Watchdog: Treasury risks overpaying law firms

[April 14, 2011]  WASHINGTON (AP) -- The Treasury Department paid out more than $27 million to law firms overseeing the financial bailouts without requiring detailed bills or questioning the incomplete records that the lawyers provided, a government watchdog says.

Treasury's "current contracts and fee bill review practices create an unacceptable risk that Treasury, and therefore the American taxpayer, is overpaying for legal services," the Special Inspector General for the Troubled Asset Relief Program said in a report issued Thursday.

Treasury could not have adequately gauged whether the fees were reasonable because the records are so sparse, the report says.

The report criticizes so-called "block billing," in which law firms submit "vague and inadequate descriptions of work, and administrative charges -- all of which should have been questioned before payment," the report says.

Treasury staff failed to question the charges for work that was described vaguely, the report says.

For example, SIGTARP staff found potential problems with two-thirds of bills submitted to Treasury by the law firm Venable LLP -- invoices totaling $676,840.

Venable said in a statement that it fully cooperated with the special inspector general's review. "We have not had the opportunity to read the full report, however, we are confident that Treasury received fair value for the services that we provided," the firm said.

In a separate instance, several lawyers who attended the same meeting billed Treasury for varying numbers of hours for that meeting, it says.

The problems identified in the report go beyond legal contracts, Acting Special Inspector General Christy Romero said. She said Treasury's light-touch review of bills and weak oversight affect hundreds of millions in contracts that the agency signed just as its authority to create new bailout programs was about to expire.

"What we saw was that this wasn't just an issue related to the Venable fee bill," Romero said in an interview. "This is an issue throughout the bills" submitted by other contractors working on the bailout programs.

Romero said the report was finalized quickly because the problematic billing procedures still are in place, and Treasury continues to pay contractors without requiring detailed billing.

"We really felt like we needed to make a difference right now," Romero said.

Treasury responded mostly favorably to the SIGTARP report's recommendations. Acting Assistant Secretary for Financial Stability Timothy Massad said in written comments that Treasury's contracting procedures won praise from other oversight bodies, including the Government Accountability Office and the Congressional Oversight Panel.

His office "has implemented strong and effective processes in regard to all of its contracts, including those for legal services," Massad wrote in response to the draft report.

Still, Treasury agreed to tighten its reviews of contractors' billing in line with SIGTARP's recommendations.

The watchdog suggested that Treasury implement billing procedures similar to those used by the Federal Deposit Insurance Corp., which frequently contracts with outside law firms to rescue or wind down banks. It said the office should supplement new contracts with detailed requirements about billing procedures, create internal guidelines for the staff who review those bills, and review already-paid bills to make sure the payouts were proper.

The report says Treasury already has started to implement all of those recommendations.

[Associated Press; By DANIEL WAGNER]

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