GUIDANCE IN APPLYING THE PROGRAM INTEGRITY STANDARDS
The following information is provided to help recipient
governing bodies assure their programs comply with 45 CFR 1610 which requires LSC
recipients to have "objective integrity and independence" from any organization
which engages in "restricted activity." Programs are encouraged to contact LSC
if they have any questions about compliance with the program integrity standards.
Objective integrity and independence: To meet the program integrity standard of 45 CFR 1610, if the recipient has any relationship with another organization which engages in restricted activities:
- the other organization must be a legally separate entity;
- the other organization must not receive any transfer of LSC funds;
- the recipient must not subsidize any restricted activities engaged in by the other organization; and
- the recipient must be physically and financially separate from the other organization.
A. Legally separate entity. A recipient may not engage in restricted activity and must be a legally separate entity from any organization which engages in restricted activity.
Overlapping boards: A recipient may have the same or overlapping Board of Directors as another organization which engages in restricted activity. However, the other organization must be a legally separate entity and the recipient's Board must ensure that the relationship between the recipient and the other organization meets the program integrity standards.
The fact that the recipient and another organization which engages in restricted activities have no common board members does not automatically mean there is no relevant relationship that should be reviewed to see if it meets the program integrity standards. For example, even though they share no board members, if the recipient subleases space to an organization which engages in restricted activity, or employs some of the same staff, the relationship should be reviewed for program integrity.
B. Transfers of recipient funds. Recipients may transfer LSC funds pursuant to the subgrant provisions of 45 CFR 1627 to an organization which does not engage in restricted activity.(1) Recipients may transfer LSC funds to an organization which engages in restricted activity only if the transfer is to support the recipient's private attorney involvement activity under 45 CFR 1614. Recipients may transfer non-LSC funds to an organization which engages in restricted activity only if the recipient maintains objective integrity and independence from the transferee organization.
Private attorney involvement. A recipient may transfer 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 part 1614, regardless of whether such associations, programs, attorneys, law firms or other entities otherwise engage in restricted activity using their other funds. Of course, the PAI activities supported by the recipient's funds and counted towards the recipient's PAI activity must not include any restricted activity.
C. Subsidizing restricted activity. A recipient may not use recipient resources to subsidize restricted activity.
"Subsidize" means to use recipient resources to support, in whole or in part, restricted activity conducted by another entity, or payment by the recipient to cover another entity's overhead for restricted activity. A "subsidy" does not include a transfer of a recipient's non-LSC funds to another organization regardless of the use the other entity makes of those funds. However, a recipient will be considered to be subsidizing the activities of another organization if it provides the use of its resources (e.g., donates space or telephone services) for restricted activity without receiving fair value for such use. A recipient will also be considered to be subsidizing the activities of another organization if it pays a third party to cover the overhead expenses for the restricted activities of the other entity (e.g., pays the rent for space that the other organization uses to conduct restricted activity without reimbursement from the other entity). Note, however, that the fact that the recipient receives a fair payment does not necessarily mean the arrangement is permissible. A recipient must also maintain physical and financial separation from an entity which engages in restricted activity.
D. Physical and financial separation: The determination of whether a recipient is physically and financially separate from another organization which engages in restricted activities will be determined on the totality of the factors in each particular case. Thus, this guidance on particular factors should not be considered as providing a bright-line response that would be true in all circumstances. Nor should it suggest that some involvement of each factor is necessarily permissible. With this caveat, the following is provided to assist recipients in reviewing their relationships with other organizations that engage in restricted activities.
1. Separate facilities: Recipients should be cautious about sharing space, equipment and facilities with another organization which engages in restricted activity since doing so may give the impression that the recipient is engaged in such activity. This is particularly so if the two organizations employ any of the same personnel or use any of the same facilities that are accessible to clients or the public. On the other hand, standing alone, being housed in the same building, sharing a library or other common space that is not accessible to clients or the public may be permissible so long as there is appropriate signage, separate entrances and other forms of identification distinguishing the two organizations, and no recipient funds subsidize restricted activity.
