Legal Services Corporation: Improvements Needed in Controls over Grant Awards and Grantee Program Effectiveness
Published: 2010-06-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Legal Services Corporation (LSC) was created as a private, nonprofit corporation to support legal assistance for low-income individuals on civil legal matters, primarily through federal grants and is primarily funded through federal appropriations. Effective internal controls over grant awards and oversight of grantees' performance are critical to LSC's mission. GAO and the LSC Inspector General have previously reported weaknesses and made recommendations. GAO's objectives for this report were to determine the extent to which LSC (1) implemented key internal controls in awarding and overseeing grantees, (2) measured its performance, (3) evaluated staffing needs, and (4) adhered to its budget execution processes. GAO analyzed key records and prior recommendations as well as interviewed LSC officials regarding LSC's internal control and performance frameworks, staffing, and contract processes.
section_title: What GAO Found
paragraphs: Although LSC's controls over reviewing and awarding grants are intended to help ensure fair and equitable consideration, they need improvement. Final award and fund decisions are documented and approved; however, LSC's grant application evaluation process and associated decisions were not documented, including key management discussions in the evaluation process. This lack of documentation of factors considered in making these decisions increases the risk that grantee application evaluation and funding decisions may not consider all key relevant information and makes it difficult to describe the basis for decisions later. In addition, LSC has no requirement for carrying out and documenting managerial review and approval of competitive grant evaluations or renewals, limiting its ability to identify gaps or incompatible data in applications. Although LSC has efforts underway to ensure it visits all grantee sites at least once every 3 years, LSC did not consistently or explicitly document the application of risk criteria when selecting which grantees to visit, complete timely site visit reports, or track the recommendations from the site visits. These weaknesses hindered LSC's ability to effectively oversee grantees. LSC is not required to follow the Government Performance and Results Act but has developed a Strategic Directions document with some performance measures. However, these measures do not reflect all of LSC's core activities and are not linked to its two primary offices for awarding and overseeing grants. Therefore, LSC cannot effectively measure its performance in several key dimensions, such as identifying and targeting resources in addressing the most pressing civil legal needs of low-income individuals across the nation. LSC has not systematically assessed its long-term staffing needs to achieve strategic goals and objectives, which could help ensure it has the staff capabilities needed to meet its short- and long-term goals. LSC has not consistently provided performance reviews for all of its staff, limiting opportunities to encourage high performance, identify training needs, and communicate with staff. At times, LSC did not adhere to its budget execution process in awarding contracts supporting its key grant-making responsibilities. Because officials did not follow LSC's approval controls for two contracts and there was a breakdown in tracking funds, LSC had a budget shortfall of $70,000 in 2009. Missing or flawed internal controls limit LSC's ability to effectively manage its grant award and grantee performance oversight responsibilities. Although LSC has taken steps to address all 17 GAO recommendations identified in prior work, several have yet to be fully addressed. In the near term, it will be important for LSC leadership to address both current and continuing weaknesses. For the long term, LSC will need to focus on strengthening its overall system of internal controls in order to establish a solid basis for effectively accomplishing its core mission.

section_title: Letter
paragraphs: 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 individuals throughout the United States. LSC pursues this  mission primarily by making grants to legal service providers who serve  low-income individuals otherwise unable to afford such legal assistance.  Because of the recent economic recession and accompanying increase in  housing foreclosures, LSC grantees’ services are in high demand.
Established by charter in 1974 as a federally funded private, nonprofit  corporation, LSC is dependent on federal appropriations for the vast  majority of its operations. In fiscal year 2009, LSC received over 99 percent  of its funding from federal appropriations—totaling $390 million—and the  remaining less than 1 percent (approximately $1.7 million) from grants it  received through the Department of Veterans Affairs. Since LSC pursues  its mission primarily by making federally funded grants to legal service  providers, the effectiveness of LSC’s controls over (1) grant awards and  overall monitoring of grantee program quality, and (2) grantee compliance  are key to LSC’s mission. Controls over grant awards and monitoring of  grantee program performance include those relied on for awarding  competitive grants, encouraging competition, and developing and  implementing strategies to improve grantee program quality and  efficiency, including promoting and supporting enhanced and strategic  utilization of technology by LSC grantee programs to improve clients’ and  communities’ access to services. Controls over grantee compliance  include those relied on to ensure grantees’ compliance with the Legal  Services Corporation Act (LSC Act) and its implementing regulations,  respond to inquiries and written complaints concerning grantees received  from members of the public or Congress, and provide follow up on the  referrals of findings from LSC’s Office of Inspector General.
We issued two reports in 2007 that identified weaknesses in LSC’s internal  controls over grant awards and monitoring of program effectiveness.  LSC has completed action on 11 recommendations. For example, L SC  established an audit committee function to provide oversight to LSC’s  financial reporting and audit process; established a shorter time frame for  issuing LSC’s audited financial statements; established a comprehensive  and effective continuity of operations plan program; and performed follow  up on all improper or potentially improper uses of grant funds that we  identified in our prior report.  However, 6 out of 17 recommendations  remain to be fully implemented. These include recommendations in such  key LSC grant award and compliance areas as (1) developing and  implementing procedures to periodically evaluate key management  processes, including, at a minimum, processes for risk assessment and  mitigation, internal control, and financial reporting; (2) implementing 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; and (3)  developing and implementing policies that clearly delineate organizational  roles and responsibilities for grantee oversight and monitoring, including  grantee internal controls and compliance. Appendix II provides a summary  of the status as of April 2010 of our prior recommendations. Further, a  2009 LSC Inspector General audit identified questionable fiscal practices  related to grants in following up on our December 2007 report.
