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entitled 'Legal Services Corporation: Improved Internal Controls Needed 
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2008. 

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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

December 2007: 

Legal Services Corporation: 

Improved Internal Controls Needed in Grants Management and Oversight: 

Legal Services Corporation: 

GAO-08-37: 

GAO Highlights: 

Highlights of GAO-08-37, a report to congressional requesters. 

Why GAO Did This Study: 

The Legal Services Corporation (LSC) was created as a private nonprofit 
to support legal assistance for low-income people to resolve their 
civil legal matters and relies heavily on federal appropriations. In 
2006, LSC distributed most of its $327 million in grants to support 
such assistance. Effective internal controls over grants and oversight 
of grantees are critical to LSC’s mission. GAO was asked to determine 
whether LSC’s internal controls over grants management and oversight 
processes provide reasonable assurance that grant funds are used for 
their intended purposes. GAO analyzed key records and interviewed 
agency officials to obtain an understanding of LSC’s internal control 
framework, including the monitoring and oversight of grantees, and 
performed limited reviews of internal controls and compliance at 14 
grantees. 

What GAO Found: 

GAO found weaknesses in LSC’s internal controls over grants management 
and oversight of grantees that negatively affect LSC’s ability to 
provide assurance that grant funds are being used for their intended 
purposes in compliance with applicable laws and regulations. Effective 
internal controls over grants and grantee oversight are critical to LSC 
as its very mission and operations rely extensively on grantees to 
provide legal services to people who otherwise could not afford to pay 
for adequate legal counsel. GAO also found poor fiscal practices and 
improper and potentially improper expenditures at grantees it visited. 

Weaknesses in LSC’s control environment include the lack of clear 
definition in the responsibilities of two of the three organizational 
units that oversee the work of grantees. GAO also found that 
communication between oversight units and coordination of grantee site 
visits is not sufficient to prevent gaps or duplication of effort, or 
both. The timing and scope of site visits is not based on a systematic 
analysis of the risk of noncompliance or financial control weakness 
across LSC’s 138 grantees, so LSC cannot determine whether its 
resources are being used effectively and efficiently to mitigate risk 
among its grantees. 

LSC control activities performed in the monitoring of grantee internal 
control were not sufficient in scope to achieve effective oversight, 
and GAO noted implementation weaknesses. For example, in the site 
visits GAO observed, staff did not follow up on questionable 
transactions and relied heavily on information obtained through 
interviews. Feedback to grantees was often delayed, preventing grantees 
from correcting deficiencies in a timely manner. As of September 2007, 
LSC had not yet issued reports to grantee management for about 19 
percent (10 out of 53) of the 2006 site visits. 

LSC grantee reviews missed potential control deficiencies at grantees 
that could have been detected with more effective oversight as 
evidenced by weaknesses GAO found at 9 of the 14 grantee sites it 
visited. While control deficiencies at the grantees were the immediate 
cause of the problems GAO found, weaknesses in LSC’s controls over its 
oversight of grantees did not assure effective monitoring of grantee 
controls and compliance. Among the questionable expenditures GAO found 
were grantee use of funds for expenditures with insufficient supporting 
documentation, unusual contractor arrangements, alcohol purchases, 
employee interest-free loans, lobbying fees, late fees, and earnest 
money. 

What GAO Recommends: 

GAO makes recommendations to the LSC board and LSC management to 
improve internal control and oversight of grants by, among other 
things, (1) clarifying responsibilities for overseeing grantee internal 
controls and compliance among LSC units, (2) improving coordination and 
communication among LSC’s oversight functions, and (3) using risk-based 
criteria to select grantees for internal control and compliance 
reviews. In comments on a draft of this report, LSC’s board and 
management agreed with the recommendations. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-37]. For more information, contact 
Jeanette M. Franzel, (202) 512-9471, franzelj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Internal Control Weaknesses Impede LSC's Ability to Adequately Assure 
Grant Funds Are Used as Intended and in Compliance with Laws and 
Regulations: 

LSC's Control Activities for Monitoring Grantees Do Not Provide 
Reasonable Assurance That Grant Funds Are Being Used Properly and in 
Compliance with Laws and Regulations: 

LSC Oversight Did Not Identify Control Weaknesses at Nine Grantees: 

Example 1--Systemic Weakness: Insufficient Supporting Documentation: 

Example 2--Unusual Contractor Arrangement: Questionable Independent 
Contractors: 

Conclusions: 

Recommendation for Board Action: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Summary of GAO Findings at Grantees: 

Appendix III: Regulatory Provisions of Legal Services Corporation's 
Fiscal Compliance Review of Grantees: 

Appendix IV: Comments from the Legal Services Corporation Board of 
Directors: 

Appendix V: Comments from the Legal Services Corporation: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Figure: 

Figure 1: Legal Services Corporation Federal Funding between Fiscal 
Years 1991 and 2006: 

Abbreviations: 

1996 Act: Appropriations Act of 1996: 

IG: Inspector General: 

IG Act: Inspector General Act: 

IPA: independent public accountant: 

IT: information technology: 

LSC: Legal Services Corporation: 

LSC Act: Legal Services Corporation Act of 1974: 

OCE: Office of Compliance & Enforcement: 

OIG: Office of Inspector General: 

OMB: Office of Management & Budget: 

OPP: Office of Program Performance: 

United States Government Accountability Office: 

Washington, DC 20548: 

December 28, 2007: 

Congressional Requesters: 

The Legal Services Corporation's (LSC) mission is to make federal 
funding available to support the provision of legal assistance in civil 
matters to low-income people throughout the United States on everyday 
legal problems. LSC pursues this mission by making grants[Footnote 1] 
to legal service providers (grant recipients or grantees) 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 2] in 1974[Footnote 3] as a federally funded, private 
nonprofit corporation, LSC is highly dependent on federal 
appropriations for its operations. LSC received $348.6 million in 
appropriations for fiscal year 2007 and $326.6 million in fiscal year 
2006.[Footnote 4] For fiscal year 2006, LSC received 99 percent of its 
funding from federal appropriations and approximately 1 percent from 
grants through the Department of Veterans Affairs. In 2006, LSC served 
clients through 138 grantees with more than 900 offices serving all 50 
states, the District of Columbia, and current and former U.S. 
territories. 

LSC is responsible for ensuring that grant funds are being used for 
their intended purposes and in accordance with laws and regulations. 
Thus, LSC is accountable for the effectiveness of the internal controls 
over the grants process and for providing oversight and monitoring of 
grantees' internal controls, use of grant funds, and compliance with 
laws and regulations. 

This report responds to your request that we review internal controls 
over LSC's grants management and oversight processes and assess whether 
those controls provide reasonable assurance that grant funds are being 
used for their intended purposes and in accordance with laws and 
regulations. You also asked us to conduct limited reviews of grantees' 
internal controls and fiscal practices. In performing our work, we (1) 
evaluated LSC's internal controls related to its grants management and 
oversight organizations and (2) performed limited reviews at 14 
grantees. To identify and assess LSC's internal controls, we obtained 
an understanding of LSC's grants management processes and the roles and 
responsibilities of the three organizational components of LSC that 
participate directly in grantee oversight. We also observed LSC site 
visits at two grantees. In our reviews of controls and compliance at 14 
LSC grantee offices, we interviewed grantee officials; reviewed grantee 
policies and procedures; and performed walkthroughs of transactions. We 
also reviewed supporting documentation for selected grantee 
expenditures and performed follow-up activities with grantee officials 
regarding selected transactions and grantee activities. While we 
identified some improper or potentially improper expenditures, our work 
was not designed to identify all improper or potentially improper 
expenditures or to estimate their extent. Appendix I provides a more 
detailed discussion of our scope and methodology. We conducted our work 
from September 2006 through September 2007 in accordance with generally 
accepted government auditing standards. 

Results in Brief: 

We found weaknesses in LSC's controls over grants management and 
oversight that negatively affected LSC's ability to monitor and oversee 
grants and left grant funds vulnerable to misuse. We also found poor 
fiscal practices and improper or potentially improper expenditures at 
grantees we visited that LSC could have identified with more effective 
grants oversight. 

Weaknesses in LSC's control environment include the lack of a clear 
definition of the authority and responsibilities between two of the 
three organizational units--the Office of Program Performance (OPP), 
the Office of Compliance and Enforcement (OCE), and the Office of 
Inspector General (OIG)--that oversee the work of grantees. Currently, 
LSC management shares fiscal oversight and monitoring of grantees with 
the OIG. Roles and the division of responsibilities are not clearly 
communicated between the OIG and OCE. The result has been staff 
confusion about the types and scope of grantee fiscal reviews that LSC 
management can undertake on its initiative and strained relationships 
between management and the OIG. In addition, communication and 
coordination between OCE and OPP is not sufficient to prevent gaps and 
unnecessary duplication between the offices' respective oversight 
activities. In addition, the scope of LSC's control activities for 
monitoring grantee fiscal compliance is limited, and feedback to 
grantees is not timely. In determining the timing and scope of grantee 
site visits conducted as part of OCE and OPP's oversight 
responsibilities, LSC does not employ a structured or systematic 
approach for assessing the risk of noncompliance or financial control 
weaknesses across its 138 grantees. Without an analytically sound basis 
for assessing risk and distributing its oversight resources, LSC does 
not have a basis for knowing whether its oversight resources are being 
used effectively to mitigate and reduce risk among its grantees. 

