- LSC Act Restrictions -- Longstanding restrictions on recipients' activities are contained in the LSC Act and newer, more numerous restrictions are contained in LSC appropriations (Pub. L. 104-134, and continued by Pub. L. 104-208). LSC Act restrictions apply to LSC funds with significant extensions to private funds, but allow public, IOLTA and tribal2 funds to be used for the purposes for which they are granted.
- Appropriations Act Restrictions -- Most of the appropriations restrictions are "entity restrictions" forbidding the conduct of the restricted activity with any funds (with a narrow exception for Indian tribal funds). Most appropriations restrictions took effect as of April 25, 1996, although a few specific requirements have later dates. With a few exceptions discussed below under §1610.7, transfer of LSC funds to another entity carries appropriations act restrictions (and LSC Act restrictions on private funds) along with it to all of that entity's funds. Transfer of non-LSC funds does not carry restrictions along with it. Regardless of whether funds are transferred to another entity, the extent to which a recipient may share staff and facilities with another organization that conducts restricted activities is limited by the program integrity standards of §1610.8.
Specific restrictions
Use of Funds for Restricted Activities
The LSC Act restrictions are listed under the rubric of "purpose prohibited by the LSC Act" at §1610.2(a). LSC funds and private funds may not be used for these activities; but public, IOLTA or tribal funds may be so used, provided the use is consistent with the purposes for which they were provided (45 CFR §§1610.2(a), 1610.2(c), 1610.2(e), 1610.2(f), 1610.4(b)).
The appropriations act restrictions are listed under the rubric of "activity prohibited by or inconsistent with section 504" at §1610.2(b). With exceptions discussed immediately below, no recipient funds, whether LSC or non-LSC, may be used for such activities (45 CFR §§1610.2(b), 1610.3). These exceptions are: (1) Indian tribal funds may be used for the specific purposes for which they were provided (45 CFR §§1610.2(h), 1610.4(a)); (2) restrictions governing representation in criminal proceedings and collateral attacks on criminal convictions, prisoner litigation and representation of aliens do not apply to (a) a recipient's or subrecipient's separately funded public defender program or project; or (b) criminal or related cases accepted by a recipient or subrecipient pursuant to a court appointment (45 CFR §1610.6). Both these exceptions also apply to LSC Act prohibitions discussed below (45 CFR §§1610.4(a), 1610.6).
Income Ineligible Client
A recipient may use any non-LSC funds to provide legal assistance to a financially ineligible (over-income) client, provided that the funds are used for the specific purposes for which those funds were provided and the activity is not otherwise prohibited by the LSC Act or Section 504 (45 CFR §1610.4(d)).
Contributions received from Non-LSC Sources
Except for contributions of less than $250, no recipient may accept funds from any source other than the Corporation, unless it provides to the source of the funds written notification of the prohibitions and conditions which apply to the funds (45 CFR §1610.5).
Restrictions on Transferred Funds
If a recipient transfers LSC funds to another person or entity, the prohibitions and requirements referred to in 45 CFR §1610 apply both to the LSC funds transferred and to the non-LSC funds of the person or entity to whom those funds are transferred, except that:
- As to the requirements of 45 CFR §1620 on priorities, the transferee shall either: (i) use the funds transferred consistent with the recipient's priorities; or (ii) establish their own priorities for the use of the funds transferred consistent with 45 CFR §1620.
- As to the requirements of 45 CFR §1635 on timekeeping, the transferee is required only to maintain records of time spent on each case or matter undertaken with the funds transferred and need not maintain such records in the form required by 45 CFR §1635.
- For a transfer of LSC funds to bar associations, pro bono programs, private attorneys or law firms, or other entities for the sole purpose of funding private attorney involvement activities (PAI) pursuant to 45 CFR §1614, the prohibitions or requirements of 45 CFR §1610 shall apply only to the funds transferred and not to the transferee's other funds (45 CFR §1610.7).
Program Integrity
A recipient must have objective integrity and independence from any organization that engages in restricted activities. A relationship with another organization will meet this standard if:
- The other organization is a legally separate entity;
- The other organization receives no transfer of LSC funds, and LSC funds do not subsidize restricted activities; and
- The recipient is physically and financially separate from the other organization. Mere bookkeeping separation of LSC funds from other funds is not sufficient. Whether sufficient physical and financial separation exists will be determined on a case-by-case basis and will be based on the totality of the facts. The presence or absence of any one or more factors will not be determinative. Factors relevant to this determination shall include but will not be limited to: (i) the existence of separate personnel; (ii) the existence of separate accounting and timekeeping records; (iii) the degree of separation from facilities in which restricted activities occur, and the extent of such restricted activities; and (iv) the extent to which signs and other forms of identification which distinguish the recipient from the organization are present (45 CFR §1610.8(a)).
Each recipient's governing body must have certified to the Corporation by December 19, 1997 that the recipient is in compliance with the requirements of §1610.8(a). Thereafter, the recipient's governing body must certify such compliance to the Corporation on an annual basis (45 CFR §1610.8(b)).
Funds received by a recipient from a source other than the Corporation shall be accounted for as separate and distinct receipts and disbursements in a manner directed by the Corporation (45 CFR §1610.9).
Suggested Audit Procedures
- Determine how the recipient ensures compliance with this regulation. Obtain an understanding of the internal controls in place to ensure compliance with the requirements of 45 CFR §1610. Review policies and procedures.
- Obtain an understanding as to how the restrictions are communicated to staff and whether these are adhered to by staff. Interview recipient staff as to their knowledge concerning the possible existence of any matter that may fall under the requirements of this regulation. Follow-up on all such possible occurrences.
- Inspect the recipient's Certification of Program Integrity for the current audit period to ensure that the program is in compliance with the program integrity requirements of 45 CFR §1610.8. Review any leases, contracts, agreements, arrangements, understandings or relationships that the recipient, its staff or its board may have currently or had previously entered into with entities (organizations or individuals) engaged in restricted activities in order to ensure compliance with 45 CFR §1610.8 and the guidance provided by LSC pursuant to the Program Integrity memo. (These entities may include individual private practitioners, law firms, not-for-profit organizations, public interest groups, etc.)
- Sample transactions (payments/transfers) with entities (organizations or individuals) that are known to be involved in restricted/ prohibited activities in order to ascertain that any such transactions comply with 45 CFR §1610.
- Review the accounting system (chart of accounts, general ledger etc.) to ascertain whether it provides for a separation of receipts and disbursements of LSC and non-LSC funds in accordance with the requirements of 45 CFR §1610.9.
- Review the method of allocating expenses between LSC and non-LSC funds to ascertain whether it ensures that non-LSC funds, except as permitted by 45 CFR §1610, are not used for the prohibited activities as defined by 45 CFR §1610.3.
- Inquire of appropriate personnel and review grant and contract agreements for non-LSC funds to determine whether activities that LSC restrictions permit to be undertaken with non-LSC funds (e.g., responding to requests of legislators or agency officials under Part 1612, payment of dues under Part 1627, etc.) may be undertaken with the particular non-LSC funds.