Via Political Calculations, Charles H. Green has an extremely interesting post on bill-padding by law firms.
Be sure to read the comments, one of which is by David Maister, the noted consultant on managing professional firms.
I recall an ethicist who went to meet with a California law firm on the possibility of the firm doing some work for the ethicist's firm. As he left the very pricey offices, the receptionist offered to stamp his parking ticket. He eagerly produced it and noted that, given the price of parking in that area, was a very nice thing to do for clients. The receptionist smiled and said, "Oh, it's not free. We just add it to the bill." I wonder how often that was disclosed to the clients.
[P.S. Several comments were from consultants who mentioned how much of their work is not billed. At our firm, we've had a similar tendency to underbill. We know that over time that can add up to a sizable chunk, but we're also wary of going in the other direction. Much of the problem has been solved by using flat fees for projects and getting away from billing by the hour. Clients like the predictability and we like not having to monitor hours.]