The LSC control activities performed by OCE and monitoring of grantee 
internal control systems need to be strengthened. We found that OCE's 
fiscal reviews were not sufficient in scope of work 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 did not follow up 
timely 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. Absent 
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. 

In limited reviews at 14 grantees we visited, 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 and potentially 
improper expenditures we found, weaknesses in LSC's controls over its 
oversight of grantees did not assure effective monitoring of grantee 
controls and compliance. Among the improper or potentially improper 
expenditures we found were grantee use of LSC grant funds for 
expenditures with insufficient supporting documentation and for unusual 
contractor arrangements, alcohol purchases, employee interest-free 
loans, lobbying fees, late fees, and earnest money. 

We are making five recommendations to LSC to improve its internal 
control and oversight of grants by: (1) clarifying organizational roles 
and responsibilities for overseeing grantee internal controls and 
compliance among LSC units, (2) improving information sharing and 
coordination among LSC oversight organizations, (3) using risk-based 
criteria to select grantees for internal control and compliance 
reviews, (4) improving the effectiveness of the current fiscal 
compliance reviews, and (5) following up on each of the improper or 
potentially improper uses of grant funds that we identified. 

We received written comment letters from the Chairman on behalf of 
LSC's Board of Directors and the LSC President on behalf of LSC's 
management. Both the Chairman and the President expressed their full 
commitment to making the improvements noted in the report, accepted all 
of our recommendations, and outlined the actions that LSC's board and 
management plan to take in response to our recommendations. LSC 
management also separately provided technical comments that we 
incorporated into the report as appropriate. 

Background: 

In carrying out LSC's mission, local legal-service providers (the grant 
recipients) employ staff attorneys to assist eligible clients in 
resolving their civil legal problems, often through advice and 
referral. According to LSC, in a typical year the largest portion of 
total cases (38 percent) concern family matters, followed by housing 
issues (24 percent), income maintenance (13 percent), and consumer 
finance (12 percent). LSC reported that most cases are resolved out of 
court. In 2007, LSC reported that three out of four clients were women, 
most of them mothers. 

To be eligible, clients must meet certain requirements. First, 
individual applicants for legal assistance supported by LSC funds must 
meet financial eligibility requirements. LSC has statutory authority to 
assist only "eligible clients," which are defined as "any person 
financially unable to afford legal assistance." LSC's regulations 
include additional criteria to help determine whether a potential 
client is eligible for assistance from LSC. These regulations require 
that organizations receiving LSC grants adopt financial eligibility 
policies within the income limits set by LSC, which is at or below 125 
percent of the current Federal Poverty Guidelines amounts[Footnote 5]-
-an income of approximately $25,000 for a family of four. Second, there 
are also legal restrictions on access to LSC-supported legal assistance 
by aliens.[Footnote 6] 

The LSC Act prohibits LSC personnel and grant recipients or their 
employees from engaging in certain prohibited activities, such as 
providing legal assistance with respect to any fee-generating case, 
providing legal assistance related to a criminal proceeding, supporting 
or conducting training programs for the purpose of advocating 
particular public policies or encouraging political activities, 
providing legal assistance in civil actions to persons who have been 
convicted of a criminal charge, or participating in litigation related 
to an abortion. In addition, LSC cannot provide funds for legal 
services for a proceeding related to a violation of the Military 
Selective Service Act. 

The LSC Board of Directors, which is charged with managing the affairs 
of the corporation, is responsible for ensuring compliance with these 
restrictions. The LSC Act established the LSC Board and specified that 
the board members shall annually select a Chairman[Footnote 7] and 
appoint an LSC President.[Footnote 8] The D.C. Nonprofit Corporation 
Act, which generally applies to LSC as a D.C. nonprofit corporation, 
provides that the affairs of the corporation shall be managed by the 
board of directors and permits the board of directors to delegate some 
of the authority to perform management duties to corporate 
officers.[Footnote 9] Our recently issued report, Legal Services 
Corporation: Governance and Accountability Practices Need to Be 
Modernized and Strengthened, discusses LSC, its unique status, and the 
rigorous controls necessary to protect the heavily federally funded 
entity.[Footnote 10] 

As an independent office within LSC, the LSC OIG is authorized to carry 
out audits and investigations of LSC programs and operations, recommend 
policies to improve program administration and operations, and keep the 
LSC board and Congress fully and currently informed about problems in 
program administration and operations and the need for and progress of 
corrective action.[Footnote 11] Also, LSC is subject to congressional 
oversight through the annual appropriations process as well as 
responding to congressional inquiries and participating in hearings. 

As shown in figure 1, since 1991 LSC's annual federal funding has 
ranged from a high of $401.6 million in 1995 to a low of $279.1 million 
in 1996, with recent years' appropriations (which makeup most of the 
federal funding) remaining fairly consistent at around $330 million. In 
the appropriation for LSC, Congress regularly designates a specific 
amount for the OIG. For example, the resulting allocations for the OIG 
were about $2.97 million in fiscal year 2007[Footnote 12] and about 
$2.51 million in fiscal year 2006.[Footnote 13] 

Figure 1: Legal Services Corporation Federal Funding between Fiscal 
Years 1991 and 2006: 

This figure is a combination bar graph showing Legal Services 
Corporation federal funding between fiscal years 1991 and 2006. The X 
axis represents the year, and the Y axis represents dollars (in 
millions). 

1991: 328.2; 
1992: 350.9; 
1993: 357.3; 
1994: 401.4; 
1995: 401.6; 
1996: 279.1; 
1997: 284.1; 
1998: 284.7; 
1999: 300.9; 
2000: 304.7; 
2001: 330.1; 
2002: 330.2; 
2003: 338.7; 
2004: 336.5; 
2005: 331.9; 
2006: 328.2. 

[See PDF for image] 

Note: Although annual appropriations constitute most of LSC's annual 
federal funding, the total amount includes revenue from other sources, 
such as grants from the U.S. Department of Veterans Affairs. 

[End of figure] 

LSC uses the majority of its funding to provide grants to local legal- 
service providers. Most of LSC's approximately $330 million in annual 
federal funding of recent years has been designated for grants. Funds 
are distributed based on the number of low-income persons living within 
a service area,[Footnote 14] and some grantees maintain several offices 
within their service area. 

Beginning in 1996, the administrative provisions included each year in 
the acts making appropriations to LSC have required that grants be 
awarded through a system of competition and that LSC management issue 
regulations to implement this requirement.[Footnote 15] According to 
LSC management, one purpose of the competitive grants process is to 
encourage the economical and effective delivery of assistance to 
eligible clients. This represented a major change in the legal-services 
delivery system, eliminating the automatic renewal of funding as 
permitted by the LSC Act and practiced by LSC. After a final decision 
has been issued by LSC management terminating financial assistance to a 
recipient in whole for any service area, LSC management is required to 
implement a new competitive bidding process for the affected service 
area pursuant to implementing regulations.[Footnote 16] 

Internal Control Weaknesses Impede LSC's Ability to Adequately Assure 
Grant Funds Are Used as Intended and in Compliance with Laws and 
Regulations: 

We found weaknesses in LSC's internal controls that negatively affected 
LSC's ability to monitor and oversee grants and left grant funds 
vulnerable to misuse. We also found poor fiscal practices and improper 
or potentially improper expenditures at grantees we visited. LSC's 
control environment contains several weaknesses, including the lack of 
clearly defined roles and responsibility among the three different 
organizational units providing for oversight of grantees--OPP, OCE, and 
the OIG. In addition, OIG and OCE's shared authority to oversee grantee 
financial internal controls and fiscal compliance has resulted in 
confusion about responsibility for grantee financial oversight. Poor 
communication and coordination between the oversight offices further 
impedes LSC's ability to effectively oversee grantees. Furthermore, 
LSC's control activities for monitoring grantee fiscal compliance are 
limited in scope and do not result in timely feedback to grantees. In 
addition, LSC does not utilize a structured or systematic approach for 
assessing risk across its 138 grantees when determining the timing and 
scope of its grantee oversight visits. 

Control Environment Weakened by Unclear Roles and Responsibilities and 
Inadequate Communication and Coordination among Grantee Oversight 
Organizations: 

LSC management monitors grantees through site visits and reviews 
conducted by two offices: the Office of Program Performance (OPP) and 
the Office of Compliance and Enforcement (OCE). OPP is responsible for 
designing and administering the competitive grant process and program 
evaluation. OCE is responsible for grantee compliance with the LSC Act 
and other laws, regulations, instructions, guidelines, and grant 
requirements. In addition, OCE and the OIG share responsibility for 
overseeing grantee financial controls and compliance. 

