Legal Fees Paid by FDIC to Morrison & Hecker L.L.P.

(Audit Report No. 98-045, June 15, 1998)

The Office of Inspector General (OIG) has completed an audit of Morrison & Hecker, a law firm hired to provide legal services to the Federal Deposit Insurance Corporation (FDIC). The audit was conducted by OIG staff and covered billings paid by FDIC during the period July 1, 1990 through September 30, 1995.

The objective of the audit was to determine whether the firm's legal bills presented fairly the expenses and activities associated with FDIC cases assigned to the firm. The total fees paid to the law firm during the audit period were $7,612,277. The OIG identified questioned costs of $155,817 from an audit sample of $7,180,472.

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

The General Counsel, Legal Division, responded to the draft report on March 27,1998. Management disallowed questioned costs totaling $41,683. Although management's corrective actions for recommendations 1, 2, 3, 5a, 5b, 6, and 7 differed from the recommended corrective actions, we consider management's response as providing the requisites for a management decision.

Specifically, the Legal Division ratified and allowed $114,134 of the $155,817 questioned in the draft report based on additional information provided by the law firm. The OIG accepts management's explanation regarding these recommendations and, accordingly, reduced questioned costs to $41,683. In recommendation 5b, the OIG recommended that subcontractors be required to submit time sheets and/or other supporting information (to Morrison & Hecker) to ensure that subcontractors are billing FDIC accurately for time charges. Management responded that the firm's billing attorney regularly reviewed the subcontractor's statements for reasonableness and accuracy and, as appropriate, disallowed fees charged by the subcontractor. Management deems no further action is required based on the results of this one audit. The OIG continues to assert that subcontractors should be required to supply supporting documentation to verify that time billed is properly charged to the FDIC.

After considering additional information provided by the firm and management's response to the draft report, we will report questioned costs of $41,683 (including $487 of unsupported costs) in our Semiannual Report to the Congress.