Structured SettlementsThe Department of Justice's Selection and Use of Annuity Brokers Gao ID: GGD-00-45 February 16, 2000
The federal government solicits the services of private brokers to help structured settlements with claimants in lawsuits against federal agencies. Because private brokers can earn lucrative commissions from insurance companies, the Justice Department has issued policy and guidance to promote fairness and avoid the appearance of favoritism in choosing these brokers. Justice officials told GAO that the agency's policies and guidelines permit some discretion and that, when selecting a broker, they generally relied on such factors as reputation, past experience, knowledge, and location. However, Justice officials were unable to explain why attorneys selected particular brokers to settle specific cases because Justice did not require documentation of these decisions. Overall, the six federal agencies GAO surveyed described policies and guidance in selecting structured settlement brokers that were similar to those of Justice. Like Justice, however, none of the agencies required their attorneys to document their reasons for picking a specific broker. GAO's review of the list of the structured settlement brokerage companies used by Justice and the number of settlements assigned to each company showed that Justice chose a handful of companies to handle most of its structured settlement business. Between May 1997 and May 1999, 70 percent of 242 claims totaling $236 million were awarded to four brokerage companies.
GAO noted that: (1) in 1993 and 1997, DOJ issued policies and guidance on the selection of structured settlement brokers to promote fairness and to avoid the appearance of favoritism; (2) DOJ officials told GAO that its policies and guidelines permit some discretion and that when selecting a particular broker, they generally relied on such factors as reputation, past experience, knowledge, and location; (3) however, DOJ officials also told GAO they were unable to specify reasons why attorneys selected particular brokers to settle specific cases, because DOJ did not require documentation of these decisions; (4) without an internal control requiring the reasons for selecting a particular settlement broker be documented and readily available for examination, it is more difficult to verify that selection policies and guidelines were followed and, in turn, to avoid the appearance of favoritism and preferential treatment; (5) overall, the six federal agencies surveyed described policies and guidance in selecting structured settlement brokers that were similar to DOJ's; (6) none of the agencies had internal controls requiring their attorneys to document their reasons for selecting a specific broker; (7) one agency had a written supplemental policy governing the use of structured settlements, but it did not require documentation of decisions; (8) officials at the other five federal agencies said they also generally relied on such factors as reputation, past experience, knowledge, and location for selecting a particular structured settlement broker; (9) however, the reasons why particular brokers were selected for specific cases were not documented; (10) GAO's review of the list of structured settlement brokerage companies used by DOJ and the number of settlements assigned to each company showed that DOJ selected a few companies to handle most of its structured settlement business; (11) according to DOJ, the companies frequently have multiple offices and brokers that compete with each other within the same company; (12) thus, a simple count of the number of companies could be misleading; (13) although DOJ used 27 different structured settlement companies to settle 242 claims for about $236 million between May 1, 1997, and May 1, 1999, 70 percent (169 cases) were awarded to 4 brokerage companies; and (14) of the remaining 23 companies, none were awarded more than 17 cases each.Recommendations
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