The current roles and division of responsibilities between the OIG and 
OCE for oversight of grantee financial controls and compliance are not 
clearly defined or communicated to the two offices. We also found that 
communication and coordination of grantee site visits between OCE and 
OPP need improvement in order to achieve effective oversight and avoid 
gaps and duplication in oversight. Management and employees should 
establish and maintain an environment throughout the organization that 
sets a positive and supportive attitude toward internal control and 
conscientious management. 

Another factor affecting an entity's control environment is the 
entity's organizational structure. It provides management's framework 
for planning, directing, and controlling operations to achieve agency 
objectives. A good internal control environment requires that the 
agency's organizational structure clearly define key areas of authority 
and responsibility and establish appropriate lines of reporting. 

In 1988 Congress subjected LSC to the Inspector General Act of 1978, as 
amended (IG Act).[Footnote 17]The IG Act provides that each designated 
federal entity, in this case LSC, shall transfer to the OIG "the 
offices, units, or other components, and the functions, powers, or 
duties thereof, that such head determines are properly related to the 
functions of the Office of Inspector General."[Footnote 18] For 
example, the IG Act transferred to the Inspector General responsibility 
for providing policy direction for, and conducting, supervising, and 
coordinating audits of entity programs, such as LSC's legal assistance 
grants program.[Footnote 19] Further, in April 1996, Congress enacted 
the appropriations act funding LSC for fiscal year 1996[Footnote 20] 
(1996 Act) and included a number of administrative provisions 
supplementing the LSC Act requirements, including those related to 
grantee audits (§ 509).[Footnote 21] The 1996 Act clarified that the 
grantees are responsible for contracting for audits with independent 
public accountants (IPA), the OIG is responsible for overseeing the 
quality and integrity of the audit process, and LSC is responsible for 
resolving deficiencies and noncompliance identified in the audits and 
sanctioning grantees for unacceptable audits. Under the 1996 Act, IPAs 
follow OIG guidance and generally accepted government auditing 
standards in conducting their audits. These audits include an 
independent auditor's opinion about whether the financial statements 
are fairly presented in accordance with generally accepted accounting 
principles, along with auditors' reports on internal control and 
compliance. The 1996 Act also authorizes the OIG to conduct additional 
on-site monitoring, audits, and inspections. If the OIG reports to LSC 
management that a grantee IPA found significant reportable conditions, 
findings, or recommendations, then the 1996 Act provides that LSC is 
responsible for ensuring that these are timely resolved, including 
performing appropriate follow-up. In the event that the OIG were to 
determine that a grantee's IPA audit were unacceptable, then the 1996 
Act authorizes LSC, consistent with OIG recommendations, to sanction 
the grantee by withholding some or all its funding until the grantee 
completes an acceptable audit. Thus, the OIG plays an important role in 
LSC grantee oversight. 

OPP is specifically responsible for designing and administering the 
competitive grants process. In addition, OPP is responsible for (1) 
program evaluation and supportive follow-up; (2) developing strategies 
to improve program quality, including identifying areas of grantee 
weaknesses and following up with individual recipients; (3) promoting 
enhanced technology to improve client community access to services; and 
(4) encouraging "best practices" through the legal resource Web site, 
specialized help with intake and rural area delivery, and pilot 
projects such as loan repayment and mentoring. OPP also performs 
grantee program site visits. OPP's staff totals 22 members, comprised 
of a Director, a Deputy Director, a senior program counsel, eight 
program counsels, seven program analysts, one grants coordinator, and 
three administrative assistants. 

OCE is responsible for overseeing grantee compliance with various 
federal laws and regulations that recipients of LSC funds must follow, 
including specific LSC regulations pertaining to LSC accountability. In 
particular, OCE reviews grantee compliance with various regulatory 
provisions, including the following related to fiscal accountability: 
fee generating cases; use of non-LSC funds and transfers of LSC funds; 
private attorney involvement; subgrants; membership fees; dues; 
timekeeping requirements; and attorney's fees. A summary of these 
provisions in the fiscal component of OCE reviews is included in 
appendix III. 

In 2006, OCE conducted fiscal compliance site visits at 24 of these 
grantees, OPP conducted program review site visits at 32, and 3 were 
performed jointly. LSC presents the grantees with any findings arising 
from the site visits in its exit meetings and a later written report 
and subsequently monitors grantee actions to resolve them. OCE's staff 
totals 15 members, comprised of a Director, 10 attorneys, two fiscal 
program analysts and two administrative assistants. 

According to OCE officials, prior to 1994, LSC staff in the OCE 
predecessor organization conducted internal control reviews and 
detailed financial statement-related audits. After the transfer of many 
oversight functions concerning grantees' financial statement audit 
responsibilities to the IPAs and the OIG, OCE stopped its financial 
statement audits as well as its internal control reviews of grantees, 
even though oversight of grantee financial controls is a basic 
management responsibility. OCE instead implemented a limited fiscal 
review of grantee compliance with selected fiscal provisions of LSC 
regulations. The number of staff performing this function was reduced 
from 12 to 2. OCE management told us that the reason for this was that 
fiscal oversight of grantees had become the responsibility of the OIG, 
which oversees IPA audits that include testing of grantee internal 
controls. However, LSC management has the responsibility for overseeing 
grantee financial controls and compliance even if it relies on the IPA 
audits as the sole basis for its assurance about grantee controls. 
Further, even LSC management's reduced oversight role has been further 
questioned by the OIG. Despite LSC's shift to a limited compliance 
oversight role, the OIG recently reported[Footnote 22] that OCE's 
reviews of grantee compliance were duplicative of IPA testing and 
concluded that most of the LSC regulations tested by OCE are already 
covered by the OIG's own guidance and the reviews conducted by IPAs as 
part of the financial statement audits of grantees. 

With compliance oversight and monitoring responsibilities divided 
between OCE and the OIG and program oversight activities being 
performed by OPP, strong coordination and communication between the 
three offices and clarity in the roles and responsibilities is critical 
for achieving effective grantee and program oversight. Under GAO's 
Standards for Internal Control in the Federal Government,[Footnote 23] 
"For an entity to run and control its operations, it must have 
relevant, reliable, and timely communications relating to internal as 
well as external events." Our discussions with both OIG and LSC 
management indicated that working relationships and communications 
between them were strained. OCE staff have expressed confusion about 
their own roles and responsibility for the more limited fiscal 
compliance reviews they perform, and there is contention between OCE 
and OIG over unclear areas of responsibility that dates back to 
1995.[Footnote 24] OCE and OIG officials indicated that to the best of 
their knowledge no memorandum of understanding or any other 
documentation implementing the board resolution to clarify the roles 
and responsibilities of each unit was ever drafted or implemented. 

We also found communication and coordination weaknesses between OPP and 
OCE based on interviews with LSC oversight staff, correspondence with 
the grantee and other documentation related to the joint OCE/OPP 
oversight visit that we observed, and our own observations of that 
joint oversight visit. As an example, during our visit to a Las Vegas 
grantee, we noted a lack of coordination and information sharing 
between OCE and OPP staff. Specifically, we found conflicting 
conclusions resulting from the OPP and OCE site visits to that grantee, 
and a lack of awareness between OPP and OCE about their respective site 
visits to that grantee. In reporting on an earlier April 2006 site 
visit in Las Vegas, OPP reported, "Overall, this program is in very 
good shape. Its delivery structure is sound, its management is 
excellent, and its case handling staff are performing at a high level." 
During our February 2007 observation visit to the same grantee, OCE 
found it necessary to open an investigation after discovering several 
significant deficiencies with respect to the grantee's compliance with 
LSC regulations. In addition, the OCE team leader on the visit stated 
that he was unaware of OPP's programmatic visit. LSC's Vice President 
of Program and Compliance stated that both OPP and OCE are required to 
share summary memorandums of their visits to grantees so that staff are 
aware of all visits made by both OPP and OCE and properly consider the 
results of the prior site visit in their own visits when conducting 
their own reviews. However, as discussed in a later section of this 
report, LSC's grantee site visit reports were not being completed in a 
timely manner, and, therefore, were not available to the respective 
teams or to LSC management for use in communications and coordination 
of grantee oversight activities. In response to our finding, LSC 
officials acknowledged the need to further enhance internal 
communications and coordination between OPP and OCE to improve the 
overall efficiency and effectiveness of their oversight visits. 

Timing and Scope of Grantee Site Visits Is Not Based on a Risk 
Assessment: 

LSC does not utilize a structured or systematic approach for assessing 
risk associated with its 138 grantees as a basis for determining the 
timing and scope of its grantee oversight visits. According to GAO's 
Standards for Internal Control, risk assessment requires identifying 
and analyzing relevant risks associated with achieving the 
organization's objectives and determining how risks should be managed. 
In determining which grantees to visit, both OPP and OCE use an 
approach based primarily on time between site visits and the respective 
office director's judgments. The director of OCE stated that additional 
factors OCE considered include: complaints of noncompliance, referrals 
from the OIG, and discrepancies in reporting case closures. In response 
to a draft of this report, LSC's President stated that other risk 
factors considered by OCE include the results of grantee self- 
inspections and potential compliance issues identified in OPP program 
visits and other discussions. The director of OCE also said OCE 
attempts to visit every grantee on a 5˝-year cycle. However, this time- 
based cycle is not consistently followed. For example, the second 
largest grant recipient, receiving over $13 million in 2006, has not 
been visited by OCE since at least 1996. In addition, we noted there 
was a 7-year lapse between OCE visits to a grantee in Las Vegas, for 
which OCE, as previously discussed, recently opened an investigation 
after discovering several significant compliance-related findings. 
Management has indicated it believes additional grantee reviews are 
needed but stated that LSC does not have sufficient personnel to do 
this. OCE occasionally supplements its staff of two analysts that 
conduct fiscal reviews with an additional contract staff, and officials 
told us they plan to hire additional staff to conduct site visits on a 
3-to 3˝-year cycle by 2009. 

