Legal Fees Paid by FDIC to Sachnoff & Weaver

(Audit Report No. 98-064, June 23, 1998)

The Office of Inspector General (OIG) has completed an audit of Sachnoff & Weaver, 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 Ollie Green & Company through a contract with the OIG, and covered billings paid by FDIC during the period January 1, 1990, through December 9, 1993.

The objective of the audit was to determine whether Sachnoff & Weaver's legal bills present fairly the expenses and activities of the cases for which the fee bills were submitted. Accordingly, Sachnoff & Weaver'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 total fees paid to the law firm for FDIC-related work during the audit period were $1,853,205. The audit sample covered $345,648, or 19 percent of the total. The audit resulted in net questioned costs of $132,548.

(1) $126,219 for unauthorized expert witness/consultant fees,
(2) $4,860 for hourly rate variances,
(3) $560 for unauthorized personnel,
(4) $428 for markup on facsimile expenses,
(5) $283 for unsupported expenses, and
(6) $198 for non-reimbursable overhead expenses.

Management Response

The General Counsel'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 $5,486. Although management's corrective actions on recommendations 1, 3, and 5 differed from the recommended corrective actions, we consider management's response as providing the requisites for a management decision.

Specifically, in recommendation 1, the OIG recommended that FDIC disallow $126,219 for unauthorized expert witness/consultant fees. Management allowed all the questioned charges. The firm stated that the Legal Division was aware of the services provided by the consulting firm. Based on discussions with the former FDIC supervising attorneys and supporting documentation provided by the firm, the Legal Division concluded that FDIC was aware of and approved the retention of the consulting firm. The OIG accepts management's explanation and, accordingly, reduced questioned costs to $0.

In recommendations 3 and 5, the OIG recommended that FDIC disallow $560 for unauthorized personnel and $283 for unsupported expenses, respectively. Management allowed the questioned costs based on an analysis of the charges. The OIG accepts management's explanation and, accordingly, reduced questioned costs to $0.

Based on the IPA's audit work, $132,548 was questioned in the draft report transmitted to management. After considering $5,486 in disallowances taken by management and management's comments on the IPA's findings, we will report questioned costs of $5,486 in our Semiannual Report to the Congress.