The objectives of this report are to determine the extent to which LSC    properly implemented key internal controls in awarding grants and  overseeing grantee program performance;    measured its performance in awarding grants and overseeing  grantees;  evaluated staffing needs for grant awards management and grantee  performance oversight; and  followed appropriate budget execution processes for awarding  contracts related to grants award and grantee performance and  oversight.
To address the first two objectives, we interviewed current members of  LSC’s management and staff, staff in LSC’s Office of Inspector General  (OIG), and the audit firm employed by the OIG to obtain information on  the functions and processes of LSC’s grant awards and monitoring of  grantee program performance and grantee compliance. We also reviewed  LSC documentation on internal control activities related to the awarding  of grants and oversight of grantee programs. In addition, we selected a  probability sample of grant applications and application evaluations and  compared evaluation results with instructions in LSC Grants, a computer- based grants application system. We analyzed the document setting out  LSC-wide and component-specific goals and performance measures and  compared this to federal guidance on performance measurement. We also  observed LSC site visits at two grantees—in Indianapolis and Philadelphia.  To obtain information on LSC controls for assessing staffing needs for its  grants functions, we interviewed LSC management and reviewed policies  and procedures. We compared LSC’s staffing needs assessment processes  to federal best practices in workforce planning principles. To obtain  information on controls over contract approval and budget execution, we  reviewed relevant policies, procedures and guidance and tested contracts.
For each of our objectives we compared the information obtained with  federal best practices in internal control in our Standards for Internal  Controls in the Federal Government. Appendix I contains a more  complete description of our scope and methodology. We conducted our  work in Washington, D.C.; Indianapolis, Indiana; and Philadelphia,  Pennsylvania; from March 2009 to May 2010 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. We believe  the evidence obtained provided a reasonable basis for our audit findings  and conclusions.
subsections: section_title: Background
paragraphs: LSC relies heavily on its Office of Compliance and Enforcement (OCE)  and its Office of Program Performance (OPP) to carry out activities  related to grant awards, grantee program effectiveness, and grantee  compliance responsibilities. According to LSC officials, LSC established  OCE in 1997 and OPP in 1999 to (1) help ensure compliance with  requirements of the LSC Act, and (2) evaluate, fund, monitor and oversee  grantee programs, including quality of services provided. Figure 1 shows  staffing levels for OPP and OCE and LSC overall between 1999 and 2009.
As shown in figure 2, the Directors of OPP and OCE report to the Vice  President for Programs and Compliance, who reports to the LSC  President. LSC’s President reports to an LSC board composed of 11  members. In April 2010, the 11 member board was undergoing transition,  with: 1 board member continuing, 6 of the remaining 10 being sworn in  during April, 2 board members awaiting to be named, and 2 others  awaiting Senate confirmation.  (OPP)
According to the LSC Vice President of Programs and Compliance’s goals  and objectives document (LSC workplan), the Vice President for Programs  and Compliance is responsible for coordinating OPP and OCE;  implementing efforts to improve LSC’s oversight of grantees; assessing  LSC component directors’ staffing allocations and assignments;  conducting quarterly joint staff meetings and training sessions; and  overseeing LSC’s internal quality agenda, including providing staff training.  In accordance with the LSC Workplan, the Vice President for Programs  and Compliance also oversees LSC’s grantee compliance and program  functions, with emphasis on intra-office coordination, improved grantee  guidance, and improved grantee follow-up activities by OCE and OPP.
According to LSC’s policy and the 2009 OPP Procedures Manual, OPP’s  responsibilities include designing and administering LSC’s process for  awarding competitive grants, and developing and implementing strategies  to improve grantee program quality. In carrying out its responsibilities,  OPP is to issue requests for proposals, guide grant applicants through the  application process, and evaluate applications against performance  criteria.
According to the 2008 Roles and Responsibilities of LSC Offices  Responsible for Grantee Oversight, OCE is charged with reviewing  grantees’ compliance with the LSC Act and implementing regulations,  responding to inquiries and written complaints concerning grantees  received from members of the public or Congress, and providing follow up  on the referrals of findings from LSC’s Office of Inspector General. In  carrying out its responsibilities, OCE is to conduct grantee case service  reports and case management system site visits; review grantee  compliance with the LSC accounting manual and fiscal-related regulations;  review the audited financial statements of grantees; and initiate  questioned-cost proceedings as necessary. To increase compliance, OCE  is also responsible for issuing corrective action notices to grantees and for  following up on corrective action plans through conducting interviews,  reviewing grantee corrective action plans, and performing follow-up  reviews.
Figure 3 presents an overview of LSC grant award process responsibilities  as prescribed by LSC’s policies and procedures.
