Program Letter 19-1
This Program Letter describes the most common compliance issues that the Legal Services Corporation’s (“LSC”) Office of Compliance and Enforcement (“OCE”) has observed during compliance oversight visits in the past 12 months, or which have otherwise been brought to LSC Management’s attention. We highlight these issues so that you can avoid or mitigate compliance risks.
A number of the issues described below concern the need for LSC recipients to have written policies that comply with LSC requirements. Sample policies are posted on LSC.gov. The samples are available in both Word and Acrobat PDF format. More extensive guidance, including examples of how LSC recipients have implemented the compliance requirements listed below, can be found in OCE Final Reports from visits to LSC-funded legal aid programs, which are available at http://www.lsc.gov/grants-grantee-resources/our-grantees/assessment-visit-reports.
I encourage you to share this guidance, along with the guidance we have provided in previous years, with your staff.
Responsibilities of the Financial Oversight Committee or Committees of Your Board of Directors:
Each recipient’s governing body must establish a financial oversight committee or committees.
- Each recipient’s governing body must appoint/elect a financial oversight committee or committees and identify the duties of the committees in writing. LSC Accounting Guide, § 3-5.2(b).
- The duties and responsibilities of the financial oversight committee or committees should be defined in the recipient’s bylaws or a governing body resolution. LSC Accounting Guide for LSC Recipients (2010 Ed.) ("LSC Accounting Guide"), § 1-7.
- As a best practice, the financial oversight committee or committees should have at least one member who is a financial expert, or the board should have access to a financial expert.
- A financial expert should have (1) an understanding of Generally Accepted Accounting Principles (GAAP) and financial statements, (2) the capacity to apply GAAP in connection with preparing and auditing financial statements, (3) familiarity with developing and implementing internal financial controls and procedures, and (4) the capacity to understand the implications of different interpretations of accounting rules. LSC Accounting Guide, § 1-7. LSC recognizes that the board composition requirements of 45 C.F.R. Part 1607 can limit a board’s ability to recruit board members with certain expertise. (e.g., finance, fundraising). LSC encourages grantees to add financial experts, as members, to its finance and/or audit committee(s) to the extent allowed by state law. Committee members who are not board members may have to be non-voting members under state law.
Fiscal Management Issues
45 C.F.R. Part 1630—Cost Standards and Procedures
- Expenditures by a recipient are allowable under the recipient’s LSC grant only if the recipient can demonstrate that the cost was, among other things, “reasonable and necessary for the performance of the grant” and “allocable to the grant.” See 45 C.F.R. § 1630.5(a)(2) and (3). In determining the reasonableness of a given cost, consideration is given to, among other factors, “whether the cost is of a type generally recognized as ordinary and necessary for the operation of the recipient or the performance of the grant.” 45 C.F.R. § 1630.3(b)(1).
- Please remember that common costs determined to be unallowable by LSC include flowers, alcohol, holiday cards, and gifts for staff, board members, and/or private attorneys such as cakes, shot glasses, or other promotional items or tokens of appreciation such as pens, t-shirts, or coffee mugs. Such expenditures are regularly identified as problematic in public reports of LSC’s Office of Inspector General (“OIG”) and referred by OIG to LSC management for recoupment.
- LSC permits recipients of Basic Field Grants to allocate a proportional share of another funding source’s share of an indirect cost to LSC funds, where the other funding source “refuse[s] to allow the allocation of certain indirect costs to an award.” 45 C.F.R. § 1630.5(g). A refusal can take several forms, such as a cap on the amount of indirect costs that can be allocated to a grant or a statement from a funding source that including indirect costs in the application budget will cause the application not to be competitive. Program Letter 18-2, issued on August 29, 2018.
Internal Controls and LSC Accounting Guide Concerns
- Written Policies and Procedures. Many of the compliance concerns noted relate to improving fiscal-related written policies and procedures (e.g., contracting and procurement, fixed assets, usage of credit cards). Please ensure that accounting manuals or other staff guidance contain written policies that comply with LSC regulations and guidance and that current recipient practices are consistent with the written policies. LSC Accounting Guide, § 3-4.