In 2006, LSC had 138 different grantees with more than 900 offices 
serving all 50 states, the District of Columbia, and current and former 
U.S. territories and had conducted fiscal compliance reviews at 24 of 
these grantees (17 percent). With this scope of grantee operations and 
a limited LSC oversight staff, an approach based on elapsed time and 
informal judgments is not adequate because it lacks analytical rigor 
and does not provide adequate assurance that risks are being properly 
addressed. Specifically, risk analysis should make a reasonable effort 
to identify risk, including inherent risk, based on all information 
sources available, assess the significance and likelihood of occurrence 
of the risk, and factor this in to the decision about scope and timing 
of oversight visits. However, LSC's processes are not designed to 
identify risk in a comprehensive manner by not considering relevant 
risk factors including, for example, inherent risks due to program size 
or changes in grantee management or systems. Without a more structured 
process for selecting grantees to review, LSC does not have an 
analytical basis to know whether it is has the proper level of staff 
resources assigned to the grantee review function or whether it is 
gaining an adequate level of assurance for the number of staff assigned 
to grantee review activities. 

LSC's Control Activities for Monitoring Grantees Do Not Provide 
Reasonable Assurance That Grant Funds Are Being Used Properly and in 
Compliance with Laws and Regulations: 

LSC's control activities for monitoring grantee internal control 
systems do not reasonably assure that grant funds are being used 
properly and that grantees are in compliance with laws and regulations. 
OCE's fiscal oversight was limited in scope, and feedback was not 
provided to the grantees. At both of our observation visits, we noted 
that staff did not follow-up on questionable transactions and relied 
too heavily on information obtained through interviews without 
corroborating the information. We also noted that LSC did not perform 
timely follow-up on an investigation into an alleged instance of 
noncompliance referred to it by the OIG. In addition, LSC has not 
consistently provided grantees the opportunity to take corrective 
actions based on findings arising out of the OCE/OPP site visits in a 
timely manner. As of September 17, 2007, LSC had not yet issued to 
grantee management almost 19 percent (10 out of 53) of the 2006 LSC 
reports for which grantee site visits had been completed. In one case 
we noted that, for unexplained reasons, the review team presented 
negative findings in a positive light to a grantee and omitted some 
negative findings from its feedback. Effective grantee monitoring is 
especially important for LSC because it has limited options for 
sanctioning poorly performing grantees. 

LSC's Control Activities for Monitoring Grantee Fiscal Compliance Were 
Ineffective Due to Scope and Implementation Weaknesses: 

LSC's fiscal reviews did not contain sufficient scope of work to 
adequately assess grantee internal control or fiscal compliance for 
purposes of achieving effective oversight. In addition to IPA audits, 
LSC management relies on its site visits and grantee reviews as a key 
control activity to monitor grantee fiscal compliance. The fiscal 
component of an OCE review is limited, and the reviews we observed left 
out important follow-up to issues that surfaced during interviews and 
did not address outstanding IPA findings. 

OCE staff use an OCE guide called Policies and Procedures for On-Site 
Fiscal Reviews for the fiscal component of OCE reviews. However, the 
guide is very limited in its scope. During our observation of an OCE 
site visit, we were told that no previsit preparation is needed and no 
formalized work program exists for the fiscal component of OCE reviews. 
The guide's focus is assessing compliance with selected regulatory 
provisions and is not a review of grantee internal controls, so it 
would not, for example, require a review of whether expenditures were 
properly authorized. In addition, although the fiscal component of an 
OCE review involves a compliance review of seven LSC regulations, the 
guide provides a framework for conducting fiscal reviews related to 
only three of the seven required regulations. Furthermore, the guide 
does not provide an overall objective of the fiscal compliance review 
nor does it provide a clear scope or detailed steps for performing the 
oversight visitation. The approach to OCE site visits relies almost 
entirely on grantee oral responses to questions and did not include 
follow-up lines of questioning or requests for supporting evidence. For 
example, the OCE analyst did not question Greensburg, Pennsylvania, 
grantee officials about a $30,000 payment to a subgrantee that lacked 
supporting documentation. When GAO asked the grantee Executive Director 
about the payment, she stated that the previous Executive Director 
entered into the subgrant agreement and she did not know anything about 
the agreement other than the fact that she continued to pay the bill 
every year. The Executive Director was not able to support the payment, 
nor did she know the reasons for the payment. The OCE visit did not 
include review of important documents such as policy and procedure 
manuals, or verification of crucial financial information. In addition, 
OCE did not review invoices, perform internal control reviews, or 
scrutinize questionable items. 

Our review of information that OCE had also reviewed found that staff 
did not always follow up on questionable transactions. In reviewing 
documents already reviewed by the OCE fiscal program analyst during a 
site visit to Las Vegas, we discovered an improper transaction 
involving the sale of the grantee's building that was partially 
purchased using LSC funds. The analyst did not question the sale or the 
reason the LSC share of the proceeds from the sale was not returned to 
the LSC restricted funds account. The grantee had entered into an 
agreement to sell the building to a developer for $3.6 million. The 
developer gave the grantee $310,000 as earnest money, and the grantee 
withdrew $30,000 to use as earnest money towards the expected purchase 
of a new property. The remaining $280,000 was deposited in an escrow 
account. However, when the sale of the building fell through, the 
grantee transferred the funds from the escrow account into its 
unrestricted general funds account. According to an official at the 
grantee, this transfer was made to avoid the funds being subjected to 
LSC regulations. Furthermore, the grantee official stated that he 
considered it an "enhancement of money." However, the OCE site visit 
did not question this unusual transaction, nor was it disclosed in the 
independent public accountant's (IPA) annual financial audit. As a 
result of our bringing this transaction to the attention of OCE, LSC 
has concluded that the funds should have been designated and spent as 
LSC restricted income. 

LSC's Delays in Reporting Findings Prevented Grantees from Correcting 
Deficiencies in a Timely Manner: 

LSC's reports of site visits are crucial to communicating and resolving 
instances of noncompliance in grantee internal controls. LSC, though, 
has not provided grantees the opportunity to address findings arising 
out of the OCE/OPP site visits in a timely manner because LSC has been 
slow to communicate its findings to them. As of September 2007, LSC had 
not yet issued to grantee management almost 19 percent (10 out of 53) 
of the 2006 LSC reports for which site visits had been completed. One 
such visit dates back to January 2006. LSC management stated that this 
occurs because there is not enough staff to conduct oversight visits 
and complete reports in a timely manner. Absent timely communications 
about findings from its site visits, grantee management does not have 
information about deficiencies and corrective actions needed to address 
identified deficiencies in their use of funds and improve controls. 
Furthermore, LSC cannot monitor the status of grantee corrective 
actions. 

During OCE compliance visits and in follow-up reviews, OCE attorneys 
and fiscal program analysts gather and analyze data on grantee 
compliance with both nonfinancial and financial LSC regulations and 
conduct an exit meeting with grantee management to present the 
findings. LSC then develops a report with recommendations that is to be 
provided to the grantee. OCE officials stated that although LSC policy 
requires reports to be issued within 90 days of site visits, they 
generally take much longer. One official also told us that OCE staff do 
not have the opportunity to complete one report before having to go on 
another site visit. The official told us that staff do summarize their 
findings in a memorandum, which is used internally at LSC. One fiscal 
program analyst told us that not only was he still working on a report 
which was due last year, but that he also had three other visits he was 
still working on, and he was planning on visiting three additional 
sites as well. It will be important to clear up the backlog of unissued 
reports, especially since LSC's Vice President for Programs and 
Compliance stated that LSC plans to increase OCE and OPP staff levels 
to increase the number of site visits per year. 

We also found an instance where timely follow-up action was not taken 
when alleged instances of noncompliance and misuse of funds existed. On 
November 30, 2004, OCE received a referral from a state comptroller's 
office, which reported that an LSC grantee's Executive Director had 
misused LSC grant funds. OCE referred the case to the OIG. The OIG 
found that the Executive Director used LSC grant funds for time and 
travel unrelated to grantee operations and contributions of LSC funds 
to other charitable organizations. On November 3, 2005, the OIG 
referred the results of its investigation back to OCE for follow-up 
action. LSC management told us that this case has yet to be resolved 
and attributes the delay to other priorities, including staff 
shortages. 

