This is the accessible text file for GAO report number GAO-10-194T 
entitled 'Legal Services Corporation: Some Progress Made in Addressing 
Governance and Accountability Weaknesses, But Challenges Remain' which 
was released on October 27, 2009. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Testimony: 

Before the Subcommittee on Commercial and Administrative Law, Committee 
on the Judiciary, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 11:00 a.m. EST: 

Tuesday, October 27, 2009: 

Legal Services Corporation: 

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

Statement of Susan Ragland, Director Financial Management and 
Assurance: 

GAO-10-194T: 

GAO Highlights: 

Highlights of [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-10-
194T], a testimony before the Subcommittee on Commercial and 
Administrative Law, Committee on the Judiciary, House of 
Representatives. 

Why GAO Did This Study: 

In August 2007, GAO reported [hyperlink, http://www.gao.gov/cgi-
in/getrpt?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 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-37] weaknesses in 
LSCís internal controls over grants management and oversight of 
grantees. GAO was asked to testify on the status of accountability 
practices of the LSC. GAOís 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 its August 2007 report, GAO made 8 recommendations to LSCís Board of 
Directors to improve LSCís governance and accountability practices and 
four recommendations to management to improve key management processes. 
GAO also provided a matter for congressional consideration on whether 
LSC could benefit from additional mandated governance and 
accountability requirements. In its December 2007 report, GAO made 1 
recommendation to LSCís Board and 4 recommendations to management to 
improve LSCís internal control and oversight of grantees. LSC agreed 
with our recommendations and has addressed 9 of GAOís 17 
recommendations as of October 20, 2009. GAO will continue to monitor 
LSCís corrective actions. 

What GAO Found: 

In August 2007, GAO reported that the governance practices of LSCís 
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 LSCís 
governance practices could be strengthened. LSCís 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 managementís 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 Ė 8 to the board and 
4 to management. LSCís 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, LSCís 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 LSCís internal controls 
over grants management and oversight of grantees that negatively 
affected LSCís 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 LSCís 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 LSCís board and managementís ability to maintain 
accountability over LSCís mission, it will be critical for LSCís board 
and management to maintain priority focus on fully implementing all 
remaining GAO recommendations. 

What GAO Recommends: 

In its August 2007 report, GAO made 8 recommendations to LSCís Board of 
Directors to improve LSCís governance and accountability practices and 
four recommendations to management to improve key management processes. 
GAO also provided a matter for congressional consideration on whether 
LSC could benefit from additional mandated governance and 
accountability requirements. In its December 2007 report, GAO made 1 
recommendation to LSCís Board and 4 recommendations to management to 
improve LSCís internal control and oversight of grantees. LSC agreed 
with our recommendations and has addressed 9 of GAOís 17 
recommendations as of October 20, 2009. GAO will continue to monitor 
LSCís corrective actions. 

View [hyperlink, http://www.gao.gov/products/GAO-10-194T] or key 
components. For more information, contact Susan Ragland at (202) 512-
8486 or raglands@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our prior work on the Legal 
Services Corporation's (LSC) governance, accountability, and grants 
management practices and the status of LSC's efforts to address the 
seventeen recommendations we made as a result of that work[Footnote 1]. 

Today I will highlight our key findings and conclusions from our prior 
reports on LSC's governance and accountability practices, as well as 
the internal control improvements needed in LSC grants management and 
oversight. Our August and December 2007 reports[Footnote 2] contain a 
detailed description of our findings, conclusions, and recommendations. 
In addition, I will also provide the current status of LSC's action to 
implement the recommendations contained within those reports directed 
at improving governance and management and grants management internal 
controls. 

LSC's mission is to make federal funding available for legal assistance 
in civil matters to low-income individuals throughout the United States 
on everyday legal problems. LSC pursues this mission by making 
grants[Footnote 3] to legal service providers (grant recipients) who 
serve low-income members of the community who would otherwise not be 
able to afford legal assistance (clients). Established by a federal 
charter[Footnote 4] in 1974[Footnote 5] as a federally funded, private 
nonprofit corporation, LSC is highly dependent on federal 
appropriations for its operations. LSC received $390 million in 
appropriations for fiscal year 2009.[Footnote 6] For fiscal year 2010 
and 2011, LSC has requested $485.8 million and $516.5 million, 
respectively. 

