Legal Fees Paid by RTC to Haynes & Boone

(Audit Report No. 98-060, June 18, 1998)

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

The objective of the audit was to determine whether Haynes & Boone's legal bills were adequately supported and in compliance with the cost limitations set forth by the RTC and that charges for legal services were reasonable. The total fees paid to the firm during the audit period were $2,603,268. The IPA identified net questioned costs of $1,575,170 from an audit sample of $1,690,634.

That the Assistant General Counsel, Legal Operations Section, Legal Division:

Management disallowed questioned costs totaling $143,346. Although management's corrective actions for recommendations 1, 4-10, and 12 differed from the recommended corrective actions, we consider management's response as providing the requisites for a management decision on each of the recommendations.

In recommendation 1, the OIG recommended that the Legal Division evaluate the fees and expenses billed in the amount of $225,301 during the period which the firm did not have an effective LSA, ratify those amounts deemed reasonable and disallow any of the charges not approved. Management ratified the post-LSA fees and expenses to the extent that they were in accordance with the firm's LSA, which expired on February 1, 1993, and took no action on the pre-LSA fees and expenses as the firm was inherited counsel during this period. The OIG accepts management's explanation and reduces questioned costs to zero.

In recommendation 4, the OIG recommended disallowance of $1,420,180 for unsupported time charges. The General Counsel's response disallowed $60,085, allowed $1,141,605 and did not opine on payments of $218,490 occurring more than four years prior to the audit. The law firm represented that its practice is to dispose of time sheets or electronic records after 18 months. The Guide requires that law firms retain time sheets for at least four years after payment. The Legal Division acknowledges the firm's responsibility to retain time and billing records. After interviewing four supervisory attorneys and considering other factors, the Legal Division believes that a $60,085 disallowance is appropriate. The OIG acknowledges the four year record retention period and will question $1,193,730 because it could not independently verify the questioned time charges.

In recommendations 5 to 10, the OIG recommended disallowances totaling $38,463. The General Counsel's response allowed these questioned costs based on the firm's response and review of the questioned entries. The OIG accepts management's explanations and will reduce questioned costs to zero for each of these recommendations.

In recommendation 12, the OIG recommended disallowance of $84,067 for unsupported expenses. The General Counsel's response allowed $23,929 based on the firm's response and disallowed $44,166 ($60,138 less $15,972 for amounts paid more than four years prior to the audit). The OIG will continue to question $20,745 ($23,929 less $3,184 for amounts paid more than four years prior to the audit) for unsupported photocopy and facsimile charges. Therefore, the OIG will continue to question $64,911 ($44,166 + $20,745).

Based on the IPA's audit work, $1,575,170 was questioned in the draft report transmitted to management. After considering $143,346 in disallowances taken by management and management's comments on the IPA's findings, we will report questioned costs of $1,297,736 (including $1,258,641 for unsupported fees and expenses) in our Semiannual Report to the Congress.