Audit of the Legal Division's Fee Bill Review and Approval Process

(Audit Report No. 98-072, July 13, 1998)

The Office of Inspector General (OIG) has completed an audit of the Legal Division's fee bill review and approval process. The objective of the audit was to determine whether the sampled fee bills were reviewed by the legal information technicians and oversight attorneys in a manner that ensured compliance with agreements and billing provisions. We also reviewed other performance aspects of the fee bill review and approval process to assist management.

The OIGs of the Federal Deposit Insurance Corporation (FDIC) and former Resolution Trust Corporation (RTC) have performed numerous individual law firm compliance audits. The goal of these audits was to determine whether outside counsel fee bills complied with billing guidelines and were supported by source documentation.

While still being mindful of the results of all the OIG's past work, in performing this audit, a key goal for management in the Legal Division and the OIG was to focus on getting a more current assessment of the adequacy of law firm compliance and outside counsel oversight management as it relates to fee bill review and approval activities. Legal Division and OIG management recognized that the scope period of the earlier individual law firm audits, many ranging from 1990 to 1994, may no longer have been representative of the current level of compliance and oversight activities. For that reason, we selected our sample from fee bills paid between January 1, 1997 and March 31, 1997 to obtain a more current assessment of the Legal Division operations. Additionally, by conducting a performance audit rather than multiple "after the fact" billing reviews, the OIG could better provide Legal Division management with information to improve operational effectiveness on a look forward basis.

This audit identified opportunities for improving the consistency of the Legal Division's interpretation and enforcement of billing guidelines. The improvements make good business sense and can be "benchmarked" from parallel functions in the Division of Administration's Acquisition Services Branch and from certain best practices exercised in the Legal Division's Washington and field offices.

That the General Counsel:

Management Response

On June 26, 1998, the General Counsel, Legal Division, provided a written response to a draft of this report. While agreeing to implement the report recommendations, the response challenged our general conclusion that controls are not working as intended. The Legal Division cited historical trends relating to disallowed costs--that portion of questioned costs for which the Legal Division is willing to pursue collection efforts. The difference between disallowed costs and questioned costs reflects reductions from questioned costs arising in many cases from the Legal Division's ratification of payments that were not in accordance with the terms of the LSA. Therefore, we believe a more meaningful measure of the effectiveness of controls is questioned costs since they take into account both the law firm's compliance with and the Legal Division's enforcement of billing guidelines.

On July 9, 1998, we met with Legal Division officials to discuss their written response. The written response and the subsequent discussion provide the requisites for a management decision on each of the recommendations in the draft report. The response is not summarized because the actions planned are identical to those recommended. The OIG is committed to continuing to work with the Legal Division as it implements these recommendations, and the Legal Division has agreed to work with the OIG in this process. We intend to review the documentation that will confirm the completion of these actions, as outlined in the Legal Division's response: