The South Carolina Centers for Equal Justice, a nonprofit organization that provides free legal help to thousands of poor residents statewide, is under investigation for alleged billing fraud and mismanagement.

The national nonprofit Legal Services Corporation, which is conducting the investigation, has placed the program on month-to-month funding with the start of the new year, according to documents obtained by The State.

The corporation, established and funded by Congress, provides about half of the centers’ annual $8.5 million budget. The program also receives state grants and private money.

The centers also are coping with personnel issues. executive director Teresa Cosby has been on leave since last month, and there is an effort to unionize non-management staff, agency officials confirmed.

But officials — who dispute several of the main allegations —say the centers will remain open.

“There is no immediate threat, no change of what is required of us,” said Stuart Andrews, board vice chairman, in a telephone interview Tuesday from Washington, D.C.

Corporation officials did not return repeated calls this week. But in a statement issued Tuesday, the LSC said the centers have “taken very serious and aggressive steps to address the concerns we raised.”

The Greenville-based program has 14 locations statewide, including offices in Columbia and Lexington. It formed in January 2002 with the merger of three legal services agencies.

The centers provided free legal help in about 10,300 cases last year; another 17,000 people received legal information through various outreach programs, officials said.

The program’s approximately 60 lawyers handle only civil cases, focusing on family, housing, public benefits and elder law issues. Typical cases involve child support orders, landlord/tenant disputes, bankruptcies and wills.

Andrews, board chairman Robert Kilgo and several other program representatives met Tuesday in Washington with Legal Services Corporation officials to discuss a 64-page investigative report issued by the corporation and obtained by The State.

In the November report, the LSC said it found “serious issues at the program including non-compliance with certain LSC requirements and serious concerns regarding the expenditure of (LSC) and other funds.”

“Specifically, there was clear evidence of potential waste of federal funds due to the inability to keep certain financial records adequately and accurately,” the report said.

In a Nov. 6 letter, John Eidleman, the LSC acting vice president for compliance and administration, warned that the issues could affect the centers’ funding if not corrected.

Some cases not handled by the centers are referred to the S.C. Bar, the state’s professional organization for lawyers, which operates a similar program.

But Robert Wells, the Bar’s executive director, said this week he does not expect that the centers’ problems will immediately affect his organization’s “pro bono” program.

LSC officials visited the centers in February and March after receiving internal complaints about billing procedures and management issues, according to the report.

Among the 23 findings cited in the LSC report:

• Management directed employees last year to charge up to 18.75 unworked hours per week over a nine-month period to a state Department of Social Services grant aimed at helping poor residents get food stamps. Several employees reported they felt they would be fired if they did not agree to falsify their original time sheets.

“Overall, a majority of staff members were interviewed on this topic, and these interviews raised substantial and sufficient concerns that management had ordered staff to improperly alter time records,” the report said.

The report said though it had reached “no final conclusions regarding allegations of fraud,” it was referring the matter to the LSC Office of Inspector General, noting that investigation of fraud allegations is the office’s “primary responsibility.”

• Improper charges were routinely made to the Private Attorney Involvement program, which is supposed to use LSC funds for private attorneys to handle cases in counties not directly served by the centers. The centers also might have improperly used 2002 private attorney money toward a $198,000 deficit that the program inherited when it formed.

The centers also were supposed to have spent $550,230 for 2002 on the private attorney program, but reportedly spent $203,200, or about 37 percent of the LSC requirement. One center manager reported the program is “underutilized and ineffective.”

• Staff have described upper management, including director Cosby, as “hostile” and “combative.” Between January 2002 and March 2003, 30 employees, or a quarter of the staff, have been fired or resigned.

Employees told LSC officials they were warned by management that any negative comments about the centers would be “considered an act of insubordination subject to termination,” the report said.

Cosby this week declined to discuss the report’s allegations.

Board chairman Kilgo and vice chairman Andrews said Tuesday they are working to address the issues cited in the report.

“I think we are moving toward a great period of cooperation between all the parties involved,” said Kilgo, who works as a public defender in Darlington County.

Even though the LSC put the centers on month-to-month funding, it has not cut its annual grant of about $4.8 million, noted Andrews, a Columbia lawyer.

Andrews and Kilgo disputed some of the main allegations in the LSC report. They said, for example, the state DSS had agreed to allow the centers to charge its grant for unworked hours, so long as the centers’ staff was available to do the work.

Andrews also pointed out that the centers had charged DSS only about half of the available $300,000 to $400,000 grant money.

Regarding the private attorney program, Kilgo said, “This is an area that is a subject of a large gray zone.”

Kilgo declined to discuss Cosby’s status as director, saying it was a personnel matter.

Cosby, who has been the director since the centers’ formation, said she has been on personal leave since Dec. 9. But she said her leave, which she said ends this week, has nothing to do with the LSC investigation.

“There are directions the board wants to go in, and directions I want to go in,” she said. “I’m just taking this time to decide for myself what I want to do.”

Cosby, a lawyer, said she makes $100,000 a year as director. Andrea Loney, another lawyer with the centers, currently is the interim acting director. She referred questions to Kilgo this week.

Reach Brundrett at (803) 771-8484 or rbrundrett@thestate.com.