Structured Settlements:

The Department of Justice's Selection and Use of Annuity Brokers

GGD-00-45: Published: Feb 16, 2000. Publicly Released: Feb 16, 2000.

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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.

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 for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Justice has implemented this recommendation.

    Recommendation: The Attorney General of the United States should direct the Director of the Torts Branch responsible for Federal Tort Claims Act (FTCA) claims and litigation, Civil Division, to develop an adequate internal control to ensure that the reasons for selecting structured settlement brokers are always fully documented and readily available for examination.

    Agency Affected: Department of Justice

  2. Status: Closed - Implemented

    Comments: The Department of Justice has implemented this recommendation.

    Recommendation: The Attorney General of the United States should direct the Director of the Torts Branch responsible for FTCA claims and litigation, Civil Division, to disseminate this guidance to federal agencies, including those in GAO's survey, responsible for handling structured settlement claims.

    Agency Affected: Department of Justice

 

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