Legal Fees Paid by FDIC to Buchalter, Nemer, Fields & Younger

(Audit Report No. 98-022, March 10, 1998)

Summary

The Office of Inspector General (OIG) has completed an audit of Buchalter, Nemer, Fields & Younger, a law firm hired to provide legal services to the FDIC. The audit was conducted by the independent public accounting (IPA) firm of Urbach Kahn & Werlin P.C. through a contract with the OIG, and covered billings paid by the FDIC during the period January 1, 1990 through December 9, 1993.

The objective of the audit was to determine whether Buchalter, Nemer, Fields & Younger'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 $358,700. The IPA identified net questioned costs of $23,974, from an audit sample of $180,436 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) $13,835 for unsupported time entries,
(2) $4,463 for unauthorized personnel,
(3) $2,403 for unauthorized legal research,
(4) $1,568 for unsupported expenses,
(5) $1,346 for photocopies billed in excess of cost,
(6) $1,134 for hourly rate variances,
(7) $895 for inappropriate staffing,
(8) $196 for expenses billed in excess of cost,
(9) $173 for administrative and clerical charges,
(10) $154 for a duplicate time entry,
(11) $98 for non-billable expenses, and
(12) $70 for travel time not billed at half rate.

Management Response

The General Counsel, Legal Division, responded to the draft report on December 23, 1997. Although management's corrective actions for recommendations 1-5, 7, 9 and 10 differed from the recommended corrective actions, we consider management's response as providing the requisites for a management decision on each of the recommendations.

In recommendation 1, the OIG recommended disallowance of $13,835 for unsupported time entries. The Legal Division believes that the firm's failure to maintain required documentation was not a "no cost" alternative. In consideration of several factors, management allowed $12,452 and disallowed $1,383. However, management's corrective action did not result in the questioned charges being supported for audit purposes. Therefore, the OIG continues to question net charges of $13,119 ($13,835 less overlapping amounts of $525 in recommendation 2 and $191 in recommendation 6).

In recommendation 2, the OIG recommended disallowance of $4,463 for unauthorized personnel. The Legal Division disallowed $1,108 and allowed $3,355 because one of the attorneys in question was included in an RTC LSA rate listing provided by the firm. The OIG agrees to reduce questioned costs to $1,108.

In recommendation 3, the OIG recommended disallowance of $2,403 for unauthorized legal research charges. The Legal Division allowed the questioned costs based on the firm's response. The Legal Division's and the law firm's response did not provide documentation to support the oral authorization. Lacking specific evidence or independent confirmation that research was approved, the OIG cannot verify that the research was authorized. Accordingly, the OIG will continue to question $2,403.

In recommendation 4, the OIG recommended disallowance of $1,568 for unsupported expenses. The Legal Division disallowed $410 and allowed $1,158 based on the four year requirement to retain original records. The OIG agrees to reduce questioned costs to $410.

In recommendation 5, the OIG recommended disallowance of $1,346 for photocopies billed in excess of cost. The Legal Division allowed $1,298 because it was the FDIC's practice prior to December 1991 to permit firms to bill photocopies at the maximum rate set forth in the LSA. Accordingly, the Legal Division disallowed $48 charged in excess of the maximum LSA rate. The working papers show that the LSA, effective May 29, 1990, specified that the FDIC would pay for photocopying at actual cost, not to exceed $.15 per page. In addition, the Guide for Legal Representation allowed reimbursement for necessary photocopying at actual cost. The firm's actual cost was $.06 per page, therefore, the OIG will continue to question $1,346.

In recommendation 7, the OIG recommended disallowance of $895 for inappropriate staffing. The Legal Division allowed $895 based on a review of the entries and the firm's response. The OIG accepts management's explanation and reduced questioned costs to $0.

In recommendation 9, the OIG recommended disallowance of $173 for administrative and clerical charges. The Legal Division allowed $173 based on a review of the entries and the firm's response. The OIG accepts management's explanation and reduced questioned costs to $0.

In recommendation 10, the OIG recommended disallowance of $154 for a duplicate time entry. The Legal Division allowed $154 based on a review of the entries and the firm's response. The OIG accepts management's explanation and reduced questioned costs to $0.

After considering additional information provided by the firm and management's comments on the IPA's findings, we will report questioned costs of $19,884 (net of $716 in overlapping questioned costs and i ncluding $13,529 of unsupported costs) in our Semiannual Report to the Congress.

Last Updated 03/27/01 contact the OIG