Legal Fees Paid by RTC to Sachnoff & Weaver

(Audit Report No. 98-061, June 19, 1998)

The Office of Inspector General (OIG) has completed an audit of Sachnoff & Weaver, a law firm hired to provide legal services to the Resolution Trust Corporation (RTC). The audit was conducted by the independent public accounting firm (IPA) of Ollie Green & Company through a contract with the OIG, and covered billings paid by RTC during the period January 1, 1990, through December 9, 1993.

The objectives of the audit were to determine whether Sachnoff & Weaver's legal bills were adequately supported and in compliance with the cost limitations set forth by RTC and the Federal Deposit Insurance Corporation (FDIC) and that charges for legal services provided to RTC were reasonable. The total fees paid to the law firm for RTC- related work during the audit period were $8,008,966. The audit sample covered $4,482,174, or 56 percent of the total. The IPA identified net questioned costs of $2,143,820.

That the Assistant General Counsel (AGC), Legal Operations Section, Legal Division, should:

The OIG also recommended that the AGC disallow $97,681 related to 11 other recommendations. Specifically, the OIG recommended the AGC disallow $20,007 for intra-office conferencing charges, $18,412 for duplication of effort charges, $12,610 for charges that were inadequately described, $10,527 for unallowable charges, $7,524 for various unsubstantiated expenses, $7,155 for facsimile charges that exceeded actual costs, $6,721 for review, revise and edit charges, $5,422 for inappropriate legal research charges, $4,801 for unauthorized rates billed, $4,022 for intra-office memoranda charges, and $480 for a duplicate billing.

The General Counsel's response to a draft of this report provided the requisites for a management decision on each of the recommendations. Management disallowed a total of $17,655. Specifically, management disallowed $7,155 for facsimile charges not at actual costs, $7,093 for unsubstantiated expenses, $2,927 for unallowable charges, and $480 for a duplicate billing.

Management allowed $2,126,165. Specifically, management ratified the $224,468 questioned during the period in which the firm did not have an LSA and $1,176,802 questioned for personnel working on RTC matters but not listed on an LSA. Management also reviewed the $489,197 in unauthorized application of duplicate payments and determined that the firm's practice of offsetting subsequent invoices against the duplicate payments was proper and performed with RTC's knowledge. Management allowed the $124,157 questioned for various unapproved charges because written authorization was not required by applicable guidance and three former RTC supervising attorneys confirmed that consulting contracts representing the majority of the questioned costs were approved. Finally, management determined that the firm had already reimbursed the $31,515 in unapplied duplicate payments. The OIG accepts management's explanations for these findings and reduced questioned costs by $2,046,139.

In addition, management allowed $80,026 of the $97,681 questioned in 11 other recommendations. Based on a review of the working papers and various explanations provided by the firm, management allowed the $20,007 for intra-office conferencing charges, $18,412 for duplication of effort charges, $12,610 for charges that were inadequately described, $6,721 for review, revise, and edit charges, $5,422 for inappropriate legal research charges, $4,801 for unauthorized rates billed, and $4,022 for intra-office memoranda charges. Management also allowed $431 in certain unsubstantiated expenses that were paid more than 4 years before the audit commenced and, therefore, were beyond the firm's document retention requirements. The OIG accepts management's explanations for these findings and reduced questioned costs by $72,426.

Finally, management allowed $7,600 in various unallowable charges. Specifically, management allowed $143 in local delivery charges and $249 for extraordinary postage charges, and $7,208 for unapproved overtime charges. The OIG accepts management's decision to allow the local delivery and postage charges and, accordingly, reduced questioned costs by $392. However, management was unable to determine that the overtime was approved but allowed the charges because applicable guidance did not require that the overtime be approved in writing, and the Legal Division believed that the overtime was necessary given the nature of the thrift resolution crisis. Nonetheless, lacking specific written evidence or independent confirmation from the oversight attorney that the overtime was approved, the OIG cannot verify that the overtime was authorized. Therefore, the OIG will continue to question $7,208.

Based on the IPA's audit work, $2,143,820 was questioned in the draft report transmitted to management. After considering $17,655 in disallowances taken by management and management's comments on the IPA's findings, we will report questioned costs of $24,863 (including $7,093 in unsupported costs) in our Semiannual Report to the Congress.