Legal Fees Paid by RTC to Miller, Hamilton, Snider & Odom

(Audit Report No. 98-002, January 9, 1998)

Summary

The Office of Inspector General (OIG) has completed an audit of Miller, Hamilton, Snider & Odom, 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 paid billings for services provided to RTC during the period January 1, 1990, through July 16, 1993.

The objectives of the audit were to determine whether Miller, Hamilton, Snider & Odomís 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 $1,256,356. The audit sample covered $791,413, or 63 percent of the total. The IPA identified questioned costs of $510,784.

Recommendations

That the AGC, Legal Operations Section, Legal Division, should disallow the following questioned costs:

(1) $195,327 for missing time sheet charges,

(2) $250,783 for unauthorized personnel,

(3) $9,474 for unauthorized rate charges,

(4) $4,014 for excess time charges,

(5) $573 for administrative charges,

(6) $13,668 for unsubstantiated expenses,

(7) $4,123 for document reproduction charges that exceeded actual costs,

(8) $3,216 for unallowable expenses,

(9) $11,433 for fees related to duplicative attendance at hearings, conferences, and

meetings and duplicative work efforts,

(10) $3,731 for clerical work charged by attorneys and paralegals,

(11) $5,958 for transient biller charges,

(12) $2,443 for duplicative time entry charges, and

(13) $6,041 for unauthorized research.

In addition, the OIG recommended that the AGC disallow all fees and expenses paid to the law firm prior to the issuance of a legal services agreement. Finally, the OIG recommended that the AGC assess the appropriateness of the unaudited billings and disallow the costs deemed inappropriate.

Management Response

In response to a draft of this report, the AGC provided the requisites for a management decision on each of the recommendations. Management disallowed a total of $64,376, including $217 more than the OIG recommended for recommendation 3. Although managementís corrective actions on recommendations 1, 4, 6 through 12, and 14 differed from the recommended corrective actions, we consider managementís response as providing the requisites for a management decision.

Specifically, in recommendation 1, the OIG recommended that FDIC disallow $195,327 for missing time sheet charges. Management allowed $165,207 and disallowed $30,120. Management acknowledged that the firm did not maintain the time sheets as required by RTC. However, management did not believe that the firmís failure to maintain required documentation was a "no cost" alternative to outside counsel. Accordingly, after considering other factors, management considered $30,120 as an appropriate penalty. In the absence of time sheets, the OIG could not independently verify the questioned time charges. Therefore, for recommendation 1, the OIG questioned $195,327.

In recommendation 4, the OIG recommended that FDIC disallow all fees and expenses paid to the law firm prior to the issuance of a legal services agreement. Management allowed all the fees and expenses paid to the law firm prior to the issuance of the legal services agreement. The law firm submitted a letter dated June 22, 1987, attaching a legal services agreement executed on June 27, 1987. The law firm was then retained by FDIC on a case-by-case basis by letter agreement. The audit finding covers fees and expenses for work performed from January to August 1990. Therefore, the June 27, 1987, legal services agreement covered the questioned period of time. The OIG accepts managementís explanation.

In recommendation 6, the OIG recommended that FDIC disallow $573 for administrative charges. Management allowed $400 and disallowed $173. Based on a review of the IPAís working papers and additional law firm documentation, the OIG agreed to reduce questioned costs by $400. This amount related to research the firm performed in support of a motion for summary judgment, rather than researching its own conflicts of interest. Accordingly, for recommendation 6, the OIG questioned $173.

In recommendation 7, the OIG recommended that FDIC disallow $13,668 for unsubstantiated expenses. Management allowed $1,652 and disallowed $12,016. The Legal Division allowed $531 that was subsequently supported by the firm and $1,121 related to records that were beyond the period of RTCís document retention requirements. The OIG accepts managementís explanation and, accordingly, reduced questioned costs to $12,016.

