A complete chronology of the scandal appears under the title "Timeline and Facts" in Appendix 7.
The scandal began in November 1997 with the issuance of an OIG report to the Corporation chronicling a host of problems and concluding with a comment suggesting case statistics should not be used as a bulwark for continuance of Federally funding civil legal services. The OIG issued this report to the Corporation for comment but did not release report conclusions to the Congress or public. In a written response to this report, the Corporation President expressed satisfaction that the Inspector General would not make this report public.
Corporation officials disregarded this OIG report when they decided to continue using the annual caseload as a basis for justifying a request for increased program funding for FY 1999. In the budget hearing on February 25, 1998, the leadership informed congressional appropriators that a $57 million increase would enable local programs to increase the annual closed case-count from 1.4 million cases to 1.6 million cases. It also stated a funding increase of $17 million (85 percent for local programs) might enable local programs to increase the case-count to about 1.5 million cases. The 1.4 million closed case-count figure is traceable to the annual caseload report (fact book) for the 1996 program (Appendix 4).
The following year, the Corporation leadership made more use of information in the fact book for the 1997 program in the FY 2000 budget request as they sought another substantial increase in funding for the program. The FY 2000 budget hearing was March 3, 1999. In the FY 2000 budget request, Corporation leaders stated a $40 million budget increase would enable local programs to address over 1.6 million legal issues. They also claimed the 1997 program addressed 1.5 million legal issues. This closed case-count figure with some slight upward rounding, as well as graphs illustrating the type of legal issues addressed and reasons for closing cases appeared in the FY 2000 budget request. They are traceable to the fact book for the 1997 program (Appendix 4).
The Corporation's annual caseload numbers, budget requests, and testimony illustrate the high degree of importance it placed on the 1997 program case statistics in formulating the overall budget strategy for FY 1999 and FY 2000. The reviews performed by OIG, LSC, and GAO staffs revealed the case information for the 1997 program was significantly overstated (Appendix 8).
As Congress worked with the inflated case numbers during the budget process, the Corporation leadership and Inspector General acquired even more evidence of how bad the numbers were (Appendix 7). Every OIG analyses, audit, and examination from November 1997 to September 1999 revealed case over-counting and reporting problems. The Corporation found the same things in its concurrent reviews of local program case reports. The OIG and Corporation routinely and formally exchanged information about all of the reviews in briefings and/or interim reports.
In September 1998, the Inspector General wrote and sent a message to some members of his staff acknowledging that the Corporation provided inaccurate case statistics to Congress. In the same message, the Inspector General stated he was going to give the Corporation until February 2000 to fix the problem. The Inspector General's decision to keep the Congress in the dark enabled the Corporation to escape congressional scrutiny prior to Congress approving the FY 1999 appropriation increase of $17 million in October 1998. His decision would also have enabled the Corporation to continue using phony and inflated case numbers in the FY 2000 appropriation request had it not been for someone from inside of the Corporation stepping forward and reporting the problem to a member of the House Appropriation Subcommittee.
The member of the House Appropriations Subcommittee intervened during the March 3, 1999 budget hearing. In a series of penetrating questions and statements he methodically removed the cover of a scandal. The member astutely and correctly pointed out that about two-thirds of the approximate 149,000 open and closed cases included in the annual case reports of the Northern Virginia, Houston, San Diego, Miami, San Francisco, and Florida Rural programs were invalid. He simply wanted to know why the Corporation had not said anything about any of these problems in the hearing or in reports required by the IG Act.
Despite overwhelming evidence to the contrary, Corporation officials denied serious case-over-counting and reporting problems existed in response to the House appropriator's questions and later, in a steady stream of questions from other members of Congress, congressional staff, and the media. The Corporation issued a press release in April 1999 claiming, among other things, the national impact of the case reporting problem was minor. A subsequent investigation by the Associated Press and the results of several audits, belatedly completed and issued by the Inspector General, confirmed the House appropriator was correct in his statement the six programs discussed in the hearing had serious case reporting problems (Appendix 8). In addition, evidence collected by Congress proves the Corporation and Inspector General knew about all of the problems at the six programs before the March 3, 1999, congressional budget hearing.