In one case, we noted that, for unexplained reasons, the LSC review 
team presented mostly positive findings to a grantee during the exit 
conference when in fact other significant findings were negative. 
Without a complete report of the instance of noncompliance and 
potential weaknesses found by the reviewers, grantee management was not 
afforded the opportunity to respond to those findings, nor did they 
have the information needed to correct the deficiencies in a timely 
manner. An exit conference is the standard forum for presenting site 
visit results prior to issuing the final report. It gives LSC the 
opportunity to inform grantee management, once the team has finished 
its planned interviews, tests, and other data-collection activities, 
about the findings and observations discovered during the visit. It 
also gives grantee management an opportunity to timely begin addressing 
problems. However, in an exit conference held to close out a joint OCE- 
OPP oversight visit in Greensburg, Pennsylvania, we found that the 
attorneys and fiscal program analyst that performed the review focused 
on the few positive points that had been observed during the week-long 
visit. A number of findings that the review team had characterized as 
significant and in need of immediate attention during the previous 
day's meeting to prepare for the exit conference were not communicated 
as such at the exit conference. In contrast to the discussion regarding 
the need for improvements at the exit conference, the memorandum 
prepared for the LSC files to summarize the visit characterizes the 
grantee as a weak program that faces many challenges. In effect, the 
exit conference focused on a few positive points rather than the 
substantial number of significant findings. 

LSC oversight staff cited staff shortages as the cause for some of the 
weaknesses in the quality of site visits. Currently, there are only two 
fiscal program analysts in OCE, and in order to ensure that there is a 
program analyst available to participate in every OCE grantee visit, it 
is sometimes necessary to contract with an outside analyst for 
coverage. 

Effective grantee monitoring is especially important for LSC because it 
has limited options for sanctioning or replacing poor-performing 
grantees. Although LSC has the authority to temporarily suspend funding 
or terminate all or part of a recipient's grant, LSC rarely uses this 
authority. According to LSC, termination is seldom used because it is 
difficult to find a replacement organization to provide the service. 
Although the LSC Act provides general enforcement authority to the 
corporation,[Footnote 25] LSC must take all practical steps to ensure 
the continued provision of legal assistance. After a final decision has 
been issued by LSC terminating financial assistance to a grantee, LSC 
must implement a new competitive bidding process for the affected 
service area. In fiscal year 2006, only 5 out of 71 potential grants 
received multiple bids during the grant renewal process. Because there 
are few competitors for LSC grants in a given service area, LSC's 
competition process does not provide a practical solution for 
competitive selection when quality issues arise in some cases. 
Therefore, it is particularly important that LSC effectively and 
efficiently oversee its grantees to ensure that grant funds are used 
for intended purposes in accordance with laws and regulations so that 
grantee weaknesses do not develop into serious weaknesses that would 
normally call for termination of funding for the grantee. 

LSC Oversight Did Not Identify Control Weaknesses at Nine Grantees: 

Based on our limited reviews, we identified internal control weaknesses 
at 9 of the 14 grantees we visited that LSC could have identified with 
a more effective oversight review regimen. While control deficiencies 
at the grantees were the immediate cause of improper and potentially 
improper expenditures, weaknesses in LSC's oversight controls discussed 
above negatively affected the effectiveness of its monitoring of 
grantees' controls and compliance. Among the control weaknesses we 
found were grantee use of LSC grant funds for expenditures with 
insufficient supporting documentation, and for unusual contractor 
arrangements, alcohol purchases, employee interest-free loans, lobbying 
fees, late fees, and earnest money. The following two examples show the 
types of weaknesses we found at the grantees we visited. 

Example 1--Systemic Weakness: Insufficient Supporting Documentation: 

At 7 out of the 14 grantees we visited, we identified systemic issues 
involving payments that lacked sufficient supporting documentation. At 
one grantee, many payments were processed for travel despite the lack 
of supporting documentation. The lack of documentation made it 
impossible to determine whether the expenditures were accurate, 
allowable, and appropriate. At another grantee, certain travel expenses 
appeared to be improper. At a third grantee, the grantee underwent a 
change in management in August 2006, and the current Executive Director 
was unable to locate many of the records and invoices related to 
payments made under the previous Executive Director. At a fourth 
grantee, we reviewed six monthly credit card payments and determined 
that less than 50 percent of the charges had any supporting 
documentation. At this same grantee, many of the credit card charges 
that had support lacked sufficient information to determine whether 
they were a valid use of grant funds. At a fifth grantee, we identified 
a $30,000 payment to a subgrantee that lacked any supporting 
documentation. When questioned about the payment, the grantee's 
Executive Director stated that the previous Executive Director entered 
into the agreement and that she did not know anything about the 
agreement other than the fact that she continued to pay the bill every 
year. 

Example 2--Unusual Contractor Arrangement: Questionable Independent 
Contractors: 

At one grantee, we identified an individual who provided services to 
the grantee as an information technology (IT) contractor who was paid 
approximately $750,000 between 2004 and 2006. The individual was 
engaged to operate the organization's IT servers and maintain the 
network. The individual told us that he had worked at the grantee since 
2001. When we inquired as to why he did not work at the grantee as an 
employee, he stated that there were benefits to being an independent 
contractor. We noted the following facts that cause us to question the 
contractor arrangement: 

* The contractor's office and mailing address was located in the same 
office space as the grantee. 

* The grantee could not locate its contract with the individual for 
2005 and 2006. 

* The contractor's business card was identical to other employees 
working at the grantee. 

* Two grantee employees worked for and were supervised by the 
contractor. 

* The contractor indicated that the organization occasionally 
reimburses him for work-related training costs. 

See appendix II for additional detailed information related to our 
findings at the grantees we visited. 

We presented LSC management with the results of our analysis supporting 
each of our findings related to our grantee visits. LSC management 
expressed commitment to take action to resolve these matters in 
coordination with the grantees. 

Conclusions: 

Effective internal controls over grants and grantee oversight are 
critical to LSC as its very mission and operations rely extensively on 
grantees to provide legal services to people who otherwise could not 
afford to pay for adequate legal counsel. Effective grants-oversight 
procedures and monitoring, including a structured, systematic approach 
based on risk, are necessary given LSC's limited resources and the 
scope of its responsibilities for many widely dispersed entities. In 
addition, the shared responsibilities for grantee oversight between LSC 
management and OIG presents risks that can be mitigated with clear 
lines of authority and responsibility and effective communications and 
coordination across oversight offices to avoid unnecessary duplication 
where possible. Finally, given the number of grantees, a sound risk- 
based approach for determining timing and scope of site visits is key 
to prioritizing resource allocations to reflect the varying risks 
presented by grantees. 

To maximize the effectiveness of each site visit, LSC needs to conduct 
its oversight visits with sufficient scope to target areas of greatest 
risk, follow up on information and results of prior reviews and audits, 
and employ a review scope and approach that is tailored to specific 
risks. With high-quality targeted reviews and management that promptly 
informs grantees about findings and provides them an opportunity to 
correct them, risk can be mitigated. 

Recommendation for Board Action: 

To help LSC improve its internal control and oversight of grantees, we 
recommend that the LSC Board of Directors develop and implement 
policies that clearly delineate organizational roles and 
responsibilities for grantee oversight and monitoring, including 
grantee internal controls and compliance. 

Recommendations for Executive Action: 

To help LSC improve its internal control and oversight of grantees, we 
recommend that LSC management develop and implement the following: 

* Policies and procedures for information sharing among the OIG, OCE, 
and OPP and coordination of OCE and OPP site visits. 

* 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. 

* Procedures to improve the effectiveness of the current LSC fiscal 
compliance reviews by revising LSC's 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. 

In addition to the above improvements to LSC's oversight of grantees, 
we also recommend that LSC management perform follow-up on each of the 
improper or potentially improper uses of grant funds that we identified 
in this report. 

Agency Comments and Our Evaluation: 

We received written comments on a draft of this report from the 
Chairman on behalf of LSC's Board of Directors and LSC's President on 
behalf of LSC's management (which are reprinted in apps. IV and V). 
Both the Chairman and the President expressed their full commitment to 
making the improvements noted in the report, concurred with all of our 
recommendations, and outlined the actions that LSC's board and 
management plan to take in response to our recommendations. LSC 
management also separately provided technical comments that we 
incorporated into the report as appropriate. 

LSC's President also suggested three clarifications to our report. 
First, LSC management stated that "the draft report does not 
sufficiently address the fact that in 1996 Congress mandated that the 
LSC OIG have oversight responsibility for all audit work performed by 
independent public accountants (IPA) and the report should include a 
fuller discussion of the role of the IPAs in the financial oversight of 
grantees." We added language to our report to augment our discussion of 
how the 1996 Act clarified that grantee financial statement and 
compliance audits are performed by IPAs and overseen by OIG. While 
these audits serve as an accountability mechanism, they are performed 
after the fact, and do not include all the grantee oversight objectives 
and procedures that would be expected of LSC management as part of its 
responsibilities to manage the affairs of the corporation, such as its 
grants program and to monitor its grantees to ensure compliance with 
all applicable laws, regulations, and grant terms. 

