Legal Fees Paid by FDIC to Testa, Hurwitz & Thibeault

(Audit Report No. 98-057, June 12, 1998)

The Office of Inspector General (OIG) has completed an audit of Testa, Hurwitz & Thibeault, a law firm hired to provide legal services to the Federal Deposit Insurance Corporation (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 billings paid by FDIC from 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. The total fees paid to the law firm for FDIC-related work during the audit period were $3,669,921. The audit sample covered $1,852,879, or 50 percent of the total. The audit resulted in net questioned costs of $197,505.

That the Assistant General Counsel (AGC), Legal Operations Section, Legal Division, should disallow:

The recommendations total $203,325 because $5,820 is questioned in more than one finding. Therefore, net recommended disallowances were $197,505. In addition, the OIG recommended that the AGC (recommendation 10) should reject and return any future invoices received that contain block billed entries.

The AGC's response to a draft of this report provided the requisites for a management decision on each of the recommendations. Management disallowed a total of $38,758. Although management's corrective actions on recommendations 1 through 4 and 6 through 9 differed from the recommended corrective actions, the OIG considers management's response as providing the requisites for a management decision.

Specifically, in recommendation 1, the OIG recommended that FDIC disallow $45,144 for unallowable time charges, including time charges for administrative tasks, preparing case budgets and status reports, travel time not discounted, and errors. Management allowed all the questioned charges. The OIG accepts the Legal Division's position and, accordingly, will reduce questioned costs to $0.

In recommendation 2, the OIG recommended that FDIC disallow $42,935 for time entries with inadequate descriptions. Management allowed all the questioned charges. The OIG accepts the Legal Division?s position and, accordingly, will reduce questioned costs to $0.

In recommendation 3, the OIG recommended that FDIC disallow $30,368 for unsupported time charges. Management allowed all the questioned charges. The OIG accepts the Legal Division's position for the differences in the descriptions and case matters. However, in the absence of time sheets, the OIG could not independently verify the questioned charges. Therefore, for recommendation 3, the OIG will question $16,353.

In recommendation 4, the OIG recommended that FDIC disallow $8,913 for overbillings related to staffing issues. Management allowed all the questioned charges. The OIG accepts the Legal Division's position and, accordingly, will reduce questioned costs to $0.

In recommendation 6, the OIG recommended that FDIC disallow $1,360 for unauthorized personnel. Management ratified all the questioned charges. The OIG accepts the Legal Division's position and will reduce questioned costs to $0.

In recommendation 7, the OIG recommended that FDIC disallow $47,341 for expenses billed in excess of actual cost. Management allowed $17,558 and disallowed $29,783. The OIG accepts the Legal Division's position and will reduce questioned costs to $29,783.

In recommendation 8, the OIG recommended that FDIC disallow $16,187 for unsupported expenses. Management allowed $13,097 and disallowed $3,090. The OIG accepts the Legal Division's position with regard to $700 of the unsupported expenses. However, lacking specific support for the remaining questioned charges, the OIG will question $15,487 ($16,187 - $700).

In recommendation 9, the OIG recommended that FDIC disallow $9,959 for non- billable expenses. Management allowed $5,192 and disallowed $4,767. For recommendation 9, the OIG accepts the Legal Division's position and will reduce questioned costs to $4,767.

Based on the IPA's audit work, $197,505 was questioned in the draft report transmitted to management. After considering $11,161 in disallowances taken by management and management's comments on the IPA's findings, we will report questioned costs of $67,508 (including $31,840 of unsupported costs) in our Semiannual Report to the Congress.