In addition, the Office of Legal Affairs (OLA) has some responsibilities  with respect to LSC’s grantee oversight. Specifically, according to the  Roles and Responsibilities of LSC Offices Responsible for Grantee  Oversight, OLA, headed by a Vice President of Legal Affairs who reports to  LSC’s President, is responsible for providing legal services for LSC, such  as interpreting statutory and regulatory authorities applicable to LSC  grantees and approving contracts prior to award. OPP and OCE and other  operating units seek legal counsel and information from OLA on  application of relevant laws and regulations, as well as legal issues arising  from oversight and enforcement activities.
section_title: Controls over Grant Application Review and Award Process Need Improvement
paragraphs: LSC controls over reviewing and awarding grants are intended to help  ensure the fair and equitable consideration of applicants. Recently LSC has  taken action intended to improve controls in this area. For example, LSC  enhanced documentation of its grant application evaluation process  through its 2010 Reader Guide. In addition, the LSC grants system contains  detailed application evaluation questions based on the LSC Performance  Criteria, and LSC has developed training materials and provided training to  OPP personnel on the application evaluation process. However, at the  time of our review, we found LSC’s controls over reviewing grantee  applications and awarding grants were deficient in the following areas:    documenting grant award decisions,  carrying out and documenting management review of grant  applications, and    using automated grantee data available in the LSC Grants system.
These deficiencies increase the risk that LSC may not be considering all  relevant information in a consistent manner, limit LSC’s ability to explain  the results of award decisions, and have resulted in incomplete and  inaccurate information in the LSC grants grantee application evaluations.
subsections: section_title: Grant Application Evaluations and Decisions Lacked Supporting Documentation
paragraphs: LSC’s grant application evaluation process and basis for the resulting  decisions were not clearly documented, including key management  discussions in the evaluation-making process.
According to the Standards for Internal Control in the Federal  Government, all significant events should be clearly documented, and  readily available for examination. We found LSC procedures did not  require, nor did the staff maintain, a comprehensive record documenting  (1) the extent to which management held discussions and considered all  available, relevant information in the grant funding decision-making  process for each applicant, and (2) that a complete record of the  deliberative process (i.e., inputs, discussions, decisions made) was used,  leading up to a grant application being funded or denied by LSC. Instead,  LSC uses presentation notebooks, including multiple data sources,  including grant applicant information, which are prepared for OPP staff  funding recommendation presentations to OPP management and later for  presentations to LSC management and the LSC President. Final grant  award decisions are summarized in a chart initialed by responsible staff,  LSC management and the President and individual grant award letters are  certified by the LSC President.
LSC’s procedures provided for documenting summaries of grantee  application data. Specifically, LSC procedures required a one-page  applicant overview and a two-page program summary for each applicant.  OPP staff prepare the one-page applicant overview to document (1)  information (such as poverty levels) about the applicant’s service area,  (2) an overall score based on the reviewer’s evaluation, and (3) whether  there are any special grant conditions, such as those due to prior grantee  problems, including noncompliance with LSC regulations. OPP staff also  prepare a two-page program summary that is to document their  assessment of the grantee considering past performance as well as  information in the application related to the following four performance  areas:  (1) effectiveness in identifying the most pressing civil legal needs of low- income people in the service area and targeting resources to address  those needs,  (2) effectiveness in engaging and serving the low-income population  throughout the service area,  (3) effectiveness of legal representation and other program activities  intended to benefit the low-income population in the service area, and  (4) effectiveness of governance, leadership, and administration.
According to the Vice President for Programs and Compliance, while not  explicitly required to do so by current LSC procedures, LSC officials also  develop and use other data and analyses in addition to these two summary  documents. Specifically, LSC staff prepare other relevant information and  record the information in notebooks, such as the results of prior site visits.  LSC staff use these notebooks to facilitate discussions with management  about prospective grantee awards. However, the extent to which this other  relevant information influenced award decisions was not documented.
During a part of our review, we were not able to determine the extent to  which the information in any of the notebooks we obtained was used or  how it was considered in the funding decisions. LSC managers held a  series of meetings where funding and award decisions were discussed.  Following these meetings, LSC staff prepared a funding decision chart that  was initialed by the Director of OPP, Vice President for Programs and  Compliance, and the LSC President to document the final funding  decisions. This chart, however, does not document how the managers’  consideration of various elements or relative risks contributed to the final  decisions.
Therefore, this lack of documentation of the factors considered in making  these decisions increases the risks that grantee application evaluation and  funding decisions may not consider all key, relevant information and  makes it difficult to describe the basis for decisions later.
section_title: Grant Application Evaluation Process Lacked Requirements for Managerial Review
paragraphs: LSC has no requirement for carrying out and documenting OPP Director  managerial review and approval of competitive grant evaluations or  renewals by the OPP primary staff reviewers. According to the Standards  for Internal Control in the Federal Government, control activities, such  as conducting and documenting reviews, are an integral part of an entity’s  stewardship of government resources and achieving effective results.
Existing LSC guidance, such as the 2010 Reader Guide, provides that each  application be reviewed against specific elements (derived from the LSC  Performance Criteria and the ABA Standards for the Provision of Civil  Legal Aid). The Guide is used in conjunction with an automated evaluation  form in LSC Grants that reviewers use to record their assessments of each  grant application. However, the guidance does not provide specific steps  to carry out or document management review of the application  evaluation in the LSC grants system. Consequently, the OPP grant  application evaluations we reviewed lacked any evidence in LSC Grants  that the OPP Director had reviewed them. The OPP Director did not sign  any of the evaluation forms we reviewed in the LSC grants system, a key  internal control activity. Specifically we selected a probability sample of  80 grantees from a population of 140, which encompassed 57 renewal  applications and 23 competitive grant applications. We found that none of  the 80 (100 percent) grant files contained any documentation  demonstrating that managers had reviewed and approved the OPP staffs’  evaluation of the application. This lack of documented management  review impairs LSC’s ability to identify gaps or incompatible data in the  applications or evaluations prior to making the grant award. We found  instances where an effective OPP manager’s review should have identified  and corrected evaluation errors. For example, we identified 14 grant  applications where the reviewer incorrectly identified projected expenses  for the grant as matching the projected expenditures in another section of  the application.
section_title: Full LSC Grants System Capabilities Not Utilized
paragraphs: LSC Grants is a computer-based application intended to assist LSC in data  collection and review of applications submitted in response to an LSC  Request for Proposal. However, because LSC’s Grants system lacked basic  automated controls to ensure integrity over information in the system  related to its grants application evaluation process, the system’s full  capabilities were not utilized. The Standards for Internal Control in the  Federal Government provide that entities should have application  controls designed to help ensure the completeness and accuracy of  transactions.
