Copyright 1999 Federal News Service, Inc.
Federal News Service
SEPTEMBER 29, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
3382 words
HEADLINE: PREPARED TESTIMONY BY
KENNETH
F. BOEHM
CHAIRMAN
NATIONAL LEGAL AND POLICY CENTER
BEFORE THE
HOUSE COMMITTEE ON THE JUDICIARY
SUBCOMMITTEE ON COMMERCIAL
AND ADMINISTRATIVE LAW
SUBJECT - MORE UNACCOUNTABLE THAN EVER:
HOW THE
LEGAL SERVICES CORPORATION HID ITS
PHANTOM CASE PROBLEM
FROM CONGRESS
BODY:
My name is Ken Boehm.
I'm Chairman of the National Legal and Policy Center (NLPC), a legal group which
promotes open, ethical government through research, education and legal action.
NLPC is one of the three groups which successfully sued in federal court to
force the White House's Health Care Task Force to publicly disclose its
documents and the identities of its members. Since 1994, NLPC has sponsored the
Legal Services Accountability Project to document and expose abuses in the
federal legal services program. From 1989 to 1994, I served in senior management
positions at Legal Services Corporation and from 1991 to 1994
as Counsel to the LSC Board of Directors.
The Facts Could Not Be Clearer The
facts in this case are crystal clear.
The Legal Services
Corporation has a duty under the LSC Act to truthfully report to
Congress how many cases are handled by the lawyers in the programs it funds.
Congress relies on the accuracy of those case figures because it has no
other source of information about them except LSC.
LSC has always used the
number of cases it handles as one of its main arguments when requesting
additional funds from Congress.
In 1998, LSC provided its annual LSC Fact
Book to Congress in May. The case totals LSC reported were thought to be
accurate at the time by LSC officials.
Shortly thereafter, the LSC Inspector
General's office began audits which revealed serious overcounting and
exaggeration of case totals. Over the summer of 1998, LSC learned that tens of
thousands of cases being claimed were either invalid or simply did not exist.
On August 3, 1998, LSC learned that Florida Rural Legal Services had claimed
44,993 open cases for 1997 but the program admitted that the true number was
just 5,522 due to a claimed "computer error." The bottom line was that this
single program had over 39,000 phantom cases and only 12% of its claimed open
cases were valid.
By September 1998, the LSC Inspector General told the LSC
Board that the audit of Legal Services of Northern Virginia found closed cases
overstated by 13% and open cases by 68%.
Also in September the Inspector
General stated in an e-mail to a member of his staff that "the numbers provided
to Congress were inaccurate."
The final vote on LSC funding came on October
21, 1998 with Congress giving LSC a $17 million increase in funding over the
previous year.
By the day of the October 21 funding vote, LSC's President
and Inspector General had known for months that the case statistics given to
Congress in May were both false and inflated.
Both the LSC President and
Inspector General knew that Congress was relying on the false case statistics in
the debate over funding yet neither took any steps whatsoever to correct the
false statistics.
The Inspector General even filed a Semiannual Report to
Congress for the 6-month period ending September 30, 1998 in which he was
required to identify "Significant problems, abuses and deficiencies" and his
answer was "None."
In all, the audits and examinations of the IG's office
found that approximately 100,000 of 150,000 cases were invalid, double-counts or
simply did not exist.
Put simply: two out of every three cases examined were
invalid or phantom cases. Every program examined had serious case counting
problems.
Even after the October 1998 vote, Congress was never informed that
LSC had found a serious pattern of wildly inflated case totals.
At the LSC
appropriations hearing before the House Appropriations Subcommittee chaired by
Rep. Hal Rogers, LSC provided voluminous material about its activities, but
there was not one word in any of those documents about the serious case counting
problem.
Only because a senior auditor on the Inspector General's staff team
was so principled as to give up his job was the cover-up of the substantial case
reporting problem revealed to Congress. This professional staff member with more
than 20 years of experience in the federal government quit his position with the
IG's office shortly before the LSC hearing in March 1999 in order to brief Rep.
Tom Latham (R-IA-5) about the problems which LSC and its Inspector General were
doing their best to hide.
Congressman Latham exposed the cover-up at the
appropriations hearing and shortly thereafter Associated Press reporter Karen
Gullo broke a national story disclosing more information about the substantial
problems with exaggerated case totals.
