Legal Division Supplemental Response to OIG Audit Reports on Legal Fees Paid to Baker & Hostetler

(Audit Report No. 98-050, June 5, 1998)

The Office of Inspector General (OIG) has completed an audit of the Legal Division's supplemental response to the OIG audit reports on Baker & Hostetler, a law firm hired to provide legal services to the Resolution Trust Corporation (RTC) and Federal Deposit Insurance Corporation (FDIC). Baker & Hostetler billed RTC and FDIC $15,317,691 for legal services provided between January 1, 1990, and December 9, 1993. On April 13, 1998, the OIG issued two audit reports on the results of an audit of Baker & Hostetler's RTC and FDIC billings (audit report numbers 98-041 and 98-042). The reports identified questioned costs totaling $3,471,376, of which management disallowed $344,699.

The RTC report was issued without the benefit of a complete law firm response. Subsequently, on April 18, 1998, Baker & Hostetler provided a response to the RTC draft audit report. On May 15, 1998, the Legal Division provided the OIG with a supplemental response that adjusted management's disallowances.

The objectives of the audit were to determine whether the Legal Division's (1) revised RTC disallowances were adequately supported and (2) process for ratifying or approving questioned costs for RTC and FDIC unauthorized personnel was reasonable.

The OIG concluded that the Legal Division's revised disallowances for the RTC report were substantially supported. The Legal Division reduced total disallowances from $256,932 to $181,939 ($74,993 reduction). The OIG agreed with $68,261 of the reductions.

As a result of the audit, the OIG will report net questioned costs of $359,438 (including $280,702 in unsupported costs) related to the RTC billings and $95,953 (including $56,132 in unsupported costs) related to the FDIC billings. We will disclose these results in our Semiannual Report to the Congress.