WASHINGTON, JULY 27, 1999-The Legal Services Corporation (LSC), the quasi-federal agency that supplies free legal aid to low-income litigants nationwide, is a case study in what happens when agencies operate without sufficient congressional oversight, a new Heritage Foundation paper says.

The LSC, which has provided $6 billion in legal aid to the eligible poor since 1974, issues grants to more than 260 local legal-aid programs across the country. Even though government audits show that the LSC is guilty of inflating the number of poor clients it serves, the agency has requested a $40 million increase over last year's budget to bring its total funding to $340 million.

So far, Congress has declined to go along, perhaps in part because the audits have shown that just over half of the LSC's reported caseload-198,000 out of 370,000 cases-can be considered valid, according to Heritage Senior Fellow in Government Studies Virginia L. Thomas and researcher Ryan H. Rogers.

"Offices overstated the number of cases handled, either because the cases were ineligible to be counted in the first place or because a case was counted more than once," the analysts say. "In other instances, the statistics were inflated because telephone contacts and nonexistent cases were included in the numbers." The audits have shown that non-LSC-funded cases were counted as well.

Worse, LSC leaders were informed of these discrepancies a year ago and failed to report them to Congress until March 1999. In the intervening months, Congress approved a $17 million increase in agency funding.

Among the examples of potential fraud cited by Thomas and Rogers:

• The Legal Aid Society of San Diego claimed it closed 33,096 cases for 1997, but an audit revealed only 10,787 of these cases were legitimate.

• Florida Rural Legal Services admitted last year that 39,471 of the cases it reported were invalid, dropping the number of legitimate cases from 53,393 to 13,922.

• Legal Services of Miami claimed to have closed 23,800 cases. An audit showed only 7,607 were resolved.

• A recent U.S. General Accounting Office (GAO) report found that of the 27,961 cases reported by the LSC office in Los Angeles, only 20,017 were valid.

• The GAO also found that 34,565 of the 53,262 cases reported by the LSC office in Baltimore were improperly counted.

• Of the 16,490 cases reported by the San Francisco Neighborhood Legal Assistance Foundation, about one-quarter-4,134-were valid. In a December 1998 letter to the LSC, the local director was forced to admit the figures had been inflated.

• The Houston office claimed 13,695 legitimate cases, but an audit found only 9,995.

• Legal Services of Northern Virginia reported 9,115 cases; only 5,156 were deemed valid.

Congress should phase out the LSC and turn the legal-aid funds over to the states to administer directly, Thomas and Rogers write. At the very least, Congress should revamp audit and reporting standards and deny additional funding requests until accurate case figures become available, they say.

"No one would deny that the less privileged in society benefit significantly from free legal assistance," the analysts write. "But it is entirely unacceptable for Congress or the states to continue to disburse taxpayer funds to LSC programs without considering credible or accurate information on how current money is being spent."