LSC distributes funding to local legal-service providers based on the 
number of low-income individuals living within a service area.[Footnote 
7] LSC management is responsible for ensuring that grant funds are used 
for their intended purposes and in accordance with laws and 
regulations. Thus, LSC is accountable for the effectiveness of its own 
internal controls and for providing oversight and monitoring of 
grantees' internal controls, use of grant funds, and compliance with 
laws and regulations. LSC's Board of Directors is responsible for 
carrying out fiduciary duties in overseeing LSC management's operations 
and use of appropriated funds. 

Effective governance and accountability, including internal control are 
key to maintaining trust and credibility. Governance can be described 
as the process of providing leadership, direction, and accountability 
in fulfilling the organization's mission, meeting objectives, and 
providing stewardship of public resources, while establishing clear 
lines of responsibility for results. Accountability represents the 
processes, mechanisms, and other means--including financial reporting 
and internal controls--by which an entity's management carries out its 
stewardship and responsibility for resources and performance. Internal 
control is an integral component of an organization's management that 
provides reasonable assurance that the objectives of effectiveness and 
efficiency of operations, reliability of financial reporting, and 
compliance with applicable laws and regulations are being 
achieved.[Footnote 8] 

We conducted the work for the August 2007 and December 2007 reports on 
which this testimony was based from November 2006 through June 2007, 
and September 2006 through September 2007, respectively, in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe the evidence 
obtained provided a reasonable basis for our audit findings and 
conclusions based on our audit objectives. In addition, between May 
2009 and October 2009 we obtained and reviewed available documentation 
and discussed with LSC officials the status of actions to implement our 
August and December 2007 recommendations. 

LSC Has Made Improvements in its Governance and Management Practices 
But Key Actions Still Need to Be Completed: 

While LSC's board and management have taken actions to improve its 
governance and accountability practices towards fully implementing the 
recommendations from our August 2007 report additional actions to fully 
implement the other key recommendations are needed. In August 2007 we 
reported, that since its inception over 30 years ago, LSC's governance 
and accountability practices, including its financial reporting and 
internal control, had not kept pace with evolving governance and 
accountability practices and as a result, its practices had fallen 
behind those of federal agencies, U.S. government corporations, 
[Footnote 9] and other nonprofit corporations. 

LSC's board and management agreed with all twelve of our 
recommendations in this area, the board has implemented corrective 
actions for three of the eight recommendations made to the board and 
management has implemented all four recommendations made to management. 
For instance, in response to one of our eight recommendations to the 
board, in March 2008 the board established an audit committee, which 
filled an oversight gap of LSC's internal control, financial reporting 
and audit processes. However, another key recommendation directed at 
the board developing and implementing procedures to periodically 
evaluate key management processes, has yet to be developed and fully 
implemented. This recommendation is key in that it contributes to 
establishing an effective, supporting internal control environment at 
LSC as well as assists the board in fulfilling its oversight duties. As 
the board transitions to new board members,[Footnote 10] it will be 
important for the new board to provide priority focused attention on 
fully implementing the other five of our recommendations. 

Governance Practices: 

In August 2007 we reported that the governance practices of LSC's board 
fell short of the modern practices employed by boards of nonprofit 
corporations and public companies. Although the board members had 
demonstrated active involvement in LSC through their regular board 
meeting attendance and participation, we pointed out several areas 
where LSC's governance practices could be strengthened. Those areas 
included a more comprehensive orientation program for new board members 
and an ongoing training program that enables board members to stay 
current on governance practices, the regulatory environment, and key 
management practices. Although the LSC board had four committees, 
including finance and operations and regulations, it did not have 
audit, ethics, or compensation committees' functions, important 
governance mechanisms commonly used in corporate governance structures. 
The board had also not assessed the performance, collectively or 
individually, of its board members. Finally, the board had not 
implemented certain procedures that are key to helping it carry out its 
fiduciary duties for overseeing LSC, including evaluating key 
management processes, such as risk assessment, risk mitigation, 
internal controls and financial reporting. 

Our August 2007 report recommendations to improve and modernize the 
governance processes and structure of LSC along with our views on the 
status of LSC's efforts to implement these recommendations (as of 
October 20, 2009) are summarized in table 1. 

Table 1: Status of August 2007 GAO Report Recommendations on Governance 
Practices to LSC Board of Directors: 

Recommendation: Establish an audit committee function to provide 
oversight to LSC's financial reporting and audit processes either 
through creating separate audit committee or by rewriting the charter 
of the board's finance committee; 
Status: Implemented. 

