CSA
Summary
Read the report at California State Auditor ↗
City of
Los Angeles:
Outside Counsel Costs Have Increased,
and Continued Improvement in the City’s
Selection and Monitoring Is Warranted
January 2006
2004-136
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C S A
ALIFORNIA TATE UDITOR
ELAINEM.HOWLE STEVENM.HENDRICKSON
STATEAUDITOR CHIEFDEPUTYSTATEAUDITOR
January 26, 2006 2004-136
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents its audit report
concerning the City of Los Angeles (City) and the Office of the City Attorney (Attorney’s Office) and the City’s
use of outside counsel including the costs associated with outside counsel, the manner in which the Attorney’s
Office fulfills its role in selecting outside counsel, and the oversight that office provides.
This report concludes that outside counsel costs for the City over the six-year period ending in fiscal year
2004–05 almost doubled, rising from $17.5 million to $31.9 million. Two of the City’s proprietary departments—
the Department of Water and Power and the Los Angeles World Airports—greatly contributed to these costs. Our
review of the outside counsel costs the City reported in response to a special inquiry revealed several significant
inaccuracies and inconsistencies by various city departments. The Attorney’s Office will need to keep these in
mind as it moves forward with its recently implemented procedure for periodically reporting outside counsel
costs on a citywide basis. Moreover, the Attorney’s Office could not provide documents to demonstrate that it
had followed its policies for assessing the need for outside counsel and in performing its role in selecting outside
counsel. In addition, although its policies for monitoring outside counsel’s work provided sufficient direction
for good case management, the Attorney’s Office did not always follow them. Finally, the Attorney’s Office
eliminated numerous charges that conflicted with its comprehensive invoicing policies, but it could improve its
review of invoices as it paid outside counsel for some costs that were not allowed by its policies.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
BUREAUOFSTATEAUDITS
555CapitolMall,Suite300,Sacramento,California95814 Telephone:(916)445-0255Fax:(916)327-0019 www.bsa.ca.gov/bsa
ConTenTS
Summary 1
Introduction 5
Chapter 1
The Costs Incurred by the City of Los Angeles for
Outside Counsel Have Increased in Recent Years 11
Recommendations 25
Chapter 2
The Office of the City Attorney Could Further
Improve Aspects of Its Role in the Selection and
Administration of Outside Counsel 27
Recommendations 62
Responses to the Audit
City of Los Angeles,
Office of the City Attorney 65
City of Los Angeles,
Office of the City Administrative Officer 66
SuMMArY
resulTs in brief
As an elected official within the City of Los Angeles (City),
the city attorney serves as chief legal adviser to the
mayor, the Los Angeles City Council (city council), and
Audit Highlights . . . all city boards, officers, and entities. The city attorney controls
and manages the Office of the City Attorney (Attorney’s Office),
Our review of the Office of the which comprises more than 500 attorneys who provide the
City Attorney’s (Attorney’s Office) day‑to‑day legal services the City needs. The city charter allows
use of outside counsel revealed:
the City to retain outside legal counsel to assist the Attorney’s
The costs for outside Office in meeting the City’s legal needs.
counsel have risen
from $17.5 million to
Outside counsel costs for the City over the six‑year period ending
$31.9 million over the
in fiscal year 2004–05 almost doubled, rising from $17.5 million
six-year period ending in
fiscal year 2004–05. to $31.9 million. Some of the largest increases involved the use
of outside counsel by the City’s proprietary departments—in
The Attorney’s Office
particular, the Department of Water and Power (DWP) and the
lacked documents
necessary to demonstrate Los Angeles World Airports (Airports). For example, the City
it followed its policies and retained outside counsel for litigation related to the California
procedures when assessing
energy crisis and a comprehensive revision to the master plan
the need to retain outside
for Los Angeles International Airport. The Attorney’s Office
counsel and when
performing its role in recommended outside counsel for those matters because it believed
selecting outside counsel. it lacked the necessary expertise and resources to handle them.
Although its policies for
monitoring the work The City could improve its reporting of outside counsel costs. Our
performed by outside review of the outside counsel costs reported by city departments
counsel provided sufficient
in response to a special inquiry by a member of the city council
direction for good
revealed several significant inaccuracies and inconsistencies.
case management, the
Attorney’s Office did not Although the Attorney’s Office recently implemented a procedure
always follow them. for periodically reporting outside counsel costs on a citywide basis,
it will need to keep in mind the inaccuracies and inconsistencies
The Attorney’s Office
eliminated numerous we found in data reported by various city departments as it moves
charges from outside forward with the new reporting procedure.
counsel invoices, but it could
improve its invoice review
Despite the costs involved, the Attorney’s Office believes that its
as it paid outside counsel
for some costs its policies use of outside counsel has resulted in two quantifiable benefits:
did not allow. reductions in amounts paid through settlements or judgments
of cases (liability payouts) and significant revenue from litigation
in which the City is the plaintiff. Although it is true that liability
payouts from the City’s General Fund have decreased, the extent to
which the use of outside counsel has contributed to the decrease is
unknown. Similarly, the Attorney’s Office points to certain litigation
for which it used outside counsel in matters that have benefited
California state Auditor report 2004-36
or are expected to benefit the City or its residents. However, the
extent to which the City could have achieved similar results without
outside counsel is also unknown.
When retaining outside counsel the Attorney’s Office first assesses
the need for counsel and, if necessary, conducts a competitive or
noncompetitive selection process. The selection process culminates
in the Attorney’s Office making a recommendation to the city
council or appropriate governing board, which makes the final
contracting decision. Overall, we found that the Attorney’s Office
could not provide documents to demonstrate that it had followed
the policies and procedures it has in place for making its assessment
and performing its role in selecting outside counsel. For example,
the Attorney’s Office lacked documentation such as written
evaluations and rating sheets to demonstrate that it conducted a fair
and objective process when performing its role in selecting outside
counsel in a competitive manner. Without adequate documentation,
the Attorney’s Office leaves itself vulnerable to criticisms that its
recommendations on outside counsel are not fair and objective.
Although the policies it had in place at the time of our fieldwork
for monitoring the work performed by outside counsel provided
sufficient direction for good case management, the Attorney’s Office
did not always follow those policies. As a result, the Attorney’s
Office risked paying more to outside counsel than was necessary. For
example, the Attorney’s Office often did not require outside counsel
to submit comprehensive budgets. Further, despite their obvious
involvement in the matters for which outside counsel were retained,
managing attorneys did not consistently ensure that outside
counsel submitted the required quarterly reports. Instead, managing
attorneys often relied on informal methods of monitoring outside
counsel, through telephone, e‑mail, or in‑person communications.
In November 2005 the Attorney’s Office changed its policy on the
use of outside counsel. For example, it eliminated the requirement for
outside counsel to submit quarterly reports. Instead, it plans to work
with outside counsel to provide status reports when the Attorney’s
Office prepares for updates, at least twice a year, to the city council
and others on significant legal cases. Although it is too early to tell
what the long‑term effects of the policy change will be, the Attorney’s
Office may be limiting its insight into outside counsel’s activities.
The Attorney’s Office has established comprehensive policies related
to the invoices outside counsel submit, and our testing demonstrated
that the Attorney’s Office eliminated numerous charges that
conflicted with its policies. However, the Attorney’s Office could
22 California state Auditor report 2004-36
improve its review of invoices. We found that the Attorney’s Office
paid some outside counsel costs that were not allowed by its policies.
Although its invoicing policies seek to establish a standard for
reasonable billing practices, the Attorney’s Office undermines those
efforts by not consistently identifying all unallowable costs.
An opportunity exists for the Attorney’s Office to more efficiently and
effectively monitor outside counsel costs. It could do so by preparing
budgets detailed by activity and requiring outside counsel to submit
invoices with the same level of detail, allowing Attorney’s Office
staff to compare the invoices to the budgets. From December 2001 to
November 2005, Attorney’s Office policy directed managing attorneys
to help outside counsel create detailed litigation budgets and to
periodically compare actual costs against budgeted costs. However, in
our review of selected contracts, we found no evidence that Attorney’s
Office staff made such comparisons. Even though the staff have
ensured that total invoices do not exceed total contract costs and have
reviewed outside counsel invoices, the invoice review the Attorney’s
Office performs is labor intensive, and its comprehensiveness
and effectiveness are limited. Comparing outside counsel costs to
budgeted costs by activity within a given litigation or project phase
should enable the Attorney’s Office to better facilitate effective
communication on the progress of its cases and any deviations
from budgets. In November 2005 the Attorney’s Office changed its
policy by eliminating the requirement to periodically compare actual
costs to budgeted costs. However, we continue to believe that those
comparisons are an important cost control mechanism.
When the Attorney’s Office has an actual or potential conflict of
interest in which it cannot ethically represent a city employee
whose interests may be adverse to those of the City, it refers the
matter to the attorney conflicts panel (conflicts panel), which is
made up of attorneys from outside law firms. The Office of the City
Administrative Officer (CAO), an entity separate from the Attorney’s
Office whose primary role is chief financial adviser to the mayor and
the city council, is the day‑to‑day overseer of the conflicts panel. In
performing its daily duties, the CAO adequately reviews invoices for
compliance with its billing guidelines. However, although the use of
budgets can help control costs, the contracts the CAO used did not
require outside counsel to submit budgets in all instances.
reCOMMenDATiOns
The City should ensure that the outside counsel costs it reports
are accurate and prepared consistently and that costs are
adequately supported by source documentation.
California state Auditor report 2004-36 33
To ensure that the decisions it reaches to retain outside counsel
are justified in accordance with its policy and to enable it
to demonstrate those justifications to interested parties, the
Attorney’s Office should sufficiently document the analysis used
in reaching its decisions to recommend the retention of outside
counsel. Also, to ensure that its recommendations for contract
awards are less vulnerable to criticisms, the Attorney’s Office
should develop and implement comprehensive policies and
procedures that specify standards for applying evaluation criteria,
such as the use of rating sheets, and for retaining documents.
To help control the costs involved in using outside counsel, the
Attorney’s Office should ensure that outside counsel submit
comprehensive budgets. It should also periodically evaluate its
process of obtaining status updates to report to the city council
or appropriate board on significant outside counsel cases and
modify that approach if necessary. Finally, to help control the
costs of outside counsel, the Attorney’s Office should not allow
costs that are prohibited by its policies.
To achieve a comprehensive view of how legal dollars are spent
and to facilitate a comparison of budgeted costs with costs to
date, the Attorney’s Office should require outside counsel to prepare
monthly invoices and cumulative cost reports that both sort
charges by attorney within an activity and by activity within a
litigation or project phase. Further, the Attorney’s Office should
compare cumulative charges to agreed‑on budgets.
Finally, to help control the costs of outside counsel, the CAO
should require budgets for all contracts with outside counsel
that it manages.
AGenCY COMMenTs
The Attorney’s Office expressed appreciation for the audit work
and noted that improving the oversight of outside counsel is
an ongoing process. The Attorney’s Office states that it intends
to fully explore the report’s recommendations for ensuring
continued improvement.
The CAO also expressed appreciation for the audit work and
acknowledged the importance of budgets as a mechanism for
controlling outside counsel costs. The CAO stated that it will
require budgets in all cases in the future. n
44 California state Auditor report 2004-36
InTroDuCTIon
bACKGrOunD
As an elected official within the City of Los Angeles
(City), the city attorney serves as chief legal adviser
and prosecutor and general counsel to the mayor, the
Los Angeles City Council (city council), and all city boards,
officers, departments, and entities. The city attorney controls
and manages the Office of the City Attorney (Attorney’s Office),
which comprises more than 500 attorneys who provide the
day‑to‑day legal services that the City needs, such as defending
the City in legal proceedings, initiating legal proceedings on the
City’s behalf, providing legal advice or written opinions when
requested, and prosecuting misdemeanor criminal offenses and
infractions occurring in the City.
The Attorney’s Office has its main location in downtown
Los Angeles. Much of the legal work the Attorney’s Office
performs occurs there. However, for certain city departments, the
Attorney’s Office has dedicated staff to meet the departments’
needs. For instance, the Department of Water and Power (DWP),
Los Angeles World Airports (Airports), and the Port of Los Angeles
(Harbor) each have a dedicated legal staff. Although those staff are
employees of the Attorney’s Office, they work on site at the DWP,
Airports, or Harbor and are focused exclusively on the legal issues
each entity faces.
With specific recommendations and approvals, the city charter
allows the City to retain outside legal counsel to assist the
Attorney’s Office in meeting the City’s legal needs. The Attorney’s
Office policy is to rely on outside counsel primarily when it has
a conflict of interest, when it needs specialized expertise, when
the duration of a case does not justify full‑time staff assignment,
or when the Attorney’s Office does not have a sufficient number
of appropriate attorneys available to handle a case. According to
its chief financial and administrative officer (CFO), the Attorney’s
Office views the judicious use of outside counsel as an obligation
for any responsible entity of the City’s size and knows of no
comparably sized entity that functions without outside counsel.
The Attorney’s Office has established policies and procedures
for retaining outside counsel. In general, the process includes
determining the need and obtaining internal approval for
California state Auditor report 2004-36
outside counsel, selecting an appropriate law firm through a
competitive or noncompetitive process, and recommending
contract approval to the city council or other governing
body. The City’s government structure is made up of various
departments, agencies, offices, and other entities. For the
purposes of this report, we refer to them as departments. The
departments fall into two main categories: those controlled
by the city council and those with independent boards. The
Attorney’s Office provides legal services to departments in
both categories and, when it considers it necessary, facilitates
and recommends the retention of outside counsel on behalf of
departments in both categories. However, before executing a
contract with outside counsel, city council or governing board
approval is required. This report focuses on the departments
that are under city council control and have outside counsel
costs paid by the City’s General Fund, and on departments
that are governed by independent boards and are proprietary
departments. The proprietary departments are the DWP,
Airports, and Harbor.
According to the CFO, outside counsel operate in three general
capacities: litigating cases in which the City is a plaintiff;
litigating cases in which the City is a defendant; and providing
legal assistance and consulting on transactional matters, such
as bond issuance or interpreting environmental requirements.
Table 1 summarizes the estimated distribution of the types
of services paid by the General Fund and the proprietary
departments in fiscal year 2004–05.
TAble
estimated Distribution of services Provided by
Outside Counsel for Certain funding sources
fiscal Year 2004–0
funding source Transactions and Advice litigation (Plaintiff) litigation (Defense)
General Fund* 5% 0% 95%
DWP 21 56 23
Airports 44 18 38
Harbor 6 32 62
Source: Office of the City Attorney.
Note: Cost data analyzed for fiscal year 2004–05 may not reflect other fiscal years.
* Does not include cases involving workers’ compensation or the attorney conflicts panel.
66 California state Auditor report 2004-36
sCOPe AnD MeThODOlOGY
The Joint Legislative Audit Committee (audit committee) directed
the Bureau of State Audits to review the City’s contracting practices
for outside legal services. Specifically, the audit committee asked us
to review trends in the use of outside legal services in recent years,
including costs associated with outside consultants and experts,
and to assess the potential impact of legal expenses on the City’s
budget. Additionally, the audit committee asked us to examine
the processes the City uses for selecting outside counsel, including
justification for noncompetitive processes, and to determine
whether departments sufficiently monitor the services provided by
outside legal counsel and associated services such as consultants and
experts. Finally, the audit committee asked us to determine what
steps departments take to identify and address potential conflicts of
interest on the part of outside legal counsel.
Of the various departments responsible for managing outside
counsel costs, we selected six departments to review in this
audit, based on cost data reported to a city council member in
October 2004: the Attorney’s Office, which manages outside
counsel costs paid by the City’s General Fund; the Office of the
City Administrative Officer, which manages outside counsel
costs incurred by the attorney conflicts panel; the Personnel
Department, which manages outside counsel costs related
to workers’ compensation; and the City’s three proprietary
departments: Harbor, Airports, and DWP. Beginning in
November 2005 the Attorney’s Office informed us that the
Department of Public Works significantly revised the cost data
reported in the October 2004 memo, increasing reported costs
by $18.9 million over the initial five‑year reporting period.
