Washington and a conservative critic of the group.

(Editing by Eric Walsh)

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