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EXCLUSIVE: Legal-aid agency hit for wasteful spending

- The Washington Times - Tuesday, July 28, 2009

EXCLUSIVE:

During the worst economic downturn in decades, the federal program that provides free legal help to impoverished Americans has spent tax dollars on a decorative natural-stone wall, no-bid contracts for consultants, alcohol for a congressional party and more than 100 casino hotel rooms that were never occupied, government documents show.

The Legal Services Corp. - which stirred national controversy a few years back by paying for limousines, first-class airfare and $14 Death by Chocolate pastries for its executives - has created new symbols of excessive spending in recent months, according to federal audit reports and congressional correspondence obtained by The Washington Times.

And the timing couldn't be worse.

Even as President Obama was calling on government to reduce wasteful spending, his administration was trying to persuade Congress to increase LSC's funding by $45 million to help more Americans who are being evicted from homes or are facing other economic hardships and are in need of subsidized legal help.

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But lawmakers are wary, especially after receiving a barrage of recent, critical reports from the program's independent watchdog and the congressional auditing office.

Those reports found that the agency had violated the government's open-meeting law, had opened the door for its own employees to "double-dip" by collecting pay from the program's headquarters and separate programs, had failed to follow its own contracting procedures and had unnecessarily handed out consulting contracts without competitive bidding.

The problems are so widespread that auditors in March questioned more than $80,000 in expenses for a California program that provides legal help to Indians, including payment for 136 hotel rooms at the Pechanga Resort & Casino, in Temecula, Calif., that were never used for a conference on tribal court.

"The failures on the part of the LSC and its management cannot and should not be swept under the rug," Sen. Charles E. Grassley, the top Republican on the Senate Finance Committee, wrote in a letter earlier this month that urged his colleagues on the Senate Appropriations Committee not to give LSC any more money until it fixes its wayward spending.

"LSC headquarters continues to operate in total disregard of federal law when it suits them," the Iowa Republican wrote. "The fact that serious and vigorous oversight of the LSC grantee community is almost nonexistent is, to say the least, alarming. This misuse of federal funds that has happened over the years is offensive and just the tip of the proverbial iceberg."

Mr. Grassley isn't the only person concerned about LSC's management. Workers inside the LSC program charged with oversight duties have contacted a union, hoping to win collective-bargaining representation. Paul Shearon, treasurer for the International Federation of Professional & Technical Engineers, who authored the workers' letter and is helping them organize, told the Times that "those workers are not having any input into the way their agency is run."

The LSC workers in the Office of Compliance and Enforcement and the Office of Program Performance "feel pretty well ignored by management at this point in regards to their concerns," Mr. Shearon said, adding that the workers whose job it is to notify management about problems fear reprisals. "They have concerns about wanting to keep a low profile because they feel threatened," he said.

LSC officials say they are trying to get the agency's problems under control and are implementing several recommended improvements urged by the program's independent watchdog, the inspector general, and the Government Accountability Office. They hope the latest questions about spending won't have any impact on the funding increase LSC is seeking.

"More than 95 percent of our funding goes directly to help the nation's poor, and we would hope that they would not be penalized, especially at a time when so many are at risk of losing jobs, homes and access to health care," LSC spokesman Stephen Barr wrote in an e-mail.

"The LSC Board of Directors and the LSC staff have spent hundreds of hours over the past two years implementing the recommendations of the GAO and the LSC inspector general," he wrote. "We have tightened up our practices, improved our oversight, and will continue to seek out and adopt the best management practices."

LSC officials acknowledged to the Times that they are investigating why one of their offices, in Fort Worth, Texas, was spending money during difficult financial times to build a multistory, decorative natural-stone wall. LSC officials said they didn't know the final cost of the project; Mr. Grassley's office said it had received information putting the price tag at $150,000.

LSC is a nonprofit corporation funded by Congress with tax dollars, and it distributes grants to legal-aid groups nationwide who, in turn, help the poor with civil cases ranging from domestic abuse and child custody to home foreclosures and disability benefits. It received $390 million in federal funds for 2009.

Beyond its spending practices, the program also has run into serious problems complying with its own rules.

The inspector general in a report this month documented widespread problems with LSC contracting, including inappropriately classifying LSC workers as "independent contractors" over the past 15 years on as many as 200 occasions, leaving the agency vulnerable to expensive IRS penalties and fines and frequently awarding contracts to a small number of consultants on a no-bid basis without proper approvals or documentation.

The IG found that 37 of the 38 consultant contracts it reviewed had not been competitively bid and that in nearly every case the required "exception process" for skipping bidding wasn't followed. "Competing contracts helps ensure that LSC receives best value in accordance with its policies," the IG admonished in its report.

IG audits of individual programs across the country funded by the LSC also uncovered several examples of waste and abuse.

For instance, in January 2008, LSC hosted an event in the U.S. Capitol's Lyndon Baines Johnson Room for members of Congress and staff, taking care to print on the invitation that "no federal funds are being used."

But, according to the IG report, $5,000 was in fact put on an LSC credit card, and tax dollars were used to pay for alcohol, food, awards and photography at the event.

The mistake was magnified because LSC had been warned in a previous GAO report to stop spending money on alcohol. In December 2007, the GAO criticized receipts it uncovered for alcohol purchases, one totaling $2,800 for beer and wine at a reception for college interns. The agency's executive director promised at the time that LSC funds would no longer be used to buy alcohol.

That 2007 report - reported widely by the Associated Press - also found that federal dollars were used by LSC to give interest-free loans, without any contracts, to employees for computers and for down payments on personal residences. Federal money was used to pay for lobbying registration fees as well.

But the problems have persisted since then and have continued into the recession.

The inspector general concluded that California Indian Legal Services wasted $6,384 by booking the 136 rooms at the casino hotel that were never used.

Mr. Grassley's office said it had learned that at least two contracts were modified from their normal language to allow "double-dipping" on the part of LSC headquarters workers who also were working for one of LSC's federally funded programs. The senator's office also noted his office continues to get information and allegations from whistle-blowers inside the LSC.

The whistle-blowing and the questioning of expenses are sensitive issues since the board that governs LSC considered firing then-Inspector General Kirt West for exposing embarrassing expenditures on behalf of LSC officials in 2006. He found that the officials had charged LSC for the $14 Death by Chocolate desserts and for limousine service from LSC's Georgetown headquarters to Capitol Hill. Mr. West also said LSC was paying as much as $7 million too much in rent for its Georgetown address. The discussions about his ouster sent shock waves through the agency a few years ago.

Despite these concerns, LSC has many allies who support increased funding, including Mr. Obama. He included $440 million, an 11 percent increase, for LSC in his 2010 budget request and asked Congress to eliminate several restrictions governing how LSC can use its money. Under the changes, LSC's federal dollars could be used to claim, collect and retain attorneys fees and participate in class-action lawsuits. LSC also would be allowed to use non-federal dollars for lobbying.

The House Appropriations Committee approved the president's request, but the Senate Appropriations Committee hasn't gone as far. It approved a $10 million increase, a sum that has been criticized in several newspaper editorials as too stingy.

Mr. Grassley's letter to the Senate Appropriations Committee asked the members to hold off on any new funding for the program until it could demonstrate that taxpayer money "is used efficiently, effectively, economically and consistent with applicable law."

"Unfortunately, the LSC president, as well as the board, has been less than successful in providing such assurances to Congress and to America's taxpayers," he wrote.