New Evidence Shows Fraud, Inefficiency Among Legal Services Grantees

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LSC logoMisuse of Legal Services Corporation funds is nothing new. The most publicized cases typically involve lawsuits by affiliated nonprofit legal groups that run contrary to the LSC charter. Recent months, however, have witnessed a different kind of problem: use of public money for private pleasure. New reports by the Government Accountability Office (GAO) and the LSC Office of Inspector General, plus a lengthy summary article by the Washington, D.C.-based Center for Public Integrity, highlight acts of theft or excessive spending at recipient organizations of LSC funds and a lack of internal controls by top LSC officials. As the Legal Services Corp. budget is currently $420 million, taxpayers have every reason to be concerned.

Chartered as a nonprofit corporation by Congress in 1974, LSC provides funds to nonprofit legal organizations in states and communities across the nation enabling them to pursue civil cases on behalf of low-income persons. From its earliest years onward, unfortunately, its leaders often have seemed more interested in combating the putative causes of poverty than helping the poor directly. In the process, corporation leaders have built a formidable hard-Left political machine, often under the guise of "training" or "education." And as the corporation has grown, it has become highly resistant to reform either generated from within or by federal overseers. The result, notes the new GAO report, "Legal Services Corporation: Improvements Needed in Controls over Grant Awards and Grantee Program Effectiveness," is an agency with serious management deficiencies. The report, prepared at the request of Sen. Charles Grassley, R-Iowa, observes: "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."

That's putting it euphemistically in the case of the Maryland Legal Aid Bureau, one of 136 nonprofit legal aid groups now receiving LSC grants. Several weeks ago federal prosecutors were preparing a criminal complaint against the group's former chief financial officer, Benjamin Louis King, for various acts of fraud over more than a decade. King, 58, a resident of Gwynn Oak, Md., along with an accomplice, was charged in Baltimore federal court with diverting more than $1.1 million in combined federal, state and private funds for their own use. The defendants for a decade allegedly skimmed funds from a phony business" they had created to sell office supplies to the Maryland legal aid group. In point of fact, say court documents, the pair would "inflate its services" and then divide among themselves the excess proceeds. About 25 percent of the take represented federal LSC subsidies. If anything, the $1.1 million figure was on the low side. The U.S. Attorney's Office puts the true amount of theft at nearly $2.5 million during 1998-2008, noting that charges could not be filed against all of the losses due to expiration of the statute of limitations. The defendants used much of their ill-gotten loot to hit the casinos in Atlantic City, reserving some quality time for prostitutes.

That's not the only criminal case filed by federal prosecutors in recent months. Just a month before King's case, Cheri Logue pleaded guilty in Pittsburgh federal court for embezzling roughly $175,000 over seven years from the Southwestern Pennsylvania Legal Services Corp., where she served as secretary-bookkeeper. Logue allegedly had written $90,000 in organization checks to herself, recording them as payments to creditors or suppliers; made $12,000 in unauthorized ATM withdrawals; and charged $72,000 for unauthorized personal expenses to the group's Visa card. In another case, David Wagner, a Missouri resident, pleaded guilty in March to embezzling $31,292 during November 2005-December 2006 from the organization at which he served as acting director, U'una'i Legal Services Corp in American Samoa.

Even where no apparent acts of lawbreaking have been committed, LSC spending on occasion has been out of synch with its anti-poverty mission. The latest report by the corporation's in-house overseer, the Office of Inspector General (OIG), indicates that LSC Vice President Karen Sarjeant and several deputies attended an LSC-American Bar Association conference in Phoenix that cost taxpayers $26,000. The meetings were held at the four-star Pointe Hilton Tapatio Cliffs resort, which features hiking trails, a golf course and a mountaintop restaurant where the chef's feature runs $69 a plate. This follows on the heels of several of last year's revelations of LSC-funded excess: The Ft. Worth-based Legal Aid of NorthWest Texas spent nearly $190,000 on a new marble exterior façade; the Legal Aid Defender Association of Detroit displayed a pattern of "unsupported travel payments, unsupported cost reallocations and duplicate postings," in one case overpaying a contractor by $500,000; and California Indian Legal Services spent $80,000 on questionable costs, half of which was related to one conference.

Legal Services Corporation senior management, far from insisting upon closer monitoring of grantee performance, has discouraged it. The Center for Public Integrity, quoting an advance copy of the OIG report, noted that staff lawyers at LSC's Office of Legal Affairs:

...reported that at various times they felt ‘intimidated,' ‘undermined,' and ‘brow-beaten.' Perhaps most troubling was that the general Counsel was put in a position where he felt he might be placing his job in jeopardy if he was to freely give his independent legal judgment where that conflicted with what management wanted him to say.

The OIG report concluded that the atmosphere of intimidation left the corporation unable to get sound legal advice on important issues during 2005-09, when Helaine Barnett was president. The report did concede that under new President Victor Fortuno the situation has noticeably improved.

Critics of Legal Services Corp. know something is amiss. "Bad management is jeopardizing the ability of Legal Services Corporation to provide legal assistance to people in need," remarked Sen. Grassley to the Center for Public Integrity. "Congress needs to hold the Corporation accountable on behalf of taxpayers, who provide most of the money to run the Legal Services Corporation, and for the fundamental right in our society to legal representation." LSC Inspector General Jeffrey Schanz concurs: "Given the history of LSC, more oversight is better than less, as evidenced by recent GAO reports. There is room for much more systemic improvements." At present, notes LSC spokesman Stephen Barr, corporate headquarters in Washington conducts onsite inspections of all its 136 affiliates at the rate of about once every five years.

Calls for better monitoring are nothing new. But the only real way for reality to match exhortation will be to overturn the guiding assumption held by Legal Services-funded groups, with the full encouragement of headquarters, that the poor, victims of an unjust free enterprise system, require political mobilization and special legal representation to overcome their condition. From this assumption flows a corollary: Misuse of LSC funds for financial gain, though unfortunate, is a small price to pay in the advance toward social justice. In this view, the ends justify the means. So long as egalitarian radicals continue to define the Legal Services mission, reform will remain slow and halting.

Related:

Legal Services IG Criticizes Italian Marble at Anti-Poverty Office. 

Federal Audits Reveal Further Legal Services Abuses. 

Congress Moves to End Restrictions on Legal Services Activism.