The central defense of the Corporation leadership and the Inspector General since March 3, 1999 is that all of the information emanated from OIG audits and that strict protocols in government auditing standards did not allow them to release information from unfinished audits. Their claim is contradicted by three important facts.
First, not all of the significant information involving the case reporting problems emanated from the limited number of audits done by OIG, but rather through other important and routine "OIG activities" such as analyses, examinations, and program assessments (Appendix 7). Under the IG Act, the Inspector General is obliged to report important matters to Congress when they represent significant problems, abuses, or deficiencies. In addition to the information developed by OIG, other information also became available to the Inspector General through reviews of local program case reports by Corporation attorneys. They too, confirmed the existence of systemic and significant case reporting problems. This information would have been extremely valuable to congressional appropriators and legislators as they deliberated the FY 1999 appropriation. It is a bogus argument to suggest that the IG Act and government auditing standards prevented Corporation leadership and the Inspector General from doing so.
Second, the government auditing standards permit and encourage interim reporting, oral and written, to legislative officials on important matters requiring prompt attention (Appendix 3). The standards state a carefully prepared report may be of little value to management and legislators if it arrives too late (e.g., after Congress made the final decision on annual program funding). The Corporation leadership and the Inspector General knew this but neglected to disclose this important aspect of the standards in testimony to Congress on March 3, 1999, and September 29, 1999. To state the standards prevented the Inspector General from alerting congressional overseers about phony cases in the Corporation's annual caseload report and budget request is not true.
Third, Corporation leadership and the Inspector General claimed government auditing standards prevented them from reporting information arising from unfinished audits in the September 30, 1998 semiannual report and the March 3, 1999 budget hearing testimony. On December 7, 1998, the Inspector General asked the Corporation Board Chairman, in writing, to discuss serious case reporting problems disclosed through some unfinished OIG audits with members of a private association (Appendix 7). The content and timing of the December 7 statement is inconsistent with statements made before Congress in the March 3, 1999 and September 29, 1999 hearings. If the standards prevented the Inspector General from reporting this information to Congress, the standards should have also prevented him from asking the Board Chairman to release the same information to a private association.
Corporation denials of significant case over-count problems ceased not long after the General Accounting Office (GAO) was asked, on May 3, 1999 to review a selected number of case reports for the 1997 program. The House Majority Leader, Chairman of the House Government Reform and Oversight Committee, and three House Appropriations Subcommittee members, asked GAO to independently evaluate whether grantees had misreported the number of cases for the 1997 program. On June 25, 1999, the GAO completed reviews of five of the largest local programs in the system and reported substantial case reporting problems to the Congressmen.
The congressional request for GAO to perform an independent inquiry of the case reporting problems prompted the Corporation leadership and the Inspector General to change their strategy. A little over one week after the congressional request to GAO, the Corporation asked local programs to self-inspect and certify reported 1998 case totals. After the Chairman of the House Judiciary Subcommittee announced in August that an oversight hearing would be held, the Corporation released the revised case figures for 1998 disclosing a significant case over-count. The Inspector General also began issuing audit reports at much faster pace than before which also disclosed a substantial case over-count (Appendix 7).
Evidence suggests OIG may have engaged in surreptitious activity to prevent the problems from becoming public prior to the March 3, 1999 budget hearing. The OIG did this by slowing the pace of completing audits and spreading the results of them over several semiannual reporting periods. With only piecemeal information, congressional overseers would be unable to discern a serious problem that may have had an adverse impact on the FY 1999 and FY 2000 budget requests. OIG started seven audits in 1998 and only one report was issued before the March 3, 1999 budget hearing. These are not complicated audits as illustrated by the speed in which GAO was able to complete its inquiry. OIG audits started before this budget hearing took about eight months to complete, the four audits started after the March 3 hearing took, on average, just four months to complete. Further, OIG issued the four final audit reports in September 1999 just as the Judiciary Subcommittee was about to hold this hearing. The Chairman's announcement of a hearing undoubtedly motivated the Inspector General to rapidly speed up completion of final audit reports. All eight of the OIG audit reports issued in 1999 disclosed case over-counting and contradict earlier testimony provided by Corporation officials and/or the Inspector General before the House Appropriations Subcommittee and House Committee on Government Reform and Oversight staff.
