State Comptroller report finds local governments failing to control excessive and improper payments for legal services
D. Freehold Regional High School District
The Freehold Regional High School District (“Freehold”) consists of six high schools located in western Monmouth County. As of FY 2011, Freehold served more than 11,000 students in grades 9 through 12. According to State Department of Education (“DOE”) data, Freehold spent $42 per pupil on legal services in FY 2011, just below the $44 per pupil statewide average for districts serving high school students. In FY 2011, Freehold spent a total of $493,414 on outside legal costs, all of which was paid to the law firm of Schwartz, Simon, Edelstein & Celso LLC as its Board Attorney. Our analysis of those payments identified deficiencies as described in detail below.
Freehold’s Board Attorney submitted bills that were non-descriptive and block-billed, making it impossible to determine whether the billed tasks should have been covered under the retainer.
Freehold’s Business Administrator advised us that that when he reviewed the bills for payment, he did not consider whether “routine” communications were being improperly billed at an hourly rate. Clearer retainer language and descriptive, individualized billing by the Board Attorney could have minimized the district’s costs and prevented potentially duplicative billing.
Without documented authorization, Freehold permitted its Board Attorney to exceed agreed upon caps on legal costs.
Freehold’s contract with its Board Attorney capped the total annual amount that could be billed by counsel at $213,000, but permitted the firm to request relief from the cap for “extraordinary matters.” The contract excluded from the cap legal fees incurred in connection with special education matters as well as fees reimbursed or paid for by insurance. Our review found that the Board Attorney exceeded the terms of the cap by approximately $89,000. Freehold did not take any formal written action authorizing the law firm to exceed the cap or take other steps to document any authorization. By failing to take formal action or document any authorization to exceed the cap, Freehold engaged in a practice that lacked transparency concerning its legal costs.
Freehold did not comply with the requirements of the PSCL by failing to cite supporting reasons in the resolution authorizing the contract award to its Board Attorney.
Freehold’s resolution appointing Schwartz, Simon, Edelstein & Celso as its Board Attorney for FY 2011 was deficient because it did not contain supporting reasons for the appointment as required by the PSCL. In addition, Freehold did not use a competitive vendor selection process in procuring the firm. Although school districts are not legally required to engage in competitive procurements for outside counsel under the PSCL, we recommend that
they use such a process in order to ensure that they are obtaining the most cost-effective legal services.
Prior to our commencement of this review, Freehold contacted OSC to seek assistance with improving the district’s procurement process for outside counsel. As a result, our office met with the Business Administrator and assisted with the development of a competitive procurement template. The Business Administrator informed us that he has shared this template with other school administrators in Monmouth County.
Freehold’s contract with its Board Attorney permitted the firm to charge an administrative fee based on a percentage of the total amount billed.
Freehold’s contract with its Board Attorney permitted the firm to charge for disbursements a monthly “administrative fee” of 2.75 percent of the total amount billed, as opposed to requiring the firm to itemize its actual disbursements. The Board Attorney asserted to us that Freehold saved money by utilizing this administrative fee structure. However, there is no evidence to support any such cost savings because the firm did not document the disbursements it actually made. As noted previously, commentators have discouraged use of such estimates. Concerns of overpayment are even greater here because the specific billing process being used provided an increased financial incentive for the firm to bill for its substantive legal work at a higher volume.
Nearly 60 percent of the attorneys employed by the Board Attorney law firm (30 out of 54 attorneys) billed Freehold for legal services in FY 2011.
In FY 2011, 30 different attorneys from Schwartz, Simon, Edelstein & Celso billed Freehold for legal services, representing nearly 60 percent of the attorneys employed at the firm
that year. In the course of discussing this issue with Freehold’s Business Administrator, he separately noted that historically there had been instances in which multiple attorneys from the firm had attended the same meetings on behalf of Freehold. He advised us that he had objected to this practice because he did not feel it was appropriate for multiple attorneys to bill for attendance at such meetings. According to the Business Administrator, upon his request the firm stopped the practice. As noted previously, LGUs should limit the number of attorneys permitted to bill for services as a means to avoid overcharges.