Specifically, we found the data in LSC Grants was erroneous and  inconsistent because the system did not have edit checks preventing the  OPP staff reader from entering incomplete or incompatible data. Lacking  complete and reliable grantee applicant evaluation data in LSC Grants,  required LSC management to instead rely on inefficient, manual  compilation and review of grantee application evaluation data in making  decisions about whether to approve and fund a grantee.
Our review found 7 of the 57 (12 percent) renewal grantees’ files had  input fields that were blank and required information was not included.  Similarly, we found 3 of the 23 competitive grantees (13 percent) where  essential grantee evaluation data were not filled out. We also found  numerous instances in both the renewal grantees, 15 out of 57 (26  percent) and competitive grantees, 6 out of 23 (26 percent), where  grantees entered data in different parts of the grant application and the  data were inconsistent. In addition, we found one grantee where the grant  was to be funded with restrictions on the length of the grant term.  However, the space where the reason for this restriction was required was  left blank by the OPP staff. According to LSC, the evaluation process relies  on both a qualitative and substantive analysis of an applicant’s proposal  narrative to assess its capacity to provide high quality legal services. OPP  staff’s judgment inherent in the substantive evaluation cannot be flagged  or assessed by information validation fields. Nonetheless, LSC  acknowledged the consistency and accuracy of information within the  application can be addressed. LSC management also informed us that it is  reviewing the LSC grants system for improvements.
LSC’s external auditor’s 2008 report identified similar issues concerning  inconsistent documentation of grantee evaluations. The auditor noted  incomplete data in the grants system, used prior to LSC Grants, for 12 out  of 32 grantee evaluations. The auditor recommended that the Office of  Program Performance establish procedures to ensure that evaluation  forms are properly completed before grant awards are made.
section_title: Control Weaknesses Hinder LSC’s Ability to Oversee Grantees and Ensure Compliance
paragraphs: While LSC recognized the importance of grantee site visits and had  established overall policies and reasonable risk-based criteria to be used  for such visits, it had not yet established detailed procedures on                (1) conducting and documenting site visit selection, (2) timely completion  of site visit reports, and (3) timely resolution of site visit recommendations  and corrective actions. Control weaknesses hampered effective grantee  site visits. These control weaknesses hinder LSC’s ability to effectively  oversee its grantees’ compliance with LSC regulations and limits its ability  to ensure grantees are visited according to their relative risk levels and  that any compliance issues are identified and resolved in a timely manner.
subsections: section_title: Risk Assessment Process for Program Visits Not Documented or Consistently Applied
paragraphs: We observed good site visit planning techniques and interview execution  in Philadelphia, Pennsylvania, and Indianapolis, Indiana. We also noted  that LSC has an overall goal that provides for grantee site visits at least  once every 3 years; however, LSC did not have procedures detailing how  identified risks factors are to be used in a risk-based determination of  which grantees should receive site visits by either OPP or OCE personnel.  According to the Standards for Internal Control in the Federal  Government, management’s internal control assessment should consider  identified risks and their possible effect. By not formally documenting  specific procedures on how risk assessment criteria are to be used in  decisions about which sites to visit, LSC does not have adequate assurance  that grantees with the greatest risk of noncompliance receive priority  attention and oversight.
In a prior GAO report, we recommended that LSC develop and  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. Although LSC has identified risk factors to consider,as of April 2010 it did not yet have procedures for how each risk factor is  to be applied or considered when determining which grantee sites to visit.
OPP officials told us that their program liaisons make recommendations  for visits, which are reviewed by the three OPP regional teams (North,  South and West). Then OPP meets as a group to discuss the teams’  recommendations and make preliminary recommendations for the next  year’s visits. The OPP director and deputy director meet with the OPP  regional teams when those recommendations are made and with all of  OPP program staff to make final recommendations. After consultations  with OCE, OPP’s recommendations are sent to the Vice President for  Program Performance and Compliance. The deputy director and director  approve the final list when they send it to the Vice President for Program  Performance and Compliance for approval. However, we found no  documentation demonstrating whether regional teams appropriately  applied the risk factors, nor whether risk assessment results were  summarized consistently in making the final recommendations for site  visits.
section_title: OCE Site Visit Reports Have Not Been Timely
paragraphs: As shown in table 1, our review of all OCE site visit reports on grantee  compliance, completed between October 2007 and July 2009, showed that  15 of 22 exceeded the 120 day goal set for reporting on grantee  compliance. OCE’s Procedures Manual provides that OCE’s grantee  compliance site visit final reports are to be issued within 120 days of each  site visit trip’s completion. According to LSC, the OCE Procedures Manual  was updated in April 2008 to establish a time frame of 120 days for  completing site visits. Overall, our analysis showed that the average length  of time required to complete the OCE site visit reports was about 150 days.
