Legal firm repays excess fees to state but disputes audit

State Treasurer Kate Marshall, one of the members of a board overseeing the College Savings Plans of Nevada, said the check for $95,862.62 has already been deposited in a state bank account.

The check was sent along with a letter dated July 3 by the legal firm Orrick of Sacramento, Calif., disputing the findings in the audit of the college savings program.

“We believe the Legislative Counsel Bureau (LCB) reached erroneous conclusions that could have been corrected by seeking clarification from Orrick before LCB published its audit report,” said the letter from James Houpt.

But the letter went on to say that the law firm considers Nevada to be a valuable client, and that, “our intent is not to risk that relationship or to foster an unnecessary and potentially damaging disagreement.”

Marshall, a Democrat, said: “They respectfully disagreed with the audit, but they also felt it was the right decision for them to make the overpayment identified in the audit. The state of Nevada is a little over $95,000 better off for it.”

Nevada legislative auditors concluded that the Orrick law firm was paid $428 per hour for services in 2001-02, although a contract stipulated a $225 per hour limit, which resulted in nearly $96,000 in excess funds.

As a result of the audit of the program while under the review of then-Treasurer Brian Krolicki, Marshall sent a letter to the firm along with a copy of the audit seeking a response.

Orrick had served as bond counsel to the state at the time the services were rendered for the college program. The contract allowed the firm to provide legal services to other state agencies as well. The firm does not have any contract to serve as bond counsel with the state currently.

In the letter, Houpt said the firm clarified — in response to requests for proposals from the treasurer’s office — that the hourly rate it would charge, blended among several lawyers who would provide services, was $500.

“The only reasonable conclusion is that Orrick and the treasurer agreed to a blended rate of $500 for services performed and billed to other state agencies under the 2002 and 2006 contracts,” Houpt said.

The contracts are ambiguous, but the firm paid the money as, “an affirmation that we are in the business of serving our clients, not having disagreements with them,” Houpt said.

The treasurer’s office is awaiting a response from another firm that did business with the state for the college savings program on a separate overpayment issue raised in the audit, which was released in May.

A Georgia consulting firm, GIF Services, was overpaid $300,000, according to the audit.

The audit was sought by the Legislature after Marshall testified in March that it appeared as if funds for the program had been diverted for unauthorized legal expenditures and marketing costs.

The over payments are just one issue raised in the audit.

The bigger issue is whether Krolicki, a Republican, broke three state laws by not depositing $6 million in state-earned fees into the state treasury. The results of the audit have been turned over to the attorney general’s office for an investigation that could lead to charges being filed against Krolicki.

Krolicki, now the lieutenant governor, said last month he broke no laws in his management of the program during his eight years as state treasurer.

The Nevada College Savings program was established by the Legislature in 2001 to allow parents to invest money in nationally recognized mutual funds to build up college funds for their children. None of the money that parents invested for their children’s education is missing or ended up in an improper account, according to the audit.