Legal Fees Paid by RTC to Gunster, Yoakley, Valdes-Fauli & Stewart

(Audit Report No. 98-005, January 9, 1998)

The Office of Inspector General (OIG) has completed an audit of Gunster, Yoakley, Valdes-Fauli & Stewart, 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 Doshi & Associates, P.C. through a contract with the OIG, and covered billings paid by the RTC from January 1, 1990, through September 30, 1993.

The objectives of the audit were to determine whether Gunster, Yoakley, Valdes-Fauli & Stewart’s legal bills were adequately supported and in compliance with the cost limitations set 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 during the audit period were $3,126,176. The audit sample covered $1,743,429. The IPA identified questioned costs of $91,047.

That the Assistant General Counsel (AGC), Legal Operations Section, Legal Division, should disallow questioned costs for:

(1) billing errors - $655,

(2) unauthorized personnel - $18,689,

(3)  professional fees billed at rates higher than those approved in the LSA - $650,

(4) travel time not discounted - $1,295,

(5) charges for services not adequately described - $21,905,

(6)  professional service fees charged for administrative tasks - $1,300,

(7) unauthorized research - $4,692,

(8) photocopying charges not billed to RTC at the firm’s actual cost - $19,029,

(9) telephone and copy service costs not billed at actual cost - $5,206,

(10) outside database charges not billed at actual cost - $11,098,

(11) duplicate consultant costs - $5,431, and

(12) unallowable secretarial overtime charges - $1,097.

The AGC’s response to a draft of this report and subsequent discussions provided the requisites for a management decision on each of the recommendations. Management disallowed a total of $26,943. Although management’s corrective actions on recommendations 5, 7, 8, and 12 differed from the recommended corrective actions, we consider management’s response as providing the requisites for a management decision.

Specifically, in recommendation 5, the OIG recommended that FDIC disallow $21,905 for vague descriptions of services performed. Management allowed the $21,905 questioned charges. The firm provided supplemental information for each questioned entry to clarify the description of the services performed. The Legal Division reviewed the questioned descriptions and supplemental information and determined that the descriptions were acceptable. The OIG reviewed the information provided by the firm and agrees that the entries are sufficiently precise to determine the nature of the services provided. The OIG accepts the explanation provided by management and, accordingly, reduced questioned costs for vague descriptions to $0.

In recommendation 7, the OIG recommended that FDIC disallow $4,692 for unauthorized research. Management allowed the questioned charges. The firm asserted that the research was authorized, but could not provide evidence of the authorization. The Legal Division reviewed the research performed and concluded that the research was necessary. The OIG accepts the explanation provided by management and, accordingly, reduced questioned costs to $0.

In recommendation 8, the OIG recommended that FDIC disallow unsupported photocopying costs of $19,029. Management stated that it would disallow $.07 per page for photocopies charged at $.15 per page in April and May 1992. However, management did not specify the disallowed amount. Based on subsequent discussions, the OIG determined that the Legal Division would disallow $1,123 which represented charges for more than the Legal Division’s maximum allowable rate. Management allowed $17,906 because it only required law firms to conduct cost studies for photocopying expenses if the firm billed more than the Legal Division’s established maximum allowable rate.

RTC guidelines provided that photocopying charges be billed at actual documented costs or at a standard cost based on a documented cost study and, therefore, photocopying costs not supported by a cost study were questioned by the IPA. The Legal Division subsequently revised its guidelines to allow firms to charge up to $.08 per page for photocopying. Therefore, in view of subsequent revisions to guidelines, the amount disallowed by the Legal Division does not appear to be unreasonable. However, the IPA appropriately questioned the photocopying costs for lack of support. Accordingly, the OIG will continue to question $19,029.

In recommendation 12, the OIG recommended that FDIC disallow $1,097 for unallowable secretarial overtime. Management allowed $912 of the questioned charges because the Legal Division determined that in two instances the firm was justified in charging for secretarial overtime. Specifically, RTC had required the firm to complete work under conditions likened to an emergency. The OIG accepts the explanation provided by management and, accordingly, reduced questioned costs for secretarial overtime to $185.

Based on the IPA’s audit work, $91,047 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 for employees working on RTC matters but not listed on the firm’s LSA, determine how much of the $18,689 in questioned charges should be ratified, and disallow any of the charges not approved. The Legal Division ratified all $18,689 questioned. After considering additional information provided by the firm, $26,943 in disallowances taken by management and management’s comments on the IPA’s findings, we reduced the amount questioned by $46,198. Consequently, we will report questioned costs of $44,849 (including $24,235 in unsupported costs) in our Semiannual Report to the Congress.