Delays in formally communicating grantee site visit findings to grantees  can delay grantees’ resolution of any internal control weaknesses (for  example, if the grantees did not inquire about prospective income during  client intake) and legal noncompliance issues identified during the site  visits. Information on any continuing or serious internal control or  compliance issues can be critical in making grantee funding decisions.  According to LSC, there are informal means by which LSC informs  grantees of preliminary findings. For example, OCE staff generally  provides grantees with technical assistance in correcting compliance  matters during site visits to facilitate immediate correction. LSC officials  further stated that at the end of the visit staff hold an exit conference to  advise the grantee of the preliminary findings and discuss how to make the  necessary corrections.
The LSC financial statement auditor also reported in 2010 that its review of  OCE site visit reports found that 2009 grantee site visit reports were not  issued on time, based on OCE’s 120 day goal. For example, the auditor  reported that one out of the nine reports they sampled was issued            289 calendar days after the completion of fieldwork.
One of the keys to completing timely OCE site visit reports within  prescribed time frames is obtaining timely OLA opinions on LSC  regulations. An LSC Director told us that site visit reports are held pending  receipt of any requests to OLA for a legal opinion related to a possible  noncompliance issue. However, LSC did not have specific procedures  defining expected time frames and for overseeing OCE receipt of OLA  opinions within such time frames. As of January 28, 2010, OLA had issued  47 opinions since January 2004. The average time elapsed from the date of  the request for an OLA opinion and the issuance of the opinion was  approximately 200 days. Of those 47 opinions, over 50 percent (25) took  longer than 120 days to issue, with an average delivery time of  approximately 334 days. As of January 28, 2010, two opinions had been  outstanding for 721 and 603 days, respectively, and two other reports  were not complete due to a pending legal opinion on prospective income,  which was issued 465 days after being requested.
section_title: LSC Did Not Track Resolution of Site Visit Recommendations for Improvement
paragraphs: While our review found indications that cognizant LSC components share  visit reports, LSC did not require and document its process for tracking  and assessing actions in response to site visit recommendations and  corrective actions. According to the Standards for Internal Control in  the Federal Government, an entity’s internal control activities should  include monitoring control improvement efforts. It further provides that  such controls should assess the quality of performance over time and  ensure the findings of audits and other reviews are promptly resolved.  Over time, the trend of the number and types of findings,  recommendations, and corrective actions, if analyzed and used  appropriately, should provide information that could assist LSC  management in determining and addressing any issues concerning the  quality of grantee program performance and compliance. Consequently,  the absence of required documented procedures for tracking OPP and  OCE recommendations and corrective actions reduces LSC’s assurance  that site visit results information is monitored for necessary corrective  action and appropriately shared among cognizant LSC component  organizations.
According to an OIG manager and the OPP and OCE Directors, OPP and  OCE share information on site visit recommendations through the LSC  intranet—where site visit reports are posted. Although not required by  LSC procedures, according to an LSC Director, OCE submitted site visit  reports on grantee compliance—including recommendations and needed  corrective actions—to OPP staff responsible for grant awards and  monitoring of grantee program performance. According to LSC’s  President, OPP staff are in regular contact with grantee executive  directors and other program management and program engagement visits  are often used as a vehicle for following up on recommendations. The  OCE Director told us that OPP staff provided program quality information  obtained through its review of site visit reports to OCE for consideration  in grantee compliance reviews. Although staff may share information  about site visits, an LSC official who is responsible for monitoring  program performance told us that LSC does not consider or track whether  recommendations are open or closed, but rather provides the  recommendations as possible best practices for grantees to consider  implementing as their programs develop. Therefore, an LSC Director told  us that the site visit report recommendations are not tracked for  remediation purposes or for trending and analysis by LSC because these  recommendations are considered best practices which may or may not be  implemented. The Vice President for Program Performance and  Compliance said that OPP prioritizes the recommendations included in its  reports and only includes what OPP believes to be the most important  recommendations. By undertaking the effort to make recommendations  and prioritizing them to highlight important areas, but not tracking their  completion and analyzing the results, LSC is missing an opportunity to  assess the extent of progress made and leverage the value of these  recommendations.
section_title: Performance Measures Could Be Better Aligned with Core Activities and Organizational Responsibilities
paragraphs: LSC performance measures were not aligned with LSC’s core activities nor  were they linked to specific offices responsible for making grant awards  and monitoring grantee program performance and grantee compliance  functions. Further, LSC did not have procedures in place to periodically  reassess measures to ensure they are current. According to GAO’s  Executive Guide: Effectively Implementing the Government Performance  and Results Act, as a best practice, entities should assess performance to  ensure that programs meet intended goals, assess the efficiency of  processes, and promote continuous improvement. It further provides that  performance measures should be linked directly to organizational  components that have responsibility for making programs work and that  routinely revisiting and updating an entity’s performance measures would  help ensure they are relevant in providing feedback about whether the  entity is achieving its current objectives.
Performance measures that are not linked to the responsible office hinder  accountability for program results, including the extent to which the LSC  organizational components contribute toward LSC’s mission and where  improvements are needed, and limit transparency and accountability to  LSC’s Board on any organizational performance issues.