After months of denying a problem, the Corporation reported in September 1999, the 1998 program only produced 1.1 million closed cases. In April 2000 the Corporation reported 924,000 cases as the annual volume of work for the 1999 program. The greatly reduced numbers for the 1998 and 1999 programs, along with the case overstatements identified by OIG and GAO staffs for the 1997 program, offer compelling proof of how many phony cases were in the system when Corporation officials claimed to Congress that the case over-counting problem was minor.
After the scandal became public, Corporation officials have claimed and/or implied local programs and the Corporation do not have an incentive to over-count cases primarily because program funding is distributed according to the poverty population. This is not a fully accurate statement. Local programs know the Corporation uses the annual reported caseload as an evaluation factor when making the competitive grant award decision. It is part of the grant application process. The Congress uses the program's annual caseload to make level of funding decisions. In the budget request for FY 1999, the Corporation used a projected increase in the annual caseload that would result from increased funding as a basis for requesting additional funding from the Congress.
The bottom line is Corporation officials inappropriately supplied the Congress with unreliable and bloated annual caseload information to support request for increased funding in FY 1999 and FY 2000. They did not officially acknowledge or mention any case reporting problems to Congress prior March 3, 1999. Afterwards, the Corporation leadership did not fully disclose or accurately describe the scope and magnitude of the problems in subsequent reports, testimony, and statements to the Congress. The Congress made judgments based on Corporation misrepresentations.
The Inspector General is expected to be the watchdog of the program. The IG Act required the Inspector General to promptly notify the Board and Congress about the case over-counting and reporting problems because of its potential impact on the Corporation appropriation. Beginning November 1997 and thereafter, the Inspector General met his obligation to keep the Corporation fully and currently informed of all case reporting problems as quickly as the information became available. However, from November 1997 through March 1999 and thereafter he kept the Congress in the dark about the scope and magnitude of the case over-counting problems. When asked direct questions from members of Congress and congressional staff in March 1999 he did not provide accurate or complete answers. Further, he did not mention anything about case reporting problems in the March 31, 1998 and September 30, 1998 semiannual reports or fully disclose widespread problems in the March 31, 1999 semiannual report to Congress. In September 1999 House Judiciary Subcommittee hearing, the Inspector General again withheld important information from Congress. He did not inform the Subcommittee that the primary cause of the case overstatements was non-compliance with the LSC Act and Corporation regulations on client eligibility and that government auditing standards actually allowed him to report information from unfinished audits to Congress (Appendices 7 and 3).
The LSC President achieved one of his major employment objectives when Congress approved the $17 million funding increase for FY 1999 and the Board praised his efforts in getting the funding increase and awarded him a new contract. After the Inspector General did not report, and later denied, existence of any significant and widespread case reporting problems in semiannual reports to Congress, the March 3 budget hearing, and March 1999 discussion with congressional staff, he benefited by having misconduct charges against him dropped. In March 1998, the Board had circulated to congressional staff a document detailing charges that the Inspector General attempted to mislead congressional staff, misused his office, and violated the Corporation's communication policy with Congress. The Board also filed these charges with other authorities. After the Inspector General did not disclose serious case reporting problems to the Congress before passage of the FY 1999 appropriation, the Board publicly resolved the issues with him. After the Inspector General continued to not report significant and widespread case reporting problems to Congress after the FY 2000 budget hearing, the Board passed a resolution to increase his salary.
Index of the LSC Case Over-Counting Scandal
Legal Services Accountability Project Page