Legal Services Corporation: Improvements Needed in Controls over Grant Awards and Grantee Program Effectiveness
Released: 2010-07-13T00:00:00

Letter

Background

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.

Controls over Grant Application Review and Award Process Need Improvement

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.

Grant Application Evaluations and Decisions Lacked Supporting Documentation

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.

Grant Application Evaluation Process Lacked Requirements for Managerial Review

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.

Full LSC Grants System Capabilities Not Utilized

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.

Control Weaknesses Hinder LSC’s Ability to Oversee Grantees and Ensure Compliance

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.

Risk Assessment Process for Program Visits Not Documented or Consistently Applied

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.

OCE Site Visit Reports Have Not Been Timely

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.

LSC Did Not Track Resolution of Site Visit Recommendations for Improvement

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.

Performance Measures Could Be Better Aligned with Core Activities and Organizational Responsibilities

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.

LSC Management Has Not Consistently Focused on Key Human Capital Issues

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.

Controls over Contract Approval and Budgetary Tracking Were Not Always Effective

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Objectives, Scope, and Methodology

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.

Appendix II: Prior GAO Reports Recommendation Status

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.

Appendix III: Comments from Legal Services Corporation

Appendix IV: GAO Contact and Staff Acknowledgments

Acknowledgments

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.