Legal Fees Paid by RTC to Morrison & Hecker L.L.P.

Legal Fees Paid by RTC to Morrison & Hecker L.L.P.

(Audit Report No. 98-059, June 22, 1998)

Summary

The Office of Inspector General (OIG) has completed an audit of Morrison & Hecker, a law firm hired to provide legal services to the former Resolution Trust Corporation (RTC). The audit was conducted by OIG staff and covered billings to RTC during the period January 1, 1992 through September 26, 1995.

The objective of the audit was to determine whether the firm's legal bills presented fairly the expenses and activities associated with FDIC cases assigned to the firm. The total fees billed by the law firm during the audit period were $39,855,565. The OIG identified questioned costs of $1,725,274 from an audit sample of $7,016,895.

Recommendations

That the Assistant General Counsel, Legal Operations Section, Legal Division, disallow:

(1) $762,517 for personnel not included in Legal Services Agreements,
(2) $748,882 for fees in excess of approved rates,
(3) $60,255 for work performed without an LSA,
(4) $10,934 for discrepancies between fees billed and time records,
(5) $9,412 for unsupported professional service fees,
(6) $4,874 for fees billed for questioned activities,
(7) $2,065 for miscalculated fees,
(8) $428 for RTC overpayments,
(9) $14,818 for unallowable expenses,
(10) $8,761 for expenses incurred before an LSA was executed,
(11) $519 for unsupported expenses,
(12) $198 for a transcription error,
(13) $45,323 for hours in excess of subcontractor's employee time sheets,
(14) $37,142 for subcontractor overhead items,
(15) $19,114 for rates in excess of the contract rate, and
(16) $32 for subcontractor addition and transcription errors.

Management Response

The General Counsel, Legal Division, responded to the draft report on March 30, 1998. Management disallowed questioned costs totaling $43,680. Although management's corrective actions for recommendations 1, 2, 3, 5, 6, 9, 10, 13, 14, and 15 differed from the recommended corrective actions, we consider management's response as providing the requisites for a management decision.

Management either ratified or allowed $1,681,594 of the $1,725,274 questioned in the draft report based on additional information provided by the law firm. Except for management's response to recommendation 5, the OIG accepts management's explanations regarding these recommendations.

Specifically, in recommendation 5, the OIG recommended that FDIC disallow $9,412 for unsupported professional service fees. This was due to the firm not maintaining time sheets to support fees billed to RTC. Management responded that the firm was not required to establish a particular kind of record-keeping system. At the time of the audit, the system used by the law firm was appropriate since the Legal Division had no requirement for electronic billing or the maintenance of corresponding time sheets. Even assuming that the computerized time records were somehow inadequate, the Legal Division would not make any disallowances for missing manual time sheets, due to the de minimis amount involved.

The OIG accepts management's position that the firm was not required to establish a particular kind of record-keeping system. However, the firm's billing system produced an original time sheet and the firm was required to maintain copies of all related bills and underlying supporting material, including original time sheets. Time sheets related to the $9,412 were not maintained and, therefore, the OIG could not independently verify the questioned time charges. Therefore, for recommendation 5, the OIG will continue to question $9,412.

After considering $43,680 in disallowances taken by management and management's comments on the draft report, we will report questioned costs of $53,092 (including $9,931 of unsupported costs) in our Semiannual Report to the Congress.

Last Updated 03/27/01