The AP story disclosed that about 70%
of the closed cases at programs in San Francisco, San Diego, Miami and Northern
Virginia were not valid. The story also quoted Rep. Latham as questioning
whether LSC IG Quatrevaux had adhered "to even the spirit" of his duties for not
informing Congress of the problem.
The General Accounting Office
investigation undertaken in the wake of the case reporting scandal confirmed
substantial problems in 1997 case reporting by five of LSC's largest programs.
The GAO determined that as many as half of the cases claimed in the major
programs in New York were valid. The program in Puerto Rico had destroyed client
case files in violation of a five-year case retention rule, making an accurate
investigation there impossible. As with the audits and examinations of the LSC
IG's office, every program examined had significant case reporting problems.
The Excuses: As Invalid and False as the Case Totals
From the beginning,
both the LSC President and Inspector General decided the best way to deal with
the substantial case reporting problem was to cover it up.
A conscious
decision was made not to look further at 1997 case problems and this decision
was mentioned in a September 1998 e-mail sent by the IG to members of his staff.
A planned audit of the San Francisco program to examine case reporting was
scrubbed. Other audits were delayed. The September 1998 deadline to have
examined ten programs for case reporting was repeatedly extended.
The LSC President took no steps whatsoever to inform Congress that
the 1997 case numbers which LSC submitted to Congress in May 1998 were false and
substantially inflated.
The LSC Inspector General made a conscious decision
not to inform Congress that the single most important performance statistic for
the legal services program had been found to be substantially flawed. The
Inspector General's Semiannual Report to Congress for the period ending
September 30, 1998 falsely stated that there were no "Significant problems,
abuses or deficiencies" in the program found during the six-month period in
question. Apparently audits and examinations showing that more than half the
cases claimed were invalid or non-existent did not qualify as a "significant
problem, abuse or deficiency." Nor was the fact that every program examined had
serious problems.
The cover-up failed because the senior auditor who
conducted the audits and examinations felt deeply that the cover-up was morally,
professionally and legally wrong. His many years of distinguished service in the
Inspector General's office at the Department of State and the Department of
Defense had imbued him with the belief that auditors perform a valuable public
service and have a responsibility of honesty that transcends political or
bureaucratic considerations. The numerous awards, citations and promotions in
his personnel file underscored his professional achievements as an auditor.
Personally, the senior auditor who first exposed the case reporting problem
was very supportive of the legal services program. When he observed the LSC
President and LSC Inspector General taking no steps to inform Congress or the
public about the problems, he knew the information was too serious to be covered
up. He made a decision that he would give up his employment in the Inspector
General's office in order to expose the problem and to pursue other career
opportunities.
This committee, the Congress and the public owe a debt of
gratitude to this person for exposing both the substantial case reporting
problems as well as the attempted cover-up.
This person was not alone in the
LSC Inspector General's office in being appalled at the lack of honesty over the
cover-up of the problem. Shortly after the March 1999 LSC appropriations hearing
where Rep. Latham confronted LSC officials about the problem, another senior
staff member of the LSC Inspector General's office resigned in protest over the
IG's dishonesty.
The issue wasn't a political view about the legal services
program. The issue was a dishonest cover-up of a substantial problem. And two
senior professional staff members of the LSC Inspector General's office felt
compelled to give up their employment rather than be a party to what they knew
was dishonest.
When the cover-up was exposed by Congress and the Associated
Press and the seriousness of the falsified case totals confirmed by the GAO
investigation, LSC officials came up with a string of excuses, all of which have
been shown to be as false and invalid as the case totals.
Excuse: The
Overwhelming Majority of Programs Report Case Data
Correctly
This was
the claim LSC posted to its web home page when the Associated Press story broke
in April. It is now, to use a Washington phrase, "non-operational."
The GAO
investigation of the case reporting problems at five of LSC's largest programs
has shown, to use GAO's own language, "substantial problems." Subsequent audits
released by the IG's office have also shown serious and widespread case
overcounting problems.
An investigation by LSC into a North Carolina legal
services program which had illegally taken a trip to Mexico to recruit
ineligible clients included a spot check of 25 client files. The 25 files of
open cases were selected at random for general analysis. According to a letter
dated September 18, 1998 by LSC President John McKay to the program:
"All 25
of these cases failed to have sufficient or any
asset information, as is
required by LSC regulations.
