Firms Not Only Overbilling Client, but U.S. Treasury Too?

To keep from being overbilled, clients work on alternative fee arrangements with their law firm. However, who would have thought the U.S. government needed to negotiate similar arrangements with law firms for its bailout program.  

Reaching a compromise on billing with a disgruntled client is easy with retroactive discounts or future pro bono work. But appeasing the disgruntled American public during tax season, that may be a different story.  

According to a watchdog report, the U.S. Treasury Department paid out over $27 million to the law firms handling last years financial bailouts without requiring detailed billing information and invoices, and without questioning the incomplete records provided by attorneys. The Inspector General of The Troubled Asset Relief Program investigating the issues, announced on Thursday that the 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 Troubled Asset Relief Program’s report also identified problems with lawyers’ “block billing” practices. Block billing allows firms to submit “vague and inadequate descriptions of work, and administrative charges—all of which should have been questioned before payment.”

In one of the more egregious examples of overbilling, the report found problems with two-thirds of bills submitted to the Treasury Department by the law firm Venable LLP, amounting to roughly $676,840. Additional problems included a mismatch in the number of hours spent in the same meeting by the different lawyers in attendance.  Acting Special Inspector General Christy Romero said in an interview that these problems, however, were not unique to Venable. “What we saw was that this wasn’t just an issue related to the Venable fee bill.” Romero emphasized that “This is an issue throughout the bills,” citing invoices from other contractors who oversaw the bailout program.

The lack of proper oversight in billing was, in part, due to the urgency with which the bailout needed to be handled. Romero explained, “We really felt like we needed to make a difference right now.” For the various businesses on the brink of bankruptcy due to the economic recession, this accelerated effort, certainly, was necessary and appreciated.   Still, faced with a federal deficit and growing bailout burdens on the U.S. Government, overbilling must now be addressed.

As a result, the Treasury is now implementing various solutions as proposed by The Trouble Asset Relief Program watchdog. This includes more detailed requirements about billing procedures and standardized internal guidelines for the staff reviewing those bills. The Treasury is also reviewing its previously paid bills—such as those to Venable—to ensure these payouts were appropriate.  

And on April 15, when the Internal Revenue Service is busy examining your financials, this comes as an important reminder to law firms to practice responsible billing, keep detailed records, and ensure invoices are reviewed internally with a keen eye.  

If you’re uncertain about the integrity of your billing practices, organize a firm-wide seminar once a year that serves to remind your associates about specific language for their timesheets as well as other billing policies. As Venable LLP now realizes, you’ll either pay now, or pay later.   Reed the Business Week article on this story here.

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