Case

HK – FDIC Audit questions $222,690 of fees

In 1 on December 30, 2008 at 12:28 am
 

Legal Fees Paid by FDIC to Holland & Knight

(Audit Report No. 98-058, June 12, 1998) Summary

The Office of Inspector General (OIG) has completed an audit of legal fees paid to Holland & Knight, a law firm hired by the FDIC. The audit was conducted by the independent public accounting (IPA) firm of Doshi & Associates, through a contract with the former Resolution Trust Corporation OIG, and covered billings paid from January 1, 1990 through June 30, 1993.

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, Holland & Knight'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 firm during the audit period were $3,672,799. The auditors identified net questioned costs of $222,690 from an audit sample of $1,625,408.

Recommendations

That the Assistant General Counsel, Legal Operations Section, Legal Division, should disallow:

(1) $179,002 for unauthorized personnel,
(2) $21,868 for photocopying charges in excess of cost,
(3) $19,794 for inadequate descriptions of services,
(4) $7,950 for mark-ups on facsimile charges,
(5) $6,962 for non-reimbursable overhead expenses,
(6) $2,776 for delivery expenses in excess of actual cost,
(7) $874 for long distance telephone charges billed in excess of actual cost,
and
(8) $88 for administrative charges.

Also, the Assistant General Counsel, Legal Operations Section, Legal Division, should reject and return any future invoices that contain block billed entries.

Management Response

In response to a draft of this report, management disallowed questioned costs totaling $17,012. Although management's corrective actions on recommendations 1, 2, 3, and 5 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.

Specifically, in recommendation 1, the OIG recommended disallowance of $179,002 for unauthorized personnel. Management allowed $178,303 and disallowed $699. The Legal Division concluded that the FDIC had no contractual right to insist on lower negotiated rates since an LSA had not been executed. Therefore, the OIG will reduce questioned costs to $699. However, the OIG recommends that the Legal Division formally ratify the $178,303 in fees which were billed to the FDIC without an LSA.

In recommendation 2, the OIG recommended disallowance of $21,868 for photocopying charges in excess of cost. Management allowed $21,806 and disallowed $62. The Legal Division concluded that the FDIC had no contractual right to insist on lower rates since an LSA had not been executed. Since the Guide for Legal Representation explicitly states that photocopying will be reimbursed at cost, the IPA appropriately questioned the photocopying costs for violating the guidelines established by the Legal Division. However, the OIG will accept the Legal Division's policy of allowing up to $.15 or $.08 per page without a cost study. Therefore, the OIG will reduce questioned costs to $14,283.

In recommendation 3, the OIG recommended disallowance of $19,794 for time billed without an adequate description of services. Management allowed the full amount. The Legal Division has concluded that the descriptions are in compliance with applicable standards. Upon further review of the questioned entries, the OIG agrees with the Legal Division's decision not to disallow the $19,794. Therefore, the OIG will reduce questioned costs to $0.

In recommendation 5, the OIG recommended disallowance of $6,962 for non- reimbursable overhead expenses. Management allowed $2,399 and disallowed $4,563. In response to the draft report, the Legal Division provided an explanation which supports $2,399 of the questioned charges. As a result, the OIG will reduce questioned costs to $4,563.

Based on the IPA's work, $222,690 was questioned in the draft report. After considering management's comments on the findings, we will report questioned costs of $31,233, including $26,582 of unsupported costs, in our Semiannual Report to the Congress.

http://www.fdicoig.gov/reports98/98-058.shtml

 

Posted via email from HKLaw Investigation

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