45 C.F.R. section 1611.6(a)"
The fact that
25 out of 25 randomly selected case files at a major program failed to have
eligibility information speaks for itself. The letter cited above was obtained
by National Legal and Policy Center under the Freedom of Information Act. None
of the invalid cases at the North Carolina program are counted as part of the
close to 100,000 invalid cases found by the Inspector General's Office or the
approximately 75,000 questionable cases found by GAO investigators.
With
each passing month, it has become clearer and clearer that the case overcounting
problem in the legal services program is systemic and serious. Every program
examined has had problems and when less than half of the claimed cases in the
New York and Baltimore programs are shown to be legitimate, the problem is
substantial.
Excuse: Congress Doesn't Rely on Case Totals to Decide on LSC
Funding
The rebuttal to this claim comes from a statement made by the LSC
President, John McKay, in December 1998:
"Case statistics play an essential
role in the budget request and performance plan submitted by LSC to the United
States Congress each year. Therefore, the reliability of case statistics
submitted by programs to LSC is vital to obtaining continued Federal funding for
Legal Services.'
Ironically, the above statement, which was posted as "A
Message From the President" on LSC's web page in December 1998, was made at a
time that LSC had still not told Congress about the massive false case
reporting. If Mr. McKay truly believed that case statistics played an essential
role in LSC's budget request and their reliability was vital to continued
funding, then why did he refuse to supply Congress with correct case totals?
Moreover, Members of Congress of both parties have long cited the case
totals as an important performance indicator in trying to determine how much
funding LSC should receive.
Rep. Hal Rogers (R-KY-5), Chairman of the House
Appropriations Subcommittee on Commerce, Justice, State, the Judiciary and
Related Agencies, summed up the importance of case totals at the March 1999
hearing on LSC:
"We do make our judgments based on the volume
of the
load that is represented to us."
At the risk of stating the obvious, LSC
cannot have it both ways. They cannot credibly argue that they deserve huge
funding increases based on case totals and then when those very same case totals
are found to be false and wildly inflated, argue that case totals don't matter.
Excuse: Legal Services Programs Have No Motive to Inflate Case Totals
To
promote the view that this whole issue is just one of bookkeeping confusion, LSC
has argued that Legal Services programs have no motive to exaggerate the number
of cases they handle. LSC points out that programs receive their LSC funds based
on poverty population of their service areas, not on the number of cases they
handle.
While it is true that programs receive LSC funds based on the
poverty population of the area they serve and not the number of cases they
handle, there are numerous motives for legal services programs to inflate their
case numbers.
Most legal services programs receive funding from many sources
other than LSC. Case totals are routinely used by programs as an argument to
receive funds from state and local government as well as private foundations and
charities. False case totals deceive funders into believing a legal services
program is far more efficient than it really is.
Case totals are a factor in
the competition for LSC grants which Congress mandated in 1996. False, inflated
case numbers have the effect of discouraging competition for grants and giving
an unfair advantage to the program which has exaggerated its case figures.
Puffing up case totals at the legal services program level helps LSC
officials argue that Congress should provide more funds to LSC which directly
benefits each program.
Using phony case statistics reduces the
cost-per-case, making programs artificially look more productive. Again, this
practice unfairly deceives funders at the local, state and national levels.
Excuse: No Fraud Was Found
LSC has repeatedly claimed that neither the
IG audits nor the GAO investigation found fraud.
The fact is neither the
audits nor the investigation were charged with finding fraud yet both turned up
reams of evidence that Legal Services programs knew or should have known that
their practices were falsely inflating the case numbers.
LSC's claim as to
no fraud being found ignores the claim in a May 1999 letter to the editor of
Investor's Business Daily by John T. Hand in which this lawyer who worked for
more than 20 years for Westchester/Putnam Legal Services in New York stated he
quit, in part, because the program "was counting every telephone call as a
'case' in order to build up numbers to report to the LSC and other funding
sources. Consequently, hundreds, if not thousands, of reported cases were
nothing more than referrals or other responses given by paralegals or
secretaries." (emphasis added)
The motive for counting phone calls by
secretaries as legal cases by this program is quite clear - - it's to deceive
LSC and other funders.
