Legal Fees Paid by FDIC to Pillsbury, Madison & Sutro

(Audit Report No. 98-012, February 12, 1998)

Summary

The Office of Inspector General (OIG) has completed an audit of Pillsbury, Madison & Sutro, a law firm hired to provide legal services to the FDIC. The audit was conducted by the independent public accounting firm (IPA) of Urbach Kahn & Werlin P.C. through a contract with the OIG, and covered paid billings for services provided to FDIC during the period January 1, 1990 through December 3, 1993.

The objective of the audit was to determine whether Pillsbury, Madison & Sutro's legal bills were adequately supported and in compliance with the cost limitations set forth by FDIC and that charges for legal services provided to FDIC were reasonable. The total fees paid to the law firm during the audit period were $476,685. The IPA identified net questioned costs of $52,958, from an audit sample of $238,479 billed to the FDIC for the firm's professional fees and expenses.

Recommendations

The draft report recommended that the Assistant General Counsel (AGC), Legal Operations Section, Legal Division, disallow the following questioned costs:


(1) $22,373 for hourly rate variances,
(2) $12,229 for unsupported expenses,
(3) $10,295 for unauthorized personnel,
(4) $6,821 for inappropriate staffing,
(5) $2,087 for inappropriate time charges,
(6) $1,447 for non-billable expenses, and
(7) $1,289 for unsupported time charges.

Management Response

The General Counsel, Legal Division, responded to the OIG's draft report on December 17, 1997. The Legal Division's response provided the requisites for a management decision on each of the recommendations. Although management's corrective actions for recommendations 1, 2, 3, 4, 5, 6, and 7 differed from the recommended corrective actions, we consider management's response as providing the requisites for a management decision.

In recommendation 1, the OIG recommended that FDIC disallow $22,373 for hourly rate variances. The firm billed the FDIC using professional hourly rates that ranged from $7 to $55 per hour higher than the prevailing contract rates or higher than the identified lowest billable rates. The Legal Division disallowed $10,586 and allowed $11,787 because the additional explanations provided by the firm were satisfactory. The OIG accepts the Legal Division's explanation and will modify questioned costs to $10,586.

In recommendation 2, the OIG recommended that FDIC disallow $12,229 for unsupported expenses. The Legal Division allowed $8,653 based on additional information provided by the firm, and interpretations of the LSAs, Guides and General Travel Regulations. We will continue to question $7,519 of the $8,653 because the firm did not provide documentation to support the charges. The OIG agrees to reduce questioned costs to $11,095 ($7,519 + $3,576).

In recommendation 3, the OIG recommended that FDIC disallow $10,295 for unauthorized personnel. The Legal Division disallowed $1,747 and ratified $8,548 based on an analysis of timekeeper rates. The OIG accepts the Legal Division's explanation and will modify questioned costs to $1,747.

In recommendation 4, the OIG recommended that FDIC disallow $6,821 for inappropriate staffing. The Legal Division allowed all of these expenses based on the firm's response. Therefore, the Legal Division does not believe that a substantial basis for unreasonable staffing duties has been shown and will allow the questioned costs. The OIG accepts the Legal Division's explanation and will modify questioned costs to $0.

In recommendation 5, the OIG recommended that FDIC disallow $2,087 for inappropriate time charges. The Legal Division allowed $1,595 because it believes time spent by the firm's paralegal personnel was properly billed. In addition, the Legal Division allowed $450 for a firm employee's travel time because it accepted the firm's explanation that the FDIC case managing attorney approved these charges. We will continue to question the amounts because the oversight attorney was not available to confirm the approval of these charges. Further, the Legal Division disallowed $42 (10% of $420 for court filing fees), because it presumes that the firm served other clients' cases under this fee charge. The OIG will question $345 ($420 less $75 overlapping amount in Condition 3) for filing fees because the firm did not provide specific documentation to support its position. The OIG agrees to reduce questioned costs to $795 ($450 + $345).

In recommendation 6, the OIG recommended that FDIC disallow $1,447 for non- billable expenses. The Legal Division allowed all of these expenses because it had addressed all recommendation 6 issues in recommendations 2 and 5. We will continue to question $447 because the oversight attorney was not available to confirm the approval of a firm employee's travel expense. In addition, we will continue to question $647 because the firm agreed that document processing and secretarial overtime charges should not have been claimed. Therefore, the OIG agrees to reduce questioned costs to $840 ($447 + $647 less $254 overlapping amount in recommendation 2).

In recommendation 7, the OIG recommended that FDIC disallow $1,289 for unsupported time charges. The Legal Division allowed all of these charges because it accepted the time sheets produced by the firm's electronic billing system. We will continue to question $1,289 because the IPA auditors were unable to verify the accuracy of the time billed for those entries that had no original documentation. Therefore, the OIG continues to question net costs of $1,131 ($1,289 less overlapping amounts of $146 in recommendation 1 and $12 in recommendation 3).

After considering additional information provided by the firm and management's comments on the IPA's findings, we will report questioned costs of $26,194 (net of $487 in overlapping questioned costs and including $12,384 of unsupported costs) in our Semiannual Report to the Congress.

Last Updated 11/26/99 contact the OIG