However, because we did not receive that information until after
our fieldwork was substantially completed, we did not revise our
methodology to include the Department of Public Works in our
review. The combined costs of the six departments we reviewed
constituted 76 percent of the revised total outside counsel costs
the City reported for fiscal years 1999–2000 through 2004–05.1
To compile and note trends in outside counsel costs incurred
by the City from fiscal years 1999–2000 through 2004–05,
we reviewed accounting and other records maintained by
the Attorney’s Office and other departments we selected. We
determined whether the information included in those records
1 The Housing Authority of the City of Los Angeles (Housing Authority) also incurred outside
counsel costs; however, these costs are not included in the City’s reported costs because
the Housing Authority is considered fiscally independent for financial reporting purposes.
California state Auditor report 2004-36
was sufficiently reliable by gaining an understanding of how the
information was compiled and testing sample data for accuracy
and completeness. For departments whose outside counsel
costs were paid from the General Fund, documents were not
always readily available to test for completeness for fiscal years
1999–2000 and 2000–01. Nevertheless, nothing came to our
attention that would lead us to believe that the information was
materially inaccurate. We did not perform tests for accuracy and
completeness on the costs we report for the departments we did
not select for review. Instead, we present those costs as they were
reported to a city council member in October 2004 or to the
Attorney’s Office in the fall of 2005 (fiscal year 2004–05 costs).
Additionally, we interviewed Attorney’s Office staff to identify
and analyze the reasons for major changes in outside counsel
costs over the six‑year period of review and determined whether
the explanations were reasonable in light of the other work we
performed during the audit. Further, we determined the extent
to which the Attorney’s Office could support its claims that its
use of outside counsel resulted in certain quantifiable benefits.
We assessed the potential impact of outside legal counsel costs
on the City’s budget by reviewing relevant data.
To assess the Attorney’s Office’s role in selecting outside counsel,
we identified the relevant policies and procedures it has in
place and assessed their reasonableness. We then assessed
the Attorney’s Office’s compliance with the same policies
and procedures in fiscal years 2003–04 and 2004–05. Our
assessment covered the process for determining whether
outside counsel were needed to assist with a legal matter and
the processes for selecting outside counsel in a competitive or
noncompetitive manner.
To determine whether the Attorney’s Office sufficiently monitors
the services outside counsel provide and adequately controls
costs, we identified the relevant policies and procedures the
Attorney’s Office had in place and assessed their reasonableness.
To determine the degree to which staff in the Attorney’s Office
followed its monitoring policies, for a sample of contracts, we
interviewed the managing attorneys and reviewed case files
for relevant documents. To determine if the Attorney’s Office
has followed its invoice review process, we examined a sample
of invoices from fiscal years 2003–04 and 2004–05 for costs
the policies prohibit. We performed the same procedures at
the Office of the City Administrative Officer with regard to
its responsibilities for managing the attorney conflicts panel.
We focused our review of invoices on attorney and other fees
because those costs represented the bulk of the charges.
California state Auditor report 2004-36
To assess the steps the Attorney’s Office takes to identify and
address potential conflicts of interest on the part of outside
counsel, we reviewed relevant sections of the California Rules of
Professional Conduct and determined whether the process the
Attorney’s Office uses to address potential conflicts of interests is
reasonable and in compliance with the rules. Finally, we reviewed
requests outside counsel made to waive conflict‑of‑interest
requirements to determine whether the Attorney’s Office had
followed its policies and procedures for handling such requests. n
California state Auditor report 2004-36
Blank page inserted for reproduction purposes only.
00 California state Auditor report 2004-36
ChApTer 1
The Costs Incurred by the City of
Los Angeles for Outside Counsel Have
Increased in Recent Years
ChAPTer suMMArY
Outside counsel costs for the City of Los Angeles (City)
over the six‑year period ending in fiscal year 2004–05
increased from $17.5 million to $31.9 million. Some
of the largest increases in outside counsel costs occurred at
two of the City’s proprietary departments: the Department of
Water and Power (DWP) and the Los Angeles World Airports
(Airports). In explaining some of the cost increases, staff with
the Office of the City Attorney (Attorney’s Office) pointed
to a need for outside counsel because the City lacked the
necessary expertise and resources to handle several significant
matters, such as litigation related to the energy crisis and a
comprehensive revision to the master plan for Los Angeles
International Airport (LAX).
The City could improve its reporting of outside counsel costs.
Our review of the outside counsel costs reported by city
departments in response to a special inquiry by a member of
the Los Angeles City Council (city council) revealed several
significant inaccuracies and inconsistencies. The Attorney’s
Office recently has implemented a procedure for all city
departments to periodically report their outside counsel costs,
which will allow it to report the costs on a citywide basis. As
the Attorney’s Office moves forward with its new reporting
procedure, its staff should keep in mind the inaccuracies and
inconsistencies in data reported by various city departments that
we identify in this report.
Finally, the Attorney’s Office believes that its use of outside
counsel has resulted in two quantifiable benefits: reductions
in amounts paid through settlements or judgments of cases
(liability payouts), and significant revenue or other monetary
benefits from certain litigation in which the City is the plaintiff.
Although it is true that liability payouts from the General Fund
have decreased, the extent to which using outside counsel has
California state Auditor report 2004-36
contributed to the decrease is unknown. Further, although
litigation we reviewed in which the City is the plaintiff has
achieved or is expected to achieve benefits, the extent to which
the City could have achieved similar results without outside
counsel is also unknown.
The CiTY’s OverAll OuTsiDe COunsel COsTs hAve
inCreAseD fOr vAriOus reAsOns
As shown in Table 2, annual outside counsel costs for the
City increased from $17.5 million in fiscal year 1999–2000
to $31.9 million in fiscal year 2004–05, an increase of more
than 82 percent. For the six‑year period, outside counsel
costs totaled $162.5 million and consisted of both legal fees
(costs related to attorneys and paralegals working on cases)
and expenses (other goods and services incurred by law
firms, such as the costs of expert witnesses and consultants).
The proprietary departments—DWP, Airports, and the Port
of Los Angeles (Harbor)—accounted for some of the largest
increases. Typically funded by revenue generated by providing
services, each proprietary department is controlled by a board
of commissioners rather than the city council and has control
over its own funds. The outside counsel costs for those three
entities increased from $7.9 million in fiscal year 1999–2000 to
$16.2 million in fiscal year 2004–05, an increase of $8.3 million,
or about 105 percent. DWP and Airports accounted for most of
the overall increase.
DWP’s outside counsel costs increased from $2.7 million in fiscal
year 1999–2000 to $7.4 million in fiscal year 2004–05. According
DWP’s outside counsel to Attorney’s Office staff who work at DWP, litigation related
costs increased to the California energy crisis of 2001 played a significant
from $2.7 million to role in the recent increases. DWP is responsible for supplying
$7.4 million—litigation the City and its inhabitants with water and electric energy
related to the California by constructing, operating, and maintaining works for that
energy crisis of 2001 purpose. It is also responsible for setting rates for water and
played a significant role electric service subject to city council approval.
in these increases.
As an energy provider, DWP became embroiled in the California
energy crisis. DWP’s records indicate that outside counsel
retained for significant litigation related to the energy crisis cost
DWP $6.9 million from fiscal year 2001–02 through fiscal year
2004–05, more than 30 percent of its total outside counsel costs
for the four‑year period. Most of those costs occurred in years
beginning with fiscal year 2002–03, the point at which DWP’s
total outside counsel costs increased sharply, as shown in Table 2.
22 California state Auditor report 2004-36
TAble 2
Outside Counsel Costs
fiscal Years –2000 Through 2004–0
(in Thousands)
fiscal Year*
–2000 2000–0 200–02 2002–03 2003–04 2004–0 Totals
General fund
Police and other litigation $ 3,768 $ 3,029 $ 3,000 $ 3,139 $ 5,722 $ 2,562 $ 2,220
Workers’ compensation 1,618 1,959 2,541 3,829 5,071 5,455 20,43
Attorney conflicts panel 608 1,074 1,186 1,632 3,094 2,485 0,0
Proprietary Departments
DWP 2,727 2,430 2,983 6,044 6,058 7,401 2,643
Harbor 2,565 4,084 5,923 5,487 4,981 2,821 2,6
Airports 2,559 2,430 1,501 1,728 3,734 5,948 ,00
special funds†
Public Works, Information
Technology, Community
Development, Housing,
Recreation and Parks 2,648 5,987 3,023 5,866 8,262 3,053 2,3
Community redevelopment
Agency‡ 668 633 2,041 1,971 1,808 1,801 ,22
Pension funds 290 95 339 173 330 370 ,
Totals $,4 $2,2 $22,3 $2,6 $3,060 $3,6 $62,34
Sources: General Fund and proprietary departments: Bureau of State Audits’ review of city departments’ accounting and other
records. Special and pension funds and Community Redevelopment Agency: October 2004 memorandum to a city council
member as updated by the Office of the City Attorney (Attorney’s Office) in November 2005 for the Department of Public Works
(fiscal years 1999–2000 through 2003–04); Attorney’s Office (fiscal year 2004–05).
Note: We did not include $11.7 million in outside counsel costs reported for the Housing Authority of the City of Los Angeles
(City) because it is considered fiscally independent for the City’s financial reporting purposes.
* Fiscal year is calculated on various bases, described in a discussion in the report. We did not determine the fiscal year basis for
special and pension funds or the Community Redevelopment Agency.
† Special funds are established for specific purposes that are primarily administered by city-controlled departments.
‡ The Community Redevelopment Agency is a legally separate entity from the City; however, it is considered a part of the City for
financial reporting purposes.
California state Auditor report 2004-36 33
The way in which outside counsel contracts are structured can
affect the amount and timing of the costs incurred. For example,
in one of the energy‑related cases, DWP retained outside counsel
to recover damages; the outside counsel’s compensation was
to be a percentage of the settlement. The case resulted in a
$16 million settlement in favor of DWP, which caused DWP’s
outside counsel costs to spike upward by $2.5 million in fiscal
year 2004–05, although the increase in costs for DWP overall
was less than that because of declining costs for other cases.
Attorney’s Office staff also cited a few significant cases unrelated
to the energy crisis that caused DWP’s outside counsel costs to
increase. DWP spent about $4.0 million on outside counsel costs
for those significant cases from fiscal year 2001–02 through fiscal
year 2004–05, with most of the costs occurring beginning in
fiscal year 2002–03.
Airports’ costs increased from $2.6 million in fiscal year
1999–2000 to $5.9 million in fiscal year 2004–05. Attorney’s
More than half of Airports’ Office staff asserted that the increases were related to planning
outside counsel costs were for $11 billion in renovation projects at LAX. Airports is
related to master plans at responsible for the management, supervision, and control of all
LAX and other airports. airports and airport facilities under the jurisdiction of the City.
As part of that responsibility, it constructs and maintains
its own buildings. In December 2004 the city council
approved the LAX Master Plan, a strategic framework for
future development of LAX. The plan is the first comprehensive
improvement plan for LAX since 1956 and involves the first
major renovations since 1984. Airports is also currently in
various stages of planning for master plans at the City’s other
three airports: Ontario, Palmdale Regional, and Van Nuys. We
found that from fiscal years 1999–2000 through 2004–05, more
than half of Airports’ outside counsel costs were related to the
LAX and other master plan projects, with the majority of costs
occurring beginning in fiscal year 2003–04. Further, according
to Attorney’s Office staff, significant outside counsel costs
related to LAX projects are expected in the future.
Outside counsel costs related to workers’ compensation,
which are paid by the General Fund, increased sharply, from
$1.6 million in fiscal year 1999–2000 to $5.5 million in fiscal
year 2004–05. The City retains outside counsel for workers’
compensation cases involving sworn officers—namely, police
and firefighters—and it retains outside counsel for cases
involving civilian claims on an as‑needed basis. Although
outside counsel costs for sworn officers increased during
44 California state Auditor report 2004-36
the six‑year period, the larger increase occurred for cases
involving civilians: from $200,000 in fiscal year 1999–2000
to $2.4 million in fiscal year 2004–05. According to the chief
financial and administrative officer of the Attorney’s Office
(CFO), that increase occurred because the unit handling
workers’ compensation cases was understaffed and only recently
received additional resources. The CFO commented that before
additional staff were authorized, roughly 1,300 civilian cases
normally handled by Attorney’s Office staff were sent to outside
counsel. The CFO further stated that although no new civilian
cases were referred to outside counsel after it received additional
staffing in 2004, the old referrals continued to account for an
increased level of costs.
Although certain departments did not contribute significantly
to the overall increase in outside counsel costs between fiscal
Certain departments years 1999–2000 and 2004–2005, they experienced some large
experienced some large increases during the six‑year period before seeing their outside
increases during the counsel costs decline. For example, costs of the other proprietary
six-year period ending department, Harbor, peaked at $5.9 million in fiscal year
in fiscal year 2004–05 2001–02 before declining to $2.8 million in fiscal year 2004–05.
before seeing their outside According to Attorney’s Office staff who work at Harbor, the
counsel costs decline. decrease in costs is primarily attributable to the settlement of
two cases, one of which was a large and complex construction
dispute, and to decreased activity in a third case. Additionally,
outside counsel costs of the Department of Public Works (Public
Works), which are within the special funds category, increased
from $2.6 million in fiscal year 1999–2000 to $7.4 million in
fiscal year 2003–04 before dropping back down to $2.8 million
the next year. According to Attorney’s Office staff, the increase
was primarily the result of litigation related to the recently
completed $1.4 billion upgrade of the City’s wastewater and
collection system and to sewer spills during the 1998 “El Niño”
rains. Finally, although outside counsel costs for police and
other litigation, paid by the General Fund, decreased by about
$1.2 million from fiscal year 1999–2000 to fiscal year 2004–05,
they peaked at $5.7 million in fiscal year 2003–04. According
to Attorney’s Office staff, litigation that was initially a single
class action discrimination lawsuit accounted for $4 million in
outside counsel costs in that year, as well as significant costs
in fiscal years 2001–02 and 2002–03. The plaintiffs in that case
originally demanded $100 million. Resolution of the case caused
costs in that area to decline sharply in fiscal year 2004–05.
California state Auditor report 2004-36
The Attorney’s Office generally cites a lack of expertise and/or
A lack of expertise and/or staff resources as the reason for retaining outside counsel. For
staff resources are the example, Attorney’s Office staff at DWP asserted that they did
reasons the Attorney’s not have the internal expertise to handle the cases related to the
Office generally cites for energy crisis. In an August 2004 letter outlining certain reforms
retaining outside counsel. regarding the use of outside counsel, the city attorney discussed
the formation of an outside counsel committee (committee)
responsible for reviewing and approving all requests for outside
counsel. The city attorney’s letter also said the committee would
review trends in the use of outside counsel and recommend
when it would be more prudent to build capacity and hire
additional in‑house attorneys and support staff. The committee
was formed, and according to the CFO, in October 2005 the
committee considered trends in the use of outside counsel and
ultimately decided to request internal staff to reduce outside
counsel costs for cases involving workers’ compensation,
intellectual property, and labor employment. Additionally, as of
November 2005 the Attorney’s Office planned to discuss with the
proprietary departments the possibility of hiring more internal
staff to reduce outside counsel costs in the near future. However,
we note that the CFO also told us that the Attorney’s Office has
had limited success in the past with its requests for additional
staff for the purposes of reducing the use of outside counsel.
Although outside counsel costs have increased by more than
82 percent since fiscal year 1999–2000, the CFO comments
that spending 0.2 percent of the City’s total expenditures
on outside counsel is “appropriate for a $10 billion plus
organization.” The total expenditures that the CFO refers to are
expenditures as recorded against the City’s budget (budgetary
basis expenditures). Although the relative size of the percentage
may vary somewhat from year to year, we recognize that outside
counsel costs represent a small share of the City’s budgetary
basis expenditures—whether viewed in total or focused on the
General Fund, where the City has more discretion in its funding
choices. Nevertheless, the funds spent on outside counsel are
not insubstantial and are funds that are not available for other
city purposes. Thus, it is important to ensure that the City is
prudently identifying the need for and monitoring the costs of
outside counsel. We discuss those matters in Chapter 2.