Recommendation: Establish charters for the Board of Directors and all 
existing committees and any newly developed committees to clearly 
establish committees' purposes, duties, and responsibilities; 
Status: Implemented. 

Recommendation: Establish a shorter time frame (e.g., 60 days) for 
issuing LSC's audited financial statements; 
Status: Implemented. 

Recommendation: Establish and implement a comprehensive orientation 
program for new board members to include key topics such as fiduciary 
duties, IRS requirements, and interpretation of the financial 
statements; 
Status: Partially implemented. 

Recommendation: Develop a plan for providing a regular training program 
for board members that includes providing updates or changes in LSC's 
operating environment and relevant governance and accountability 
practices; 
Status: Partially implemented. 

Recommendation: Establish a compensation committee function to oversee 
compensation matters involving LSC officers and overall compensation 
structure either through creating a separate compensations committee or 
by rewriting the charter of the board's annual performance review 
committee; 
Status: Partially implemented. 

Recommendation: Implement a periodic self-assessment of the board's, 
the committees', and each individual member's performance for purposes 
of evaluating whether improvements can be made to the board's structure 
and processes; 
Status: Partially implemented. 

Recommendation: Develop and implement procedures to periodically 
evaluate key management processes, including, at a minimum, processes 
for risk assessment and mitigation, internal control and financial 
reporting; 
Status: Partially implemented. 

Source: GAO analysis of LSC data. 

[End of table] 

LSC data we obtained and analyzed as part of our follow up work 
conducted between May 2009 and October 2009, showed that the board had 
fully implemented three of the eight recommendations, and had taken 
some action on the remaining five recommendations. But full 
implementation will be needed in order for the board's actions to be 
fully effective. The following summary highlights LSC actions and work 
that remains to be done on the five recommendations that our analysis 
showed were partially implemented. 

* In response to our recommendation that the board establish and 
implement a comprehensive orientation program, LSC created a 
"wiki,"[Footnote 11] which contains relevant information for LSC board 
members. However, LSC management informed us that they are waiting for 
the pending board member nominations to be confirmed by the U.S. Senate 
prior to holding a formal orientation program. 

* In response to our recommendation that the board develop a plan for 
providing regular training. LSC's management informed us there have 
been discussions about a training program and that the organizational 
updates for training the board occurs during the quarterly board 
meetings and that additional training needs of the board are determined 
by the self-assessments that the board members complete. LSC officials 
also stated that since this is an overall experienced board, the recent 
self-assessments did not indicate a need for training outside the 
organizational update. Officials told us that LSC management is 
currently documenting a training program, which we will evaluate when 
completed and implemented. 

* We recommended that the board establish a compensation committee 
function to oversee compensation matters including LSC officers and 
LSC's overall compensation structure. Currently, the board's Governance 
and Performance Review Committee's charter requires the committee to 
annually review and report on LSC's president and inspector general 
performance and compensation. An LSC official told us that during the 
October board meeting the board will be discussing and voting on a new 
charter for the Governance and Performance Review Committee. 

* In response to our recommendation that the board conduct a periodic 
self-assessment of the board's, the committees' and each member's 
individual performance, the board has conducted and documented 
assessments for the board and individuals. According to an LSC 
official, the committee self-assessment process is still under 
discussion. 

* We recommended that the board develop and implement procedures to 
periodically evaluate key management processes including at a minimum, 
processes for risk assessment and mitigation, internal control and 
financial reporting. The recently established audit committee's charter 
provides the audit committee with responsibility over internal controls 
and therefore the evaluation of management's processes. Although the 
audit committee was established in March 2008, it has not yet completed 
this key action. 

Management Practices: 

In August 2007, we reported that LSC's management practices did not 
reflect current practices in the areas of risk assessment, internal 
control, and financial reporting. We pointed out areas where 
management's practices could be strengthened. We found that management 
had not implemented a systematic or formal risk assessment that 
evaluated the risks the corporation faces from both external and 
internal sources. Such an assessment provides a structure for 
implementing internal control and other risk mitigation policies. In 
addition, senior management had not established comprehensive policies 
or procedures regarding conflicts of interest or other issues of 
ethical conduct. Without such policies and procedures, LSC was at risk 
of not identifying potential conflicts of interest and not taking 
appropriate actions to avoid potentially improper transactions or 
actions on the part of LSC personnel. Also, management had not 
conducted analysis of accounting standards to determine the most 
appropriate standards for LSC to follow. 