Second, LSC's President states that "the draft report supports its 
conclusion about limited coordination of the work of OCE and OPP with 
an isolated example from one grantee visit and fails to note the range 
of communication and coordination that actually exists between these 
offices." We provide the example in the report to illustrate the effect 
on grantee oversight. Our conclusion about the need for improved 
communication and coordination were also based on interviews with LSC 
staff and our assessment of LSC's control environment during the course 
of our work. Third, the LSC President stated that while LSC can and 
will expand its criteria and use of a risk-based approach for assessing 
risk of weaknesses at its grantees, the draft report did not include 
all of the risk-based criteria that LSC currently uses in selecting 
grantees for on-site reviews. We modified our report to add language 
recognizing that LSC considers the results of grantee self-inspections 
and potential compliance issues identified in OPP program visits and 
other discussions in selecting grantees for on-site reviews. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. We will then send copies to other appropriate 
congressional committees, the President of LSC, and the LSC Board of 
Directors. We will also make copies available to others upon request. 
In addition, the report will be available at no charge on the GAO Web 
site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-9471 or franzelj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix IV. 

Signed by: 

Jeanette M. Franzel: 

Director Financial Management and Assurance: 

List of Requesters: 

The Honorable Edward M. Kennedy: 
Chairman: 
The Honorable Michael B. Enzi: 
Ranking Member: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Chris Cannon: 
Ranking Member: 
Subcommittee on Commercial and Administrative Law: 
Committee on the Judiciary: 
House of Representatives: 

The Honorable F. James Sensenbrenner, Jr.: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report contains the results of our review of internal controls 
over the Legal Services Corporation's (LSC) grantee monitoring and 
oversight function and our limited visits to grantees. In performing 
our work, we (1) evaluated LSC's control environment, information and 
communications, and risk assessment procedures related to its grants 
management and oversight organizations; (2) reviewed LSC's control 
activities for monitoring grantee management and compliance, and (3) 
performed limited reviews at 14 grantees. 

To evaluate LSC's control environment, information and communications, 
and risk assessment procedures related to its grants management and 
oversight, we interviewed LSC and Office of Inspector General (OIG) 
management officials and reviewed board meeting minutes and LSC policy 
documents. To obtain an understanding of LSC's internal control 
framework, including the oversight of grantees, we reviewed LSC 
policies and procedure manuals and reviewed LSC OIG, Office of Program 
Performance (OPP), and Office of Compliance and Enforcement (OCE) 
reports. In addition, we accompanied LSC staff on oversight visits to 
Las Vegas, Nevada, and Greensburg, Pennsylvania. During these visits, 
we reviewed grant agreements, observed LSC interviews with entity 
officials and external parties, evaluated grantee policies and 
procedure manuals, discussed the objectives of each visit with the LSC 
team leader, attended the grantee entrance and exit conferences, and 
observed testing performed by OCE. 

We also conducted fieldwork at LSC, observed LSC staff on 2 of their 
grantee oversight visits, and conducted 12 of our own grantee site 
visits. Specifically, we systematically selected 8 of our grantee site 
visits using a dollar unit sample of LSC's calendar year 2006 grants. 
The grantees selected were located in Oakland, California; Tampa, 
Florida; Chicago, Illinois; Detroit, Michigan; Camden, New Jersey; New 
York, New York; Cleveland, Ohio; and Seattle, Washington. In addition, 
in order to include additional small grantees in our site visits, we 
randomly selected 2 additional grantees with 2006 grant amounts below 
the median grant amounts for 2006. The grantees selected were Window 
Rock, Arizona, and Philadelphia, Pennsylvania. Finally, we selected 
Washington, D.C., as a pilot program for our visits due to its 
proximity to GAO, and we selected Casper, Wyoming, because it had 
received month-to-month funding as a disciplinary sanction in 2006. At 
all of these locations, we analyzed key records and interviewed entity 
officials to obtain an understanding of LSC's internal control 
framework, including the oversight of grantees, and assessed compliance 
of expenditures. Our grantee site reviews were limited in scope and 
were not sufficient for expressing an opinion on the effectiveness of 
grantee internal controls or compliance. 

To assess the appropriateness of grantee expenditures, we performed 
expenditure testing during our grantee site visits. The testing 
included reviewing invoices, vendor lists, and general ledger details. 
The appropriateness of grantee expenditures was based on the grant 
agreements and applicable laws. We classified expenditures as improper 
or potentially improper if they were not supported by sufficient 
documentation to enable an objective third party to determine if the 
expenditure was a valid use of grant funds or if the expenditure was 
specifically prohibited by applicable laws and regulations. For the 
findings we classified as improper or potentially improper, we found as 
applicable one or more of the following: (1) systemic issues with 
insufficient supporting documentation for the goods or services LSC 
money was paying for, (2) unusual contractor arrangements without 
sufficient support or justification, and (3) improper use of grant 
funds. 

We conducted our work from September 2006 through September 2007 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Summary of GAO Findings at Grantees: 

Examples of our findings from our limited visits to 14 grantees are 
presented in this appendix. These examples are not all-inclusive of the 
findings we identified and are not necessarily representative of the 
population of expenditures from which they were selected. 

Example 1--Potential Improper Uses of Grant Funds: Alcohol Purchases: 

We identified three grantees that used Legal Services Corporation (LSC) 
funds to purchase alcoholic beverages. LSC grantees are required by law 
to use LSC funds only for allowable purposes, and LSC management has 
issued implementing regulations on cost standards and procedures. LSC 
regulations do not directly address alcoholic beverages, but they 
permit LSC management to resolve issues arising from questioned costs 
by looking to Office of Management and Budget (OMB) circulars, such as 
OMB Circular No. A-122, Cost Principles for Non-Profit Corporations, 
when such circulars contain relevant policies or criteria that are not 
inconsistent with LSC statutes, regulations, and guidance.[Footnote 26] 
Appendix B of OMB Circular No. A-122, Selected Items of Cost, provides 
guidance on the allowability of the direct or indirect cost of the 
selected items.[Footnote 27] Appendix B's item no. 3, Alcoholic 
Beverages, states that the costs of alcoholic beverages are unallowable 
and provides for no exceptions. Because this guidance is not mandatory 
for LSC, LSC management must make the final decision on whether alcohol 
purchases are allowable. The Executive Director at one grantee stated 
that the program would never use LSC funds to purchase alcohol during 
trips or other organizational functions. When we provided her copies of 
invoices showing alcohol purchases, she indicated that she was not 
aware of the expenditures and would have to investigate. She later 
explained that one of the invoices totaling $2,800 was a payment to 
another organization for the cost of beer and wine for an annual spring 
reception held for college student interns. In addition, she explained 
that the $128 in alcohol on a second invoice was part of a $725 staff 
dinner party in Washington D.C., and that, to the best of her 
knowledge, those funds were reimbursed to the grantee. At another 
grantee, we identified invoices containing wine purchases for company 
events. The Executive Director immediately recognized that this was an 
issue and stated that he would ensure that LSC funds are no longer used 
to purchase alcohol. 

Example 2--Potentially Improper Uses of Grant Funds: Employee Interest- 
Free Loans: 

We identified a grantee that was using LSC funds to provide interest- 
free loans to employees upon request as an employee benefit. The use of 
the loans included, but was not limited to, paying college tuition, 
making down payments on personal residences, and purchasing personal 
computers. According to the grantee's Controller, employees are not 
required to sign a contract, but the grantee does try to have the 
employees pay off the loans through payroll deductions to ensure 
collection. Furthermore, she stated that the total amount of loans 
outstanding at any one time typically does not exceed $10,000. 

When asked to provide support for the loans, the Controller stated that 
she did not believe any specific supporting documentation existed. 
During our site visit, the Controller prepared a list of employee loans 
outstanding as of December 31, 2006. Since controls over the loans are 
nonexistent, we were unable to determine the completeness of this list. 

LSC grant funds are required by law to be used to support the provision 
of legal assistance in civil matters to low-income people for everyday 
legal problems. We identified no authority to use LSC grant funds for 
interest-free or other loans to grantee employees. 

Example 3--Improper Uses of Grant Funds: Lobbying Fees: 

We identified two instances in which one grantee was using LSC funds to 
pay for lobbyist registration fees. The Legal Services Corporation Act 
imposes a broad limitation on LSC grantees using LSC funds in a manner 
that would directly or indirectly influence legislation or other 
official action at the local, state, or federal government levels and 
requires LSC management to ensure that these limitations are not 
violated.[Footnote 28] With only limited exceptions, LSC grantees 
cannot use LSC funds to pay for any costs related to lobbying, 
including lobbying registration fees. The registration fee in each 
instance we identified was $50. The Executive Director of the program 
agreed that in this instance using LSC funds for lobbyist registration 
fees was a violation of the grant agreement. In addition, he stated 
that he would take additional steps to ensure that LSC funds are no 
longer used for expenses related to lobbying. 