66 California state Auditor report 2004-36
The CiTY COulD iMPrOve iTs rePOrTinG Of
OuTsiDe COunsel COsTs
Until recently, the City did not have a process to periodically
and comprehensively report on the amount that it spent
We noted several citywide on outside counsel costs. However, in response
significant inaccuracies to questions from a city council member about the City’s
and inconsistencies outside counsel costs, city staff gathered information from
in an October 2004 various departments and reported citywide information in
memorandum reporting an October 2004 memorandum (memo). The memo listed
citywide costs for outside counsel costs by city department for fiscal years
outside counsel. 1999–2000 through 2003–04. In August 2005 the Attorney’s
Office requested and subsequently received outside counsel
cost data from the same departments for fiscal year 2004–05.
Using the data reported in the memo and gathered by the
Attorney’s Office, we performed various tests on the costs paid
by the General Fund and the proprietary departments, which
constituted 76 percent of the total outside counsel costs over the
six years reported. Table 2, presented earlier, reflects adjustments
we made as a result of our review. The following are several of
the more significant inaccuracies and inconsistencies we noted:
• Airports underreported outside counsel costs by $2.2 million,
or 23 percent, over the five‑year period initially reported in
October 2004. It omitted costs for nine transactions involving
outside counsel services as well as portions of the costs it
incurred through contracts. However, Airports generally
reported accurate costs for fiscal year 2004–05.
• DWP did not accurately report its outside counsel costs for the
initial five‑year reporting period: it double‑counted costs for
work performed by two firms totaling more than $2.2 million
(11 percent of costs), and it entirely omitted a third contract’s
costs of more than $740,000 (4 percent of costs). Additionally,
in reporting its fiscal year 2004–05 costs, DWP did not
include the costs for its four bond counsel contracts totaling
$697,000 or 9 percent of its total costs for that period. The
individual inaccuracies offset each other to a great extent over
our six‑year review period; however, they caused inaccurate
reporting within individual fiscal years, such as costs
being overstated by 33 percent in fiscal year 2000–01 and
understated by 44 percent in fiscal year 2003–04.
• Although Harbor appropriately provided data for outside
counsel fees, related expert fees, and other costs for both
reports, city staff compiling the October 2004 memo omitted
Harbor’s expert fees and other costs, which constituted
California state Auditor report 2004-36
22 percent of Harbor’s total outside counsel costs ($5.1 million
of $23 million) over the initially reported five‑year period.
However, the Attorney’s Office included complete reported
cost information when it subsequently provided fiscal year
2004–05 cost data.
• Departments did not categorize costs by fiscal year on a
consistent basis in the October 2004 memo:
§ Airports, the Attorney’s Office (which reported police and
other litigation costs), and the Personnel Department
(which reported workers’ compensation costs) reported
costs by fiscal year based on the date of payment.
§ Harbor reported costs by fiscal year based on when services
were performed.
§ DWP used date of payment to report some contracts and
reported others based on when services were performed.
§ The Office of the Chief Administrative Officer
reported attorney conflicts panel costs by fiscal year
of appropriation.
When reporting fiscal year 2004–05 data, all of these
departments reported costs by fiscal year of payment except
DWP, which used fiscal year of payment for some costs and
fiscal year of services rendered for others.
Additionally, although Public Works was not one of the areas in
which we tested the City’s reported outside counsel costs, the
Attorney’s Office, while researching answers in November 2005
Public Works significantly to questions we had about why costs appeared to have increased
understated its costs over time, found that Public Works had significantly understated
for the five-year period its costs as reported in the October 2004 memo. Specifically, the
ending June 30, 2004; City initially reported $5.1 million in costs for Public Works
it reported $5.1 million for the five‑year period ending June 30, 2004; it subsequently
rather than $24.0 million. found that it should have reported $24.0 million in costs for
that period.
Since issuing the October 2004 memo, the City has taken
steps that may help improve reporting of outside counsel
costs. According to the CFO, the Attorney’s Office in the
past has been asked to report only on General Fund “police
and other litigation” costs of outside counsel, which are
the only costs for which the Attorney’s Office has direct
California state Auditor report 2004-36
accounting responsibilities. Noting that members of the city
In September 2005 council had expressed interest in having the Attorney’s Office
the Attorney’s Office provide a periodic report of all outside counsel costs incurred
asked city departments on a citywide basis, the Attorney’s Office issued a letter in
to report quarterly on September 2005, asking city departments to report quarterly
outside counsel costs. on outside counsel costs and to maintain all the necessary
source documents substantiating cost data submitted. The
letter directed departments to report costs based on payment
date, which might help address the inconsistency in reporting
we noted during our review. Additionally, the letter asked
departments to designate an outside counsel coordinator,
which might help decrease inaccuracies and could increase the
consistency of reporting. When requesting fiscal year 2004–05
data, the Attorney’s Office also specifically indicated that it
needed departments to report costs by date of payment. As
previously mentioned in this report, some of the inconsistencies
and inaccuracies we found in the costs reported in the
October 2004 memo did not occur in the fiscal year 2004–05
report, which may be a result of the instructions for preparing
the quarterly report and fiscal year 2004–05 cost information.
However, the CFO is concerned that having the various city
departments maintain and periodically report their outside
counsel costs may not be the best way to ensure accurate
reporting. The CFO noted that departments report information
on a voluntary basis and that the Attorney’s Office cannot
ensure the information’s accuracy. In an effort to provide
better control, accountability, and reporting of outside counsel
costs, the CFO indicated that the Attorney’s Office requested
the creation of a new citywide Outside Counsel Fund in
August 2004 and again in July 2005. The Attorney’s Office would
manage the account, to which all appropriations for outside
counsel would be transferred, regardless of funding source. The
Attorney’s Office believes that such an account would enable
all city departments to report outside counsel costs regularly,
as well as complement the Attorney’s Office’s invoice review
process. According to the CFO, in August 2005 staff in the
mayor’s office asked for input from the city controller’s office
regarding the matter. As of December 2005 the Attorney’s
Office was unaware of any further action.
California state Auditor report 2004-36
The ATTOrneY’s OffiCe believes ThAT iTs use
Of OuTsiDe COunsel hAs resulTeD in CerTAin
QuAnTifiAble benefiTs
The Attorney’s Office cites two quantifiable benefits of its use of
outside counsel: reductions in liability payouts and significant
revenue or other monetary benefits from certain litigation in
which the City is the plaintiff. Although it is true that General
Fund liability payouts have decreased, the extent to which
the use of outside counsel has contributed to the decrease is
unknown. Further, the Attorney’s Office retains outside counsel
in certain instances in which it pursues litigation that would
benefit the City or its residents. Although the litigation it points
to has achieved or is expected to achieve benefits, the extent
to which the City could have achieved similar results without
outside counsel is also unknown.
The extent to Which the Attorney’s Office’s use of Outside
Counsel has Contributed to a reduction in liability Payouts
is unknown
The Attorney’s Office has linked the use of outside counsel to
a reduction in the City’s liability payouts. When asked directly
about the benefits of the use of outside counsel, the CFO
responded to us that the results of using outside counsel “speak
for themselves—among other things, liability payouts have
gone down [and] significant revenue from affirmative litigation
has occurred that would not otherwise have been received.”
Further, in a June 2004 letter to a city council member who
had made inquiries about the City’s use of outside counsel, the
city attorney asserted that “the selective and strategic use of
outside counsel by the [Attorney’s Office] has supplemented
the talents of our deputy city attorneys and resulted in lower
liability payouts.” In the same letter the city attorney made
the following statements linking the use of outside counsel to
reduced liability payouts:
Ultimately, the City needs to view the use of outside
counsel as a short‑term investment for long‑term
savings. In 2000–2001, the City spent $3.1 million on
outside counsel and paid out $92 million in settlements
and verdicts from the General Fund. In 2003–2004, the
City will spend an estimated $5.3 million on outside
counsel and liability payouts will be an estimated
$46 million from the General Fund. This is a savings
of $46 million (50%) in General Fund liability payouts
2200 California state Auditor report 2004-36
for the taxpayers. This is also an indication of what we
can do when the success of our deputy city attorneys is
supplemented by outside attorneys.
In November 2005, in response to our questions, the CFO
expanded on those assertions. The CFO stated that the
Attorney’s Office believes that “the strategic management
of litigation, including but not limited to the judicious use of
outside counsel in appropriate cases, has led to a substantial
decline in liability payouts.” According to the CFO, the use of
outside counsel is one important factor, but not the only factor.
Our review confirmed that General Fund liability payouts have
decreased in recent years. In its 2003–04 Annual Report and the
June 2004 letter, the Attorney’s Office pointed to a reduction of
General Fund liability roughly 50 percent in General Fund liability payouts in fiscal
payouts decreased year 2003–04 compared with fiscal year 2000–01. Our work
69 percent from fiscal years confirmed that General Fund liability payouts decreased from
2000–01 to 2004–05; a peak of approximately $92 million in fiscal year 2000–01 to
however, the payouts $45 million in fiscal year 2003–04. Additionally, our review of
reflect cases that did not recent information showed that liability payouts decreased to
use outside counsel as well $28 million in fiscal year 2004–05, a 69 percent reduction from
as those that did. fiscal year 2000–01. However, it is important to note that the
payouts reflect cases that did not use outside counsel as well as
those that did.
Further, the General Fund liability payouts that the Attorney’s
Office highlights do not include payouts for the Rampart
litigation. That litigation consisted of cases based on allegations
of corruption and abuse within an elite antigang unit of the
Los Angeles Police Department. The allegations led to more than
200 lawsuits and liability payouts of $70.1 million spread over
several fiscal years. According to the CFO, Rampart payments
were not included in the liability payout figures because the
situation is a unique occurrence for which the Attorney’s Office
has been directed to track funds separately. The CFO stated
that the mayor and city council set up a separate funding
account for Rampart payouts, and funds in the account were
treated differently from other funds. For example, unused
Rampart funding did not revert at the end of the fiscal year
to be available for other purposes. Although significant in
magnitude, the Rampart payouts, if included in the liability
payout figures, would not have greatly affected the Attorney’s
Office’s claims regarding reductions in General Fund liability
payouts. Including Rampart payments would have resulted in a
California state Auditor report 2004-36 22
64 percent decrease in liability payouts from fiscal year 2000–01
to 2004–05, rather than the 69 percent decrease reported by the
Attorney’s Office.
We were unable to determine the extent to which the trend
in liability payouts was influenced by cases that could be
considered unique, because the Attorney’s Office was unable
to provide information detailing payouts by case before
fiscal year 2001–02, when the current city attorney began his
administration. When specifically asked about possible causes
of the spike in General Fund liability payouts in fiscal years
1999–2000 and 2000–01, the CFO brought to our attention a
significant case with a large settlement affecting both those
years. That large settlement resulted in a liability payout
totaling $39 million, $26.7 million in fiscal year 1999–2000 and
$12.3 million in fiscal year 2000–01. When we excluded those
two payouts, we found that the General Fund liability payouts
from fiscal years 1998–99 through 2004–05 remained relatively
stable in five of the seven years, ranging from $44.5 million to
$56.9 million. (General Fund liability payouts in fiscal years
2000–01 and 2004–05 were outside that range at $79.9 million
and $28.2 million, respectively.) The CFO believes that the
liability payouts relating to the settlement should not be
excluded from the figures because the case revolved around the
City’s violation of the Fair Labor Standards Act, which is not
a unique type of lawsuit for the City to face. According to the
CFO, the only unique aspect of the case was how poorly the City
fared (that is, the settlement amount), and a bad outcome is not
a reason to back any case out of the City’s numbers.
Regardless of the cases it includes or does not include in its
analysis, the fact remains that the extent to which the Attorney’s
Office’s use of outside counsel has contributed to the reduction
in liability payouts in recent years is unknown. The ultimate
resolution of a case depends on many factors, including the
underlying facts of the case, and isolating any one factor is
difficult, if not impossible. Thus, even if all liability payouts
were related to cases in which outside counsel were used—and
they were not—the extent to which the use of outside counsel
affected the size of the payouts that resulted from the cases
would be unknown.
2222 California state Auditor report 2004-36
The extent to Which Outside Counsel Can be Credited With
Generating Monetary benefits in Affirmative litigation Cases
is unknown
The Attorney’s Office asserted that the City’s use of outside
counsel in affirmative litigation cases generated significant
revenues or other monetary benefits that would not otherwise
have been received. The affirmative litigation cases to which the
Attorney’s Office pointed are civil cases in which the plaintiff
is the City seeking damages or injunctive relief for some wrong
done to its interests.2 The Attorney’s Office provided a list of
affirmative litigation cases that have been resolved since 2001,
The City or its residents in which the City or residents received or expected monetary
have benefited or will returns, and for which the City hired outside counsel to represent
benefit monetarily from its interests. The list contains 12 cases, with cited monetary
certain cases, but the benefits ranging from $50,000 (annually) to $170 million (a one‑
extent to which the City time settlement). Our review of the documentation related to
could have achieved several of those cases confirmed that the City or its residents have
similar results without received or could expect to receive monetary benefits; however,
outside counsel the extent to which the City could have achieved similar results
is unknown. without outside counsel is unknown.
For example, $170 million in “revenue” that the Attorney’s
Office cited is actually money that was due to DWP as a result
of its normal operations. According to Attorney’s Office staff,
certain bankruptcies during the energy crisis threatened to
prevent the DWP from recovering $170 million. DWP retained
outside counsel to protect its interests in the bankruptcies
and retained separate outside counsel to resolve a related
jurisdictional dispute. Attorney’s Office staff believe that the
outside counsel representation on the jurisdictional dispute
prevented the loss of the $170 million and the imposition of
additional penalties. As of October 2005 an appellate court
had made a ruling on the jurisdictional dispute; however,
according to Attorney’s Office staff, a stay imposed by the
appellate court has prevented the payment until issues
unrelated to DWP are resolved.
As in our discussion of liability payouts, the extent to which
outside counsel are responsible for DWP’s ability to recover the
amounts owed to it is unknown. Certainly, the Attorney’s Office
believes that it did not have the staff resources and expertise
to handle the matter internally. However, as noted earlier in
2 According to the CFO, the Attorney’s Office is also involved in affirmative litigation cases
of another type—those concerned with pursuing civil claims in the name of the People
of the State of California—which are typically handled in house. Those cases are not the
subject of our discussion.
California state Auditor report 2004-36 2233
the report, the ultimate resolution of a case depends on many
factors, including the underlying facts of the case. Further, other
entities were involved in the jurisdictional dispute. It is difficult
to know what part any single entity played in the ultimate
resolution of the matter.
Additionally, the City can incur significant costs in pursuing
The City can incur affirmative litigation cases. In some cases outside counsel
significant costs in pursuing are paid based on a percentage of any settlement achieved.
affirmative litigation cases. However, for at least one case we reviewed, the costs paid
to outside counsel were not based on the result of the case
and were significant. Initially, a construction company sued
the City, alleging damages associated with its contract with
the City for a construction project. Subsequently, the City
filed a cross‑complaint against the construction company.
The Attorney’s Office claimed that the City saved $8 million
through affirmative litigation because its cross‑complaint
resulted in Harbor paying $34 million for a construction project
with a contracted cost of $42 million. Our review revealed
that the amount “saved” was actually $7.1 million rather than
$8 million. We also found that the reported costs paid to outside
counsel for the litigation were $12.2 million. The Attorney’s
Office believes that the result was positive because in its initial
lawsuit against the City, the construction company had also
sought to recover $27 million for additional costs that it claimed
to have incurred and was unsuccessful. Also, the Attorney’s
Office estimates that no more than 20 percent ($2.4 million) of
the outside counsel’s costs were associated with the City’s cross‑
complaint. Harbor did not separately account for the amounts
that outside counsel spent on the cross‑complaint rather than
the defense of the City in the initial lawsuit; thus, we could not
verify the estimate. Further, it is difficult to know what part the
cross‑complaint played in the City’s recovery of the $7.1 million.
