Legal Services Corporation: Governance and Accountability Practices Need to Be Modernized and Strengthened Page: 2 of 81
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aAccountabiity Integrity Reliability
Highlights of GAO-07-993, a report to
Why GAO Did This Study
The Legal Services Corporation
(LSC) was federally created as a
private nonprofit corporation to
support legal assistance for low-
income people to resolve their civil
matters and relies heavily on
federal appropriations. Due to its
unique status, its governance and
accountability requirements differ
from those of federal entities and
nonprofits. This report responds to
a congressional request that GAO
review LSC board oversight of
LSC's operations and whether LSC
has sufficient governance and
accountability. GAO's report
objectives are to (1) compare LSC's
framework for corporate
governance and accountability to
others', (2) evaluate LSC's
governance practices, and
(3) evaluate LSC's internal control
and financial reporting practices.
We reviewed the LSC Act,
legislative history, relevant
standards and requirements, and
LSC documentation and
accountability requirements and
interviewed board and staff.
Congress should consider
mandating additional LSC
governance and accountability
requirements modeled after federal
agencies or government
corporations. GAO also makes
recommendations to LSC's board
for modernizing and strengthening
its governance and to LSC
management for improving its
practices. LSC's board and
management agreed with the
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Jeanette
Franzel at (202) 512-9471 or
LEGAL SERVICES CORPORATION
Governance and Accountability Practices
Need to Be Modernized and Strengthened
What GAO Found
Although LSC has stronger federal accountability requirements than many
nonprofit corporations, it is subject to governance and accountability
requirements that are weaker than those of independent federal agencies
and U.S. government corporations. Congress issued LSC's federal charter
over 30 years ago. Established with governance and accountability
requirements as they existed at the time, LSC has not kept up with evolving
reforms aimed at strengthening internal control over an organization's
financial reporting process and systems. Rigorous controls are important for
the heavily federally funded LSC. During fiscal year 2007, LSC is responsible
for the safeguarding and stewardship of $348.6 million of taxpayer dollars.
Although no single set of practices exists for both private and public entities,
current accepted practices of federal agencies, government corporations,
and nonprofit corporations offer models for strengthening LSC's governance
and accountability, including effective board oversight of management; its
performance; and its use of federal funds and resources.
The board members demonstrated active involvement in LSC through their
regular board meeting attendance and participation in LSC oversight.
Although LSC's Board of Directors was established with provisions in law
that may have supported effective operation over 30 years ago, its practices
fall short of modern board practices. The LSC board generally provides each
new member an informal orientation to LSC and the board, but it does not
have consistent, formal orientation and ongoing training with updates on
new developments in governance and accountability standards and practice.
The current board has four committees, but none are specifically targeted at
providing critical audit, ethics, or compensation functions, which are
important governance mechanisms commonly used in corporate governance
structures. Because it has not taken advantage of opportunities to
incorporate such practices, LSC's Board of Directors is at risk of not being
able to fulfill its role of effective governance and oversight. A properly
implemented governance and accountability structure may have prevented
recent incidents of compensation rates in excess of statutory caps,
questionable expenditures, and potential conflicts of interest.
LSC also has not kept up with current management practices. Of particular
importance are key processes in risk assessment, internal control, and
financial reporting. Management has not formally assessed the risks to the
safeguarding of its assets and maintaining the effectiveness and efficiency of
its operation, nor has it implemented internal controls or other risk
mitigation policies. LSC is also at increased risk that conflicts of interest will
occur and not be identified because senior management has not established
comprehensive policies or procedures regarding ethical issues that are
aimed at identifying potential conflicts and taking appropriate actions to
prevent them. Finally, management has not performed its own assessment or
analysis of accounting standards to determine the most appropriate
standards for LSC to follow.
,United States Government Accountability Office
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United States. Government Accountability Office. Legal Services Corporation: Governance and Accountability Practices Need to Be Modernized and Strengthened, report, August 15, 2007; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc297700/m1/2/: accessed November 22, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.