To obtain information on broker selection policies and guidance used by federal agencies, we asked DOJ to identify other federal agencies that handled structured settlement claims. Federal Policies for Selecting Structured Settlement Brokers Lacked Adequate Internal Control

Although DOJ had established policies and guidance for the selection of structured settlement brokers, the policies and guidance did not include an internal control requiring attorneys to document their reasons for selecting a specific broker. Similarly, although the six agencies we reviewed said they generally followed DOJ’s policy guidance for selecting a structured settlement broker, they were not required to document their reasons for selecting a particular broker. None of these agencies documented the reasons why they selected particular brokers. DOJ Did Not Document Reasons for Selecting Brokers

DOJ had established policies and guidance governing the selection of structured settlement brokers, but it did not require that the reasons for selecting a specific broker be documented. DOJ Selected a Few Brokers to Handle Most Settlements Claims

DOJ has selected several structured settlement brokerage companies to handle most of the structured settlement claims. Between May 1, 1997, and May 1, 1999, DOJ used 27 different structured settlement brokerage companies to settle 242 claims for $236 million. Of the 242 claims awarded, 70 percent (169 cases) were awarded to 4 brokerage companies. The remaining 23 companies were awarded 30 percent of the total number of cases. According to DOJ, the companies frequently have multiple offices and brokers that compete with each other within the same company. Thus, a simple count of the number of companies could be misleading. However, the policies and guidance lacked an internal control requiring that the reasons for selecting a broker be documented and readily available for examination. Further, without documentation on the reasons settlement brokers were selected, it is more difficult to avoid the appearance of favoritism and preferential treatment in a situation where some brokers get significantly more business than others. According to DOJ, by “treating as a monolith all brokers affiliated with the major companies, the draft report ignores the actual way those businesses are run and runs the risk of significantly understating the actual number of brokers competing to handle DOJ structured settlements.”
In response, we have noted that according to DOJ, because structured settlement companies may have multiple offices and brokers, the number of companies could be misleading. Nevertheless, the number and cost of settlements by brokerage company show that DOJ placed the majority of its settlement work with a relatively small number of companies—a situation that still could open it up to charges of favoritism towards these companies. Each day, GAO issues a list of newly available reports and testimony.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Department of Justice's (DOJ) policy and guidance for selecting structured settlement brokers, focusing on: (1) the policies and guidance for selecting structured settlement brokers used by DOJ and six selected agencies; and (2) a list of the structured settlement brokerage companies used by DOJ and the number of settlements awarded to each company since May 1997.

What GAO Found

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.