Finally, although the Attorney’s Office strongly believes that
it could not have properly defended the City or successfully
pursued the cross‑complaint without outside counsel given
the scope and complexity of the case, the extent to which the
City could have received similar results without outside
counsel is unknown.
Finally, it is important to point out how the method the City
used to engage outside counsel in some affirmative litigation
cases contrasts with the City’s traditional process. According to
the CFO, in some instances an outside law firm approached the
City and presented it with the opportunity to pursue litigation
that would benefit the City. Once the City made the business
2244 California state Auditor report 2004-36
decision to pursue the litigation, the City elected to contract
with that one firm. Traditionally, however, the City engages
outside counsel for an existing case, after deciding that it cannot
handle the case without outside counsel and then determining
how it should select the firm. We discuss the manner in which
the City selects outside counsel in Chapter 2. Whether the
City or an outside firm initiates consideration of the case, the
Attorney’s Office contended that it uses outside counsel because
of the staffing and expertise that the outside firms possess.
Nevertheless, the extent to which the City could have achieved
similar results without the use of outside counsel is unknown.
reCOMMenDATiOns
The Attorney’s Office should continue its efforts to ensure that
the outside counsel committee periodically reviews trends in the
use of outside counsel and makes recommendations regarding
areas in which it would be prudent to build capacity and hire
additional in‑house attorneys and support staff. The Attorney’s
Office should consider that information when evaluating its
overall staffing needs and requesting resources.
The City should ensure that the outside counsel costs it reports
are accurate and prepared consistently and that costs are
adequately supported by source documentation. n
California state Auditor report 2004-36 22
Blank page inserted for reproduction purposes only.
2266 California state Auditor report 2004-36
ChApTer 2
The Office of the City Attorney Could
Further Improve Aspects of Its Role in
the Selection and Administration of
Outside Counsel
ChAPTer suMMArY
In making decisions regarding outside counsel for the City of
Los Angeles (City), the policy of the Office of the City
Attorney (Attorney’s Office) is to first assess the need for
counsel and then, if necessary, conduct a selection process.
Selection can take the form of a competitive or noncompetitive
process, depending on the specific requirements of the legal
matter at hand. It is important to note that this selection process
culminates in the Attorney’s Office making a recommendation
to the Los Angeles City Council (city council) or appropriate
board, which makes the final contracting decision. Overall, we
found that the Attorney’s Office could not provide documents
to demonstrate that it had followed the policies and procedures
it has in place to guide it through its decisions to retain outside
counsel and the subsequent selection process. For example, it
lacked written evaluations and rating sheets to demonstrate
that it conducted a fair and objective process when performing
its role in selecting outside counsel in a competitive manner.
Without adequate documentation, the Attorney’s Office leaves
itself vulnerable to criticisms that its recommendations on outside
counsel are not prudent or made in a fair and objective manner.
In managing contracts with outside counsel, the Attorney’s
Office’s policies in effect at the time of our fieldwork generally
involved the use of recommended case management tools, such
as budgets and formal status updates, to help control costs.
Although its policies provided sufficient direction for good case
management, Attorney’s Office staff did not always follow them.
As a result, the Attorney’s Office risked paying more to outside
counsel than was necessary. In November 2005 the Attorney’s
Office changed its policy on the use of outside counsel. For
example, it eliminated its requirement for outside counsel to
submit quarterly reports. Instead, the Attorney’s Office plans
to work with outside counsel to provide status reports when it
California state Auditor report 2004-36 22
prepares for updates to the city council and others at least twice
a year. In doing so the Attorney’s Office may be limiting its insight
into outside counsel’s activities. However, it is too early to tell what
the long‑term effects of this particular policy change will be.
The Attorney’s Office could also improve its review of
invoices. It has established comprehensive policies related to
the invoices submitted by outside counsel, and our testing
demonstrated that the Attorney’s Office eliminated numerous
invoiced charges that conflicted with its policies. However, it
paid outside counsel for some costs that were not allowed by
its policies. Although the Attorney’s Office’s invoicing policies
seek to establish a standard for reasonable billing practices, the
Attorney’s Office undermines those efforts by not consistently
identifying all unallowable costs.
An opportunity exists for the Attorney’s Office to more efficiently
and effectively monitor outside counsel costs. It could do
so by preparing budgets detailed by activity and requiring
outside counsel to submit invoices with the same level
of detail, allowing Attorney’s Office staff to compare the
invoices to the budgets. Although Attorney’s Office policy
at the time of our fieldwork required managing attorneys
to work with outside counsel in creating detailed litigation
budgets and to periodically compare outside counsel’s actual
costs against budgeted costs, our review of files for selected
contracts found no evidence that Attorney’s Office staff had
made these comparisons. Comparing outside counsel costs
to budgeted costs by activity within litigation or project
phases should enable the Attorney’s Office to better facilitate
effective communication on the progress of its cases and any
deviations from established budgets.
When the Attorney’s Office has an actual or potential conflict of
interest in which it cannot ethically represent a city employee
whose interests may be adverse to those of the City, it refers
the matter to the attorney conflicts panel (conflicts panel). The
conflicts panel consists of attorneys from outside law firms
that the Attorney’s Office, in conjunction with the Office of
the City Administrative Officer (CAO), selects to provide legal
services to the City in the event of a conflict. The CAO, an
entity separate from the Attorney’s Office, is the day‑to‑day
overseer of the conflicts panel. In performing its daily duties,
the CAO adequately reviews invoices for compliance with its
22 California state Auditor report 2004-36
billing guidelines. However, the contracts that the CAO used did
not require outside counsel to submit budgets in all instances.
Finally, the Attorney’s Office has a policy for addressing outside
counsel’s conflicts of interest and takes the necessary steps when
granting a waiver regarding a conflict.
The ATTOrneY’s OffiCe lACKs neCessArY
infOrMATiOn TO DeMOnsTrATe ThAT iT fOllOWs
iTs neeDs AssessMenT POliCY AnD ThAT iTs
OuTsiDe COunsel reCOMMenDATiOns Are bAseD
On A COMPeTiTive PrOCess
After the city attorney took office in July 2001, the Attorney’s
Office established policies and procedures on the use of outside
After the city attorney counsel. Those policies and procedures require the Attorney’s
took office in July 2001, Office first to establish a need for outside counsel and then to
the Attorney’s Office select a firm through either a competitive or noncompetitive
established policies and process. As discussed previously, the selection process culminates
procedures on the use of in the Attorney’s Office making a recommendation to the city
outside counsel. council or appropriate board, which makes the final contracting
decision. Although the Attorney’s Office’s December 2001
policy, as enhanced by reforms outlined in an August 2004
memorandum (memo) on the use of outside counsel, are
generally sound, they do not require the Attorney’s Office
to document how it reaches its decisions for recommending
outside counsel or to prepare key documents, such as rating
sheets and interview notes, when it conducts a competitive
selection process. As a result, the Attorney’s Office lacks the
necessary documentation to demonstrate that it follows its
policies and procedures when performing its role in determining
the need to contract with outside counsel and selecting a
law firm. The reports the Attorney’s Office typically prepares
and presents to the city council or appropriate board contain
recommendations to contract with outside counsel. However,
those reports do not provide sufficient evidence of the
Attorney’s Office decision‑making process. Without sufficient
documentation of the decision‑making process that takes place
within the Attorney’s Office when determining the need for
and selecting outside counsel, the Attorney’s Office leaves itself
vulnerable to criticisms that its recommendations on outside
counsel are not prudent or made in a fair and objective manner.
California state Auditor report 2004-36 22
The Attorney’s Office has established Policies Governing how
to Assess the need for Outside Counsel
The city attorney is an elected official who took office in
July 2001. Shortly thereafter, in December 2001, the Attorney’s
Office instituted a policy regarding the use of outside
counsel. According to the Attorney’s Office, no policy on the
use of outside counsel existed before December 2001. The
December 2001 policy applied to all members of Attorney’s
Office staff, including those in the proprietary departments. It
required staff first to determine the need for outside counsel and
provide a written request and justification to the city attorney.
Then, according to the policy, Attorney’s Office staff were to
obtain written approval from the city attorney or chief deputy
before outside counsel could be retained.
In August 2004 the Attorney’s Office issued a memo outlining
certain reforms aimed at further improving the financial
oversight and transparency of the use of outside counsel
(August 2004 reforms). The city attorney noted in the
August 2004 reforms that certain departments, including the
proprietary departments, had often ignored the December 2001
policy in deciding to use outside counsel without the review
and approval of the Attorney’s Office. Thus, the city attorney
believed it was necessary to bring all city agencies into
compliance with the existing policy.
Based on our review of the August 2004 reforms, we determined
that the prescribed manner in which the Attorney’s Office
The prescribed manner assesses the need for outside counsel generally appears sound.
in which the Attorney’s The August 2004 reforms built on the December 2001 policy
Office assesses the need for by establishing the outside counsel committee (committee)
outside counsel generally and charging it with reviewing all requests for outside counsel,
appears sound. including those for the proprietary departments. Composed
of the chief deputy, branch chiefs, the chief financial and
administrative officer (CFO), the managing assistant over the
proprietary departments, and the budget director, the committee
provides for a broader and more vigorous discussion of the
use of outside counsel among the various interests within the
Attorney’s Office. Further, the committee’s centralized and
comprehensive review allows for greater consistency in decision
making and identifying internal needs, such as increasing
resources or developing subject area expertise.
3300 California state Auditor report 2004-36
The Attorney’s Office lacked sufficient Documentation to
Demonstrate That it followed its needs Assessment Policies
Although the policies and procedures that the Attorney’s Office
has in place to determine the need to retain outside counsel are
generally sound, in practice the process the Attorney’s Office
followed was not well documented. Thus, the Attorney’s Office
could not demonstrate it engaged in the decision‑making
process that its policies outline.
We reviewed the Attorney’s Office’s compliance with its
needs assessment policies and procedures over two periods:
from July 2003 to mid‑September 2004 and from mid‑
September 2004 through June 2005. Those periods align with
the periods before and after the Attorney’s Office issued its
August 2004 reforms and with the committee’s first meeting
on September 22, 2004. In all, we reviewed 11 instances
where outside counsel was retained and paid by the General
Fund or the proprietary departments.
For the first period—governed by the December 2001 policy—
we reviewed the Attorney’s Office assessment of need for
outside counsel in seven instances. Although the policy of the
Attorney’s Office specifies written justification to be submitted
to the city attorney for written approval with a copy to the
chief deputy, the Attorney’s Office was able to provide only one
e‑mail indicating that it had had internal discussions regarding
whether to assign a case to outside counsel. The Attorney’s
Office could not provide the required written justification or the
city attorney’s or chief deputy’s internal approval of the need for
outside counsel in the remaining six instances.
For the second period, which was after the Attorney’s Office’s
August 2004 reforms, we reviewed four instances in which
the Attorney’s Office assessed the need for outside counsel.
Because the period under review was limited, our sample
size was limited. Nevertheless, our findings for the second
The Attorney’s Office period were similar to those for the first. The Attorney’s Office
generally lacked generally lacked sufficient documentation to demonstrate that
sufficient documentation it had followed the policies and procedures it had in place for
demonstrating it followed determining the need to retain outside counsel.
its policies and procedures
for determining the need The Attorney’s Office made available to us agendas from certain
to retain outside counsel. committee meetings and the personal notes of the committee
member who led the meetings. However, those agendas and
notes did not provide adequate evidence that the Attorney’s
Office followed its policies and procedures. Using the committee
California state Auditor report 2004-36 33
agendas, we could determine that the committee scheduled
discussions regarding legal matters that might require outside
counsel. In addition, using the committee member’s personal
notes, we could usually determine that the committee addressed
the matters on its agenda and approved requests to retain
outside counsel. However, neither the notes nor the agendas
represented a formal record of the committee’s business,
and neither provided sufficient insight into the committee’s
decision‑making process.
According to the Attorney’s Office, reports that it submits
to the board of commissioners presiding over the affected
proprietary department (board reports) or reports to the city
council (council reports) provide sufficient documentation
that the Attorney’s Office follows its needs determination
process. The CFO directed us to the council and board reports
as evidence of the Attorney’s Office’s process. According to
the CFO, the city council or appropriate board, in addition
to the city attorney, always signs off on the use of outside
counsel. She stated that both a transmittal to the council or
board and a verbal presentation when requested are part of the
Attorney’s Office’s process. She emphasized that the reports and
presentations are not periodic in nature but accompany every
request for approval to use outside counsel. The CFO noted that
the reports and presentations describe why outside counsel are
needed and the process used to select them.
According to flowcharts the Attorney’s Office prepared to illustrate
when to use outside counsel, it is appropriate to retain outside
counsel when the need for specialized expertise exists, when the
duration of a case does not justify full‑time staff assignment, or
when the Attorney’s Office does not have a sufficient number of
attorneys to handle the matter. However, the board and council
reports we reviewed did not provide sufficient evidence of the
decision‑making process. For example, our review of five reports
for cases in which insufficient staff was cited as a reason for
using outside counsel revealed that the reports did not compare
expected staff needs for the case with the existing staff demands
of the Attorney’s Office. Further, five of the board and council
reports we reviewed cited a lack of necessary expertise as an
issue. However, only one report contained a detailed description
of the expertise the Attorney’s Office lacked. We would expect an
analysis of available resources and staff expertise to be provided
by the committee because it is at committee meetings where
the process of deciding when to recommend the use of outside
counsel takes place.
3322 California state Auditor report 2004-36
Additionally, board reports were not available in every instance.
The Attorney’s Office’s chief assistant city attorney, municipal
counsel branch (chief assistant) confirmed that the city charter
and administrative code do not specifically require these
reports but stated that the Attorney’s Office prepares board and
council reports to facilitate presentation of such matters to the
Without sufficient applicable meetings. Further, the chief assistant confirmed
documentation of its that the Attorney’s Office does not prepare board reports for
decision-making process, proprietary department contracts with outside counsel that
the Attorney’s Office are less than $150,000 because in those instances the general
cannot demonstrate managers of the departments have authority to contract
that its recommendations without board approval. Without sufficient documentation
pertaining to the use of the decision‑making process that takes place within the
of outside counsel Attorney’s Office, the Attorney’s Office cannot demonstrate
are prudent. that its recommendations pertaining to the use of outside
counsel are prudent.
In November 2005, after we had substantially completed our
fieldwork, the Attorney’s Office issued a new policy on the use of
outside counsel. In a transmittal memo the city attorney stated
that the November 2005 policy supersedes the December 2001
policy and represents the Attorney’s Office’s latest refinement
related to the use of outside counsel. Although we reviewed
the November 2005 policy, we did not evaluate the Attorney’s
Office’s performance in connection with it. The policy outlines
the procedures for assessing the need for outside counsel and
states that the committee will now “generate a brief decision
memo” following a request to use outside counsel. It does not
specify the nature or extent of the analysis to be included in the
decision memo.
The Attorney’s Office lacks the necessary Documentation
to Demonstrate That its selection Practices Are Truly
Competitive
The city charter requires the use of competitive bidding
procedures in selecting contractors for the acquisition of
services and goods, except in specified instances. Exceptions
to the requirement include contracts involving the
performance of professional, scientific, expert, technical, or
other special services of a temporary or occasional nature
for which the City finds that competitive bidding is not
practicable or advantageous. Because outside counsel fall
into those categories, the Attorney’s Office has discretion in
determining whether to administer a competitive process
when performing its role in selecting outside counsel.
California state Auditor report 2004-36 3333
However, according to the chief assistant, the Attorney’s
Office, as a matter of business preference, generally chooses
to competitively select outside counsel. Moreover, the chief
assistant stated that the Attorney’s Office business preference is
based on the benefits that generally come from comparing law
firms as part of the selection process.