LSC issued a Strategic Directions plan in 2006 laying out LSC’s  performance measures. However, the plan’s performance measures did  not account for the full range of LSC’s key grant awards and monitoring of  grantee program performance and organizational grantee compliance  responsibilities. For example, LSC’s plan did not include metrics to  measure performance in the following core LSC activities related to its key  grant awards or monitor grantee program performance and grantee  compliance with respect to:  identifying and targeting LSC’s own resources to address the most  pressing civil legal needs of low-income individuals in the nation, and  ensuring that grantees use the funding they receive to serve the low- income population throughout the nation.
In addition, not all measures in LSC’s strategic plan were linked to specific  LSC components. For example, LSC did not link scores on competitive  grant evaluations with either OPP’s or OCE’s performance, even though  these offices have responsibility for grantee program quality and  compliance oversight. In addition, LSC did not link the performance  measure number of technical assistance and training sessions conducted  by LSC to the OPP organization even though OPP has organizational  responsibility for such technical assistance.
Further, we found LSC did not have procedures providing for periodic  reassessment of key metrics to ensure they reflect up-to-date LSC mission  priorities and objectives. According to the Chief Administrative Officer,  LSC has recognized that its existing performance measures should be  revised and periodically reassessed to ensure they are up-to-date and have  begun actions in this regard. For example, since 2006, management has  been developing a performance measure to obtain current information on  “timeliness and degree of resolution of OCE corrective action notices.”  LSC reviewed the results of a number of follow-up visits to confirm  grantee resolution of OCE corrective action notices. The review found that  the existing measure based on using the corrective action notices as an  indicator of timeliness of resolution was insufficient. Instead, it was  determined that without site visit verification of the resolution of original  site visit findings the performance measure could not be reported on.
section_title: LSC Management Has Not Consistently Focused on Key Human Capital Issues
paragraphs: LSC’s employee handbook provides overall policy direction over its human  capital practices. However, we found existing procedures were flawed in  several key respects concerning staffing needs assessments, evaluating  performance, and providing appropriate internal control training.  Specifically, LSC did not (1) systematically assess short- and long-term  workload and staffing needs in relation to the corporation’s strategic goals  and objectives, (2) provide required performance reviews for OPP staff in  3 of the 6 years we reviewed and for OCE staff in 2 of the 6 years we  evaluated, or (3) provide formal training for current and incoming staff on  internal controls. Standards for Internal Control in the Federal  Government provides that all personnel are to possess and maintain a  level of competence enabling them to effectively accomplish their  assigned duties. In addition, Human Capital Principles for Effective  Strategic Workforce Planning provides that effective staffing  assessments should provide short- and long-term strategies for acquiring,  developing, and retaining staff to achieve programmatic goals. Strategic  human capital practices are key to ensuring that an entity (1) has the staff  capabilities needed to meet short- and long-term goals, (2) can effectively  address performance problems, and (3) has staff who are trained in  internal controls and related sound management practices.
Our review found that LSC did not have procedures for assessing staffing  needs. According to the Chief Administrative Officer and Director of  Human Resources, LSC does not use mission priorities to establish staffing  needs. Instead, the Vice President for Programs and Compliance said OPP  and OCE consider workload needs and required staffing levels when  preparing their budgets.
According to the LSC employee handbook, LSC’s policy is that employee  performance is to be evaluated annually at the beginning of the calendar  year by the supervisor of record, based on job performance in the prior  year. OPP staff stated that it is through the annual employee performance  evaluation process that training needs are identified.
However, LSC did not have procedures for ensuring review of employee  performance and training. For calendar years (CY) 2003 and 2005, OPP  and OCE personnel did not receive annual performance evaluations, and  for CY 2008 OPP personnel did not receive performance evaluations. For  2003 and 2005, the Director of OHR stated that LSC did not follow its  employee performance evaluation policy for conducting the required staff  evaluations in 2003 and 2005 because of concerns about the appraisal  process. As a result, LSC’s President suspended the appraisal process for  these years. In 2008, according to the OPP director, OPP personnel did not  receive appraisals because of a concern that evaluations would have to be  done by a combination of people, none of whom had complete  responsibility for overseeing the work throughout the year. Without the  employee performance appraisals for all of its staff, LSC has limited its  opportunities to encourage high performance, identify training needs, and  communicate with staff.
section_title: Controls over Contract Approval and Budgetary Tracking Were Not Always Effective
paragraphs: Although LSC had policies requiring approval and funds availability  determination before issuing contracts for its grant activities and  programs, it had not established specific funds tracking procedures to  ensure that necessary approvals were obtained and funds were available  before awarding contracts. Lacking effective contract approval and fund  availability controls, LSC is at increased risk of improper contract awards  and undetected budget shortfalls.
LSC’s Administrative Manual’s policy requires approvals from OLA, the  Comptroller, and, if the contract is over $10,500, the President, before  contract award. However, our review found that LSC did not obtain  contract approvals by OLA, the Comptroller, and LSC President—a critical  accountability control—for any of the nine contracts over $10,500 issued  in fiscal years 2008 and 2009. Our review of the nine contracts that  exceeded the $10,500 presidential approval threshold revealed that LSC  lacked any documentation showing that the required Contract Approval  Form was completed before the contracts were awarded. The LSC Chief  Administrative Officer (CAO) told us that verbal approvals were given by  the President for five of the contracts. Of the remaining four contracts,  one had the LSC President’s approval on the contract itself (but not the  contract approval form), while the remaining three LSC contracts did not  have any evidence of approvals. The LSC Administrative Manual, issued in  February 2005, requires review and approval of all contracts before award  by (1) office directors to ensure that they are within budgetary limitations;  (2) OLA for legal assurance; (3) the Comptroller to ensure the  requirements of the Administrative Manual were followed and to start a  purchase order; and (4) if over $10,500, the LSC President. In accordance  with the LSC Administrative Manual, a Contract Approval Form, which  shows all approvals by designee signature, must be used to meet  documentation requirements and be retained for all contracts awarded.