- Cash Disbursements. Recipients must establish cash disbursement procedures to ensure proper documentation and recordkeeping. All invoices and all supporting documents should be marked and recorded as paid or cancelled to avoid duplicate payment. All property purchased should be recorded in a property subsidiary record, which must include all necessary documentation and must agree with the general ledger property accounts. LSC Accounting Guide, § 3-5.4 and Appendix VII.
- Cost Allocation Policy. Recipients receiving funds from multiple sources should ensure that all costs incurred to support work performed under more than one grant, contract, or other funding agreement are allocated among the relevant funding sources. Such common costs include, but are not limited to, costs of operating and maintaining facilities and general administrative expenses. LSC Accounting Guide, § 2-3.2 and 45 C.F.R. Part 1630.
- Contracting. All Recipient contracting policies and procedures must identify the contracting procedures for the various types of contracts, dollar thresholds, and competition and approval requirements. Contracts involving consulting, personal services, and sole-source services should receive particular oversight. The process used for each contract action, including any deviation from the approved contracting process, must be fully documented and maintained in a central file. All contracts must be documented, approved, and maintained on file, including a statement of work. LSC Accounting Guide, § 3-5.16 and 45 C.F.R. Part 1631.
- Audit Trails. Accounting records should be maintained on an automated system. Recipients must ensure that their financial software maintains a clear audit trail to ensure unallowable costs are charged to non-LSC accounts. LSC Accounting Guide, § 2-5.
- Annual Financial Statements and Audit Reports. Governing bodies are required to approve the opening of all bank accounts and document sufficient justification for using more than one operating account. The governing body is responsible for authorizing all check signers. A log of authorized check signers should be maintained to ensure all signers are current employees. Authorized check signers who are no longer with the recipient should have their authorization cancelled on bank records promptly following their departures. LSC Accounting Guide, § 3-5.2.
Board members and staff should receive training on their fiduciary responsibilities and on fiscal policies and procedures. All trainings should be described and documented through timelines, progress reports, and records of completion.
Specific Regulatory Concerns
45 C.F.R. § 1609.4 --- Requesting and receiving attorneys’ fees
- Recipients must appropriately allocate attorneys’ fees in accordance with a compliant derivative income policy. Recipients should ensure the allocation is consistent with the proportion of particular funds expended to support each case that results in attorneys’ fees. 45 C.F.R § 1609.4.
45 C.F.R. § 1610.5 —Notification Regarding Prohibitions and Restrictions that Apply to Funds
- Recipients may not accept funds in the amount of $250 or more from any source other than the Corporation unless the recipient provides written notification of the prohibitions and the conditions that apply to such funds.45 C.F.R. § 1610.5.
- Notification should be provided before the recipient accepts the funds. Notice should be given during the course of soliciting funds or applying for a grant or contract. For unsolicited donations where advance notice is not feasible, notice should be given in the recipient’s letter acknowledging the contribution. See 62 Fed. Reg. 27695, 27696 (May 21, 1997).
45 C.F.R. Part 1611—Financial Eligibility
- When assessing prospective clients’ financial eligibility, recipients should use only the income exceptions allowed by LSC regulations and listed in their board-approved eligibility policy. 45 C.F.R § 1611.5.
- Cases requiring a retainer agreement should be compliant with 45 C.F.R § 1611.9. Retainer agreements must identify the legal problem for which representation is sought and the nature of the legal services to be provided. All retainers should be kept on file by the recipient, signed and dated by both the client and the recipient. Failure to obtain a required retainer agreement does not affect the case service reportability of an otherwise reportable case.