Because the Attorney’s Office’s preference is to use a competitive
selection process, we expected to find policies and procedures
in place to direct the administration of selections. Although
the policies and procedures concerning the use of outside
Neither the December 2001 counsel have evolved over time, neither the Attorney’s Office’s
policy nor the August 2004 December 2001 policy nor its August 2004 reforms guided
reforms guided staff staff in the administration of a competitive selection process.
in the administration Specifically, the policies and procedures indicated that outside
of a competitive counsel should be selected through a competitive request for
selection process. proposals (RFP) or request for qualifications (RFQ) process,
but they did not address the documentation the Attorney’s
Office must prepare and retain to support decisions regarding
its recommendations to award contracts.3 Without sufficient
documentation of its selection process, the Attorney’s Office
leaves itself vulnerable to criticisms that its competitive
selection processes are not conducted in a consistent, fair, and
objective manner.
Although the Attorney’s Office’s policies and procedures do not
address the type of documentation to be prepared or retained,
other guidance for city departments exists regarding contracting
and offers best business practices. Specifically, we found that
the City’s Department of General Services gives guidance in its
procedures manual for professional or personal service contracts
(contracting manual) and sets standards for city departments
on how to administer the competitive selection process. For
example, the contracting manual indicates that it is imperative
to maintain a complete record of the evaluation process and to
document all information in an RFP/contract master file (RFP
file). According to the contracting manual, the RFP file should
contain items like a copy of the RFP; a list of all parties asked to
submit a proposal; all proposals received; and all documentation
from the evaluation committee, including evaluation forms,
summary sheets, notes, references, oral interview scores, and
rating sheets.
3 An RFQ is similar to an RFP except that it focuses on the firms’ qualifications to provide
a service, rather than on various other criteria in addition to qualifications.
3344 California state Auditor report 2004-36
We reviewed a total of eight RFPs and RFQs (henceforth referred
to collectively as RFPs) the Attorney’s Office administered
between July 2003 and June 2005 to determine the fairness
and objectivity of the RFP processes conducted to select outside
counsel to serve the departments funded by the City’s General
Fund and the proprietary departments. Based on our review,
we determined that the Attorney’s Office lacked sufficient
Even though the RFPs we documentation to demonstrate that its RFP processes
reviewed cited evaluation were competitive. For example, even though the RFPs cited
criteria, the Attorney’s evaluation criteria, the Attorney’s Office could not provide
Office could not documentation supporting how it scored the criteria, such as its
provide documentation evaluation committee’s written evaluation of responses, rating
supporting how it scored sheets, or notes of interviews. As a result, we could not conclude
the criteria. that the RFP processes we reviewed were conducted in a fair and
objective manner.
Although we believe the RFP guidelines contained in the
City’s contracting manual represent best practices for
conducting a competitive selection process, the chief assistant
stated that the Attorney’s Office is not obligated to follow
the contracting manual. According to the chief assistant,
the contracting manual is meant for city employees who
have little or no experience with contracts, unlike the staff
at the Attorney’s Office. Moreover, the chief assistant stated
that scoring sheets, rating forms, and the like can be helpful
in comparing the attributes of routine personal services, such
as janitorial services, but that the documents do not provide
assistance in comparing the more subtle differences typically
found among highly specialized professional organizations, such
as law firms.
Although staff within the Attorney’s Office may be highly
specialized in matters of law, that does not replace the need for
a sound policy establishing the retention of documentation.
We recognize that the evaluation criteria applied to selecting
legal counsel would differ from those needed to select firms
to provide other services. However, to have a competitive
process, it is important to demonstrate that the criteria are
applied equally, regardless of the contracted service. Because the
Attorney’s Office’s business preference is to use a competitive
selection process, it needs to be able to demonstrate that it
evaluates the proposals it receives in a fair and competitive way
based on the criteria outlined in its RFP.
California state Auditor report 2004-36 33
When the Attorney’s Office issued its August 2004 reforms,
the city attorney expressed interest in further improving the
financial oversight and transparency of the use of outside
Without documentation counsel by the City. Without documentation like rating sheets
such as rating sheets and interview notes, the process lacks the desired transparency.
and interview notes, Moreover, the Attorney’s Office’s lack of documentation leaves
the Attorney’s Office is it vulnerable to criticisms that its recommendations on outside
vulnerable to criticisms counsel are not fair and objective.
that its recommendations
on outside counsel are As mentioned previously, in November 2005 the Attorney’s
not fair and objective. Office issued a new policy on the use of outside counsel. The
November 2005 policy states that the majority of contracts with
outside counsel should be issued through a competitive selection
process. Further, the policy indicates that the committee must
oversee the selection process and draft a recommendation to the
city council or appropriate board as to what firm or firms should
be hired. However, it does not require the creation or retention
of the documents necessary to demonstrate the fairness and
objectivity of the competitive process.
Without the necessary information, the Attorney’s Office
Cannot Demonstrate That its selection Process for the
Workers’ Compensation Panel Was Truly Competitive
The Attorney’s Office works with the Personnel Department to
manage the City’s Workers’ Compensation Program. Workers’
compensation claims can be either for civilian employees or for
sworn officers, such as police and fire personnel. The Attorney’s
Office is responsible for recommending law firms for a panel
dedicated to litigating workers’ compensation claims filed by
the City’s sworn officers. The city council is responsible for
approving the Attorney’s Office’s recommendations. It uses
a competitive process to select outside counsel for the panel.
Although the Attorney’s Office is responsible for litigating all
civilian claims, it has used the workers’ compensation panel to
assist with civilian claims when the workload associated with
those claims exceeded its resources.
In 2003 the Attorney’s Office initiated a competitive selection
process as part of its efforts to implement changes in the
Workers’ Compensation Program. The Attorney’s Office had
concluded that a new workers’ compensation panel was needed
because the panel in place under the former city attorney had
been selected several years before and was providing services to
the City without contracts. The Attorney’s Office issued an RFQ
to various firms as part of the selection process.
3366 California state Auditor report 2004-36
As with our review of the competitive selection processes
used by the General Fund and proprietary departments,
As with our review of we found that the RFQ the Attorney’s Office released cited
the competitive selection evaluation criteria, but that the Attorney’s Office could not
processes used by the provide documentation, such as evaluation forms and rating
General Fund and sheets, supporting how it scored the criteria. Additionally, the
proprietary departments, Attorney’s Office could not provide interview notes or proposal
the Attorney’s Office could evaluation notes.
not provide documentation
such as evaluation forms As discussed earlier in the report, the Attorney’s Office stated
and rating sheets. that it is not obligated to maintain documents to demonstrate
the competitiveness of its selection process. Additionally,
according to the CFO, the Attorney’s Office offered a place on
the panel to each of the 15 law firms that applied, although
only 10 accepted. Nevertheless, it is important for the Attorney’s
Office to be able to demonstrate that it determined that all the
firms had the appropriate qualifications. Without retaining
the proper documentation to demonstrate how the Attorney’s
Office reaches its decisions on which firms to recommend for
the panel, the Attorney’s Office cannot demonstrate that its
recommendations are made in a fair and objective manner.
The ATTOrneY’s OffiCe DOes nOT ADeQuATelY
DOCuMenT hOW iT JusTifies usinG A
nOnCOMPeTiTive PrOCess
Under the city charter, the Attorney’s Office has the discretion
to select outside counsel in a noncompetitive manner.
Noncompetitive selection still requires the approval of
the city council or the appropriate board. The Attorney’s
Office has outlined the types of situations in which it uses
a noncompetitive selection process. However, it has not
established a policy for retaining the documents necessary
to demonstrate its decision‑making process. The Attorney’s
Office provided only limited documentation to justify its
noncompetitive selection of outside counsel in three of the
five contracts we reviewed and had no documentation for two
of the selections. As a result, in an area where the Attorney’s
Office is particularly vulnerable to criticism—selecting
outside counsel without a competitive process—it lacks all
the necessary documentation to demonstrate how it made its
decisions on recommending outside counsel.
Although the Attorney’s Office has modified its noncompetitive
selection policy and procedures over time, it still lacks
requirements to document its justification for noncompetitive
California state Auditor report 2004-36 33
selection. The December 2001 policy provides no guidance
Despite modifying its for noncompetitive selection because it does not specify the
noncompetitive selection circumstances in which the Attorney’s Office can recognize
policy and procedures that noncompetitive selection is appropriate. Flowcharts the
over time, the Attorney’s Attorney’s Office prepared to illustrate the use of outside
Office still lacks counsel, however, address noncompetitive selection
requirements to document specifically and clarify that the Attorney’s Office uses
its justification for noncompetitive selection when it determines that only
noncompetitive selection. one firm has the necessary qualifications, expertise, unique
knowledge of the facts, and/or availability. Thus, the
flowcharts clarify for staff the city attorney’s expectations for
selecting outside counsel in a noncompetitive way. However,
because the Attorney’s Office’s guidance does not establish
criteria for the retention of the documentation necessary
to demonstrate its decision‑making process, it falls short of
attaining the transparency in the use of outside counsel that
the city attorney expressed an interest in achieving.
Between July 2003 and June 2005, the Attorney’s Office
opted to recommend the selection of outside counsel in a
noncompetitive manner 14 times. We reviewed five of the
contracts, but the Attorney’s Office provided only limited
documentation explaining why the circumstances of each
contract required unique qualifications and expertise and
how the firm recommended fulfilled those requirements. The
Attorney’s Office believes that its board and council reports
sufficiently document the reasons for selecting outside counsel
in a noncompetitive manner. However, because of the size of
the contracts, the Attorney’s Office was not required to prepare
a board report for two of the five contracts we assessed; the
department’s general manager had the authority to approve
those contracts. Further, the three board and council reports
we reviewed contained comments on the recommended
firms’ expertise and knowledge of the facts. In two of the
three instances where there were board or council reports,
outside counsel approached the City and presented it with the
opportunity to pursue litigation that would benefit the City.
Thus, once the City made the business decision to pursue the
litigation, the City made a decision to contract with those firms.
We discuss those types of cases further in Chapter 1. However,
for one of the two cases, the Attorney’s Office noted it could
take over the litigation itself. Finally, in the last instance where
there was a board or council report, the report only reflected the
decision the Attorney’s Office had already expressed in making
its recommendation and did not provide sufficient insight
into the analysis leading up to the decision to select the firm.
33 California state Auditor report 2004-36
Without documenting and justifying its internal decisions, the
Without documenting Attorney’s Office cannot achieve the transparency it desires in
and justifying its internal performing its role in selecting outside counsel.
decisions, the Attorney’s
Office cannot achieve the In its new November 2005 policy, the Attorney’s Office outlined
transparency it desires a role for the outside counsel committee (committee) with
in performing its role in regard to selecting outside counsel in a noncompetitive manner.
selecting outside counsel. The November 2005 policy states that in cases in which one firm
is uniquely qualified to perform the work, or in which time is of
the essence, the committee can recommend a noncompetitive
selection process to award the contract. Additionally, the
November 2005 policy requires the committee to oversee the
drafting of a transmittal recommending to the city council or
appropriate board that the firm be selected as a result of the
process. However, it does not specify the nature or extent of
the analysis to be included in the memo.
Finally, we asked the Attorney’s Office how it ensures that it
obtains a reasonable price for outside counsel services contracted
through a noncompetitive selection process. According to
the CFO, the Attorney’s Office is a sophisticated and regular
consumer of legal services. Thus, the CFO stated, given
the number of competitive processes it has conducted, the
Attorney’s Office is very familiar with the marketplace and is
well positioned to make judgments about rates that are fair for
the City. In addition, language within the Attorney’s Office
standard contract that was to be used for contracts issued before
November 2005 obligated outside counsel to charge the City the
lowest rate for legal services that the firm offered to any client,
except not‑for‑profit and pro bono clients. In the new standard
contract the Attorney’s Office issued in November 2005,
outside counsel are obligated to provide the City with the
necessary representation by qualified staff at the least costly
billing category.
The ATTOrneY’s OffiCe OfTen relieD On
infOrMAl MeAns TO Oversee iTs COnTrACTs
WiTh OuTsiDe COunsel
The Attorney’s Office’s policies in place at the time of our
fieldwork called for the use of recommended case management
tools, such as budgets and formal status updates, to help control
the costs of outside counsel. Although those policies provided
sufficient direction for good case management, Attorney’s
Office staff did not always follow the policies, often relying on
informal monitoring of outside counsel through telephone,
California state Auditor report 2004-36 33
e‑mail, or in‑person communications. In November 2005 the
Attorney’s Office changed its outside counsel policy in certain
respects, but it is too early to determine what effects the
policy changes will have on the Attorney’s Office oversight of
outside counsel.
The size and length of many of its contracts with outside
counsel are so great that Attorney’s Office staff would not
likely be able to adequately monitor them through primarily
informal means. A list of contracts active from July 2001
through December 2004 provided by the Attorney’s Office
indicated 32 contracts were $1 million or more, 23 were
$500,000 or more, and 64 were $100,000 or more. If the
average hourly billing rate for attorneys and paralegals
is estimated at $250 per hour, the contracts that were for
$1 million or more were for between 4,000 and 33,000 hours.
The list also showed that the length of these contracts was
frequently three to five years.
Contracts With Outside Counsel Often include
recommended Tools for Managing legal Contracts
The Attorney’s Office’s policies in place until November 2005
Policies in place until provided a reasonable framework for good case management.
November 2005 provided The standard contract the Attorney’s Office policy directed staff
the Attorney’s Office with a to use when contracting with outside counsel required outside
reasonable framework for counsel to submit certain recommended management tools,
good case management. such as the following:
• A comprehensive budget that is updated periodically.
• Formal status and budgetary updates, in the form of quarterly
reports summarizing all activity performed in the previous
quarter, all upcoming deadlines and major events in the
matter, and an analysis of whether outside counsel’s fees and
costs are within the projected budget for the matter.
Moreover, the contract allowed the Attorney’s Office to request,
if circumstances warranted, a strategic plan detailing the
available options for handling the matter, the major steps likely
to be involved, the timing and sequence of the major steps, and
the projected cost for each major phase of the representation
(case plan).
4400 California state Auditor report 2004-36
Each of these documents provided a means for the Attorney’s
Office to monitor outside counsel costs and ensure that outside
counsel were delivering the agreed‑on services. In addition, in
its December 2001 policy on outside counsel, the Attorney’s
Office outlined the role and responsibilities of its staff in
managing outside counsel contracts and using the required
documents. For example, the policy directed managing
attorneys to work with outside counsel to create budgets
detailing total estimated costs. Additionally, managing
attorneys were to receive outside counsel’s quarterly reports.
The December 2001 policy applied to all departments in
which Attorney’s Office personnel worked, including the three
proprietary departments: the Port of Los Angeles (Harbor),
Los Angeles World Airports (Airports), and the Department
of Water and Power (DWP). According to the CFO, no
policy for monitoring outside counsel existed before the
December 2001 policy.
The Attorney’s Office’s December 2001 policy and its
related contract provisions contained certain key elements
The Attorney’s Office’s recommended in Successful Partnering Between Inside and Outside
December 2001 policy Counsel (Successful Partnering) as tools to help control outside
and related contract counsel costs. Successful Partnering, a joint endeavor of the
provisions contained American Corporate Counsel Association and West Group, a
certain key elements legal information company, is a comprehensive work detailing
recommended as tools key aspects of the relationship between inside and outside
to help control outside counsel. It draws on legal experts and research from across the
counsel costs. United States and has been updated since its publication in 2000
to reflect recent developments in the legal field. According to
Successful Partnering, requiring outside counsel to submit and
adhere to budgets is one of the most common prescriptions
for containing the costs of outside counsel. In addition, using
case plans focuses outside counsel on key issues so that they
may establish priorities and function more effectively. The use
of such plans is encouraged by Successful Partnering and other
related best practices literature. Case plans are to be viewed as
living documents that may need to be changed periodically.
