Chairman Mollohan, Congressman Frelinghuysen, and Members of the Subcommittee, thank you for giving me the opportunity to testify today on the work of the Legal Services Corporation (LSC).  On behalf of our Board of Directors, I also want to thank you for the continued support that you have shown for this program.  It means a great deal to the lives of our clients and fulfills our obligation as citizens to support equal access to justice.  We have a dedicated and committed team of Directors each of whom take their obligations as directors very seriously.

The Legal Services Corporation is the single largest source of funding for civil legal aid for low-income individuals and families. We fund 137 programs with more than 900 offices serving every Congressional district.  More than 95 percent of LSC appropriations is distributed to these programs.  The Corporation provides guidance, training and oversight to ensure that programs provide high-quality legal services and comply with Congressional restrictions, LSC rules, and regulations.

GAO REPORTS

In that regard, I would like to address at the outset the issue of the two Government Accountability Office (GAO) reports on LSC.  As you know, GAO published a report in 2007 on the Corporation's governance and accountability and in early 2008 on our grants management and oversight.  We appreciated both of these reviews of our policies and practices and cooperated fully with GAO throughout the audits.  Further, we accepted all of the recommendations and are pleased to report the following progress to the subcommittee this afternoon.  With regard to the Governance and Accountability Report, the Board has:

• Approved a Code of Ethics and Conduct for directors, officers and employees of the Corporation.
• Established a separate Audit Committee of the Board and approved a charter for the Committee.
• Approved the continued use of the Government Accounting Standards Board guidelines for LSC's financial reports.

LSC management has completed the first phase of a Continuity of Operations Plan for the Corporation, which has been disseminated to all LSC staff. 

In addition, we have begun the process of establishing a more formal and rigorous risk management program at the Corporation.  Management is now researching a variety of risk management programs and "best practices" so we can adopt a program commensurate with the size and budget of LSC.

The Board has had regular updates from management on compensation, personnel policy, compliance, and financial issues.  In addition, the Board directed the Office of Inspector General to deliver the 2007 audit report from LSC's independent public accountant earlier than last year when it was delivered in April. The audit was delivered this year on January 7.  Work on the remaining GAO recommendations and implementation are expected in 2008.  These recommendations include: 

• Orientation for new Board members to familiarize them with LSC's programmatic roles and governance and accountability issues.
   
• Establishing clear purposes, duties and responsibilities of all Board committees by adopting more comprehensive charters for each committee.
   
• Implementing a formal means by which the Board can evaluate its collective performance and the performance of individual members.
   
• Periodic evaluations of key management processes, including risk management and mitigation, internal controls and financial reporting.

With regards to the GAO report on LSC's grants management and oversight, as evidence of its commitment, the Board of Directors at its January 2008 meeting established a three-member ad hoc committee, including a Board liaison, to work directly with LSC management and its Office of Compliance and Enforcement (OCE), the Office of Program Performance (OPP), and the Office of Inspector General (OIG) to implement the recommendations of the GAO reports. 

Soon thereafter, the Board liaison and committee members separately interviewed members of management and the OIG.  The Board liaison then held two day-long meetings at which representatives of OCE, OPP, LSC management and the OIG identified each aspect of fiscal oversight, areas where improvement could be made, and areas where greater communication and organization would improve fiscal oversight in achieving LSC's mission.  

Working groups were formed to address various aspects of the fiscal oversight process and changes are being considered and implemented on an on-going basis.  Importantly, management and the OIG identified in detail the oversight roles and responsibilities of each relevant organization within LSC, and in so doing specifically addressed oversight of the Independent Public Accountant process.  The committee plans to draft a clear delineation of grantee oversight duties among the three offices charged with oversight responsibilities.  The committee also conducted a public meeting on March 24, and has formally briefed the Board.  The Board is expected to act on the ad hoc committee's recommendations on a clear delineation of roles and responsibilities at its meeting at the end of April.

In order to focus on all the issues raised by the GAO report in the manner and with the diligence required, all routine program visits during the second quarter of the fiscal year were suspended.  During that time LSC has:

• Established working groups, held many hours of joint staff meetings, and is reviewing a draft memorandum of understanding for information sharing among OCE, OPP, and the OIG, while ensuring the OIG's independence.
   
• Established new protocols for information sharing and coordination of all work between OCE and OPP, including site visits; begun updating all procedures manuals to reflect those changes, which will be completed by the end of April; and completed by March 28 four in-depth training sessions.
   
• Reviewed and expanded the current risk factors for selection of grantees for program visits and is updating procedures, which will be included in the manuals to be completed by the end of April.  In addition, LSC is drafting new procedures to ensure that they reflect our current practice of using information and results from oversight and audit activities and other risk criteria in planning internal control and compliance reviews, which will also be included in our manuals.
   
• Provided to grantees, either in draft version for comment or in final form, all reports on program visits through 2007.

The report on grants management contained troubling references to potentially improper use of grant funds by nine LSC-funded programs.  Eight of the nine cases were referred to the Acting Inspector General on November 20, 2007, by President Barnett. The compliance review of the ninth program, Nevada Legal Services, Inc., had commenced prior to the GAO report and was retained for follow-up by the Office of Compliance and Enforcement. That report is near completion and we will inform you of what further action will result.

In addition, President Barnett sent an Advisory to all LSC-funded programs on March 20, 2008, reminding Executive Directors of the need for appropriate documentation of expenditures of LSC funds, of the regulations regarding unallowable costs, and specifically stressed the prohibition of expenditures for alcohol and lobbying, the need for written policies governing salary advances, and a reminder of the regulation governing derivative income.

The OIG has visited three grantees of the eight identified in the GAO Report and is scheduled to visit the other five over the next two months. The OIG has reported that, "For the three sites reviewed and based on the OIG's preliminary analysis,  management at the grantees have taken corrective actions based on the GAO recommendations, and have or are implementing additional controls to prevent those issues from recurring."

Speaking of the OIG, I am pleased to announce the appointment of Jeffrey E. Schanz as the Corporation's Inspector General, effective March 3, 2008.  Mr. Schanz comes to LSC from the U.S. Department of Justice, where he served for the last 17 years as Director of the Office of Policy and Planning, Audit Division, Office of the Inspector General.  Mr. Schanz's duties covered the full spectrum of administrative services for the 176-person Audit Division, including budget formulation and execution, development of national and regional training plans, management of a paperless management information system with an audit follow-up component, preparation of semi-annual reports to Congress, and advising the Department on legislation that might impact the IG community.

Mr. Chairman, we are taking these matters very seriously and are giving our highest priority to implementing all of the recommendations with speed and diligence.  All of these efforts are in recognition of the fact that stewardship of taxpayer dollars is among our most important responsibilities. Our Board remains proud of this program and the critical role it plays in our nation's justice system and we will continue to ensure that LSC provides the most effective and efficient representation possible of the civil legal needs of the eligible poor throughout this country.

I would be happy to answer any questions at the appropriate time.

Thank you.