Legal Fees Paid by FDIC and RTC to Powell, Goldstein, Frazer & Murphy

(Audit Report No. 98-028, March 17, 1998)

Summary

The Office of Inspector General (OIG) has completed an audit of Powell, Goldstein, Frazer & Murphy, a law firm hired to provide legal services to the FDIC and the RTC. The audit was conducted by the independent public accounting (IPA) firm of Crowe Chizek and Company, LLP, and independent counsel of Messrs. Thomas C. Scherer and Gerald L. Gregerson, of Bingham, Summers Welsh & Spilman, through a contract with the FDIC OIG. The audit covered billings paid by the FDIC and the RTC during the period January 1, 1992 through December 31, 1995.

The objective of the audit was to determine whether Powell, Goldstein, Frazer & Murphy?s legal bills were adequately supported and in compliance with the cost limitations set forth by the FDIC and RTC and that charges for legal services were reasonable. The total fees paid to the law firm during the audit period were $17,143,767. The IPA identified net questioned costs of $491,904 from an audit sample of $9,955,631.

Recommendations

The draft report recommended that the Assistant General Counsel (AGC), Legal Operations Section, Legal Division, disallow the following questioned costs:


(1) $296,293 for unapplied receipts and duplicate payments,
(2) $105,535 for unauthorized personnel,
(3) $5,393 for attorneys performing paralegal work,
(4) $4,663 for overhead/administrative charges,
(5) $3,128 for excessive hours billed,
(6) $1,651 for erroneous time charges,
(7) $1,612 for hourly rate variances,
(8) $1,602 for full time billed for travel,
(9) $196 for nondiscounted rates,
(10) $38,819 for unsupported miscellaneous expenses,
(11) $16,283 for word processing charges,
(12) $9,892 for mark-up long distance,
(13) $3,672 for miscellaneous nonbillable expenses, and
(14) $3,165 for marked-up express mail.

Management Response

The General Counsel, Legal Division, provided a response dated December 23, 1997 to the OIG?s draft report. Although management?s corrective actions for recommendations 2-5, 7, 10 and 11 differed from the recommended corrective actions, we consider management?s response and subsequent discussions as providing the requisites for a management decision on each of the recommendations.

In recommendation 2, the OIG recommended disallowance of $105,535 for unauthorized personnel. The Legal Division disallowed $7,119 and ratified $98,416 based on an analysis of timekeeper rates and additional information provided by the firm. The OIG will reduce questioned costs to $7,119.

In recommendation 3, the OIG recommended disallowance of $5,393 for attorneys performing paralegal work. The Legal Division allowed the questioned costs based on a review of the questioned entries and additional information provided by the firm. The Legal Division believes that the delegation of the questioned work to lower billing rate personnel would have been economically counter-productive. The OIG accepts management?s explanations and will reduce questioned costs to $0.

In recommendation 4, the OIG recommended disallowance of $4,663 for overhead/administrative charges. The Legal Division disallowed $2,916 and allowed $1,747 based on review of the questioned entries and additional information provided by the firm. The OIG accepts management?s explanations and will reduce questioned costs to $2,916.

In recommendation 5, the OIG recommended disallowance of $3,128 for excessive hours billed. The Legal Division allowed the questioned costs based on a review of questioned entries and the firm?s response. The OIG accepts management?s explanations and will reduce questioned costs to $0.

In recommendation 7, the OIG recommended disallowance of $1,612 for hourly rate variances. The Legal Division disallowed $1,178 and allowed $434. The firm provided documentation to support that $434 had been previously disallowed by the FDIC and the RTC. The OIG will reduce questioned costs to $1,178.

In recommendation 10, the OIG recommended disallowance of $38,819 for unsupported miscellaneous expenses. The Legal Division disallowed $981 and allowed $37,838 based on the firm?s response and additional supporting documentation. The OIG will reduce questioned costs to $981.

In recommendation 11, the OIG recommended disallowance of $16,283 for word processing charges. These charges were shown as document production charges on the pre-bill but the description was changed on the fee bill to photocopying charges. The firm stated that its policy is to print a copy of stored electronic documents on a laser printer rather than pulling an existing ?hard? copy and reproducing it on a photocopy machine. The Legal Division?s interpretation of the LSA is that the reimbursability of an expense such as photocopying should not and does not depend upon the type of equipment or technology utilized to produce a copy. Therefore, the Legal Division allowed the questioned costs.

However, the OIG will continue to question $16,283 because the laser printers? job accounting system does not distinguish between original and non-original copies. The OIG advised the Legal Division of this limitation in the job accounting system after the Legal Division?s response had been provided. Based on subsequent discussions, the Legal Division agreed to advise the firm to enhance the laser printers? job accounting system to determine the allowability of charges on a look-forward basis.

Lastly, in recommendation 1, the OIG recommended disallowance of $296,293 for unapplied receipts and duplicate payments and that the Legal Division consider computing interest on the outstanding balances held by the firm. The firm stated that during the 1990-1992 period it was both difficult for it to apply the payments made and to insure proper credit by the FDIC/RTC for duplicate payments that were returned. Therefore, the firm deemed that it was more efficient to await a refund request by the FDIC or RTC than to initiate a refund. The firm remitted $296,293 to the FDIC via wire transfer based on a demand by the Legal Division.

The Legal Division collected the questioned costs but does not believe that any breach of either the intent or spirit of the LSA has occurred. As such, the Legal Division stated that it will not impose interest charges against the firm given the undisputed slow payment of invoices by the FDIC and the RTC during the 1990-1992 period. The IPA working papers show that the firm did not maintain the monies in an interest bearing account. Therefore, the OIG accepts management?s explanations and will question $296,293.

After considering additional information provided by the firm and management?s comments on the IPA?s findings, we will report questioned costs of $344,948 (including $981 for unsupported costs) in our Semiannual Report to the Congress.

Last Updated 03/27/01 contact the OIG