Two contracts that did not follow LSC’s approval process resulted in an  unplanned budgetary adjustment for fiscal year 2009. Specifically, we  found two Office of Information Technology (OIT) contracts supporting  grants management and administration that were not properly authorized  and for which fund availability was not determined prior to contract  award, which resulted in a LSC budget shortfall of over $70,000 in fiscal  year 2009. According to the Director of OIT, after verbal approval by the  LSC CAO, these contracts were executed by the Director of OIT without  taking any action to determine that sufficient monies were available to  fund the contracts, and without obtaining the required prior approval of  OLA, the Comptroller, and the LSC President. LSC’s Comptroller informed  the Board of Directors, President, and Inspector General of OIT’s  overspending and asked for and received a $70,000 internal budgetary  adjustment on August 31, 2009, to transfer budgeted funds from LSC’s  capital expenditures account to the consulting budget.
Consistent with our findings, the LSC financial statement auditor reported  in its January 2010 Report of Deficiencies in Internal Control Over  Financial Reporting and Other Matters for 2009 that the Contract  Approval Forms were not used as required by the LSC Administrative  Manual, and there was no evidence of approval by OLA. The auditors  recommended in January 2010 that LSC implement procedures to ensure  policies for contract awards are followed.
LSC recently revised its Administrative Manual, effective October 1, 2009,  to include a Contract Approval Form, with a provision that the LSC  President approve all contracts over $10,500. Further, the LSC CAO stated  that training was provided for all administrative staff on the proper  procedures to follow for processing contracts. Such training should help  ensure that a Contract Approval Form accompanies all LSC contracts, and  that OLA and the Comptroller both review and document approval of all  contracts and sign off on the Contract Approval Form before contract  execution. However, the training may be of limited value unless LSC also  establishes specific, detailed procedures on the steps required to ensure  that all necessary approvals and fund availability certification is carried  out and documented.
section_title: Conclusions
paragraphs: Effective governance, accountability, and internal control are key to  maintaining public trust and credibility. As such, identifying and  implementing effective internal controls will assist LSC in ensuring that  the federal funds LSC receives are being used efficiently and effectively.
LSC has taken actions to improve its governance and accountability  practices by implementing or partially implementing all 17 of the  recommendations from our August 2007 and December 2007 reports.  Progress continues since our prior testimony in October 2009 as LSC has  implemented two additional recommendations and continues to take  actions on the remaining recommendations. However, several key  recommendations related to LSC’s grantee oversight responsibilities  remain to be fully implemented.
The control deficiencies we identified, along with the continuing nature of  several related deficiencies first identified nearly 3 years ago, are  indicative of weaknesses in LSC’s overall control environment. A weak  control environment limits LSC’s ability to effectively manage its grant  award and grantee performance oversight responsibilities. As such, it will  be important for the LSC President and Board of Directors to continue to  set a “tone at the top” supportive of establishing and maintaining effective  internal control not only by managers but also by personnel throughout  the entity’s program operations. In this regard, LSC would benefit from an  entitywide internal control assessment, including whether the risks  associated with grantee selection are effectively considered, past  recommendations and corrective actions are properly tracked, and  whether effective controls are in place over performance measurement,  performance evaluation, and contract awards. LSC could also strengthen  its overall control environment by providing training to staff throughout  the entity on how internal controls, when functioning as intended, are  integral to the achievement of the entity’s mission objectives.
In the near term, it will be important for LSC leadership to direct  immediate action to address the continuing weaknesses, as well as those  identified in our current review. For the long term, LSC will need to focus  on monitoring the sustained commitment to an effective overall system of  internal controls necessary to achieve a solid basis for effectively  accomplishing its core mission of enabling the grantees to provide legal  services to individuals who otherwise could not afford such services.
section_title: Recommendations for Executive Action
paragraphs: In order to improve key control processes over grant awards and  monitoring of grantee program performance and grantee compliance, we  recommend the President of LSC, and the Vice President for Programs and  Compliance, take the following 17 actions:  Grant Application Processing and Award    Develop and implement procedures to provide a complete record of all  data used, discussions held, and decisions made on grant applications.
Develop and implement procedures to carry out and document  management’s review and approval of the grant evaluation and award  decisions.
Conduct and document a risk-based assessment of the adequacy of  internal control of the grant evaluation and award and monitoring  process from the point that the Request for Proposal is created  through award, and grantee selection.
Conduct and document a cost benefit assessment of improving the  effectiveness of application controls in LSC Grants such that the  system’s information capabilities could be utilized to a greater extent  in the grantee application evaluation and decision-making process.
Develop and implement procedures to ensure that grantee site visit  selection risk criteria are consistently used and to provide for  summarizing results by grantee.
Establish and implement procedures to monitor OCE grantee site visit  report completion against the 120 day time frame provided in the OCE  Procedures Manual.
Execute a study to determine an appropriate standard timeframe for  OLA opinions to be developed and issued. Develop and implement  procedures to monitor completion of OLA opinions related to OCE site  visits against the target time frame for issuing opinions.