Our August 2007 report recommendations to improve and modernize key 
management processes at LSC, along with our views on the status of 
LSC's efforts to implement those recommendations (as of October 20, 
2009) are summarized in Table 2. 

Table 2: Status of August 2007 GAO Report Recommendations on Management 
Practices to LSC Management: 

Recommendation: Conduct and document a risk assessment and implement a 
corresponding risk management program that is part of a comprehensive 
evaluation of internal control; 
Status: Implemented. 

Recommendation: With the board's oversight evaluate and document 
relevant requirements of the Sarbanes-Oxley Act of 2002 and practices 
of New York Stock Exchange and American Bar Association that are used 
to establish a comprehensive code of conduct, including ethics and 
conflict-of-interest policies and procedures for employees and officers 
of the corporation; 
Status: Implemented. 

Recommendation: Establish a comprehensive and effective continuity of 
operations plan (COOP) program, including conducting a simulation to 
test the established program; 
Status: Implemented. 

Recommendation: Conduct an evaluation to determine whether Government 
Accounting Standards Board (GASB) should be adopted as a financial 
reporting standard for LSC's annual financial statements; 
Status: Implemented. 

Source: GAO analysis of LSC data. 

[End of table] 

Improved Internal Controls Needed over Grants Management and Oversight: 

While LSC has taken some actions with respect to our prior report's 
grants management-related recommendations, LSC has only partially 
implemented some key recommendations in this area. LSC management fully 
implemented two of our December 2007 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 limited action on implementing an approach 
for selecting grantees for review using consistently applied, risk- 
based criteria. Full implementation of all of the remaining 
recommendations is needed in order to ensure that LSC management has 
effective control over its mission-critical grantees. 

Our December 2007 review of grants management and oversight at LSC 
identified weaknesses in LSC's internal controls over grants management 
and oversight that negatively affected LSC's ability to monitor and 
oversee grants and left grant funds vulnerable to misuse.[Footnote 12] 
At grantees we visited, we also found poor fiscal practices and 
improper or potentially improper expenditures that LSC could have 
identified with more effective oversight. Although LSC has taken action 
to address two of the four recommendations we made to management in our 
December 2007 report, it has not yet implemented the two 
recommendations focused on oversight of grantees use of funds. In order 
to strengthen the organizational structure and governance of grantee 
oversight and monitoring, we made a recommendation to the board to 
develop and implement policies that clearly delineate organizational 
roles and responsibilities. 

In December 2007 we reported on weakness in LSC's control environment 
regarding the lack of a clear definition of the authority and 
responsibilities between two of the three organizational units that 
oversee the work of grantees. At the time of our review, LSC management 
shared fiscal oversight and monitoring of grantees with the OIG. 
Management's oversight role was conducted through two offices--the 
Office of Program Performance (OPP) and the Office of Compliance and 
Enforcement (OCE). We found that the roles and the division of 
responsibilities were not clearly communicated between the OIG and OCE. 
The result was staff confusion about the types and scope of grantee 
fiscal reviews that LSC management could undertake on its initiative 
and strained relations between management and the OIG. In addition, 
communication and coordination between OCE and OPP was not sufficient 
to prevent gaps and unnecessary duplication between the offices' 
respective oversight activities. 

Regarding its oversight of grantees, the scope of LSC's control 
activities for monitoring grantee fiscal compliance was limited and 
feedback to grantees not timely. In determining the timing and scope of 
grantee oversight visits, LSC did not employ a structured or systematic 
approach for assessing the risk of noncompliance or financial control 
weaknesses across its 137 grantees. Without an analytically sound basis 
for assessing risk and distributing its oversight resources, LSC did 
not have a basis for knowing whether its oversight resources were being 
used effectively to mitigate and reduce risk among its grantees. 

LSC's monitoring of grantee internal control systems needed to be 
strengthened, because the scope of work in OCE's fiscal reviews was not 
sufficient in assessing grantee internal control and compliance for 
purposes of achieving effective oversight. In the OCE site visits we 
observed, staff did not follow up on questionable transactions and 
relied heavily on information obtained through interviews. LSC also was 
not timely in follow-up on an investigation into an alleged instance of 
noncompliance referred to it by the OIG. Feedback to grantees was often 
slow. As of September 2007, LSC had not yet issued reports to grantee 
management for almost 19 percent (10 out of 53) of the 2006 site 
visits. Without timely communications about the results of site visits, 
grantee management does not have information about deficiencies and the 
related corrective actions needed. In a grantee exit conference we 
observed, the LSC review team did not communicate a number of findings 
they had concluded were significant and in need of immediate attention. 
Effective grantee monitoring is especially important for LSC because 
LSC has limited options for sanctioning poorly performing grantees due 
to the recurring nature of many of its grants. 

