Audit of Midland Loan Services - Fee Billings Under Contract 783-92-0047-001

(Audit Report No. 98-040, April 8, 1998)

The Office of Inspector General (OIG) has completed an audit of fee billings submitted by Midland Loan Services, L. P., to the Federal Deposit Insurance Corporation (FDIC) for loan services under Western Service Center Contract 783-92-0047-001. The objectives of the audit were to determine whether (1) the fees billed by Midland and paid by FDIC were adequately supported, allowable, and in accordance with the contract terms and (2) the monies due were remitted to FDIC.

The audit results showed that although Midland remitted all cash receipts due FDIC for the months tested and reconciled all bank accounts, it did not always bill its fees properly. Of the total $8,079,165 in fees Midland billed FDIC, we reviewed $6,394,147. Of the amount reviewed, we questioned $310,212 in management and service fees because the fees were not in accordance with contract terms. The costs were questioned because Midland (1) billed management fees the month the loan balances were reduced to zero dollars contrary to contract terms, (2) billed management fees for loans not authorized for such fees or fees that were contractually unallowable for payment, and (3) billed service fees incorrectly.

We recommended that the Associate Director, Acquisition Services Branch, and Regional Director, Western Service Center, take the following actions:

(1) Disallow $202,748 in management fees billed for the calendar months in which the assets' book values were reduced to zero dollars (questioned cost).

(2) Disallow $105,714 in management fees billed for loans not authorized or allowable for such charges (questioned cost).

(3) Disallow $1,750 for overpayment of June 1994 loan service fees (questioned cost).

FDIC management agreed with our findings and recommendations and will disallow the entire $310,212 we questioned. The Corporation?s written response provided the requisites for management decisions on all three recommendations.

Based on our audit work, the OIG will report questioned costs of $310,212 in its Semiannual Report to the Congress.