	LSC Has Made Improvements in its Governance and Management Practices But Key Actions Still Need to Be Completed

While LSC’s board and management have taken actions to improve its  governance and accountability practices towards fully implementing the  recommendations from our August 2007 report additional actions to fully  implement the other key recommendations are needed. As the board transitions to new board members, it will be  important for the new board to provide priority focused attention on fully  implementing the other five of our recommendations. Governance Practices

In August 2007 we reported that the governance practices of LSC’s board  fell short of the modern practices employed by boards of nonprofit  corporations and public companies. Although the board members had  demonstrated active involvement in LSC through their regular board  meeting attendance and participation, we pointed out several areas where  LSC’s governance practices could be strengthened. Management Practices

In August 2007, we reported that LSC’s management practices did not  reflect current practices in the areas of risk assessment, internal control,  and financial reporting. We pointed out areas where management’s  practices could be strengthened. LSC management  fully implemented two of our December 2007 report recommendations,  including following up on identified improper or potentially improper uses  of grants funds. However, LSC has only partially implemented three key  recommendations, including limited action on implementing an approach  for selecting grantees for review using consistently applied, risk-based  criteria. Full implementation of all of the remaining recommendations is  needed in order to ensure that LSC management has effective control over  its mission-critical grantees. Our December 2007 review of grants management and oversight at LSC  identified weaknesses in LSC’s internal controls over grants management  and oversight that negatively affected LSC’s ability to monitor and oversee  grants and left grant funds vulnerable to misuse. As a result of our follow-up work conducted between May 2009 and  October 2009, we determined that LSC management had fully implemented  two of the four recommendations we made to management. Further, although the board has implemented the key recommendation of  establishing an audit committee, the board must continue its efforts to  implement another key recommendation of developing and implementing  procedures to periodically evaluate management processes, including risk  assessment, mitigation, internal control and financial reporting. Fully  implementing the remaining recommendations, will enable the board and  management to achieve the level of governance and internal control  needed to provide adequate assurance that LSC’s governance and internal  control structures are effective, and that grant funds are being used as  intended and in accordance with laws and regulations.
Why GAO Did This Study

In August 2007, GAO reported (GAO-07-993) that Legal Services Corporation (LSC) had not kept up with evolving reforms aimed at strengthening governance, accountability and internal controls. In December 2007, GAO reported (GAO-08-37) weaknesses in LSC's internal controls over grants management and oversight of grantees. GAO was asked to testify on the status of accountability practices of the LSC. GAO's testimony is primarily a summary of our prior reporting, but includes follow up work conducted between May and October 2009 to obtain information on the status of our prior recommendations.

What GAO Found

In August 2007, GAO reported that the governance practices of LSC's board fell short of the modern practices employed by other nonprofit corporations and public companies. Although the board members had demonstrated active involvement in LSC through regular board meeting attendance and participation, we pointed out several areas where LSC's governance practices could be strengthened. LSC's management practices had also not kept up with the current practices for key processes in risk assessment, internal control, and financial reporting. We pointed out certain areas where management's practices could be strengthened. GAO concluded that a properly implemented governance and accountability structure might have prevented incidents, such as compensation rates in excess of statutory caps, questionable expenditures, and potential conflicts of interest. GAO made 12 recommendations - 8 to the board and 4 to management. LSC's management has implemented all 4 recommendations to improve its management practices. The board has fully implemented 3 recommendations, but it needs to take additional actions to fully implement the other 5 recommendations. For example, LSC's board has fully implemented the key recommendation to establish an audit committee. However, another key recommendation for the board to implement procedures to periodically evaluate key management processes has not yet been fully implemented. LSC told GAO that it plans to take additional actions to more fully address the five recommendations. In December 2007, GAO reported weaknesses in LSC's internal controls over grants management and oversight of grantees that negatively affected LSC's ability to provide assurance that grant funds were being used for their intended purposes in compliance with applicable laws and regulations. Effective internal controls over grants and grantee oversight are critical to accomplishing LSC's mission because it relies extensively on grantees to provide legal services to individuals who otherwise could not afford to pay for legal counsel. GAO made 5 recommendations to address these issues. LSC management fully implemented two of our report recommendations, including following up on identified improper or potentially improper uses of grants funds. However, LSC has only partially implemented three key recommendations, including only limited action to implement an approach for selecting grantees for review using consistently applied, risk-based criteria. In order to improve LSC's board and management's ability to maintain accountability over LSC's mission, it will be critical for LSC's board and management to maintain priority focus on fully implementing all remaining GAO recommendations.