The governing body should review whether the recipient utilizes any of the same office space or equipment as an organization which engages in restricted activity. If so, the governing body should review what facilities and equipment are jointly utilized, the degree and frequency of use of such facilities or equipment for restricted activities, and whether the recipient receives fair value for the use of any of its space or equipment.
2. Separate personnel. There is no per se bar against a recipient employing part-time staff who are also employed part-time by an organization which engages in restricted activity. Generally speaking, however, the more staff "shared," or the greater the responsibilities of the staff who are employed by both organizations, the more danger that program integrity will be compromised. Sharing an executive director, for example, inappropriately tends to blur the organizational lines between the entities. Likewise, sharing a substantial number or proportion of recipient staff calls the recipient's separateness into question.
| a. | Arrangements to share personnel. The governing body should review whether the
recipient has any arrangements to employ any of the same personnel with other
organizations which engage in restricted activity. If such arrangements exist, the
governing body should review the number and positions of recipient staff who are "shared," and the duties they perform as
recipient employees. |
| b. | Joint utilization of personnel and facilities. Even where there is no agreement
to jointly employ the same staff, if the recipient and an organization which engages in
restricted activity are using any of the same facilities or equipment, the governing body
should review the number, positions and duties of part-time staff who are also working
part-time with the other organization. |
| c. | Substantial proportion of attorney or paralegal staff. The governing body
should be similarly informed if a substantial proportion(2)
of the recipient's attorney and/or paralegal staff work part-time for an organization
which engages in restricted activity regardless of whether or not there is an agreement to
share staff or the two organizations share facilities or equipment. |
| d. | No restricted work while on duty. The governing body should also ensure that the recipient has systems in place to assure that no staff perform any restricted work while on duty for the recipient nor identify the recipient with restricted activity. Attorneys or paralegals must maintain time records pursuant to the timekeeping requirements of 45 CFR 1635. Accurate timekeeping of activity undertaken for the recipient will be especially important for any recipient attorneys or paralegals who work part-time for an organization which engages in restricted activity. |
3. Separate accounting and timekeeping records. If the recipient employs any of the same personnel, or shares or utilizes office space or equipment, with an organization which engages in restricted activity, the governing body should review and ensure that the recipient maintains its own accounting and timekeeping records separate from those of any other organization. A recipient may send its financial records to an outside accountant or service bureau. A recipient may also perform accounting services for, or purchase them from, any other organization, provided the recipient maintains its records separately and fair value is exchanged for the services.
4. Signs and other forms of identification. Organizational names, building signs, business cards, telephone and fax numbers, e-mail addresses and other forms of identification should clearly distinguish the recipient from any organization which engages in restricted activity. Recipient governing bodies should review whether any such forms of identification could mislead the public about the recipient's separation and independence from organizations which engage in restricted activity.
E. Involvement of more than one factor. The program integrity test is a case-by-case determination based upon the totality of the circumstances. The more factors involved in a particular relationship between the recipient and another organization which engages in restricted activities, the more likely the recipient will fail the program integrity test. Once the governing body has sufficient information about each of the above factors, it must determine whether, taken as a whole, the recipient is physically and financially separate and independent from any organization which engages in restricted activity. If the answer is no, the governing body should take such action as is necessary to alter or disengage the recipient from the relationship before signing the certification.
F. Questions? Recipients are encouraged to contact LSC if they have any questions about the program integrity standards. Call either Anh Tu at (202) 336-8946 or Bob Gross at (202) 336-8856.
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1"Transfer" means a payment of LSC funds by a recipient to a person or entity for the purpose of conducting programmatic activities that are normally conducted by the recipient, such as the representation of eligible clients, or that provide direct support to the recipient's legal assistance activities. The term "transfer" does not include payment of recipient funds to vendors, accountants or other providers of goods and services made by the recipient in the normal course of business.
2 For larger organizations, 10% of the recipients's attorney/paralegal staff should serve as a guide. However, for recipients with smaller staffs, the program director should use his or her best judgement to determine whether part-time staff constitute a substantial proportion of the recipient's legal workforce.