Develop and implement procedures to provide a centralized tracking  system for LSC’s recommendations to grantees identified during  grantee site visits and the status of grantees’ corrective actions.
Develop and implement procedures to link performance measures (1)  to specific offices and their core functions and activities, and (2) to  LSC’s strategic goals and objectives.
Develop and implement procedures for periodically assessing  performance measures to ensure they are up-to-date.
Develop and implement procedures to provide for assessing all LSC  component staffing needs in relation to LSC’s strategic and strategic  human capital plans.
Develop and implement a mechanism to ensure that all LSC staff  receive annual performance assessments.
Develop and implement a process to monitor contract approvals to  ensure that all proposed contracts are properly approved before  award.
Develop and implement procedures for contracts at or above  established policy thresholds, to ensure the LSC President provides  written approval in accordance with policy before contract award.
Develop and implement procedures to ensure budget funds are  available for all contract proposals before contracts are awarded.
Develop and implement procedures for providing and periodically  updating training for LSC management and staff on applicable internal  controls necessary to effectively carry out LSC’s grant award and  grantee performance oversight responsibilities.
Establish a mechanism to monitor progress in taking corrective  actions to address recommendations related to improving LSC grants  award, evaluation, and monitoring.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided copies of the draft report to LSC’s management for comment  prior to finalizing the report. We received a written comment letter from  LSC’s President on behalf of LSC’s management (see appendix III). In its  written comments, LSC agreed with our findings and recommendations  and identified specific actions it has taken and plans to take to implement  these recommendations. LSC also provided technical comments which we  considered and incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we will not distribute it until 30 days from its date. At  that time, we will send copies of the report to other appropriate  congressional committees and the president of LSC. This report will also  be available at no charge on the GAO Web site at http://www.gao.gov. If  you have any questions or would like to discuss this report, please contact  me at (202) 512-9095 or by e-mail at raglands@gao.gov. Major contributors  to this report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our reporting objectives were to determine the extent to which the Legal  Services Corporation (LSC)    properly implemented key internal controls in awarding grants and  overseeing grantee program performance;    measured its performance in awarding grants and overseeing  grantees;  evaluated staffing needs for grant awards management and grantee  performance oversight; and  followed appropriate budget execution processes for awarding  contracts related to grants award and grantee performance and  oversight.
To address the first two objectives, we interviewed current members of  LSC’s management and staff, staff in LSC’s Office of Inspector General  (OIG), and the audit firm employed by the OIG to obtain information on  the functions and processes of LSC’s grant awards and monitoring of  grantee program performance and grantee compliance. We also reviewed  LSC documentation on internal control activities related to the awarding  of grants and oversight of grantee programs, including policy manuals,  audit reports, and management reports.
In addition, we selected a probability sample of 80 out of 140 grantees and  reviewed related grant applications and application evaluations (for the  2009 funding year), and compared evaluation results with instructions in  LSC Grants, a computer-based grants application system. Results based on  probability samples are subject to sampling error. The sample we drew for  our review is only one of a large number of samples we might have drawn.  Because different samples could have provided different estimates, we  express our confidence in the precision of our particular sample results as  a 95 percent confidence interval. This is the interval that would contain the  actual population values for 95 percent of the samples we could have  drawn. All survey estimates in this report are presented along with their  margins of error.
We analyzed the document setting out LSC-wide and component-specific  goals and performance measures and compared this to federal guidance  on performance measurement. We also observed LSC site visits at two  grantees in Philadelphia and Indianapolis. To obtain information on LSC  controls for assessing staffing needs for its grants functions, we  interviewed LSC management and reviewed policies and procedures for  evaluating staffing needs, training, and professional development, and  reviewed relevant literature. We compared LSC’s staffing needs  assessment processes to federal best practices in workforce planning  principles. To obtain information on controls over contract approval and  budget execution, we reviewed LSC’s administrative policy and procedure  manual and consolidated operating budget guidance, documented budget  execution requirements, and tested contracts for proper approval. For  each of our objectives, we compared the information obtained with federal  best practices in internal control in GAO’s Standards for Internal Control  in the Federal Government. We conducted our work in Washington, D.C.;  Indianapolis, Indiana; and Philadelphia, Pennsylvania, from March 2009 to  May 2010 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. We believe the evidence obtained provided a  reasonable basis for our audit findings and conclusions.
section_title: Appendix II: Prior GAO Reports Recommendation Status
paragraphs: 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 March  2010), are summarized in table 2. LSC data, which we obtained and  analyzed as part of our follow-up work conducted between May 2009 and  March 2010, showed that the board had fully implemented five of the eight  recommendations, and had taken some action on the remaining three  recommendations.
Our August 2007 report recommendations to improve and modernize key  management processes at LSC, along with the status of LSC’s efforts to  implement those recommendations (as of March 2010), are summarized in  table 3.
Our December 2007 report recommendations to improve LSC’s internal  control and oversight of grantees, along with our views on the status of  LSC’s efforts to implement those recommendations (as of March 2010), are  summarized in table 4.
section_title: Appendix III: Comments from Legal Services Corporation
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above, Kimberley A. McGatlin, Assistant  Director; Lisa Crye; Patrick Frey; Cole Haase; Bernice M. Lemaire; Mitch  Owings; Melanie Swift; and Carrie Wehrly made key contributions to this  report. F. Abe Dymond, Lauren S. Fassler, and Justin Fisher provided  technical assistance.