Taxpayers Fund Cronyism, High Living at Louisiana Legal Services Grantee

Camelot ClubJames A. Wayne Sr., executive director of Capital Area Legal Services Corporation (CALSC), must have a taste for irony. He’s reportedly making a list of employees to lay off by year’s end. Yet wasteful and possibly illegal spending by his Baton Rouge-based organization could pay for the annual salary and benefits of a few staffers. That’s a logical conclusion anyway in light of a report (see pdf) released September 27 by Legal Services Corporation’s Office of Inspector General (OIG) identifying more than $300,000 over several years in undocumented and/or ineligible costs at CALSC. Wayne, though vowing to work with the OIG to better document expenses, has disputed the findings. The accompanying summary broadcast put together by the WBRZ-TV Channel 2 local news team in Baton Rouge suggests he doesn’t have an easy case.

The Capital Aid Legal Services Corporation has received extensive public funding. During calendar year 2009, the nonprofit group received $1,511,082 from LSC headquarters in Washington, D.C. Founded in 1958 as the Legal Aid Society of Baton Rouge and re-chartered in 1978 under its present name, CALSC provides legal assistance to low-income persons in a dozen Louisiana parishes. Apparently, it’s also provided James Wayne and certain colleagues with extra amenities. The LSC audit, conducted during the first half of 2009, found $318,768 in suspect expenses. Of that total, $238,190 represented costs lacking sufficient documentation and the other $80,578 represented costs improperly billed to LSC. The latter figure does not include fringe benefit and miscellaneous costs not spelled out in the report.

Costs lacking documentation. Most of the expenses here were for fundraising “consultants.” Documents for the audit period – January 1, 2005 through May 31, 2009 – indicated CALSC paid $164,679 for these fundraisers. Of this figure, $144,646 was billed to LSC funds and the other $20,033 to non-LSC funds. The Office of Inspector General described the problem:

The contract expenses were not adequately supported. The contracts did not clearly describe the deliverables. The contracts did require that action plans be submitted to CALSC concerning strategies for fundraising, but according to CALSC officials, such plans were not submitted. Invoices included the number of hours claimed to have been worked by the consultants for “fundraising services” but did not include a description of these services or when they were performed.

While CALSC provided minutes of Board meetings during which the Executive Director made positive comments about the consultants’ fundraising efforts, CALSC did not provide adequate documentation related to the actual services performed. Good business practices dictate that consultant contracts clearly spell out the services to be performed and the requirements for the consultant to provide reports related to those services.

James Wayne’s good life, especially his need to travel in style, accounted for the remainder of unexplained costs. Fully $78,555 was related to his use of a leased vehicle for business and personal trips lacking prior LSC approval or adequate documentation. Wayne, the audit noted, did not keep a log of vehicle use for IRS tax purposes. Here’s the breakdown: $4,233 for a down payment; $56,442 for lease payments; and $17,880 for gasoline. Wayne did reimburse $6,208 of the gasoline charges that he admitted were related to personal use. Yet the Inspector General’s report noted: “Since trip logs were not maintained, the OIG could not determine if an appropriate amount was reimbursed by the Executive Director for gas. The Executive Director did not make any reimbursement for the cost of the lease or the related down payment for his personal use of the vehicle and trip logs were not maintained documenting the business versus personal use of the vehicle.”

Meals and entertainment accounted for the remainder of undocumented expenses. The IG report noted that $11,462 out of the $33,150 in meals and entertainment incurred during the audit period lacked adequate justification. Executive Director Wayne regularly dined at Baton Rouge’s better establishments on the LSC’s dime, with a favorite being the swank Camelot Club whose location atop the Chase Bank South Tower provides a panoramic view. Few of his meals qualified as business-related. The audit explained: “Many of the meals were lunches and dinners where the Executive Director dined alone, and some meals took place on weekends.” Even when Wayne had guests, he sometimes would add the purpose of the get-together and the names of the guests “typically more than a month later.”

The IG report emphasized that the method of payment disguised the inappropriate nature of certain expenses:

The CALSC payment practice does not comply with its own financial manual and does not provide adequate internal control over the allowability of meals and entertainment expenses. Personal expenses are being inappropriately charged to the grantee and decisions on allowability are being made after the fact rather than on contemporaneous supporting documentation.

The LSC audit added that CALSC did not identify any of the inadequately supported meal expenses on the list as having been taken from Wayne’s paychecks through a payroll deduction.

