Legal Services Corporation:

Some Progress Made in Addressing Governance and Accountability Weaknesses, But Challenges Remain

GAO-10-194T: Published: Oct 27, 2009. Publicly Released: Oct 27, 2009.

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In August 2007, GAO reported (GAO-07-993) that Legal Services Corporation (LSC) had not kept up with evolving reforms aimed at strengthening governance, accountability and internal controls. In December 2007, GAO reported (GAO-08-37) weaknesses in LSC's internal controls over grants management and oversight of grantees. GAO was asked to testify on the status of accountability practices of the LSC. GAO's testimony is primarily a summary of our prior reporting, but includes follow up work conducted between May and October 2009 to obtain information on the status of our prior recommendations.

In August 2007, GAO reported that the governance practices of LSC's board fell short of the modern practices employed by other nonprofit corporations and public companies. Although the board members had demonstrated active involvement in LSC through regular board meeting attendance and participation, we pointed out several areas where LSC's governance practices could be strengthened. LSC's management practices had also not kept up with the current practices for key processes in risk assessment, internal control, and financial reporting. We pointed out certain areas where management's practices could be strengthened. GAO concluded that a properly implemented governance and accountability structure might have prevented incidents, such as compensation rates in excess of statutory caps, questionable expenditures, and potential conflicts of interest. GAO made 12 recommendations - 8 to the board and 4 to management. LSC's management has implemented all 4 recommendations to improve its management practices. The board has fully implemented 3 recommendations, but it needs to take additional actions to fully implement the other 5 recommendations. For example, LSC's board has fully implemented the key recommendation to establish an audit committee. However, another key recommendation for the board to implement procedures to periodically evaluate key management processes has not yet been fully implemented. LSC told GAO that it plans to take additional actions to more fully address the five recommendations. In December 2007, GAO reported weaknesses in LSC's internal controls over grants management and oversight of grantees that negatively affected LSC's ability to provide assurance that grant funds were being used for their intended purposes in compliance with applicable laws and regulations. Effective internal controls over grants and grantee oversight are critical to accomplishing LSC's mission because it relies extensively on grantees to provide legal services to individuals who otherwise could not afford to pay for legal counsel. GAO made 5 recommendations to address these issues. LSC management fully implemented two of our report recommendations, including following up on identified improper or potentially improper uses of grants funds. However, LSC has only partially implemented three key recommendations, including only limited action to implement an approach for selecting grantees for review using consistently applied, risk-based criteria. In order to improve LSC's board and management's ability to maintain accountability over LSC's mission, it will be critical for LSC's board and management to maintain priority focus on fully implementing all remaining GAO recommendations.

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