Tax-Funded Law Firms Invested in Booze, $750,000 IT Guy

By Terence P. Jeffrey | July 7, 2008 | 8:24 PM EDT

( - Non-profit law firms funded by the federal Legal Services Corporation invested tax dollars in booze, interest-free loans for employees, lobbying registration fees and $750,000 for an independent "information technology" contractor whose contract had been lost and whose address was identical to the law firm's address, says the Government Accountability Office.

"Like many independent federal agencies and wholly owned government corporations, most of LSC's annual revenues come from federal funds made available through annual appropriations," Jeanette Franzel, GAO's director of financial management, told the Senate Judiciary Committee in written testimony submitted Thursday. "However, LSC is not required by law to control its use of those funds as are independent federal agencies and wholly owned U.S. government corporations."

The LSC received $358.6 million in federal tax dollars last year and used it to fund 137 "legal-services providers" who operated 900 non-profit legal offices around the country, according to Franzel. The purpose of these legal offices was to provide "low-income" persons with free legal representation.

According to Franzel's testimony, the GAO conducted "limited reviews" of 14 of the 137 grantees. Among those 14, she said, GAO "identified internal control weaknesses [over the expenditure of tax dollars] at 9 grantees that LSC could have identified with more effective oversight reviews."

At 7 of the 14 federally funded "legal services providers" that GAO visited, she said, federal auditors "identified systemic issues involving payments that lacked sufficient supporting documentation that made it impossible to determine whether the expenditures were accurate, allowable, and appropriate."

Additionally, she testified, GAO discovered "weaknesses and improper expenditures" among some of the grantees visited.

These included:
    A grant recipient that "paid an individual approximately $750,000 between 2004 and 2006 for information technology services," even though the "contractor's office and mailing address were located in the same office space as the grantee," the "grantee could not locate its contract with the individual for 2005 and 2006," and the "contractor's business card was identical to that of other employees working at the grantee."
    A grant recipient that "was using grant funds to provide interest-free loans to employees" that "were used to pay college tuition, make down payments on homes, and to purchase computers." (See GAO testimony)
    A grant recipient that twice used "LSC funds to pay lobbyist registration fees."
    Three grant recipients "that used LSC funds to purchase alcoholic beverages."
The Legal Services Corporation is requesting that Congress appropriate $471.4 million for its fiscal 2009 budget. That would be an increase of more than $100 million from its fiscal 2008 appropriation.

In its budget request to Congress, the LSC said one reason it wants more money is to provide legal representation to people who cannot pay their mortgages. (See budget request)

"More and more, low-income Americans facing foreclosure or evictions as a result of foreclosures are turning to legal services programs for assistance, which are already burdened with their normal caseloads," says the budget request. "Without additional funding, these programs will be unable to meet the new demand for their services. Experts have said that the only meaningful way to help families save their homes is to help them get access to quality legal assistance."

The LSC budget request also includes a testimonial from Sen. Barbara Mikulski (D-Md.). "In addition to helping women and children escape abusive situations, Legal Services lawyers aid victims of predatory lending or other schemes and other scams and [victims of] unscrupulous landlords of lead saturated houses," said Mikulski. ... Thank God for Legal Services lawyers."

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