Legal Fees Paid by the FDIC to Bronson, Bronson & McKinnon
(Audit Report No. 98-017, March 3, 1998)
The Office of Inspector General (OIG) completed an audit of Bronson, Bronson & McKinnon, a law firm hired by the FDIC to provide legal services. The audit was conducted by the independent public accounting firm (IPA) of Urbach, Kahn & Werlin, P.C., through a contract with the Resolution Trust Corporation OIG. This audit covered paid billings for services provided to the FDIC during the period of January 1, 1990 through December 9, 1993.
The objective of the audit was to determine whether the fee bills submitted by the law firm present fairly the expenses and activities of the cases for which the fee bills were submitted. Accordingly, Bronson, Bronson & McKinnon's fee bills were reviewed to determine whether they were: (1) adequately supported by source documentation, (2) prepared in compliance with applicable FDIC cost provisions, (3) consistent with the terms and conditions of the governing agreements, and (4) representative of the cost of services and litigation which were approved in advance by the FDIC. The audit sample covered $145,123, or 50 percent of the $288,014 paid to the law firm for FDIC related work during the audit period. The OIG questioned costs of $25,903 in the draft audit report. However, after considering additional information provided by the firm and management's comments, the OIG modified the questioned amount.
The OIG recommends that the Assistant General Counsel, Legal Operations Section, Legal Division, disallow $14,508 in questioned costs for the following issues:
The General Counsel, Legal Division, responded to the OIG's draft report on December 23, 1997. The Legal Division's response provided the requisites for a management decision on each of the recommendations and management agreed to disallow $3,770.
On recommendation 1, the Legal Division disagrees with the OIG's recommendation concerning unauthorized legal research and argues that from July 1989 through October 1992, written approval was not required. The Legal Division also states that the fee bills were subject to prepayment review by the assigned oversight attorney who apparently made no disallowances for unauthorized research. In the absence of supporting information to the contrary, the Legal Division will not disallow these charges. However, based on its review of the explanations provided by the law firm along with the Legal Division's response, the OIG continues to affirm its position on this issue. The IPA appropriately questioned the charges for the legal research because the firm did not provide any documentation to support the research authorization other than to represent that the authorization was given orally. The Legal Division's response does not provide documentation to support the oral authorization, nor did the Legal Division request from either the law firm or the responsible FDIC managing attorneys, documentation to support the authorization for the research. Accordingly, the OIG will continue to question $10,738.
In recommendations 3, 5, and 6, the Legal Division agreed with the OIG on these issues and agreed to disallow the recommended amounts. On recommendations 2, 4, 7, and 8, the OIG has reviewed the subsequent documentation provided by the law firm in response to our draft report and the Legal Division's response on these issues. Accordingly, we have reduced our questioned costs to zero for these conditions.
After considering management's response on the IPA's findings, the OIG will report questioned costs of $14,508 in its Semiannual Report to the Congress.
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