Two of the three proprietary departments that we reviewed did
not include in their contracts the key elements just discussed.
Despite the December 2001 policy, which clearly stated that
the standard contract was required for agreements with outside
counsel unless prior approval had been granted, both Harbor
and Airports opted to use different contracts. The standard
California state Auditor report 2004-36 44
contract is important because it contains language describing
the various documents and reports the Attorney’s Office requires
from outside counsel for monitoring purposes.
Even though Harbor’s contracts generally directed outside
counsel to submit case plans and quarterly reports, the contracts
omitted the specific requirements to provide case budgets and
to include budget updates with the quarterly reports. However,
the case plans that Harbor’s contracts generally required were
Without monitoring to include the projected cost for each major phase of the
documents such as representation. Airports’ contracts, on the other hand, typically
quarterly reports and case did not require outside counsel to submit any of the monitoring
plans, managing attorneys documents or reports that the Attorney’s Office discussed in its
lack useful information standard contract, such as budgets, case plans, and quarterly
to help control outside reports. Specifically, of the five contracts we examined, only
counsel costs. one obligated outside counsel to submit quarterly reports and
case plans. Without those documents, managing attorneys lack
useful information to help control outside counsel costs.
According to the attorney who oversees Harbor, he was not
with Harbor in December 2001 when the Attorney’s Office’s
policy was developed. He could not explain why Harbor did
not adopt the standard contract according to the December
2001 policy. The attorney who oversees Airports informed us
that he did not hold that position when the Attorney’s Office
issued its December 2001 policy. However, he stated that it is his
understanding that Airports did not adopt the Attorney’s Office’s
standard contract because it used a standard Airports contract
tailored for its specific needs and with which its board was more
familiar. We asked the CFO whether the city attorney or his
chief deputy agreed to release Harbor and Airports from using
the standard contract, as required by policy. The CFO informed
us that the city attorney did not but that the chief deputy at
the time might have granted that permission. However, the
CFO added that the chief deputy and the attorneys overseeing
Harbor and Airports are no longer with the City, suggesting that
without input from those former staff members, it is impossible
to know whether Harbor and Airports received an exemption
from using the standard contract.
4422 California state Auditor report 2004-36
The Attorney’s Office Did not Always Obtain budgets, Case
Plans, or Quarterly reports
Although it was clearly evident from our testing that
managing attorneys were involved in the matters for which
outside counsel were retained, they did not always require
outside counsel to submit budgets, case plans, or quarterly
reports. To assess the managing attorneys’ level of involvement
and determine how often the Attorney’s Office makes use of the
previously mentioned case management tools, we reviewed files
for 21 contracts paid by the General Fund, DWP, Airports, or
Harbor. The contracts were all entered into after the Attorney’s
Office’s December 2001 policy went into effect.
The Attorney’s Office often did not require outside counsel to
submit comprehensive budgets. The Attorney’s Office received
comprehensive budgets for the four General Fund contracts
we reviewed for which budgets were applicable. However, only
two of the 16 contract files we reviewed at the proprietary
departments contained budgets. Specifically, at DWP we
reviewed five contract files and found none that included a
comprehensive case budget. The results were the same for
all but one of the four contract files we reviewed at Airports.
One contract file of the seven we tested at Harbor included a
comprehensive case budget.
In response to our inquiries about the lack of case budgets,
some of the managing attorneys at DWP who were responsible
for the contracts we reviewed indicated that the unknown
When budgets are not or complex nature of their legal proceedings did not make
committed to writing budgeting practical. Additionally, staff within Harbor and
with some degree of Airports informed us that just because budgets were not reduced
detail, the Attorney’s to writing did not mean that budgets were not in effect. In fact,
Office lacks the necessary certain staff at Harbor and Airports told us that before they
information to monitor enter into contracts, they have discussions with outside counsel
outside counsel’s regarding expected costs. Based on those discussions, the
performance. parties enter into a contract that includes a total budgetary
amount. We recognize that any project, such as litigation,
can take unexpected turns; however, even without knowing
the final outcome, the creation of a budget forces outside
counsel to strategize regarding their course of action, which
could translate to costs savings. Moreover, by not committing
a budget to writing with some degree of detail, the Attorney’s
Office lacks the necessary information to monitor outside
counsel’s performance.
California state Auditor report 2004-36 4433
As we did with budgets, we assessed the frequency with which
the Attorney’s Office received case plans from outside counsel.
Our testing included General Fund, DWP, and Harbor contracts
but not those of Airports because its contracts with outside
counsel typically did not require case plans. For the 17 contract
files we reviewed, outside counsel submitted only seven case
plans: three for General Fund contracts, three for Harbor
contracts, and one for DWP contracts. According to staff at the
Attorney’s Office, formal case plans were not always obtained
from outside counsel because of the unpredictable nature of
the work to which outside counsel were assigned or because
litigation strategies were discussed verbally. Some managing
attorneys at Harbor and the Attorney’s Office indicated that
their frequent strategic discussions with outside counsel
eliminated the need for a formal case plan. For example, one
managing attorney stated that he did not require a case plan
because he kept in contact with outside counsel through
e‑mail and telephone throughout the case. However, although
the conversations may have been beneficial, they are not an
adequate substitute for a case plan.
Additionally, a managing attorney at DWP contended that case
plans were not practical in certain instances, particularly because
of the nature of the legal services provided. The legal services
the managing attorney referred to were for transactional work,
such as the negotiation and preparation of energy contracts.
However, as previously mentioned, the Attorney’s Office’s
standard contracts indicate that case plans should include such
items as the available options for handling the matter and the
major steps likely to be involved, as well as the timing and
sequence of major steps. Unless the cost of a matter is clearly
inconsequential, a plan that allows for agreement on key items
is valuable, whether the matter is litigational or transactional
in nature. Moreover, the language in the Attorney’s Office’s
contracts often leaves requesting a case plan to the discretion
of the managing attorney. Based on the size of the contracts we
reviewed, the costs associated with those cases were significant
Although the enough that we would have expected the managing attorneys to
December 2001 policy request case plans.
stated that managing
attorneys should receive Finally, a third component of the monitoring policies and
quarterly status reports, procedures the Attorney’s Office had in place through its
we did not always see December 2001 policy was quarterly status reports. Although
evidence of these reports. the December 2001 policy stated that “managing attorneys
should receive quarterly reports from outside counsel,” we
did not always see evidence of the reports. Outside counsel
4444 California state Auditor report 2004-36
for Harbor submitted quarterly reports for three of the seven
contracts we reviewed. Quarterly reports were submitted for
three of the five General Fund contracts we reviewed and for
one of the five DWP contracts. Most of the managing attorneys
to whom we spoke who had not received quarterly reports
indicated that they had not required them from outside counsel
because they had received timely information through other
means. Among those methods are e‑mail correspondence,
telephone conversations, receipt of court documents, and in‑
person strategy sessions with outside counsel.
We typically saw evidence that those types of interactions
occurred. However, we do not consider those interactions to be
Informal methods of substitutes for the required quarterly reports. According to the
monitoring do not Attorney’s Office contract requirements, a quarterly report is to
allow for the high-level reflect a summary of activity over the past quarter, upcoming
assessment that all deadlines and major events, and an analysis of whether outside
projects require. counsel’s costs are within the projected budget. Telephone
conversations, e‑mails, and in‑person strategy sessions do not
provide that level of summarization. In addition, although
contact may have been frequent, the informal methods of
monitoring do not allow for the high‑level assessment that all
projects require. Instead, they address the day‑to‑day needs
of a legal matter, which are far different from the periodic
summarization of the project, assessing where it has been and
where it is headed, that a quarterly report allows.
Outside counsel for Airports did not submit quarterly
reports for any of the four contracts we tested. As discussed
previously, according to the attorney who oversees Airports,
his understanding, is that Airports used a contract tailored
specifically for its needs. Because the contract that Airports used
did not include a requirement for quarterly reports, data was
not obtained. However, Airports should have been following the
December 2001 policy, which called for managing attorneys to
receive quarterly reports.
We also assessed the files for 10 additional contracts that were
entered into before the December 2001 policy went into effect.
Similar to the contracts entered into after December 2001,
we found that outside counsel sometimes submitted
comprehensive budgets, quarterly reports, and case plans but at
other times did not.
California state Auditor report 2004-36 44
The Attorney’s Office revised its Policy on the use of
Outside Counsel
As part of its new policy on the use of outside counsel issued
The November 2005 policy in November 2005, the Attorney’s Office revised its standard
issued by the Attorney’s contract language. Although we reviewed the November 2005
Office changed the policy and contract, we did not evaluate the Attorney’s Office’s
monitoring procedures for compliance with it. The November 2005 policy changed the
case budgets and quarterly Attorney’s Office’s monitoring procedures for case budgets
reports; the use of case and quarterly reports. The use of case plans continues to be
plans remains discretionary. discretionary under the new policy.
The November 2005 policy differs from the December 2001
policy in that it no longer requires that a budget be prepared
within 30 days of executing the contract. Instead, the
November 2005 policy indicates that the amount of funding
that the outside counsel committee (committee) recommends
for a particular contract is based, in part, on a firm’s budgetary
projections. According to the CFO, the committee has
consistently required detailed budgets since the new policy
was issued. Further, the November 2005 policy eliminates the
requirement that Attorney’s Office staff periodically compare
actual and budgeted costs. Instead, the policy states that
budget updates will generally be required from outside counsel
as contract amendments are proposed and that the need
for additional funding will result in regular budget reviews.
Further, the November 2005 policy eliminates the need for
outside counsel to submit quarterly reports. In the policy,
the reason the Attorney’s Office offers for this change is that
“these reports have proven to be less practical and useful
than originally envisioned.” Rather than requiring quarterly
reports from outside counsel, according to the new policy, the
Attorney’s Office will, at least twice each year, provide updates
to the city council or appropriate boards on all “significant”
cases being handled by outside counsel. The policy does not
include a definition of significant cases. In preparation for the
updates, management personnel within the Attorney’s Office
are to work with outside counsel on providing status reports
for each case being handled. Further, the new policy calls on
the managing attorneys to closely monitor outside counsel’s
work by maintaining regular contact with them. The language
regarding case plans in the Attorney’s Office’s revised standard
contract is permissive, stating that the Attorney’s Office may
request a case plan but not obligating outside counsel to
prepare one in every instance.
4466 California state Auditor report 2004-36
Budgets are an important means of controlling the costs of
outside counsel. The professional literature recognizes that
budgeting is the most common way to contain outside counsel
costs. Without budgets and periodic comparisons of budgeted
amounts to actual costs, the Attorney’s Office cannot proactively
minimize outside counsel costs by identifying services that
are not cost‑effective or that might be made more efficient. By
eliminating its quarterly reporting requirement and instead
By eliminating its relying on its work with outside counsel to create status reports
quarterly reporting as preparation for updates to the city council or appropriate
requirement, the boards, the Attorney’s Office may be limiting its insight into
Attorney’s Office may be outside counsel’s activities. Moreover, the November 2005 policy
limiting its insight into requirement of reporting only on “significant” cases could
outside counsel’s activities. further reduce the information available to the Attorney’s Office
for decision making. However, it is too early to tell what the
long‑term effects of the policy change will be.
Finally, the professional literature encourages case plans as a
means of focusing outside counsel on key issues so that it can
establish priorities and function more effectively. Our testing
revealed that the Attorney’s Office often did not obtain case plans.
Because it leaves case plans to the discretion of the managing
attorneys, we question whether that element of the Attorney’s
Office November 2005 policy will be used to a great extent.
The ATTOrneY’s OffiCe’s POliCies AnD PrOCeDures
fOr revieWinG OuTsiDe COunsel’s invOiCes Are
reAsOnAble, buT iT COulD beTTer iDenTifY AnD
eliMinATe CerTAin QuesTiOnAble COsTs
Although its prescribed process for reviewing outside
counsel’s invoices for contracts paid by the General Fund
and proprietary departments is reasonable, the Attorney’s
Office does not consistently apply its invoicing policies and
procedures. In establishing comprehensive invoicing policies
and implementing a review process to ensure that outside
counsel follow them, the Attorney’s Office has helped control
outside counsel costs. Our testing of 41 invoices demonstrated
that the Attorney’s Office often eliminated invoiced charges
that conflicted with its policies. Nevertheless, we identified
certain instances in which the Attorney’s Office did not apply
its invoicing policies and paid outside counsel for costs that
were not allowed. Those costs were primarily related to block
billing—the practice of grouping tasks and invoicing for an
aggregate amount of time, rather than specifying the time spent
and costs associated with each task. In addition, attorneys and
California state Auditor report 2004-36 44
paralegal staff were sometimes billed to the City without prior
written approval. Although the Attorney’s Office’s invoicing
policies seek to establish a standard for reasonable billing
practices and to encourage accountability based on cost‑benefit
considerations, it undermines those efforts by not consistently
identifying all unallowable costs. In addition, the Attorney’s
Office risks paying more for outside counsel than it has to or is
contractually obligated to pay.
Legal invoices generally contain two types of costs: legal fees
and expenses. Legal fees consist of attorney and paralegal
fees typically charged at an hourly rate, and expenses include
The invoicing policies and charges for such items as copies and delivery services. The
review procedures that invoicing policies and review procedures the Attorney’s Office
the Attorney’s Office has has developed to manage outside counsel costs are reasonable.
developed to manage Specifically, the polices and procedures encompass three
outside counsel costs components: invoicing requirements outlined in its standard
are reasonable. contract; its Guidelines for Outside Counsel (guidelines),
which are included in the contract; and an established invoice
review process.
In its standard contract the Attorney’s Office specifies the frequency
with which outside counsel must invoice the City and the form the
invoices must take. For example, the standard contract states that
firms are to invoice the City monthly and that the invoice must
specify the compensation and expenses by assigned task and must
identify the attorney or staff member performing the task and the
date on which the task was performed. The contract requires
outside counsel to submit invoices that are “highly specific and
highly detailed” and expressly prohibits block billing. In addition,
the contract describes costs that outside counsel may not invoice
the City for, such as fees for hours devoted to matters other than
those specified in the contract, review of junior attorneys’ work,
and resources not reasonably necessary for the services being
contracted for.
The Attorney’s Office’s guidelines further detail acceptable
invoicing practices. The guidelines state that any rate increase
must be approved in advance and in writing, require advance
written approval for individual expenses in excess of $500,
and state that the City will not pay for vague services such as
“research,” “analysis,” and “conference.” With the standard
contract and its guidelines, the Attorney’s Office reasonably
outlines the level of detail that an invoice must reflect and the
types of costs for which outside counsel can and cannot invoice.
44 California state Auditor report 2004-36
To ensure that the legal fees and expenses it is billed for are
appropriate and in accordance with its invoicing policies, the
Attorney’s Office has a process in place for reviewing each
invoice received from outside counsel. Each invoice is subject
to an internal three‑part review. In place for all General Fund
legal contracts since October 2001 and all proprietary legal
contracts since October 2004, the process incorporates a review
by business office staff, the special assistant for outside counsel
(special assistant), and the managing attorney assigned to
the day‑to‑day monitoring of the specific matter for which
outside counsel have been assigned. According to the CFO,
no centralized invoice review existed before this process was
implemented. As the Figure demonstrates, once outside counsel
submit an invoice to the Attorney’s Office, business office staff
perform various administrative checks on the invoice. After
that the special assistant and the managing attorney for the
case review the invoice for reasonableness and compliance
with the Attorney’s Office’s policies. In having multiple checks
and balances, such as requiring that an invoice be reviewed by
both an attorney with unique knowledge of the case and an
independent attorney who reviews all invoices, the Attorney’s
Office helps reduce the risk that outside counsel will overcharge
the City for legal work.