45 C.F.R. Part 1612—Restrictions on Lobbying and Certain Other Activities
- Pursuant to 45 C.F.R. § 1612.10, recipients must maintain separate recordkeeping and accounting records for any legislative and rulemaking activities undertaken with non-LSC funds. LSC recipients must track and maintain information in a way that provides sufficient separation to permit them to clearly and easily provide information to LSC "documenting the expenditure of non-LSC funds" for legislative and rulemaking activities for which they can use only non-LSC funds. 45 C.F.R. § 1612.10(b).
45 C.F.R. Part 1626—Restrictions on Legal Assistance to Aliens
- Pursuant to 45 C.F.R. §§ 1626.6 and 1626.7, recipients must ensure that applicants and clients who are seen in person, as well as clients receiving extended services, execute a citizenship attestation or demonstrate alien eligibility and that all files contain the necessary documentation pursuant to CSR Handbook (2017 Ed.), § 5.5. This requirement also applies to clinics using in-office kiosks. Pursuant to Program Letter 16-2, issued on May 19, 2016, recipients may accept LSC-required signatures in electronic form when the recipient can document that the e-signature meets the three elements of ESIGN. Recipients must also comply with any other applicable laws regarding the use of e-signatures.
- The written policies that guide recipient staff in complying with 45 C.F.R. Part 1626 must be updated to conform with revisions made to the regulation effective May 19, 2014. In particular, recipients should update their policies to reflect changes to Part 1626 that made its provisions consistent with the provisions of the Victims of Trafficking and Violence Protection Act of 2000 (VTVPA), the Trafficking Victims Protection Reauthorization Act of 2003 (TVPRA), the Violence Against Women and Department of Justice Reauthorization Act of 2015 (VAWA), and the Fiscal Year 2008 LSC appropriation expansion of eligibility for legal assistance to include alien forestry workers admitted to the United States as temporary workers under the H-2B program of the Immigration and Nationality Act (INA). See 45 C.F.R. §§ 1626.4 and 1626.11.
45 C.F.R. Part 1635—Timekeeping Requirement
- Time spent by attorneys and paralegals must be documented by contemporaneous time records that record the amount of time spent on each case, matter, or supporting activity. 45 C.F.R. § 1635.3(b).
45 C.F.R. Part 1631 – Purchasing and Property Management
- Recipients owning LSC-funded real property are required to adhere to certain recordkeeping provisions under 45 C.F.R. Part 1631. Recipients must maintain an accounting of LSC funds related to the purchase or maintenance of real property purchased with LSC funds. The accounting must include the amount of LSC funds used to pay for acquisition costs, financing, and capital improvements. This accounting must be provided to LSC annually, no later than April 30 of the following year or in a recipient’s annual audited financial statements submitted to LSC. 45 C.F.R. § 1631.19. As a best practice, all recipients owning property in which LSC has an interest should contemporaneously document property-related expenses and track the amount of LSC funds used over the life of the investment.
Local Travel Expenditures
Per Office of Inspector General Fraud Alert 19-0041-A-FA, issued on March 7, 2019, we recommend that recipients formulate or enhance their local travel policies using the following best practices:
- Create a detailed local travel policy that clearly defines allowable/reimbursableexpenses for local travel and clearly sets out the local travel area for eachworksite;
- Require that all local travel reimbursement requests be submitted in the traveler's name;
- Ensure the appropriate supervisors approve local travel reimbursements;
- Ensure local travel reimbursements are delivered to travelers only, not to otherstaff members;
- Require receipts for local travel;
- Create a separate and detailed local travel form that captures key information relating to local travel, including business purpose and applicable case information; and
- Ensure all work product and case management system entries match travel reimbursement requests.
If you have a concern or a question regarding compliance with LSC regulations or directives, particularly the compliance areas noted in this Letter, please contact Lora M. Rath, Director of LSC’s Office of Compliance and Enforcement, at firstname.lastname@example.org or 202-295-1524. In addition, OCE can provide training upon request. In most cases, training will be done via webcast. Training requests should also be submitted to Ms. Rath.