Legal Fees Paid by FDIC to Nagel, Rice & Dreifuss

(Audit Report No. 98-030, March 24, 1998)

The Office of Inspector General (OIG) has completed an audit of the legal fees paid to Nagel, Rice & Dreifuss, 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 (IPA) firm of Urbach, Kahn & Werlin, PC, through a contract with the RTC OIG.

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. Accordingly, Nagel, Rice & Dreifuss? 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. Auditors identified questioned costs of $3,918 from an audit sample of $9,641 billed to the FDIC for the firm's professional fees and expenses.

The report recommends that the Assistant General Counsel, Legal Operations Section, disallow the following:

(1) $2,917 for unsupported time charges, and
(2) $1,001 for unsupported expenses.

The General Counsel, FDIC Legal Division, provided a response to the OIG's draft report dated December 17, 1997. Management disallowed a total of $669. Although management?s corrective actions on recommendations 1 and 2 differed from the recommended corrective actions, the OIG considers management?s response as providing the requisites for a management decision on each of the recommendations.

In recommendation 1, the OIG recommended disallowance of $2,917 for time charges not supported by original timesheets or other source documents. The Legal Division has agreed to collect $292, or 10 percent, by applying its sliding scale. The OIG will continue to question $2,917, which represents the amount of professional fees not supported by original timesheets.

In recommendation 2, the OIG recommended disallowance of $1,001 for unsupported expenses. In response to the draft report, the law firm provided supplemental information which adequately supports $624 for transcript expenses. The Legal Division disallowed $377 of the questioned amount. As a result, the OIG will reduce its questioned costs to $377.

After considering additional information submitted by the firm and management?s comments on the IPA?s findings, the OIG will report questioned costs of $3,294, all of which is unsupported, in its Semiannual Report to the Congress.