Through its invoicing policies and procedures, the Attorney’s
Office has established a mechanism that the legal community
recognizes as valuable in controlling the costs of outside
fiGure
invoice review Process used for Outside Counsel
Business Office Staff Special Assistant for Managing Attorney
•Verifies that billing rates are Outside Counsel for the Case
Invoice consistent with contract • Independent attorney • Applies knowledge
reviews charges for specific to case when
• Confirms summary invoice
reasonableness reviewing charges
matches detail of costs
submitted by law firm •Identifies unallowable • Reviews invoice
charges, such as duplicate for overcharges
• Reviews charges for
billings and vague items
adequate supporting
documentation
Processes invoice Reconciles any differences
and transmits it to city and determines final amount
Check
controller for review to pay outside counsel
and payment
California state Auditor report 2004-36 44
counsel. Successful Partnering suggests that well‑planned
billing procedures should address the frequency of and form
in which outside counsel submit invoices—for example,
requiring a description of the work performed and the names
of attorneys performing the work. It also recommends that
organizations require detailed invoices from outside counsel,
because that detail allows inside counsel to determine whether
outside counsel are adhering to billing guidelines, performing
unauthorized work, replacing attorneys too frequently,
exceeding the realm of reasonable paralegal work, or charging
excessive amounts for expenses. The policies and procedures the
Attorney’s Office has in place address those best practices.
Our review of legal fees charged on 41 outside counsel invoices
recorded between July 2003 and June 2005 for the General
Fund and proprietary departments revealed numerous instances
Our review of 41 invoices in which outside counsel did not comply with the invoicing
revealed numerous policies and the Attorney’s Office disallowed charges. For
instances in which example, on one invoice we observed that the Attorney’s Office
the Attorney’s Office reduced the charges by $5,362 because the outside counsel had
disallowed charges. invoiced for the work of more than one attorney to complete
the same task and because certain line items were vague. The
standard contract and guidelines stipulate that the Attorney’s
Office will not pay for duplicate work or vague tasks. As
previously mentioned, during the invoice review process, the
special assistant assesses the invoice for reasonableness. We saw
examples of this practice throughout the invoices we reviewed.
For instance, we noted one invoice that the special assistant
reduced by $255 because the hours spent on a particular task
seemed excessive. In addition, we found that nearly all the
invoices dated after October 2004 that we reviewed had gone
through the Attorney’s Office’s three‑step review process.4
However, the Attorney’s Office could improve its enforcement of
two of its invoicing policies—those prohibiting block billing and
billing for time spent by attorneys and paralegal staff who were
not named in the contract or otherwise approved in writing.
The most prevalent problem we noted was block billing. Sixteen
of the 41 invoices we reviewed were submitted by outside
counsel with at least one line item in a block format that the
Attorney’s Office did not disallow. For example, in one outside
4 In October 2004 the Attorney’s Office centralized its review of invoices for the
proprietary departments. Before October 2004 outside counsel for the proprietary
departments submitted invoices directly to those departments to be reviewed by
the corresponding managing attorney. Since October 2004 outside counsel for the
proprietary departments have submitted invoices to the headquarters office as part of
the three-step process.
00 California state Auditor report 2004-36
counsel invoice, the firm included a block line item totaling
seven hours and $1,365. The block bill described seven activities:
reviewing documents, working on a declaration, organizing
documents, working on a motion for dismissal, responding to
a memorandum from opposing counsel, researching certain
matters, and working on a reply in support of a different
motion. When tasks are grouped together into a block of time,
it is not clear to the reviewer the amount of time the attorney
spent on each activity. For that reason the guidelines established
by the Attorney’s Office specifically prohibit outside counsel
from block billing. Nevertheless, our review revealed that the
Attorney’s Office generally did not eliminate these types of costs.
According to the special assistant, she does not always disallow
The Attorney’s Office block billing if the overall amount for the grouped tasks appears
could improve its reasonable. However, because she lacks information on the
enforcement of two of its amount of time spent on each activity, the special assistant
invoicing policies—those does not have all the information necessary to make an optimal
prohibiting block billing determination whether the time spent on each task or in total
and billing for attorneys was reasonable. Because the Attorney’s Office did not always
and paralegal staff who follow its policy by disallowing block billing, it may have
were not approved in paid more for outside counsel services than was appropriate.
writing. Moreover, the Attorney’s Office might undermine its efforts
to control outside counsel costs when it does not consistently
identify costs that its invoicing policies do not allow.
During our testing we also identified instances in which the
Attorney’s Office paid outside counsel for the work of attorneys
and paralegals who were not authorized in the contract.
Typically, the Attorney’s Office requires in its contracts that each
attorney and paralegal be preapproved in writing. However,
the Attorney’s Office has not always enforced its policy. For
example, for six of the 41 invoices we reviewed, we identified
names of attorneys and paralegals who were not approved in
writing. The attorneys we spoke with who were charged with
managing the outside counsel contracts stated that the attorneys
or paralegals named in the invoices were approved verbally.
However, under that form of approval, the managing attorney
or outside counsel could lose track of which attorneys were
approved, possibly leading to a misunderstanding later. Not
obtaining written approval for all attorneys invoiced under an
outside counsel contract increases the risk that more attorneys
than are necessary for the size of the engagement will bill the
City, and that the City will pay more to outside counsel than it
is contractually obligated to pay.
California state Auditor report 2004-36
The ATTOrneY’s OffiCe COulD MOre effiCienTlY
AnD effeCTivelY MOniTOr OuTsiDe COunsel
COsTs bY COMPArinG buDGeTeD TO ACTuAl COsTs
fOr ACTiviTies
The Attorney’s Office could more efficiently and effectively
monitor outside counsel costs if it prepared budgets detailed by
activity and required outside counsel to submit invoices that
had the same level of detail and could thus be compared to the
budget. For cases we reviewed in which outside counsel provided
budgets to the Attorney’s Office, the budgets were in varying
formats and showed varying levels of detail.
The Attorney’s Office’s December 2001 policy stated that
managing attorneys should participate in the creation of a
litigation budget that describes, in detail, the total estimated
cost of outside counsel’s assistance in a matter. The policy also
directed managing attorneys to periodically compare outside
counsel’s actual costs against budgeted costs. However, the
November 2005 revised policy states that budget updates are
generally required from outside counsel as contract amendments
are proposed, and managing attorneys are not required to
compare budgeted costs with actual costs. Thus, it appears that
reacting to the need for more funding, rather than proactive cost
control, now drives budget reviews, because their use is tied to
requests for supplemental funding.
Although comparing budgets against actual costs was required
by the policy in effect during the period of our audit, our review
Comparing outside of selected contracts found no evidence that Attorney’s Office
counsel costs to budgeted staff made the comparisons. Even though Attorney’s Office staff
costs by activity should ensured that total invoices did not exceed total contract costs
better facilitate effective and reviewed lengthy invoices that reflected time charged
communication on in increments as small as six minutes, the invoice review
the progress of cases discussed in the previous section is labor intensive, and its
and deviations from comprehensiveness and effectiveness are limited. Comparing
established budgets. outside counsel costs to budgeted costs by activity within
litigation or project phase should enable the Attorney’s Office to
better facilitate effective communication on the progress of its
cases and any deviations from established budgets.
using a budget as a Tool to Control Costs has various benefits
Successful Partnering points out the following insights, among
others, of using a budget as a tool to control costs on an
engagement. One of the most important benefits of preparing a
budget is that it forces inside and outside counsel to agree on the
22 California state Auditor report 2004-36
strategy going forward. To maximize the benefits of budgeting,
the process of preparing a budget should be regarded as an
exercise in analyzing the scope of the engagement, assessing the
likely costs, and implementing the necessary control devices to
contain costs. The budgeting process should be seen as ongoing
and subject to change as the engagement progresses.
A key project management control made possible by comparing
costs to date with the budget is the corresponding discussion
of the hours remaining to complete the activity, which would
determine whether the costs to date plus the remaining costs are
within the authorized budget. That discussion identifies whether
the current legal strategy may need to be revised because it is
not as cost‑effective as initially anticipated. Without a detailed
budget that identifies costs to date and estimated remaining
costs for significant activities within litigation or project phases,
Attorney Office staff do not have the data available to gauge the
reasonableness of prior costs and anticipated remaining costs for
particular efforts.
By having outside counsel’s invoices list the attorney hours
by activity within a litigation or project phase, the Attorney’s
By having outside counsel’s Office can also explore whether outside counsel are performing
invoices list attorney hours efficiently over the entire case, instead of limiting its analysis to
by activity, the Attorney’s a specific invoicing period, as is currently the case. For example,
Office can explore the Attorney’s Office might be able to identify unnecessary work
whether outside counsel by detecting excessive hours spent on a relatively insignificant
are performing efficiently issue or minor task across numerous invoicing periods.
over the entire case. When attorneys in a case are being replaced too frequently,
the Attorney’s Office might be able to discover charges for
excessive hours for new attorneys to review background
material. However, those types of problems cannot be identified
efficiently and comprehensively unless the invoices are
organized by activity within a litigation or project phase since
the beginning of the case.
The Attorney’s Office is prevented from performing this type
of meaningful invoice review because it does not require its
contractors to submit invoices that organize attorney time
according to the nature of the work performed. The enormous
volume of line‑item charges by individual attorneys that can
appear on invoices generally makes efforts to manually compile
attorney time according to activity within a litigation or project
phase impractical. Compiling attorney time in that way has
become far easier since the advent of computerized invoicing
California state Auditor report 2004-36 33
systems that generate invoices with summaries by issue and by
attorney, and since the development of standardized activities
applicable to various types of legal work.
Although we did not see any evidence that managing attorneys
performed a routine comparison of actual to budgeted costs
for specific activities, managing attorneys to whom we spoke
indicated that they examined activities in the invoices for
reasonableness. One managing attorney told us that, when
outside counsel were performing an important or time‑
consuming task, he would compare actual costs to budgeted
costs by estimating the actual costs through a review of
individual invoices. We questioned how that was possible,
considering that each invoice could have hundreds of line items
during a particular billing period and that attorneys could be
working on different tasks. The attorney clarified that he would
typically perform that type of analysis when he knew that
outside counsel were expending most of their efforts on a certain
task, such as discovery or an important brief when the invoices
would better lend themselves to this type of analysis. Two other
attorneys indicated that they would personally comb through
the invoices to determine the reasonableness of the charges.
One of those attorneys stated that the reviews were “generally
detailed and on occasion quite time‑consuming.” By requiring
outside counsel to submit invoices by activity, managing
attorneys would be better equipped to conduct a systematic
review of the reasonableness of each activity, both as a stand‑
alone item and in comparison to the budget. In addition,
reviewing invoices in that format would likely take less time.
A standardized list of Activities That Attorneys Perform has
Already been Developed
To facilitate the effective communication of activities
within litigation or project phases and contain the costs of
litigation, one possible approach for the Attorney’s Office to
consider is the result of a joint effort by a consortium of the
American Corporate Counsel Association, the American Bar
Association, and a group of law firms and clients (consortium).
The consortium developed standardized lists of activities
applicable to the various types of work attorneys perform.
The standardized lists consist of different sets of activities
for litigation, counseling, and bankruptcy work and a more
generic project list of activities for other legal tasks, such as
transactional work.
44 California state Auditor report 2004-36
The activities list for litigation is grouped into five basic phases
or aspects of litigation, plus expenses. The five phases are case
assessment, development, and administration; pretrial pleadings
and motions; discovery; trial preparation and trial; and appeal.
Each phase consists of a number of tasks or activities, such as
written discovery, document production, and depositions. In
total, the list for litigation contains 29 activities. The intent
is to provide a true picture of the labor cost of each activity.
The monthly invoices would then list that month’s charges by
activity, which would facilitate comparing those charges, along
with the cumulative totals, with the detailed budget. Monthly
invoices would still contain the detailed line items that can be
useful for determining whether individual charges are reasonable.
However, the detail would be summarized in such a way as to
afford a global view of the litigation or project.
The Attorney’s Office has Concerns About using Activity-
based invoices for Managing the Cost of Outside Counsel
The managing assistant city attorney for the Business and
Complex Litigation Division (managing assistant city attorney)
The Attorney’s Office within the Attorney’s Office acknowledged the challenges
acknowledged the associated with achieving a comprehensive view of how legal
challenges associated dollars are spent using traditional legal invoices that present
with achieving a detailed line‑item descriptions of the time spent by each
comprehensive view of attorney on a case each day (as opposed to being organized
how legal dollars are by activity within each litigation or project phase). He stated
spent using traditional that the Attorney’s Office management would embrace a
legal invoices. management tool that would aid in reviewing invoices from
outside counsel if the tool was effective and reasonable. He
further acknowledged that the outside counsel the City works
with are likely able to submit invoices in a task‑based format.
However, he went on to describe various reasons why the
Attorney’s Office would be unlikely to embrace the activities
list developed by the consortium. For example, he stated that
performing the initial setup and analysis at the task level might
not be the best use of the City’s limited resources, because
information in the budget or case plan typically changes as
the case develops. He commented that because invoices are
always submitted after a task is done (sometimes two or three
months later), comparing tasks to a modified budget or case
plan (or, conversely, comparing tasks to an unmodified budget
or case plan) would not provide a useful tool for comparing
expectations to the reality of the case.
California state Auditor report 2004-36
However, even if the Attorney’s Office’s resources are limited,
effective management of contracts by the managing attorneys
Effective management of still requires that they think through the resources they want to
contracts requires that spend on the activities needed to execute an agreed‑on strategy,
managing attorneys document an agreed‑on set of activities with outside counsel,
think through expected and monitor the efficiency of execution. Unless the Attorney’s
resources, document Office is not currently investing time to perform those cost
an agreed-upon set of reduction steps in some fashion, the additional time required
activities with outside should be minimal. In addition, it is not possible to effectively
counsel, and monitor the manage contracts with outside counsel if the Attorney’s Office
efficiency of execution. receives invoices for services two or three months after services
were performed, because an analysis of the charges for those
services would likely be too late to identify the need for a
change in strategy. The points raised by the managing assistant
city attorney further highlight the need for timely receipt and
review of invoices. Also, budget changes are typically needed in
projects of any type, and separate line items make it possible to
separate hours related to the initial scope of work from those
related to the new scope of work and to compare each to their
respective budgets.
The managing assistant city attorney was also concerned
that no public entity had participated in the creation of the
consortium’s activities list, and he knew of no public entities
that use task‑based billing. However, neither concern seems
relevant in addressing why a technique employed by in‑house
counsel in corporations to manage outside counsel contracts
with private law firms may not be beneficial to public entities
such as the Attorney’s Office.
The ATTOrneY COnfliCTs PAnel is GenerAllY
MAnAGeD APPrOPriATelY, AlThOuGh The
seleCTiOn Of firMs fOr The PAnel COulD be
beTTer DOCuMenTeD
When the Attorney’s Office has an actual or potential conflict
of interest—that is, a case in which it cannot ethically represent
a city employee whose interests may be adverse to those of
the City—it refers the matter to the attorney conflicts panel
(conflicts panel). The conflicts panel comprises law firms
selected by the Attorney’s Office, in conjunction with the
Office of the City Administrative Officer (CAO), to provide legal
services to the City in the event of a conflict of interest. The
selection process culminates in a committee from the Attorney’s
Office (selection committee) making a recommendation to
66 California state Auditor report 2004-36
the city council, which makes the final contracting decision.
The major types of litigation for the conflicts panel are cases
involving police or employment issues.
In May 2005 the Attorney’s Office began administering a
competitive selection for a new conflicts panel. Based on our
review of the process it followed, we determined that the
Attorney’s Office could better document its selection of firms
for the conflicts panel. The CAO, an entity that is separate from
the Attorney’s Office and whose primary role is chief financial
adviser to the mayor and city council, is the day‑to‑day overseer
of the conflicts panel. Thus, an adequate separation exists
between the Attorney’s Office and the legal matter when the
Attorney’s Office declares a conflict of interest.
The Attorney’s Office has augmented the conflicts panel in the
past, most recently through a selection process it began in 2002.
Firms that were on the conflicts panel remained on, and the RFQ
was used to identify additional firms for the panel. According to
CAO staff, the number of cases increased, and the CAO needed
additional firms to help with the conflicts panel workload.
