Legal Fees Paid by FDIC to Gable & Gotwals

(Audit Report No. 98-035, March 26, 1998)

The Office of Inspector General (OIG) has completed an audit of the legal fees paid to Gable & Gotwals, a law firm hired by the FDIC to provide legal services. The former Resolution Trust Corporation (RTC) OIG performed the audit for the FDIC OIG under a Memorandum of Understanding, dated March 3, 1993. The audit was conducted by the independent public accounting firm (IPA) of Doshi & Associates, P.C., through a contract with the RTC OIG, and covered billings paid by the FDIC during the period January 1, 1990 through June 30, 1993.

The objective of the audit was to determine whether Gable & Gotwals? legal bills were adequately supported and in compliance with the cost limitations set forth by the FDIC and that charges for legal services were reasonable. The total fees paid to the law firm during the audit period were $4,239,806. The IPA identified net questioned costs of $342,291 from an audit sample of $2,174,928 billed to the FDIC for the firm?s professional fees and expenses.

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

(1) $142,289 for fees not supported by time sheets,
(2) $106,551 for administrative services,
(3) $47,713 for non-reimbursable overhead expenses,
(4) $42,795 for unsupported expenses,
(5) $18,324 for hourly rate variances,
(6) $8,837 for hourly rates charged during travel status,
(7) $685 for photocopying charges in excess of allowable amounts,
(8) $411 for markup on telephone charges, and
(9) $359 for unauthorized personnel.

The General Counsel, Legal Division, provided a response dated December 30, 1997 to the OIG?s draft report. Management disallowed questioned costs totaling $59,444 ($60,182 less overlapping amounts of $738 in recommendations 4 and 5). Although management?s corrective actions for recommendations 1-4, 7, and 9 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 $142,289 for fees not supported by time sheets. The Legal Division believes that the 1991 Guide did not in any way require the firm to establish a particular kind of record keeping. At the time the firm submitted its invoices on these fees not supported by time sheets, the system it used was appropriate since the Legal Division had no requirements for electronic billing or the maintenance of corresponding time sheets. In addition, the Legal Division did not make disallowances for missing manual time sheets, due to the relatively small amount involved. Accordingly, after considering other factors and the firm?s electronic time records for $57,499, the Legal Division allowed all the questioned costs. The OIG will continue to question $138,043 ($142,289 less overlapping amounts of $4,246 in recommendations 5, 6, and 9) because the OIG could not independently verify the questioned time charges.

In recommendation 2, the OIG recommended disallowance of $106,551 for administrative services. The Legal Division disallowed $1,744 and allowed $104,807 based on additional information provided by the firm, and a review of the questioned entries. The OIG accepts management?s explanation and will reduce questioned costs to $1,734 ($1,744 less overlapping amount of $10 in recommendation 5).

In recommendation 3, the OIG recommended disallowance of $47,713 for non-reimbursable overhead expenses. The Legal Division allowed the questioned costs based on additional information provided by the firm and a review of the questioned entries. As a result, the OIG will reduce questioned costs to $0.

In recommendation 4, the OIG recommended disallowance of $42,795 for unsupported expenses. The Legal Division disallowed $30,782 and allowed $12,013 based on additional information provided by the firm. The OIG will continue to question $8,432 of the $12,013 allowed by the Legal Division because the firm did not provide original vendor invoices or receipts. Therefore, the OIG will reduce questioned costs to $39,214 ($30,782 + $8,432).

In recommendation 7, the OIG recommended disallowance of $685 for photocopying charges in excess of allowable amounts. The Legal Division disallowed $31 and allowed $654 because it believes that the special provision in the firm?s LSA to reimburse for reproduction costs at $.15 per page takes precedence over the Guide?s $.08 per page ceiling. The OIG accepts management?s explanation and will reduce questioned costs to $31.

In recommendation 9, the OIG recommended disallowance of $359 for unauthorized personnel. The Legal Division disallowed $53 and allowed $306 because it agrees with the firm?s response and review of the questioned entries. The OIG accepts management?s explanation and will reduce questioned costs to $53.

After considering additional information provided by the firm and management?s comments on the IPA?s findings, we will report questioned costs of $205,871 (including $177,209 of unsupported costs) in our Semiannual Report to the Congress.