Legal Fees Paid by FDIC and RTC to Hopkins & Sutter

(Audit Report No. 98-043, April 24, 1998)

The Office of Inspector General (OIG) has completed an audit of fees paid to Hopkins & Sutter, a law firm hired by the FDIC and RTC to provide legal services. The audit was conducted by the independent public accounting (IPA)firm of Mir,Fox & Rodriguez, P.C., through a contract with the OIG, and covered billings paid during the period from September 1, 1990, through June 30, 1996.

The objective of the audit was to determine whether Hopkins & Sutter's legal bills were adequately supported and in compliance with the cost limitations set forth by the FDIC and the RTC and that charges for legal services were reasonable. The total fees paid to the firm during the audit period were $58,126,996. The IPA identified net questioned costs of $179,556 from an audit sample of $12,058,960.

The draft report recommended that the Assistant General Counsel, Legal Operations Section, Legal Division, should:

(1) disallow $50,289 for legal fees billed at hourly rates higher than those authorized by the LSA,

(2) (a) evaluate the qualifications of unauthorized personnel who continue to work on FDIC and RTC matters, (b) determine how much of the $12,336 billed for unauthorized personnel should be ratified, and (c) disallow any of the remaining charges,

(3) disallow $5,746 for charges associated with changed or deleted pre-bill entries,

(4) disallow $2,499 for attorneys performing paralegal functions,

(5) disallow $2,445 for duplicate billings,

(6) disallow $491 for full rates billed during travel,

(7) disallow $529 for attorneys performing administrative work,

(8) disallow $70 for a time charge increase from billing memo to final bill,

(9) review block billing entries to determine if disallowances are warranted,

(10) disallow $68,223 for mark-up on legal research fees,

(11) disallow $29,985 for unsupported expenses,

(12) disallow $4,254 for mark-up on facsimile charges,

(13) disallow $1,367 for excessive/unallowable travel expenses,

(14) disallow $1,134 for excessive lodging charges,

(15) disallow $284 for unallowable expenses, and

(16) disallow $102 for photocopying charges in excess of allowable rate.

The Assistant General Counsel (AGC), Legal Division, provided a response dated March 10, 1998 to the OIG's draft report. Management disallowed questioned costs totaling $158,550 ($158,692 less overlapping amounts of $142 in recommendations 3 and 6). Although management's corrective actions for recommendations 1, 3, 4, 7, and 14 differed from the recommended corrective actions, we consider management's response as providing the requisites for a management decision on each of the recommendations.

In recommendation 1, the OIG recommended disallowance of $50,289 for legal fees billed at hourly rates higher than those authorized by the LSA. The AGC's response disallowed $47,230 and allowed $3,059 based on a review of the questioned entries and the firm's LSAs. The OIG accepts management's explanation and will reduce questioned costs to $47,088 ($47,230 less overlapping amount of $142 in recommendations 3 and 6).

In recommendation 3, the OIG recommended disallowance of $5,746 for charges associated with changed or deleted pre-bill entries. The AGC's response disallowed $1,521 and allowed $4,225 based on a review of the questioned entries and the OIG working papers. The OIG accepts management's explanation and will reduce questioned costs to $1,521.

In recommendation 4, the OIG recommended disallowance of $2,499 for attorneys performing paralegal functions. The AGC's response disallowed $1,026 and allowed $1,473 based on the firm's response and a review of the questioned entries. The OIG accepts management's explanation and will reduce questioned costs to $1,026.

In recommendation 7, the OIG recommended disallowance of $529 for attorneys performing administrative work. The AGC's response disallowed $423 and allowed $106 based on the firm's response and a review of the questioned entries. The OIG accepts management's explanation and will reduce questioned costs to $423.

In recommendation 14, the OIG recommended disallowance of $1,134 for excessive lodging charges. The AGC's response disallowed $907 and allowed $22ll reduce questioned costs to $364. After considering $158,550 in disallowances taken by management and management's comments on the IPA's findings, we will report questioned costs of $158,777 (including $29,985 of unsupported costs) in our Semiannual Report to the Congress.