Legal Fees Paid by the FDIC to Miller, Hamilton, Snider & Odom
(Audit Report No. 98-003, January 9, 1998)
The Office of Inspector General (OIG) completed an audit of Miller, Hamilton, Snider & Odom, a law firm hired by the FDIC to provide legal services. The audit was conducted by the independent public accounting firm (IPA) of Ollie Green & Company, CPA's, through a contract with the Resolution Trust Corporation OIG. This audit covered paid billings for services provided to the FDIC during the period of January 1, 1990 through July 16, 1993.
The objective of the audit was to determine whether the fee bills submitted by the law firm present fairly the expenses and activities of the cases for which the fee bills were submitted. Accordingly, Miller, Hamilton's fee bills were reviewed to determine whether they were: (1) adequately supported by source documentation, (2) prepared in compliance with applicable FDIC cost provisions, (3) consistent with the terms and conditions of the governing agreements, and (4) representative of the cost of services and litigation which were approved in advance by the FDIC. The audit sample covered $233,239, or 30 percent, of the $786,149 paid to the law firm for FDIC related work during the audit period. The OIG questioned costs of $108,199 in the draft audit report. However, after considering additional information provided by the firm and management's comments, the OIG modified the questioned amount.
The OIG recommends that the Assistant General Counsel, Legal Operations Section, Legal Division disallow $102,643 in questioned costs for the following issues:
- $9,819 for hourly rate variances;
- $3,799 for unallowable travel reimbursement costs;
- $2,816 for unsupported expenses;
- $1,974 for unallowable expenses;
- $999 for unauthorized personnel; and
- $875 for unsupported fee adjustments
The OIG also identified $53,619 in the firm's task descriptions and activities which were prepared in a block billed format prohibited by the FDIC's Outside Counsel Fee Bill Payment Program Instruction Manual. Accordingly, the report recommends that the Assistant General Counsel inform Miller, Hamilton that it is not preparing invoices in compliance with the FDIC's procedures concerning block billing, and consider returning as unprocessed any invoices received in the future that contain block billed entries.
The General Counsel, Legal Division responded to the OIG's draft report on September 2, 1997. The Legal Division's response provided the requisites for a management decision on each of the recommendations and management agreed to disallow $28,518.
On recommendation 1, the Legal Division partially agrees with the OIG's recommendation concerning unsupported time entries and states that it will disallow $8,236 for Miller, Hamilton's failure to adhere to its contractual requirements to retain original time sheets. However, the OIG considers the Miller, Hamilton practice of not retaining original time sheets to have prevented the IPA's auditors from evaluating the accuracy and validity of the time billed by the law firm to the FDIC. In the absence of this type of independent confirmation of the attorney time charged, the OIG must continue to recommend disallowance of the time billed. Although, we accept the Legal Division's position as a management decision regarding this issue, the OIG will report $82,361 in unsupported time as questioned costs in its Semiannual Report to the Congress.
In recommendations 2-7, the Legal Division agrees with the OIG on these issues and agrees to disallow all but $7, or $20,282, from Miller, Hamilton in regard to the recommended disallowances. On recommendation 6, the OIG has reviewed the subsequent documentation provided by the law firm in response to our condition on unauthorized personnel. We concur with the Legal Division's decision to disallow $999 ($1,006 - $7) from Miller, Hamilton for this condition. On recommendation 8, the Legal Division agrees with the OIG and has reiterated its prohibition against block billing to all of the law firms dealing with the FDIC. After considering management's response on the IPA's findings, the OIG will report questioned costs of $102,643 (including $86,052 in unsupported costs) in its Semiannual Report to the Congress.
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