Example 4--Improper Uses of Grant Funds: Late Fees: 

Three of the grantees that we visited used LSC funds to pay late fees 
on overdue accounts for goods and services purchased. LSC regulations 
on cost standards and procedures provide that expenditures by a grantee 
are only allowable if the grantee can demonstrate that the expenditures 
were reasonable and necessary for performance of the grant, meaning 
that they were the type that would have been performed by a prudent 
person in similar circumstances at the time the decision to incur the 
cost was made.[Footnote 29] One grantee routinely failed to make 
payments on time, creating tension with several of its vendors. We 
found numerous communications from vendors regarding late payments. In 
one instance, the vendor sent a third notice of action to this grantee 
stating that the rent for the grantee's unit or office space remained 
unpaid. The vendor threatened to place a lien against the goods in the 
unit and sell them at a public auction to satisfy the overdue balance 
if the overdue balance was not paid within 15 days. Systemic failure to 
pay bills on time is an indication of weak internal controls. All three 
Executive Directors agreed that there was no excuse for the inability 
to make payments on time. We view payments made under these 
circumstances as imprudent and unreasonable and, therefore, 
unallowable. 

Example 5--Improper Uses of Grant Funds: Earnest Money: 

We discovered an improper transaction at one grantee involving the sale 
of a grantee building that was purchased using both LSC and non-LSC 
funds. The grantee had entered into an agreement to sell the building 
to a developer for $3.6 million. The developer gave the grantee 
$310,000 as earnest money, and the grantee withdrew $30,000 to use as 
earnest money towards the expected purchase of a new building. The 
remaining $280,000 was deposited in an escrow account. However, when 
the sale of the building fell through, the grantee transferred the 
funds from the escrow account into its unrestricted general funds 
account. According to an official at the grantee, this transfer was 
made to avoid the funds being subjected to LSC regulations. 
Furthermore, the grantee official stated that he considered it an 
"enhancement of money." As a result of our bringing this transaction to 
the attention of the Office of Compliance and Enforcement, LSC has 
concluded that the funds should have been designated and spent as LSC 
restricted income. 

[End of section] 

Appendix III Regulatory Provisions of Legal Services Corporation's 
Fiscal Compliance Review of Grantees: 

Table 1: 

Legal Services Corporation regulatory provision in CFR, Title 45: Part 
1609; 
Summary of provision: Prohibits LSC grantees from accepting most fee-
generating cases. 

Legal Services Corporation regulatory provision in CFR, Title 45: Part 
1610; 
Summary of provision: Prohibits LSC grantees from using non-LSC funds 
for any purpose prohibited by the Legal Services Corporation Act in 
most situations. 

Legal Services Corporation regulatory provision in CFR, Title 45: Part 
1614; 
Summary of provision: Requires that LSC grantees involve private 
attorneys in their programs for the delivery of legal assistance to 
financially eligible clients. 

Legal Services Corporation regulatory provision in CFR, Title 45: Part 
1627; 
Summary of provision: Sets out rules under which LSC funds may be 
transferred by grantees to other organizations. 

Legal Services Corporation regulatory provision in CFR, Title 45: Part 
1630; 
Summary of provision: Provides uniform standards for the allowability 
of costs and process for resolving questioned costs. 

Legal Services Corporation regulatory provision in CFR, Title 45: Part 
1635; 
Summary of provision: Sets out timekeeping requirements for documenting 
time spent by attorneys and paralegals on each case or matter. 

Legal Services Corporation regulatory provision in CFR, Title 45: Part 
1642; 
Summary of provision: Prohibits grantees or employees of grantees from 
claiming, or collecting and retaining, attorneys' fees available under 
any federal or state law permitting or requiring the awarding of 
attorneys' fees in most situations. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix IV: Comments from the Legal Services Corporation Board of 
Directors: 

LSC: 
Legal Services Corporation: 
America's Partner for Equal Justice: 

President: 
Helaine M. Barnett: 

Board of Directors: 
Frank B. Strickland: 
Atlanta, GA: 
Chairman: 

Lillian R. BeVier: 
Charlottesville, VA: 
Vice Chairman: 

Jonann C. Chiles: 
Little Rock, AR: 

Thomas A. Fuentes: 
Lake Forest, CA: 

Herbert S. Garten: 
Baltimore, MD: 

David Hall: 
Boston, MA: 

Michael D. McKay: 
Seattle, WA: 

Thomas R. Meites: 
Chicago, IL: 

Bernice Phillips: 
Buffalo, NY: 

Sarah M. Singleton: 
Santa Fe, NM: 

November 30, 2007: 

Ms. Jeanette M. Franzel: 
Director, Financial Management and Assurance: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. Franzel:

Thank you for the opportunity to provide written comments on the 
Government Accountability Office (GAO) draft report entitled Legal 
Services Corporation — Improved Internal Controls Needed in Grants 
Management and Oversight. This is the Board of Directors' response to 
your draft report. Management is responding separately. 

We accept the one recommendation to the Board and we are fully 
committed to making the improvements noted. 

GAO recommends: To help LSC improve its internal control and oversight 
of grantees, we recommend that the LSC Board of Directors develop and 
implement policies that clearly delineate organizational roles and 
responsibilities for grantee oversight and monitoring, including 
grantee internal controls and compliance. 

The Board will ask LSC management and the Office of Inspector General 
to review existing policies and procedures and establish additional 
policies and procedures, as necessary, to address the division of 
responsibilities between and among the OIG, OCE and OPP for both fiscal 
and regulatory oversight and monitoring of LSC grantees, including 
grantee internal controls and compliance. We will ensure that, where 
appropriate, such practices and policies are adopted as written Board 
policy so that LSC personnel and OIG personnel will be fully informed 
of the need to conform to these policies and procedures. 

We would like to invite the GAO's attention to that part of 
management's response that discusses some potential inaccuracies in the 
report. The Board has not fully investigated these facts, but we are in 
general agreement with management's observations about the split role 
of the OIG and LSC management and of the IPA system. 

Thank you for the opportunity to comment upon the draft report. 

Sincerely, 

Signed by: 

Frank B. Strickland: 
Chairman: 

3333 K Street, NW 3rd Floor: 
Washington, DC 20007-3522: 
Phone 202.295.1500: 
Fax 202.337.6797: 
[hyperlink, http://www.lsc.gov]: 

[End of section] 

Appendix V: Comments from the Legal Services Corporation: 

LSC: 
Legal Services Corporation: 
America's Partner for Equal Justice: 

President: 
Helaine M. Barnett: 

Board of Directors: 
Frank B. Strickland: 
Atlanta, GA: 
Chairman: 

Lillian R. BeVier: 
Charlottesville, VA: 
Vice Chairman: 

Jonann C. Chiles: 
Little Rock, AR: 

Thomas A. Fuentes: 
Lake Forest, CA: 

Herbert S. Garten: 
Baltimore, MD: 

David Hall: 
Boston, MA: 

Michael D. McKay: 
Seattle, WA: 

Thomas R. Meites: 
Chicago, IL: 

Bernice Phillips: 
Buffalo, NY: 

Sarah M. Singleton: 
Santa Fe, NM: 

November 30, 2007: 

Ms. Jeanette M. Franzel: 
Director, Financial Management and Assurance: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Franzel: 

Thank you for the opportunity to provide written comments on the 
Government Accountability Office (GAO) draft report entitled Legal 
Services Corporation – Improved Internal Controls Needed in Grants 
Management and Oversight. This is Management's response to your draft 
report. The Board of Directors is responding separately. 

We accept the four recommendations and we are fully committed to making 
the improvements noted. 

Recommendation: GAO recommends that LSC management perform follow- up 
on each of the improper or potentially improper uses of grant funds 
identified in this report. 

LSC had already begun investigating one grantee cited by GAO prior to 
receiving the draft report. We have followed up on the other issues 
identified by GAO by referring the identified grantees and the related 
allegations to the Office of Inspector General (OIG). The OIG has 
accepted Management's referral of these matters and has indicated that 
they will conduct internal controls reviews at the grantees identified. 

Recommendation: GAO recommends that LSC management develop and 
implement policies and procedures for information sharing among the 
01G, OCE, and Office of Program Performance (OPP) and coordination of 
OCE and OPP site visits. 

LSC will review existing policies and procedures and establish 
additional policies and procedures, as necessary, to address 
information sharing between OCE and OPP. We will ensure that all 
current and new procedures will be in writing and that staff will be 
fully informed of their responsibilities to conform to these policies 
and procedures. 

LSC maintains substantial coordination of work efforts between OPP and 
OCE. We will assess our current practices regarding site visits to 
grantees and, where needed, will create additional avenues of 
coordination. We will put in writing the full range of coordination 
activities and procedures, including those we have been using as well 
as any new procedures, to ensure that information concerning grantee 
visits is more easily shared among staff in the two offices. 

With regard to information sharing between the OIG and LSC program 
offices, we will consult with the OIG and insure that appropriate 
policies and procedures are in place. 

Recommendation: GAO recommends that LSC management develop and 
implement an approach for selecting grantees for internal control and 
compliance reviews that is founded on a risk-based criteria, and uses 
information and results from oversight and audit activities, and is 
consistently applied. 

