/17/2008, 6:03 p.m.. ET
By LARRY MARGASAK The Associated Press
WASHINGTON (AP) — Legal aid programs serving poor people spent federal money on booze, interest-free loans for staff, late charges on overdue bills and even lobby registration fees.
The parent organization that distributes grants to programs in all 50 states, Legal Services Corp., failed to monitor how the money was spent by state and local legal aid officials, according to congressional investigators in a new report. It did not specify how much money was misspent but questioned use of more than $1 million in payments.
The new report, obtained by The Associated Press, was based on examination of spending at 14 of 138 legal aid programs financed by the Washington-based Legal Services Corp.
The top officials of the Legal Services Corp. responded, "We have no tolerance for any spending of grantee funds outside the law or the regulations of the LSC, and have formally referred all potential violations noted in the report to our Office of Inspector General."
"We will take whatever actions are warranted when all of the facts are known," said corporation President Helaine Barnett and Board Chairman Frank Strickland.
Among the organizations whose activities were questioned in the report: Nevada Legal Services Inc.; California Indian Legal Services Inc.; Legal Aid and Defender Association of Detroit; Legal Services for New York City; Philadelphia Legal Assistance Center; Wyoming Legal Services; and Laurel Legal Services Inc. of Greensburg, Pa.
Some of those groups were not identified in the GAO report, but congressional offices disclosed they were among the ones targeted by GAO investigators.
After an April 2006 visit to the Las Vegas office of Nevada Legal Services, the GAO cited the conclusion of inspectors' checking the program's performance: "Overall, this program is in very good shape. Its delivery structure is sound, its management is excellent, and its case handling staff are performing at a high level."
But less than one year later, during a February 2007 visit by compliance inspectors and congressional investigators, federal officials decided to investigate questionable transactions, including a complex $3.6 million real-estate deal.
The Legal Services Corp., a nonprofit corporation that is funded by Congress, distributes grants to legal aid groups in all 50 states. The state and local groups help poor people involved in civil cases, including domestic violence, child custody, housing foreclosures, veterans and Social Security benefits, consumer problems and health issues. Three of four clients are women, mostly mothers.
Congress gave the group $348.6 million for the last fiscal year.
The Associated Press previously reported on extravagant spending on hotels, meals, limousines and other perks by the corporation's presidentially appointed board of directors and top staff in the Washington headquarters.
The latest report angered two lawmakers who have been monitoring the program's problems.
"It is not acceptable to Congress or the taxpayers for scarce funds to be spent on the enrichment of others instead of on legal services," said Sen. Mike Enzi, R-Wyo., senior Republican of the Committee on Health, Education, Labor and Pensions.
Sen. Charles Grassley, R-Iowa, senior Republican on the Senate Finance Committee, said the findings were "more documentation of abusive and wasteful spending that is jeopardizing the ability of the Legal Services Corporation to provide legal assistance to people in need."
Among the findings:
_The New York City, Detroit and California Indian Legal Services programs used federal money to buy liquor. Federal guidance for nonprofit corporations states that costs of alcohol are unallowable with no exceptions.
The New York officials did not return telephone messages by the AP requesting interviews. An official in Detroit declined to comment.
The California program didn't violate any rules, its executive director, Devon Lomayesva, told the AP. She said her group was willing to discuss the matter with the parent corporation's inspector general.
The GAO said the Detroit executive director acknowledged her program paid another organization for beer and wine costs for a reception.
The New York City executive director told GAO investigators, "LSC funds are no longer used to purchase alcohol."
_In Detroit, a contractor was paid far more than staff members, about $750,000 between 2004 and 2006, to operate computer servers and maintain the computer network. When asked by investigators why he was not an employee, with a commensurately lower salary, "he stated that there were benefits to being an independent contractor," the GAO said. The GAO said there appeared to be little distinction between the contractor and other legal aid employees in the same office.
_The Philadelphia office gave employees the perk of interest-free loans, which were used for college tuition, downpayments on homes and purchases of personal computers. The GAO said there are no rules that would permit such loans.
The Philadelphia office did not return telephone messages left by the AP.
_In New York, the group used grant money to pay for lobbyist registration fees. With only limited exceptions, recipients cannot use grant money for lobbying. Each payment was only $50, but the executive director there agreed the payments violated its rules and promised it will not happen again, the report said.
_California Indian Legal Services, the New York City program and Wyoming Legal Services used funds to pay late fees on overdue accounts. In Wyoming, a vendor who was angry over unpaid office rent "threatened to place a lien against the goods in the unit and sell them at a public auction," the GAO said.
Wendy Owens, executive director of the Wyoming organization, told the AP, "Those late payments occurred under the tenure of a previous executive director and we have long since corrected those issues."
The GAO said all three executive directors agreed there was no excuse for failure to make payments on time.
_In Greensburg, Pa., the executive director as questioned by GAO about a $30,000 payment to another organization. The director "stated that the previous executive director entered into the agreement and that she did not know anything about the agreement, other than the fact that she continued to pay the bill every year," the GAO said.
The executive director, Cynthia Sheehan of Laurel Legal Services Inc., disputed the investigators' conclusion, saying the money went to a bar association's free legal help program.
"I can assure you I did know what it was and that the Legal Services Corporation approved the contract every year," she told the AP.
_The Las Vegas office purchased its building with federal and non-federal funds and then agreed to sell it to a developer for $3.6 million, the GAO found.
When the sale fell through, the organization was able to keep $280,000 that the developer placed in an escrow account as "earnest money."
However, the $280,000 was placed in an account that was immune from any controls by the Legal Services Corp.
Investigators described the deal as an "unusual transaction." Legal Services officials eventually concluded the funds should have gone to a restricted account and kept under their scrutiny.
Nevada Legal Services officials declined to comment.
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