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Pachulski Stang's 8th Bankruptcy Bill - "401(k) audit"? - Updated
Saturday, June 14 2008 @ 11:25 PM EDT

Let's not forget Pachulski Stang. They have an 8th bill filed now, their bill for April, and they'd like their money too. This bill is for $12,000.50 and expenses in the amount of $1,366.60 for expenses. The balance brought forward is $30,995.13, with a "total balance now due" in the amount of $44,362.23.

$2,183 is for preparing bills to submit for SCO to pay. Now, that's a great gig. You charge for billing. It isn't just this firm, of course. Bankruptcy court lets you do that. It just always makes me smile, that when you are bankrupt, a law firm can bill you for billing you. I notice the bill misspells Ryan Tibbitts' first name, but they'd have to charge to fix it, I guess, so let's not tell them.

This firm seems to be the one that coordinates some things for all the firms. I can't help but notice that they charged only $233.50 for work on a reorganization plan and disclosure statement in April. When you consider April and what some of the other firms charged, that's almost nothing. In contrast they charged $574 for work on "the Tanner retention matter". What is that?

On page 7 of Exhibit A, an entry reads:

Review, edit and prepare to file motion to expand Tanner's retention regarding 401(k) audit

But didn't Tanner tell the court in January their new role was doing taxes?

Update: [I completely forgot about Tanner's April motion [PDF] where indeed it asked to have its role expanded again, for an additional $17,000, to audit the 401(k). Here's the letter of engagement [PDF], which is more than fascinating. Tanner outlines how it will be looking for fraud, among other things. I expect that is a normal disclaimer, given what we know about 401(k) audits post-Enron. But do read the letter, as the tone is striking. The retirement plan is with New York Life Trust, according to the letter of engagement, on page 3 of the PDF: "... and as instructed by you, we will not perform any auditing procedures with respect to information prepared and certified to by New York Life Trust Company, the trustee, in accordance with DOL Regulation 2520.103-5...Because of the significance of the information that we will not audit, we will not express an opinion on the financial statements and schedules taken as a whole." This was one of the motions that was to be heard at the June 17 hearing, according to the Pacer entry as well as the motion itself. But the judge already signed the Order [PDF] on June 8. The deadline for objections was May 8, so I guess when there weren't any, he just went ahead and signed it. Since the deadline to file is July 31, I guess that would be the reason for hurrying. End update.]

Here's what Tanner's motion said back then:

6. Since Tanner's retention, the Debtors have decided to expand the scope of the retention to include the preparation of the Debtors' consolidated federal and state income tax returns for their fiscal year ended October 31, 2007.

They figured they'd need about $36,000-38,000 to do just that task. Now there's an audit too? By whom? I can't match this up, although there may be a simple explanation. Well, Tanner can always keep expanding their role. I believe, though, that the Engagement Letter said if more tasks came up, they'd be a subject for another Engagement Letter, and presumably it would require the court's approval, so that may be what this item was foreshadowing. Yay! More work! Mo' money!

Just kidding around. If you look on the most recent Tanner bill, which runs through the end of May, you don't see any 401(k) audit category. Ditto for April's [PDF]. I see an Audit, SEC category, but unless that's it, I'm wondering if there will be a motion later from Tanner.

Here's why this year some companies are doing 401(k) audits more carefully, from a press release titled, "As 401k Audit Season Starts, Sponsors Face Tougher Standards":

July is vacation time for many executives, but a busy time for 401k plan sponsors, who face a July 31st deadline for submitting an audited 401k plan financial statement with their Form 5500 to the federal government. This year, they’ll be busier than ever. Auditors will be asking more questions and requesting more documentation because new, stricter audit standards, known as the “risk assessment standards,” now are effective for employee benefit plan audits for periods beginning on or after Dec. 15, 2006. This year, auditors are required to look at the plan sponsor as well as the plan, and the audit process will last longer and demand more management time.

Previously, auditors focused primarily on the books of the 401k plan, examining whether plan transactions and the balance sheet were sound. But now, the auditors are required to look beyond the books and judge whether management would be likely to make a material misstatement on its financial documents. “Basically, we are searching for clues that internal controls are weak or that management is operating in a difficult business environment,” explains Joseph Musher, CPA, a senior partner at Buchbinder Tunick & Co., which devotes more than half of its practice to employee benefit plans. “It’s a lesson from Enron: the books were balanced, but if you had looked at the company itself, you would have seen the risk and planned the audit accordingly.”

I hope someone is looking at the company itself. I'd surely love to see the spin on the 401(k) audit on SCO's prospects as a company and "whether management would be likely to make a material misstatement on its financial documents." Anyway, July 31 is the deadline in 401(k) audit-land. See how much we can learn from SCO?

Here's an interesting title: "Employers May Now be at Risk of Being Sued Over 401(k) Costs":

According to a recent Supreme Court ruling, employers may now be at risk of being sued by individual 401(k) participants. Justice John Paul Stevens ruled that ERISA "authorize[s] recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account."

Since excessive 401(k) fees can certainly decrease the value of a participant's plan assets, this ruling may put many employers at risk of potential lawsuits. "Part of an employer's responsibility as a plan trustee is to know the total cost of the company's 401k program and whether or not such cost is reasonable under ERISA," states David B. Loeper, CEO of Financeware, Inc. and author of Stop the 401(k) Rip-off! "Plan trustees are at risk if they cannot document that they have evaluated the total costs participants bear and they have not sought competitive pricing to compare those costs to determine if they are reasonable. Prudent trustees would be wise to do this annually.

Here are the filings:

06/13/2008 - 499 - Monthly Application for Compensation (Eighth) and Reimbursement of Expenses, as Co-Counsel to the Debtors and Debtors in Possession, for the Period from April 1, 2008 through April 30, 2008 Filed by Pachulski Stang Ziehl & Jones LLP. Objections due by 7/3/2008. (Attachments: # 1 Notice # 2 Exhibit A # 3 Certificate of Service and Service List) (O'Neill, James) (Entered: 06/13/2008)

You'll note an entry repeated several times in the list of tasks done for SCO in April, on Exhibit A, "Research and update critical dates memorandum with respect to recently filed pleadings." That's talking about something I explained to you once before: that lawyers keep careful track of critical dates when filings are due, for example. Remember I mentioned that they rarely, very rarely, miss, and this is how they keep track. Some firms will have more than one person keeping track, usually a paralegal. Here, it's MLO, which seems to be one of their paralegals, Margaret L. Oberholzer.


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