Audit says legal aid boss charged taxpayers for club, car

Introduction

The head of a Louisiana legal aid group funded by the federal government routinely dined at a private club and drove a leased vehicle for personal use at taxpayers’ expense, according to an audit that exposes significant fringe benefits inside a profession dedicated to helping the poor.

The Legal Services Corp. (LSC) inspector general, the chief watchdog for federal funds given to local legal aid groups nationwide, challenged $318,768 in expenditures by the Capital Area Legal Services Corp. in Baton Rouge, La., that were charged to taxpayers.

The group provides legal aid to poor residents in a dozen Louisiana parishes and received $1.5 million from Legal Services Corp. in 2009.

Many of the questioned expenditures involved the legal aid group’s executive director, James A. Wayne, Sr., who routinely submitted meals for reimbursement as “business expenses” even when he dined alone and on weekends.

The watchdog report, released earlier this month, concluded Wayne charged his legal aid group $33,150 for meals he claimed were business-related from Jan. 1, 2005 to May 31, 2009.

“The Executive Director frequently dined (breakfast, lunch, and dinner) at a private business club and restaurants in Baton Rouge,” Inspector General Jeffrey Schanz said in his report. “Many of the meals were lunches and dinners where the Executive Director dined alone, and some meals took place on weekends.”

Wayne acknowledged that he routinely dined at the Camelot Club, an exclusive dining club in Baton Rouge where an annual membership runs close to $2,000, but he disputed the audit report’s portrayal of the spending as inappropriate.

Utility giant Entergy Corp., a donor to Wayne’s nonprofit legal aid group, paid for his Camelot Club membership and meals, he said. That meant Wayne only charged taxpayers for the meal of his guests. The arrangement, he said, may have left the auditors with a false impression he was dining alone.

“I’m a very visible nonprofit director, so my meal is paid for,” Wayne told the Center in a telephone interview. “The other person wasn’t.”

The Camelot Club, located atop a downtown office building, describes itself as one of Baton Rouge’s “most prestigious clubs” with panoramic views of the Mississippi River, the state capitol building, and Louisiana State University. The club overlooks a city where about 24 percent of residents live in poverty, according to U.S. Census Bureau data.

When asked by the Center about the private club membership, New Orleans-based Entergy said it has temporarily suspended funding for the Baton Rouge group.

“We provided funding to the organization for low-income advocacy issues. We are aware of a pending investigation against the organization and have suspended any funding until it is resolved,” Entergy said in a statement to the Center. “We have no knowledge or control over how the donations were spent by the organization once they were received.

Wayne said he did not believe the inspector general’s criticisms were warranted. “None of it has any merit. We’ve been through this before,” he said.

Expenses lacked documentation

The audit concluded that $11,462 of Wayne’s meal reimbursements paid by federal tax dollars lacked proper documentation to show they were justified by business purposes.

In fact, the inspector general concluded that Wayne sometimes charged his legal aid group and taxpayers for personal meals under a loose reimbursement system that often sought to justify expenses after the fact. In some cases, Wayne added the names of guests or the business purpose of a meal to receipts more than a month later.

“Personal expenses are being inappropriately charged to the grantee and decisions on allowability of the charges are being made after the fact rather than on contemporaneous supporting documentation,” the inspector general concluded.

The Capital Area Legal Services Corp. is promising to revise its internal financial controls in response to the watchdog report, but disputes the assertion that there was anything wrong with Wayne’s meal reimbursements.

“CALSC maintains that it has provided evidence that the expenditures reviewed by the OIG meet the criteria set out in” federal regulations, the legal aid group said in a written response that was attached to the watchdog’s report.

A lawyer for the group, Vicki Crochet, told the Center in an e-mail that while certain expenses were questioned, CALSC “looks forward to the opportunity to show that it has properly accounted” for all Legal Services Corp. funding received. The expenses challenged by the inspector general are being submitted to the Legal Services Corp. for a final decision.

A Legal Services Corp spokesman told the Center that if it confirmed that funds were misspent, the federal agency could ask for the money to be repaid or could attach conditions to any future federal funding for Capital Area Legal Services Corp. “We take the inspector general’s reports very seriously and the Office of Compliance and Enforcement will give this a lot of attention,” Legal Services Corp spokesman Steve Barr said.

The inspector general also suggested the legal group’s problems might also extend to the Internal Revenue Service and state tax authorities.

“CALSC appears to have also improperly recorded transactions dealing with fringe benefits …, membership dues, lease payments, subscriptions, and client trust fund interest [and] may be liable for additional payments to the Internal Revenue Service and may be subject to sanctions from the State of Louisiana,” the inspector general warned.

Leased Camry, building rent questioned

Among those transactions, the watchdog questioned why Wayne charged taxpayers more than $78,555 over more than four years for a leased vehicle that he used both for business and personal transportation, and warned it might have violated tax laws.

Wayne said the leased vehicle was a Toyota Camry, and that he got a new model each year. “They change the cars out every year,” he said.

The inspector general challenged the need for a taxpayer-funded car.

“The Executive Director used the vehicle for both business and personal use without prior approval from LSC and without adequate documentation identifying when the vehicle was used for business and when the vehicle was used for personal reasons. Also, the Executive Director did not maintain and provide CALSC any records to document the use of the vehicle as required by the Internal Revenue Service,” the watchdog report concluded.

“Lacking adequate records, CALSC did not report to IRS as required the value of all use of the vehicle by the Executive Director as wages.”

Wayne said the car was leased for his business travel but that he began taking it home after the vehicle was vandalized in the legal aid group’s parking lot. The IRS recently gave him permission, Wayne said, to start reimbursing his nonprofit group $100 a month for personal use of the car.

Other practices at Capital Area Legal Services Corp. were questioned, including travel reimbursements for Wayne, LSC-funded payments of $144,646 to a fundraising consultant, and rent charged to the Legal Services Corp. even though the Baton Rouge group owned the building where its offices were located.

The rent payments appeared to charge taxpayers to help cover the group’s building mortgage, the inspector general said. “It is not reasonable and necessary for a single entity to pay itself rent in order to occupy a building that it already owns,” it concluded.

Wayne told the Center that the Legal Services Corp. approved the purchase of the building and was aware of the billing situation. He also asserts that the going rate for the rent was $900 per month, and Capital Area Legal Services Corp. only charged $750 per month, the same amount as its previous rent.

The Louisiana audit is the latest example of trouble inside the Legal Services Corp., the federally chartered corporation funded by Congress to provide legal assistance to the poor so they can access the civil courts. LSC provides tax dollars to local groups to do the work.

Members of Congress, including Republican Sen. Charles Grassley of Iowa and GOP Rep. Darrell Issa of California, and Democratic Sen. Barbara Mikulski of Maryland, are questioning whether LSC is doing enough to monitor the way groups spend the federal money to ensure it really helps the poor.

The Center reported in July that LSC has been struck by a rash of fraud cases in which tax dollars aimed at the poor were diverted to personal uses, including a Baltimore legal aid group executive accused of stealing more than $1 million, spending much of it, investigators said, on prostitutes and gambling.