According to its policy, the Attorney’s Office is to issue an RFQ
for the conflicts panel on an as‑needed basis or every three
years. Thus, the Attorney’s Office, in conjunction with the CAO,
issued another RFQ in May 2005. At that time the Attorney’s
Office required all firms to participate in the selection, including
firms that were currently on the conflicts panel. In mid‑
November 2005 the Attorney’s Office submitted the selection
committee’s recommendations to the applicable committee of
the city council for approval.
In reviewing the process used to evaluate firms responding
to the 2005 RFQ, which took place during our audit, we
It was evident that the concluded that the Attorney’s Office could better document
selection committee how it made its decisions when selecting firms to recommend
interviewed prospective for placement on the conflicts panel. The Attorney’s Office has
firms for the conflicts overall responsibility for the selection process, although CAO
panel, but it did not staff were involved in the process, including participating in the
sufficiently document its selection committee. It was evident that the selection committee
rationale for choosing interviewed prospective firms, but the selection committee did
some firms over others. not sufficiently document its rationale for choosing some firms
over others. As in our review of other selection processes that
the Attorney’s Office conducted, we found that the RFQ that
was released cited evaluation criteria, in this case focusing on
California state Auditor report 2004-36
ability and experience, but that the selection committee could
not provide sufficient documentation to support the decisions it
made based on the criteria.
According to the deputy city attorney responsible for conducting
the RFQ, the selection committee held a conference in which
members shared their opinions of each firm based on the
firm’s performance in interviews, the proposal it submitted,
and the firm’s reputation, among other items. The deputy
city attorney explained that after its members had reached a
consensus, the selection committee chose firms to recommend
for placement on the conflicts panel. The selection committee
used a recommendation form to document which firms were
suitable to serve on the panel. Each firm had an opportunity
to apply for up to four categories of expertise, such as complex
police/tort litigation and employment litigation. On the
Without sufficient recommendation form the committee indicated by checking
documentation to “yes” or “no” whether it recommended a firm to provide
support its decisions, services for the categories for which it had applied. At our
the Attorney’s Office request the Attorney’s Office was able to provide some interview
leaves itself vulnerable notes from some members of the selection committee. However,
to criticisms that the the selection committee did not maintain documentation, such
conflicts panel selection as rating sheets, to support its decisions. Without sufficient
process was not fair documentation to show why it made the selections it did, the
and objective. Attorney’s Office leaves itself vulnerable to criticisms that the
process was not conducted in a fair and objective manner.
The CAO’s invoice review Process Appears reasonable
As discussed earlier in this report, a valuable mechanism for
controlling the costs of outside counsel is the existence of
detailed invoicing guidelines. The contracts that the City enters
into with outside counsel through the CAO contain the CAO’s
invoicing policy, which is comparable to the policies of the
Attorney’s Office. The contracts specify the frequency with
which outside counsel must invoice the City and the form
the invoices must take. The policy included in the contracts
places restrictions on certain types of fees and expenses. For
example, outside counsel cannot charge the CAO for the time
of two or more attorneys to complete the same task unless the
arrangement is approved by the CAO in advance. In addition,
the CAO has established an internal process for reviewing
outside counsel invoices for compliance with its invoicing policy
and disallows costs that do not comply. As a result, the CAO
focuses on eliminating costs for which it is not contractually
obligated to pay.
California state Auditor report 2004-36
Our review of 10 invoices indicated that the CAO consistently
followed its review process and applied its established invoicing
Our review of invoices policy by disallowing costs that were not in accordance with
indicated that the CAO its policy. For example, we noted an instance in which the
consistently followed CAO disallowed a charge of 2.5 hours totaling $500 because
its review process and the description provided by outside counsel on its invoice was
applied its established deemed to be vague. The invoicing policy prohibits charges
invoicing policy. that are so vague that the CAO cannot understand the precise
nature of the work performed. In another instance the CAO
reduced charges for duplication of work, which are prohibited
by its policy. Specifically, the CAO eliminated a charge of $1,225
for seven hours from an attorney who attended the same court
appearance as two other attorneys. In contrast to our review of
invoices at the Attorney’s Office, at the CAO we did not observe
any invoices in which block billing was allowed or any invoices
that charged for attorneys not previously approved in writing.
The CAO’s Monitoring Policies Are Generally Appropriate,
but it Could require budgets More Often
The CAO’s policies for monitoring cases handled by outside
counsel are similar to those of the Attorney’s Office in that its
contracts require outside counsel to submit reports that are
useful for monitoring, including budgets and quarterly status
reports. The CAO’s procedures manual states that the CAO is
responsible for ensuring that outside counsel comply with the
terms and conditions of its contracts. Our review revealed that
the CAO generally has performed an adequate job of monitoring
outside counsel. However, we found some contracts that did not
require outside counsel to submit budgets.
The CAO uses two types of contracts when working with outside
counsel. One type is the CAO’s standard contract, which requires
outside counsel to submit budgets and quarterly reports. The
CAO used a second type of contract for the Rampart cases,
which stemmed from allegations of police misconduct and
corruption in Los Angeles in the late 1990s. Specifically, rather
than requiring budgets in all instances, the Rampart contract
required outside counsel to submit budgets for matters expected
to exceed $50,000. In testing three standard contracts, we found
budgets in all three instances. Because the two Rampart contracts
we selected were less than $50,000, they did not require budgets,
although for one contract outside counsel submitted a budget.
All five contracts required outside counsel to submit quarterly
reports, and we found that outside counsel submitted them in
three of the four instances in which the cases lasted long enough
California state Auditor report 2004-36
for the reports to be necessary. Regarding the one instance in
which the CAO did not receive quarterly reports but should
have, the CAO’s senior administrative analyst who oversees the
conflicts panel commented that because of time constraints
related to trial preparation, the firm communicated with the CAO
through telephone conversations and document filings instead of
quarterly reports.
We inquired why the Rampart contracts did not require budgets
except for matters exceeding $50,000. According to the CAO’s
senior administrative analyst, only a handful of Rampart cases
exceeded the $50,000 threshold. The senior administrative
analyst said that the Rampart cases were special, and she added
that outside counsel generally were asked to submit budgets for
Rampart cases. In addition, the senior administrative analyst
stated that other measures to control costs were used, such
as the Attorney’s Office making various nonconfidential legal
documents like briefs, pleading, and background materials
available to outside counsel so the attorneys did not have to
recreate those documents.
In our review of a report summarizing Rampart case costs
between June 2000 and May 2005, we found that only 12
of the 455 Rampart cases exceeded $50,000; therefore, most of
the Rampart cases did not require budgets. Our analysis also
showed that the remaining 443 Rampart cases accounted
for $7.4 million of the total $8.3 million in costs for outside
counsel related to Rampart. In contrast, the three standard
contracts we reviewed were all originally for $25,000, yet
the contract language required budgets for those cases. It
seems inconsistent that standard cases that may be smaller
in scope than a Rampart case required a budget while the
Rampart cases did not. Because budgets are a recognized tool
for controlling costs, and considering the sizable total dollar
amounts of the Rampart cases, it seems reasonable for the
CAO to have required, through its contracts, that outside
counsel submit budgets.
Finally, according to the senior administrative analyst, the
CAO’s intent is to model its policy after that of the Attorney’s
Office to the extent that it is applicable. Thus, the CAO plans to
review the Attorney’s Office November 2005 policy to determine
how its own policies may change in the future.
6600 California state Auditor report 2004-36
The ATTOrneY’s OffiCe TAKes APPrOPriATe ACTiOn
TO ADDress COnfliCTs Of inTeresT iDenTifieD bY
OuTsiDe COunsel
Conflicts of interest can arise between the City and a particular
law firm’s numerous other clients for various reasons. For
example, a conflict of interest occurs when a law firm that
currently represents or plans to represent the City has a contract
or potential contract with another client that intends to seek
a legal remedy against the City or, conversely, has been sued
by the City. According to the California Rules of Professional
Conduct (professional conduct rules) on conflicts of interest,
outside counsel must provide written disclosure to its client of
the actual or potential conflict, and the client must subsequently
agree in writing that such representation can occur or continue.
The Attorney’s Office’s policies and procedures regarding
whether to waive a conflict and proceed with a contract appear
appropriate. In addition, our review revealed that the Attorney’s
Office has followed its policies and procedures. The professional
conduct rules on conflicts of interest, which regulate the
conduct of members of the California State Bar, do not obligate
the Attorney’s Office to identify potential or actual conflicts of
interest that outside counsel may have; rather, outside counsel
are responsible for identifying conflicts and informing the
Attorney’s Office of them. All law firms, regardless of whether
their contract with a client explicitly includes a conflict of
interest provision, must adhere to the conflict of interest
provisions in the professional conduct rules. Additionally,
the professional conduct rules require that the Attorney’s
Office provide written consent to work with outside counsel
following counsel’s disclosure of any conflicts of interest, or
outside counsel cannot agree to continue to represent the
Attorney’s Office.
The Attorney’s Office’s policies and procedures regarding
whether to waive a conflict of interest demonstrate that the
Attorney’s Office has reasonably sought to address conflicts
The Attorney’s Office of interest. A January 2003 memorandum announced the
has reasonably sought formation of a conflicts analysis team (conflicts team) and
to address conflicts set forth the steps to be followed when the Attorney’s Office
of interest. was notified of an actual or potential conflict of interest. The
memorandum specifies that outside counsel is to provide written
disclosure of the actual or potential conflict and the conflicts
team is to review the matter, determine whether it believes
a conflict exists, and if so, recommend whether it should be
California state Auditor report 2004-36 66
waived. The city council or the applicable board then makes
the final decision as to whether to waive the conflict, based
on the recommendation of the conflicts team.
In August 2004 the Attorney’s Office assigned the responsibility
to review and recommend waiver of conflicts to the outside
counsel committee (committee). The procedures the committee
uses to review conflicts essentially remained unchanged from
those used by the conflicts team. After outside counsel notifies
the committee in writing of a potential or actual conflict, the
committee reviews the matter and, if it determines that a
conflict should be approved, recommends that the city council
or board, as appropriate, grant the waiver.
We reviewed most of the waivers that the Attorney’s Office
recommended be granted between January 2003 and June 2005.
Our work confirmed that the Attorney’s Office took the
appropriate actions to address conflicts of interest identified
by outside counsel. Both the conflicts team and the committee
essentially followed the same process for reviewing potential
conflicts. Further, outside counsel provided written disclosure of
actual or potential conflicts, and the city council or applicable
board provided written consent to representation.
reCOMMenDATiOns
To ensure that the decisions it reaches within the outside
counsel committee to retain outside counsel are justified in
accordance with the policy of the Attorney’s Office and to
enable it to demonstrate the justification to interested parties,
the Attorney’s Office should ensure that the outside counsel
committee follows the new policy of preparing a memo to
document each of its decisions. The Attorney’s Office should
ensure that the memo sufficiently reflects the analysis used
by the outside counsel committee in reaching its decision to
recommend the retention of outside counsel.
To ensure that its recommendations for contract awards are
less vulnerable to criticisms, the Attorney’s Office should
develop and implement comprehensive RFP and RFQ policies
and procedures that specify standards for applying evaluation
criteria such as the use of rating sheets and retaining
documents. For instance, the Attorney’s Office could use
6622 California state Auditor report 2004-36
the document retention standards established in the City’s
contracting manual as the basis for developing its own
document retention policy and procedures.
To ensure that it can demonstrate that its decisions to select
outside counsel in a noncompetitive manner are justified and
in accordance with policy, the Attorney’s Office should make
certain that the outside counsel committee follows the new
policy of drafting a memo regarding the firm it recommends for
selection. The Attorney’s Office should ensure that the memo
sufficiently reflects the analysis used by the outside counsel
committee in concluding a noncompetitive selection was
necessary and appropriate.
To help control the costs of outside counsel, the Attorney’s
Office should require budgets and case plans. Specifically, it
should ensure that contracts with outside counsel contain
provisions requiring comprehensive budgets and case plans and
ensure that the requirements are met.
The Attorney’s Office should take steps to ensure that all
its staff, regardless of the department they are serving,
are following its prescribed policies and procedures. For
example, Attorney’s Office staff should ensure that staff at
the proprietary departments use the standard contract when
retaining outside counsel.
To ensure that its November 2005 policy change of eliminating
quarterly reports has not limited its insight into the activities
of outside counsel, the Attorney’s Office should periodically
evaluate its process of obtaining status updates to report to the
city council or appropriate board on significant outside counsel
cases and modify that approach if necessary.
To help control the costs of outside counsel, the Attorney’s
Office should enforce its contract requirements and billing
guidelines. Specifically, the Attorney’s Office should do the
following:
• Disallow payment for invoices that it receives in a block‑bill
format and require that outside counsel resubmit the charges
in the prescribed manner.
• Ensure the formal approval of attorneys and paralegals not
previously listed on the contracts with outside counsel.
California state Auditor report 2004-36 6633
To achieve a comprehensive view of how legal dollars are
spent and to facilitate a comparison of budgeted costs with
costs to date, the Attorney’s Office should require outside
counsel to prepare monthly invoices and cumulative cost
reports that sort charges both by attorney within activity and
by activity within litigation or project phase. Further, the
Attorney’s Office should compare cumulative charges and
estimated remaining charges to agreed‑on budgets.
To help control the costs of outside counsel, the CAO should
require budgets for all contracts with outside counsel that it
manages.
We conducted this review under the authority vested in the California State Auditor by
Section 8543 et seq. of the California Government Code and according to generally accepted
government auditing standards. We limited our review to those areas specified in the audit
scope section of this report.
Respectfully submitted,
ELAINE M. HOWLE
State Auditor
Date: January 26, 2006
Staff: Karen L. McKenna, CPA, Audit Principal
Sharon L. Smagala, CPA
Jessica Oliva
Claudia Orsi
Paul Philip Zahka
6644 California state Auditor report 2004-36
Agency comments provided as text only
City of Los Angeles
Office of the City Attorney
January 10, 2006
Ms. Elaine M. Howle
State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
This provides my response to your review of the City’s use of outside counsel.
We appreciate the work of your staff in reviewing our policies and procedures in this area, and
in recommending ways in which we can further improve our operations. While improving the
oversight of outside counsel is an ongoing process, we are pleased that our progress has been
noted and intend to fully explore your staff’s recommendations into how we can ensure continued
improvement.
Thank you for your interest in this issue and for your staff’s investment of time and energy in
reviewing this matter.
Sincerely,
(Signed by Rockard J. Delgadillo)
Rockard J. Delgadillo
California state Auditor report 2004-36 66
Agency comments provided as text only
City of Los Angeles
Office of the City Administrative Officer
1500 City Hall East
Los Angeles, Calif. 90012-4190
January 10, 2006
Ms. Elaine M. Howle
State Auditor
Bureau of State Audits
555 Capitol Mall, Suite 300
Sacramento, CA 95814
Dear Ms. Howle:
This provides our response to your review of the administration of the Attorney
Conflict Panel by the Office of the City Administrative Officer (CAO).
We appreciate the work of your staff in reviewing our policies and procedures in
this area, and in their recommendation as to how we can further improve our oversight of conflict
counsel. The CAO acknowledges the importance of budgets as a mechanism for controlling outside
litigation costs. Should another extraordinary circumstance such as Rampart occur, the CAO will
require budgets in all cases, as is required in all other conflict of interest matters.
Thank you for your interest in this issue and for your staff’s investment of time and
energy in reviewing this matter.
Sincerely,
(Signed by William T Fujioka)
William T Fujioka
City Administrative Officer
6666 California state Auditor report 2004-36
cc: Members of the Legislature
Office of the Lieutenant Governor
Milton Marks Commission on California State
Government Organization and Economy
Department of Finance
Attorney General
State Controller
State Treasurer
Legislative Analyst
Senate Office of Research
California Research Bureau
Capitol Press
California state Auditor report 2004-36 66