In the limited reviews we performed at 14 grantees, we identified 
internal control weaknesses at 9 grantees that LSC could have 
identified with more effective oversight reviews. While control 
deficiencies at the grantees were the immediate cause of the improper 
expenditures we found, weaknesses in LSC's controls over its oversight 
of grantees did not assure effective monitoring of grantee controls and 
compliance or prevent the improper expenditures. We also identified 
various weaknesses and improper expenditures at grantees we visited. 
These weaknesses and improper expenditures can result in a loss of 
credibility to the grantee and grantor and also allow instances of 
fraud to take place if not addressed. 

Our December 2007 report recommendations to improve its internal 
control and oversight of grantees, along with our views on the status 
of LSC's efforts to implement those recommendations (as of October 20, 
2009) are summarized in Table 3. 

Table 3: Status of December 2007 GAO Report Recommendations on Grants 
Management to LSC Management and Board: 

Recommendation: Develop and implement policies and procedures for 
information sharing among the OIG, OCE and OPP and coordination of OCE 
and OPP site visits; 
To: Management; 
Status: Implemented. 

Recommendation: Perform follow-up on each of the improper or 
potentially improper uses of grant funds that GAO identified in the LSC 
Improved Internal Controls Needed in Grants Management and Oversight 
report (GAO-08-37); 
To: Management; 
Status: Implemented. 

Recommendation: Implement an approach for selecting grantees for 
internal control and compliance reviews that is founded on risk-based 
criteria, uses information and results from oversight and audit 
activities and is consistently applied; 
To: Management; 
Status: Partially implemented. 

Recommendation: Implement procedures to improve the effectiveness of 
the current LSC fiscal compliance reviews by revising LSC current 
guidelines to provide; 
* a direct link to the results of OPP reviews and OIG and IPA audit 
findings; 
* guidance for performing follow-up on responses from grantee 
interviews, and; 
* examples of fiscal and internal control review procedures that may be 
appropriate based on individual risk factors and circumstances at 
grantees; 
To: Management; 
Status: Partially implemented. 

Recommendation: Develop and implement policies that clearly delineate 
organizational roles and responsibilities for grantee oversight and 
monitoring including grantee internal controls and compliance; 
To: Board; 
Status: Partially implemented. 

Source: GAO analysis based on LSC data. 

[End of table] 

As a result of our follow-up work conducted between May 2009 and 
October 2009, we determined that LSC management had fully implemented 
two of the four recommendations we made to management. The remaining 
two, as well as the recommendation to the board were partially 
implemented. Based on our evaluation, the following summary highlights 
LSC actions and work that remains to be done on the three 
recommendations that remain partially implemented. 

* In response to our recommendation that LSC management use an approach 
for selecting grantees for internal control and compliance reviews that 
is founded on risk-based criteria and consistently applied, LSC revised 
its OPP and OCE manuals to include criteria for use in selecting 
grantees for reviews. Although LSC officials told us that the risk- 
based criteria was issued, they have not provided us with sufficient 
evidence to demonstrate that the criteria is consistently applied. We 
will evaluate LSC's implementation as part of our current ongoing work. 

* We recommended that LSC address three factors--revise current 
guidelines of fiscal compliance reviews to provide (1) a direct link of 
results of OPP reviews and other audit findings, (2) guidance for 
performing follow up responses during interviews, and (3) examples of 
fiscal and internal control review procedures relative to individual 
risk factors. LSC has updated its written guidelines for the fiscal 
component of OCE's regulatory and compliance reviews; however, the 
updates do not include the three factors. LSC officials told us they 
will analyze their current manuals and incorporate interview guidelines 
and other information as needed. We will reevaluate this recommendation 
after LSC management completes its analysis. 

* In response to our recommendation that the board develop and 
implement policies and procedures that clearly delineate organizational 
roles and responsibilities for grantee oversight and monitoring, the 
board- approved updated descriptions of organizational roles and 
responsibilities. However, internal controls discussed in the board 
approved descriptions are limited to fiscal internal controls and do 
not include operational or other internal controls that OPP and OCE are 
responsible for monitoring. According to LSC's management, the board's 
description combined with OPP and OCE manuals and documents address 
more than fiscal internal controls. We will reevaluate this 
recommendation after LSC management analyzes and gathers additional 
documentation to determine whether further actions are needed to ensure 
clear organizational roles and responsibilities. 

