Legal Fees Paid by RTC to Dickstein, Shapiro & Morin

(Audit Report No. 98-069, June 26, 1998)

The Office of Inspector General (OIG) has completed an audit of Dickstein, Shapiro & Morin, 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 billings paid by RTC during the period January 1, 1990, through December 9, 1993. The objectives of the audit were to determine whether Dickstein, Shapiro & Morin's 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 $2,761,724. The audit sample covered $1,711,580, or 62 percent of the total. The IPA identified net questioned costs of $551,966.

That the Assistant General Counsel (AGC), Legal Operations Section, Legal Division:

The General Counsel's response to a draft of this report provided the requisites for a management decision on each of the recommendations. Management disallowed a total of $19,160. Specifically, management disallowed $6,528 for unsubstantiated expenses, $4,719 for invoice time charges in excess of time sheet charges, $2,895 for facsimile charges not at actual costs, $1,937 for unauthorized rate charges, $1,082 for duplicate billing entries, $902 for unallowable expenses, $587 for administrative time charges, and $510 for inappropriately staffed services.

Management allowed $532,806. Specifically, management ratified the $158,492 questioned during the period in which the firm did not have an LSA and $216,866 questioned for personnel working on RTC matters but not listed on an LSA. Based on a review of the working papers and explanations provided by the firm, management also allowed $9,538 questioned for vague descriptions, $7,254 questioned excessive time charges, and $586 questioned for inappropriately staffed services. The OIG accepts management's explanations for these findings and reduced questioned costs by $392,736.

Additionally, management allowed $89,521 for fees not adequately supported by time sheets because RTC and FDIC guidelines at the time did not require firms to use and retain handwritten time sheets, nor did the guidelines establish a particular kind of record-keeping system. As a result of a joint project involving the Legal Division and OIG, the Legal Division transmitted electronic billing guidelines to outside counsel on December 31, 1997. Nonetheless, the IPA appropriately questioned the $89,521 in time charges for lack of original support.

Further, management allowed $34,009 for unsubstantiated expenses. Specifically, management allowed $33,978 of the $36,266 questioned for photocopying expenses because it determined that all but $2,288 of the questioned charges were within the maximum allowable rates. Management also allowed $31 for miscellaneous travel expenses billed in accordance with RTC travel regulations. The OIG accepts management's explanation for the questioned travel expenses; however, RTC guidelines provided that photocopying charges be billed at actual documented costs or at a standard cost based on a documented cost study. In view of subsequent revisions to guidelines, the Legal Division's position does not appear unreasonable. However, the IPA appropriately questioned the $36,266 in photocopying costs.

Finally, management allowed $16,540 for various unallowable charges. Specifically, management allowed $730 for local transportation because it determined the charges were authorized. Additionally, management allowed all of the $15,810 questioned for secretarial overtime. The OIG accepts management's decision to allow the local transportation charges. However, management was unable to determine that the overtime was approved but allowed the charges because applicable guidance did not require that the overtime be approved in writing, and the Legal Division believed that the overtime was necessary given the nature of the thrift resolution crisis. Nonetheless, 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. Accordingly, the OIG will continue to question $15,810 for overtime charges.

Based on the IPA's audit work, $551,966 was questioned in the draft report transmitted to management. After considering $19,160 in disallowances taken by management and management's comments on the IPA's findings, we will report questioned costs of $158,469 (including $134,746 in unsupported costs) in our Semiannual Report to the Congress.