National Legal and Policy Center recently filed a
complaint with LSC asking it to investigate the allegations of this 20+ year
legal services veteran.
When Florida Rural Legal Services was questioned as
to its claimed 44,993 open cases, it reduced the claim by an astounding 39,471
cases to 5,522 cases on August 3, 1998. This represents the largest reduction in
cases by a single program ever. The reason for the overcount was an unexplained
"computer error." Neither LSC nor its IG made any attempt to audit or
investigate this incredible overcount. Left unexplained is how any program
director can rationally not know if the program's lawyers have 44,993 open cases
or 5,522 open cases.
Rather than claim there was no evidence of fraud, a
more accurate claim would be that LSC and its IG went to extremes to not
investigate any misreporting of case figures which might have been fraudulent.
LSC regulations have never allowed legal assistance to ineligible clients,
the double-counting of cases or counting telephone calls by non- lawyers as
"legal cases." Yet all of those clearly improper practices were found repeatedly
by the audits of the IG staff and the investigation by the GAO. In a number of
programs, the system was set up to allow for the types of overcounts just
described to occur.
This institutionalized falsification of case numbers has
not been properly investigated by either LSC or its IG.
The claim that there
was no fraud, that program directors simply overcount because the bookkeeping is
just too complicated is an absurd argument on its face. Would LSC have Congress
believe that the top officials of every major legal services program examined
simply can't figure out how many cases his or her program handles? If that is
true, how can they be relied upon to provide anything a little more complicated,
like legal services?
Excuse: The IG Act and Government Audit Standards
Prevented the LSC Inspector General From Reporting the False Case Statistics to
Congress
In attempting to deny responsibility for covering up the case
problems from Congress, the LSC IG has suggested that both the IG Act and
government auditing standards precluded him from informing Congress that the LSC
case totals it was relying upon in late 1998 were false.
Quite to the
contrary, the IG Act explicitly calls for keeping "the Congress fully and
currently informed about problems and discrepancies." Section 2 (3)
Section
4 of the IG Act (Duties and Responsibilities) explicitly calls for an Inspector
General to keep Congress "fully and currently informed by means of reports
required by section 5 (semiannual reports) and otherwise, concerning fraud, and
other serious problems, abuses and deficiencies."
Any suggestion that some
of the audits were incomplete thus the IG was not in a position to provide
information about them also ignores the Government Auditing Standards (1994
revision):
Reporting Standards for Performance Audits: Timeliness
Standard 7.6
"Auditors should appropriately issue the reports to make
the information available for timely use by management, legislative officials,
and other interested parties."
Moreover, some of the most egregious examples
of case inflation did not come from audits. The Florida Rural Legal Services
reduction of more than 39,000 cases was not the result of an audit but rather
simply questions to the program about the suspiciously large number of open
cases.
The San Francisco Legal Aid Foundation closed case totals were
revised downward dramatically from 15,995 claimed for 1997 to 3,639 - an
astounding 77% drop - without being audited.
Recommendations
1. Congress
should take steps to mandate an independent audit for both the 1997 and 1998
case figures. Neither the LSC nor its Inspector General have the credibility to
do so and have a vested interest in covering up the extent of the problem.
2. Those officials who knowingly misled Congress and the public should be
removed. Anything less sends the message that Congress will tolerate being
provided with bogus case statistics and will tolerate cover-ups. Also, failure
to hold the LSC President and Inspector General accountable for their actions
sends the wrong message to others entrusted with public funds and
responsibilities.
3. LSC-funded programs and officials who knowingly provide
false case totals to LSC should be subject to the Federal False Statements Act
and criminal penalties similar to those who use false statements to obtain funds
from other federal programs.
4. This Subcommittee should reconsider the
legal services reauthorization legislation sponsored by Chairman George Gekas
which passed this Subcommittee in 1996. That legislation eliminated the
Legal Services Corporation while block-granting funds for legal
services to the states. In light of the failure of the legal services program to
provide accurate information about their services to Congress and the failure of
both LSC and its Inspector General to fulfill their oversight duties in this
matter, Chairman Gekas' legislation for eliminating LSC represents a practical
alternative to the present dysfunctional program.
END
LOAD-DATE: September 30, 1999