Conclusions: 

LSC's Board of Directors and management have made progress on 
implementing our prior recommendations including fully implementing 
nine recommendations. The improvements that LSC has made in its 
governance and accountability provide a good foundation for completing 
implementation of the elements needed for a strong program of 
governance and internal controls. Although management has implemented 
the key recommendation of conducting and documenting a risk assessment, 
ongoing risk assessment and a robust risk management program is 
important to LSC's overall internal control structure. 

Further, although the board has implemented the key recommendation of 
establishing an audit committee, the board must continue its efforts to 
implement another key recommendation of developing and implementing 
procedures to periodically evaluate management processes, including 
risk assessment, mitigation, internal control and financial reporting. 
It will also be important for the board to provide ongoing oversight of 
management's risk assessment and risk management program. Periodically 
evaluating management will assist the board in fulfilling its oversight 
duty. Fully implementing the remaining recommendations, will enable the 
board and management to achieve the level of governance and internal 
control needed to provide adequate assurance that LSC's governance and 
internal control structures are effective, and that grant funds are 
being used as intended and in accordance with laws and regulations. 

A strong governance structure and well established management practices 
and internal controls will be crucial for LSC to maintain stable 
operations during the upcoming board transition. Strong internal 
controls, with ongoing risk assessment, monitoring, and oversight will 
also be key to providing both the board and management with assurance 
that LSC funds are being used for their intended purposes, in 
accordance with laws and regulations and enable LSC to effectively 
adjust to evolving practices and risks. 

This concludes my prepared statement. 

Contact and Acknowledgments: 

For further information about this testimony, please contact Susan 
Ragland, Director, Financial Management and Assurance at (202) 512- 
8486, or raglands@gao.gov. Contact points for our offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this testimony. Major contributors to this testimony included 
Kimberley McGatlin, Assistant Director; F. Abe Dymond, Assistant 
General Counsel; Lauren S. Fassler; Bernice M. Lemaire; Mitch Owings; 
and Carrie Wehrly. 

[End of section] 

Footnotes: 

[1] GAO, Legal Services Corporation: Governance and Accountability 
Practices Need to Be Modernized and Strengthened, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-993] (Washington, D.C.: Aug. 
15, 2007) and GAO, Legal Services Corporation: Improved Internal 
Controls Needed in Grants Management and Oversight, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-37] (Washington, D.C.: Dec. 
28, 2007). 

[2] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-993] and 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-37]. 

[3] As used in this testimony, the term grant encompasses all of the 
agreements LSC uses to distribute federal funding to providers of civil 
legal assistance to low-income persons, and the term grant recipient 
refers to those who enter into such agreements. Although LSC 
distributes most financial assistance through grants, it sometimes uses 
contracts. 

[4] As used in this testimony, the term federal charter refers to a 
congressional act, or the written instrument documenting this act as in 
a statute, that establishes or authorizes the establishment of a 
corporation and includes requirements governing the corporation's 
operations. 

[5] Legal Services Corporation Act of 1974, Pub. L. No. 93-355, 88 
Stat. 378 (July 25, 1974), codified, as amended, at 42 U.S.C. ßß 2996 - 
2996l (LSC Act). 

[6] Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, div. B, title 
IV, 123 Stat. 524, 593 (Mar. 11, 2009); Consolidated Security, Disaster 
Assistance, and Continuing Appropriations Act, 2009, Pub. L. No. 110- 
329, div. A, ß 101, 122 Stat. 3574 (Sep. 30, 2008), as amended by Joint 
Resolution, Pub. L. No. 111-6, 123 Stat. 522 (Mar. 6, 2009). 

[7] Under 45 C.F.R. ß 1634.2(c), the service area is the geographic 
area defined by LSC to be served by grants or contracts to be awarded 
on the basis of a competitive bidding process. 

[8] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1] 
(November 1999). 

[9] In general, our review of government corporations was limited to 
those corporations subject to chapter 91 of title 31of the U.S. Code 
(commonly known as the Government Corporation Control Act). 

[10] As of October 2009, all but one of the Board members term has 
expired. As new Board members are confirmed by the Senate, the Board 
members with expired terms will leave LSC's Board. 

[11] A wiki is a Web site that uses wiki software, allowing the easy 
creation and editing of interlinked web pages. 

[12] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-37]. 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAOís actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAOís Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: