[Federal Register: March 20, 1997 (Volume 62, Number 54)]
[Notices]               
[Page 13382-13383]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20mr97-77]
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FEDERAL DEPOSIT INSURANCE CORPORATION
 
Statement of Policy on Contracting With Firms That Have 
Unresolved Audit Issues With FDIC
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Statement of policy.
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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) has adopted a 
policy statement concerning contracting with firms that have unresolved 
audit issues with FDIC. The policy statement sets forth the procedures 
to be followed to provide proper notification to an affected contractor 
or outside counsel when an audit report is issued, and a management 
decision has been made on a respective finding, in order to afford the 
firm an opportunity to respond. When an FDIC audit identifies 
questioned costs and issues remain outstanding or unresolved as a 
result of the firm's failure to cooperate with FDIC management in 
resolving issues associated with identified disallowed costs, by for 
example: (1) failing to respond timely to an FDIC request to produce 
documentation to support claimed costs; or (2) otherwise failing to 
adequately document claimed costs; or (3) by failing to remit the 
disallowed portion of questioned costs identified in such audit 
reports, application of the policy may result in a determination to 
refrain from soliciting new business from that firm.
    This policy statement applies to firms providing goods and services 
to FDIC, including attorneys or law firms providing legal services to 
FDIC.
EFFECTIVE DATE: This policy statement is effective March 20, 1997.
FOR FURTHER INFORMATION CONTACT: Michael J. Rubino, Associate Director, 
Acquisition Services Branch, at (202) 942-3076, Peter A. Ziebert, 
Counsel, Contracting Law Unit, at (202) 736-0742, or William S. Jones, 
Counsel, Legal Operations Section, at (202) 736-3055.
SUPPLEMENTARY INFORMATION: The text of the Policy Statement follows:
1. Background
    The FDIC Office of the Inspector General (OIG) routinely audits 
contracts with firms providing services to FDIC. These audits 
frequently contain an analysis whereby certain contract costs are 
questioned, as well as a recommendation that FDIC management disallow 
and attempt to recover these costs. When the OIG transmits the audit 
report and findings to the appropriate FDIC program office, FDIC 
management then reviews such findings and recommendation. This 
evaluation results in the issuance of a final decision that may sustain 
all of the audit findings, or a portion thereof. When FDIC management 
determines that certain questioned costs should not be charged to the 
Corporation, such questioned costs that are sustained are then deemed 
to be ``disallowed'' costs within the meaning of the Inspector General 
Act.
    Once a management decision has been made to disallow such costs, 
active resolution efforts are undertaken by FDIC management to recover 
funds paid without adequate documentation or otherwise inappropriately 
paid to the firm during the course of the engagement. In those 
circumstances where the FDIC requests that an audited firm remit 
disallowed amounts and the contractor fails to do so or fails to 
actively cooperate with FDIC management in its efforts to resolve the 
issues associated with identified disallowed costs, it is prudent 
business for FDIC to selectively refrain from soliciting future 
services from the firm.
[[Page 13383]]
2. General Policy
    To provide procedures whereby the FDIC may elect to refrain from 
soliciting a firm for new business if:
    (a) the results of an audit reflect potentially recoverable 
disallowed costs and audit issues remain outstanding or unresolved 
within the time period set forth in the notice letter sent by FDIC; and
    (b) the firm failed or declined to cooperate with resolution 
efforts undertaken by FDIC management in response to the audit 
findings, including the failure to adequately support its contract 
costs or the failure to remit the disallowed portion of the questioned 
costs identified in such audit report.
3. Definitions
    (a) Disallowed cost means a questioned cost that management, in a 
management decision, has sustained or agreed should not be charged to 
the government.
    (b) Management decision means the evaluation by FDIC management of 
the findings and recommendations included in an audit report and the 
issuance of a final decision by management concerning it response to 
such findings and recommendations, including actions concluded to be 
necessary.
    (c) Questioned cost means a cost that is questioned in an audit by 
the OIG or similar auditing agency because of:
    (i) an alleged violation of a provision of a law, regulation, 
contract, grant, cooperative agreement, or other agreement or document 
governing the expenditure of funds;
    (ii) a finding that, at the time of the audit, such cost is not 
supported by adequate documentation; or
    (iii) a finding that the expenditure of funds for the intended 
purpose is unnecessary or unreasonable.
4. Procedures
    Issued audit reports that identify questioned costs relating to 
contractual engagements are assigned to the Division of Administration, 
Acquisition Services Branch (ASB) staff, or the Outside Counsel Unit, 
Legal Division (OCU), for resolution. In implementing this policy 
statement, the following steps shall be taken:
    (a) Management decision. Once a management decision is made on a 
respective finding, the matter is then assigned to ASB or OCU for 
resolution. A copy of the relevant audit report shall be transmitted to 
the firm under a cover letter which:
    (i) identifies the ASB or OCU which is responsible for resolving 
the audit issues;
    (ii) identifies the ASB or OCU employee primarily responsible for 
resolution and to whom all communications from the firm should be sent;
    (iii) requests that the firm respond to the findings contained in 
the report within ten (10) business days of receipt of the letter, or 
such other time as specified in the letter. Such responses should 
include supporting documentation where appropriate.
    (b) If the firm fails to respond to this request, or fails to remit 
the disallowed portion of the questioned costs contained in the audit 
report, or otherwise fails to adequately respond to the issues raised 
in the report, the following procedures shall apply:
    (i) with respect to audits of firms other than outside counsel, the 
ASB employee identified in section 4(a)(ii) shall send a letter to the 
firm advising the firm of its failure to cooperate, and which advises 
the firm that unless it remits the requested repayment or makes other 
arrangements satisfactory to the Associate Director who is responsible 
for resolution of this audit (whose name shall be provided to the firm) 
within ten business days of receipt of this letter, the Director, 
Division of Administration may, effective as of that date, make a 
determination that the FDIC refrain from soliciting any future services 
from this firm until such time as all issues identified in the subject 
audit report are resolved to the FDIC's satisfaction, and direct that 
notice to be sent to the firm of this action.
    (ii) With respect to audits of outside counsel, the Legal Division 
employee identified in section 4(a)(ii) shall send a letter to the 
outside counsel which advises such outside counsel that its failure to 
cooperate constitutes a conflict of interest with the FDIC, and which 
advises outside counsel that unless it remits the requested repayment 
or makes other arrangements satisfactory to the Assistant General 
Counsel who is responsible for resolution of this audit (whose name 
shall be provided to the contractor) within ten business days of 
receipt of this letter, the matter will be referred to the Outside 
Counsel Conflicts Committee for appropriate action, which may include a 
determination that the FDIC refrain from soliciting any future services 
from such outside counsel and/or terminate FDIC's existing engagements, 
until such time as all issues identified in the subject audit report 
are resolved to the FDIC's satisfaction.
    Dated at Washington, D.C. this 14th day of March, 1997.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-6995 Filed 3-19-97; 8:45 am]
BILLING CODE 6714-01-P

Last Updated 04/25/1997 regs@fdic.gov