In recommendation 8, the OIG recommended that FDIC disallow $4,123 for document reproduction charges that exceeded the firmís actual costs. Management allowed the $4,123 because the Legal Division could not ascertain the basis of the auditorís $.25 per page copying cost, and the law firm asserted that its internal records indicated a $.08 per page copying cost. The OIG provided the Legal Division with the working papers that indicated the basis for the $.25 per page copying cost. In a draft of its response, the Legal Division stated that "The work papers also reflect that the firm told the auditor that the number of copies could be calculated by dividing the draft amount by $.25. The auditor used that calculation to determine the number of copies." Further, based on its review of the working papers, the Legal Division had planned to disallow all the questioned charges. In the process of finalizing its response to the draft report, the Legal Division changed its position to allow all the questioned costs. The Legal Division revised its guidelines to allow firms to charge up to $.08 per page for photocopying. However, the IPA appropriately questioned the photocopying costs for lack of support. For recommendation 8, the OIG continues to question $4,123.

In recommendation 9, the OIG recommended that FDIC disallow $3,216 for unallowable expenses. Management allowed $161 and disallowed $3,055. The Legal Division allowed the $161 that was questioned for secretarial overtime. The law firm stated that the oversight attorney was aware of and approved the overtime. 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, for recommendation 9, the OIG questioned $3,216.

In recommendation 10, the OIG recommended that FDIC disallow $11,433 for fees related to duplicative attendance at hearings, conferences, and meetings and duplicative work efforts. Management allowed the $11,433. Based on a review of the work performed and explanations provided by the law firm, the Legal Division concluded that no duplication occurred. Specifically, the two questioned attorneys in fact had separate areas of expertise (one in litigation and the other in bond claims), and each had different roles in the case and in response to various needs warranted by the case. Further, the RTC oversight attorney was aware that the two attorneys were working jointly on the case. The OIG accepts managementís explanation and, accordingly, reduced questioned costs to $0.

In recommendation 11, the OIG recommended that FDIC disallow $3,731 for clerical work charged by attorneys and paralegals. Management allowed $867 and disallowed $2,864. The Legal Division allowed $867 based on supplemental detailed explanations provided by the law firm that explained the need for professional staff to accomplish legal tasks associated with the representation of RTC. The OIG accepts managementís explanation and, accordingly, reduced questioned costs to $2,864.

In recommendation 12, the OIG recommended that FDIC disallow $5,958 for transient biller charges. Management allowed the $5,958. The Legal Division responded that the questioned costs related to invoices covering one individual. The RTC supervising attorney was aware of the individualís involvement in a particular matter and, in fact, met with him after assuming supervision of the case. Therefore, the Legal Division concluded that the individual should not be considered a transient biller. The OIG accepts managementís explanation and, accordingly, reduced questioned costs to $0.

In recommendation 14, the OIG recommended that FDIC disallow $6,041 for unauthorized research. Management allowed the $6,041. The law firm emphasized that the questioned matters involved many difficult issues, numerous defendants, and the result was a $3 million recovery. Further, the savings and loan crisis was at its peak, time was of the essence, and the volume of work was taxing. The Legal Division stated that to penalize the law firm for not utilizing the RTC research bank for performing its own research during this time period would not be reasonable.

RTC guidelines required RTC approval for extensive research and required the RTC research bank be exhausted before initiating any research efforts. Lacking specific evidence or independent confirmation that the research was approved, the OIG cannot verify that the research was authorized. Therefore, for recommendation 14, the OIG questioned $6,041.

Based on the IPAís audit work, $510,784 was questioned in the draft report transmitted to management. In addition to the recommendations previously discussed, in recommendation 2, the OIG recommended that FDIC analyze the qualifications of employees working on RTC matters but not listed on the firmís legal services agreement, determine how much of the $250,783 in questioned charges should be ratified, and disallow any of the charges not approved. The Legal Division ratified all $250,783 of the questioned charges. The OIG accepts the action taken by management and, accordingly, reduced questioned costs to $0. After considering additional information provided by the firm, $64,376 in disallowances taken by management and managementís comments on the IPAís findings, we will report questioned costs of $239,691 (including $211,357 in unsupported costs) in our Semiannual Report to the Congress.

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