LSC will assess the risk-based criteria that we currently apply when 
selecting grantees for program visits, add appropriate criteria as 
necessary, and document the process. We will continue to work with the 
OIG to make improvements in the system used to refer audit findings to 
ensure that all appropriate audit findings are being referred to 
Management for follow up. 

Recommendation: GAO recommends that LSC management develop and 
implement procedures to improve the effectiveness of the current LSC 
fiscal compliance reviews by revising its current guidelines. 

LSC will document in its written guidance for the fiscal component of 
OCE's regulatory compliance reviews the required links to OIG and IPA 
audit findings. We will provide guidance for following up on grantee 
interviews. We will work with the LSC Board of Directors and the OIG to 
develop and implement policies that clearly delineate organizational 
roles and responsibilities and appropriate fiscal and internal controls 
review procedures for grantee oversight and monitoring. 

In addition to accepting your recommendations, we recommend that the 
following clarifications be made to your draft report to insure its 
overall accuracy. 

First, the draft report does not sufficiently address the fact that in 
1996 Congress mandated that the LSC OIG have oversight responsibility 
for all audit work performed by independent public accountants (IPAs) 
and the report should include a fuller discussion of the role of IPAs 
in the financial oversight of grantees. Management understood that as a 
result of the congressional action, the OIG would be responsible for 
financial audits of grantees, including internal controls reviews, and 
that LSC management would be responsible for regulatory compliance 
reviews with a limited fiscal component. Since that time, LSC 
management has looked to the OIG and the IPA audit process to provide 
the primary financial oversight of grantees. The LSC Board, the OIG, 
and LSC Management have all expressed concerns about the need for 
clarification of roles with respect to financial oversight 
responsibilities for LSC grantees. We will work together to review how 
LSC should improve our overall financial oversight. 

Second, the draft report supports its conclusion about limited 
coordination of the work of OCE and OPP with an isolated example from 
one grantee visit and fails to note the range of communication and 
coordination that actually exists between these offices. LSC management 
has made it a priority and has worked hard during the past few years to 
assure effective communication and coordination between OCE and OPP. 
The directors of these two offices as well as their respective deputy 
directors are in constant communication with each other. Staff from 
each office routinely seek and provide input to each other regarding 
upcoming grantee visits and other programmatic projects. All reports 
from each office, in draft and final form, are shared with staff of 
both offices. A written summary of the preliminary findings issued at 
each exit conference is shared with staff of both offices. The monthly 
written reports prepared by OCE regarding current OCE projects are 
shared between the directors, deputy directors and staff of both 
offices. Decisions on which grantees will receive oversight visits are 
the result of both offices coming together to discuss application of a 
variety of risk-based criteria. 

Finally, despite the finding in the draft report that LSC does not 
employ a structured or systematic approach for assessing the risk of 
noncompliance or financial control weaknesses across its 138 grantees, 
the draft report refers to the following factors considered by OCE in 
selecting grantees for on-site reviews: complaints of noncompliance, 
referrals from the 01G, discrepancies in reporting case closures, and 
the time that has passed since the last visit. All of these are risk- 
based criteria. In addition, included in the OCE risk-based factors are 
the results of grantee self-inspections and potential compliance issues 
identified in OPP program visits and other discussions. While we can 
and will expand our criteria and document their use, the draft report 
does not adequately credit the risk-based criteria currently in use by 
LSC. 

Thank you for the opportunity to comment upon the draft report. 

Sincerely,

Signed by: 

Helaine M. Barnett: 
President: 

3333 K Street, NW 3rd Floor: 
Washington, DC 20007-3522: 
Phone 202.295.1500: 
Fax 202.337.6797: 
[hyperlink, http://www.lsc.gov]: 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Jeanette M. Franzel, (202) 512-9471 or franzelj@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Paul Caban, Blake M. Carpenter, 
Bonnie L. Derby, Lisa M. Galvan-Trevino, Maxine Hattery, Erik S. Huff, 
Keith H. Kronin, and Margaret Mills made key contributions to this 
report. F. Abe Dymond and Lauren S. Fassler provided technical 
assistance. 

[End of section] 

Footnotes: 

[1] As used in this report, 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 or 
grantee refers to those who enter into such agreements. Although LSC 
distributes most financial assistance through grants, it sometimes uses 
contracts. 

[2] As used in this report, 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. 

[3] 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. §§ 2996- 
29961 (LSC Act). 

[4] Revised Continuing Appropriations Resolution, 2007, Pub. L. No. 110-
5, 121 Stat. 8, 44 (Feb. 15, 2007); Science, State, Justice, Commerce, 
and Related Agencies Appropriations Act, 2006, Pub. L. No. 109-108, 119 
Stat. 2290, 2330, 2347 (Nov. 22, 2005), which was subject to the 1 
percent across-the-board rescission in Pub. L. No. 109-148, § 3801, 119 
Stat. 2680, 2791-92 (Dec. 30, 2005). 

[5] 45 C.F.R. § 1611.3(c)(1). 

[6] These restrictions have been imposed each year since 1996 in LSC's 
annual appropriations act. See, for example, Department of State and 
Related Agencies Appropriations Act, 1996, Pub. L. No. 104-134, tit. 
IV, § 504(a)(11), 110 Stat. 1321, 1321-55 (Apr. 26, 1996). LSC has 
issued implementing regulations imposing restrictions on legal 
assistance to aliens at 45 C.F.R. pt. 1626. 

[7] LSC Act, 42 U.S.C. § 2996c(a), (d). 

[8] LSC Act, 42 U.S.C. § 2996d(a). 

[9] 42 U.S.C. § 2996e(a); D.C. Code § 29-301.18, -301.24(d). 

[10] GAO, Legal Services Corporation: Governance and Accountability 
Practices Need to Be Modernized and Strengthened, GAO-07-993 
(Washington, D.C.: Aug. 15, 2007). 

[11] Inspector General Act of 1978, codified, as amended, in part at 5 
U.S.C. app. §§ 4, 8G. 

[12] Revised Continuing Appropriations Resolution, 2007, Pub. L. No. 
110-5, §§ 104, 20918, 121 Stat. 8, 9, 44 (Feb. 15, 2007). In their 
reports associated with the fiscal year 2007 appropriations for LSC, 
the House and Senate Committees on Appropriations both directed LSC to 
allocate $2.97 million for the LSC OIG. See H.R. Rep. No. 109-520, at 
136 (June 22, 2006); S. Rep. No. 109-280, at 137 (July 13, 2006); see 
also GAO-07-993, at 9. 

[13] LSC Appropriations Act for Fiscal Year 2006, Pub. L. No. 109-108, 
119 Stat. 2290, 2330, 2347 (Nov. 22, 2005); Science, State, Justice, 
Commerce, and Related Agencies Appropriations Act, Pub. L. No. 109-148, 
§ 3801, 119 Stat. 2680, 2791-92 (Dec. 30, 2005) (enacting a 1 percent 
across-the-board rescission that affected LSC). 

[14] Under 45 C.F.R § 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. 

[15] See Pub. L. No. 104-134, § 503; see also implementing regulations 
in 45 C.F.R. pt. 1634. 

[16] 45 C.F.R. §§ 1634.10, 1634.11. 

[17] 5 U.S.C. app. 

[18] 5 U.S.C. app. § 8G(g)(b). 

[19] 5 U.S.C. app. §§ 8G(g)(1),(4)(a)(1). 

[20] Department of State and Related Agencies Appropriations Act, 1996, 
Pub. L. No. 104-134, tit. IV, § 509, 110 Stat. 1321, 1321-58 (Apr. 26, 
1996). 

[21] These administrative provisions have been reenacted each fiscal 
year in the annual appropriations act for LSC. See, for example, 
Science, State, Justice, Commerce, and Related Agencies Appropriations 
Act, 2006, Pub. L. No. 109-108, 119 Stat. 2290, 2330-31 (Nov. 22, 
2005). 

[22] LSC OIG, Interim Report on Management Oversight of Grantees-- 
Office of Compliance and Enforcement, Report No. AU06-02 (Washington, 
D.C.: March 2006). 

[23] GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[24] In 1995, the LSC Board of Directors issued a resolution revising 
its implementation of the IG Act at LSC and transferring certain 
responsibilities then performed by LSC management to the OIG. LSC, 
Resolution of the Legal Services Corporation Board of Directors 
Regarding Transfer of Certain Audit Responsibilities to the Office of 
Inspector General (Washington, D.C.: May 12, 1995). 

[25] 42 U.S.C. § 2996e(b)(1)(A); Departments of Commerce, Justice, and 
State, the Judiciary, and Related Agencies Appropriations Act, 1998, 
Pub. L. No. 105-119, § 501, 111 Stat. 2440, 2510 (Nov. 26, 1997). 

[26] 45 C.F.R. § 1630.3(i). 

[27] OMB Circular No. A-122, codified at 2 C.F.R. pt. 230, app. B. 

[28] 42 U.S.C. §§ 2996f(a)(5)-(6), 2996f(b)(4)-(7). 

[29] 45 C.F.R. § 1630.3(a)(2), (b). 

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