Costs Improperly Billed to LSC. The Legal Services Corp. audit cited five categories of improper billings by Capital Area Legal Services Corporation in a combined amount exceeding $80,000: 1) rent for a back office in Gonzales; 2) an auto repair establishment; 3) fringe benefits; 4) membership dues, lease payments and subscriptions; and 5) client trust fund interest.

The largest of these expenses by far was income CALSC derived from a building it owns in nearby Gonzales, a small city in Ascension Parish. The office appears to be less about conducting official LSC business than generating revenue. CALSC had bought the Gonzales building in Fiscal Year 2001 for $425,000 by borrowing $25,000 from the seller through a promissory note and $400,000 from a local bank. CALSC did not request LSC approval for this transaction because it believed that it didn’t have to. Yet CALSC does occupy office space in the building. And it also pays itself $750 a month in rent and sends the bill to LSC headquarters, noted the IG audit. That comes to around $76,500 over eight and a half years. The audit concluded this “creates an interest in the building for LSC and constitutes a questioned cost for the rent charges because they are not reasonable and necessary.”

Capital Area Legal Services Corp. defends its arrangement, saying there is no difference between LSC paying rent in either the Gonzales or Baton Rouge offices. CALSC also argued that since LSC funds were used to rent the same office space from the previous owner, CALSC would be entitled to rent from LSC funds after purchasing the building. The Legal Services OIG, however, took a dim view of this claim:

CALSC is a single entity and need not pay itself rent to occupy a building it already owns. As such, rent payments charged to LSC funds were not reasonable and necessary in our opinion and stripped down to economic essentials, the grantee’s rent payments function as a mechanism for converting LSC funds that could be used to pay the mortgage on the Gonzales building, thus not recognizing LSC’s interest in the property.

As a matter of economic reality, it appears that LSC funds are being used to finance the purchase of the Gonzales building. By charging LSC rent, CALSC obscures the LSC character of the funds used to purchase the building. Accordingly, we conclude that CALSC’s payment of rent to itself with LSC funds for office space in a building that it owns likely creates an interest in an amount equal to the value of the rent paid. To the extent an interest exists, CALSC must first obtain the permission of LSC and/or compensate LSC for its interest in the property should CALSC wish to convert the property for other uses or sell the property in the future.

Another unauthorized expense was an auto repair reimbursement. In December 2005, CALSC received a check for $4,077.77 from an insurance company for reimbursement for repairs to a leased vehicle involved in an accident the previous month. CALSC logged the expense in a non-LSC miscellaneous income account. Yet after the work was completed, CALSC charged the repair to LSC.

Another problem area was interest on lawyers’ trust accounts, or IOLTA. A review of Capital Area Legal Services Corporation for fiscal years 2007 and 2008 revealed that the Client Trust Fund asset account was higher than the related liability account. CALSC stated that the difference was due to accumulated interest. Yet it proceeded to record it as revenue instead of as a sum payable to the Louisiana State Bar Association. The Legal Services OIG disagreed, arguing the interest should have been recorded as a liability and submitted to the association. In response to this opinion, CALSC calculated the interest at $4,080.32 and submitted a check for that amount to the Louisiana Bar Foundation-IOLTA Project.

This conciliatory note aside, the Baton Rouge organization disputed the Inspector General’s conclusions. “CALSC looks forward to the opportunity to show that it has properly accounted for all LSC funding received,” remarked spokesperson Vicki Crochet in a written statement. In an August 16 response to the June 24 draft report, she stated, “CALSC denies that it has improperly used LSC funds” and “remains committed to improving its financial practices to insure that they meet all pertinent requirements.” And in an email to National Legal and Policy Center, writing in response to an NLPC phone inquiry directed to CALSC Board Chairman Brent Hicks, she wrote:

Over the past year the Office of the Inspector General (OIG) of Legal Services Corporation (LSC) has conducted a limited scope audit of CALSC’s books and records. On September 27, 2010, the OIG issued its final report in which it questioned whether certain items should have been charged to Legal Services Corporation funds. CALSC disputes these finding. The matter will be submitted to Legal Services Corporation for a final decision. CALSC looks forward to the opportunity to show that it has properly accounted for all LSC funding received.

The OIG report spelled out 21 recommendations to promote accountability at CALSC. That included the local grantee revising its financial manual to require “adequate documentation” of acceptable charges. It’s not unreasonable. Grantees are bound by the conditions of the Legal Services Corporation 1974 congressional charter. The legal organizations receiving federal funds do so with an understanding that their low-income clients’ interests are what count, not their lawyers’ political or economic ambitions. Capital Area Legal Services Corporation shouldn’t be an exception.