Financial Audit:

Resolution Trust Corporation's Internal Controls at December 31, 1992

AIMD-93-50: Published: Sep 28, 1993. Publicly Released: Sep 28, 1993.

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GAO evaluated the Resolution Trust Corporation's (RTC) internal controls as of December 31, 1992, to determine whether the controls reasonably ensured that: (1) assets were safeguarded against loss from unauthorized use or disposition; (2) transactions complied with management's authority and laws and regulations; and (3) transactions were properly recorded, processed, and summarized in accordance with generally accepted accounting principles.

GAO found that: (1) RTC internal accounting controls reasonably ensured that assets were safeguarded against loss, and transactions complied with laws and regulations; (2) the controls did not ensure that RTC properly recorded, processed, and summarized transactions for its financial statements and reports; (3) RTC understated its loss allowance by $1.5 billion because of inaccurate computer-generated data used in the calculation; (4) RTC management failed to detect the loss allowance error because it did not have procedures for reviewing computer-generated data; (5) RTC made an audit adjustment to correct its error and implemented the proper control procedures to prevent data errors in future loss calculations; and (6) nonmaterial internal control weaknesses included the use of the wrong database to estimate claims losses for representations and warranties, incomplete data in RTC information systems, the lack of required check receipts reconciliations, and posting errors to various general ledger accounts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: During 1993, RTC developed formal procedures for estimating its loss accrual in which the Warranties and Representations Accounts Processing System is the starting point. Additionally, RTC developed and implemented several major enhancements to the system which, combined with the formal procedures, help ensure the integrity of the data used to estimate the loss accrual. As a result of these actions, GAO found that the December 31, 1993, estimated loss accrual was reasonable.

    Recommendation: The RTC Chief Financial Officer should direct RTC staff to use the Warranties and Representations Accounts Processing System (WRAPS) database to calculate future financial statement loss accruals for representations and warranties. WRAPS data should be tested for completeness and accuracy and the necessary adjustments made before the required reserve amounts are calculated for all sales.

    Agency Affected: Resolution Trust Corporation

  2. Status: Closed - Implemented

    Comments: RTC updated the Field Accounting Manual during 1993 and provided a standard format to ensure the uniform preparation of daily reconciliations of cash received. At the end of 1993, GAO found that all field offices performed the required reconciliation of checks received and processed.

    Recommendation: The RTC Chief Financial Officer should direct RTC staff to explain more clearly the check receipts reconciliation requirement in its Field Accounting Manual and include a specific reconciliation format to be followed. Field personnel in the remaining open offices should be trained to ensure procedures are properly implemented and consistently followed.

    Agency Affected: Resolution Trust Corporation

  3. Status: Closed - Implemented

    Comments: During 1993, RTC completed training initiatives to improve the accuracy of posting wire disbursements in the field offices. The results of GAO's 1993 testing showed an improvement in the error rate of posting wire disbursements such that the recommendation should be closed.

    Recommendation: The RTC Chief Financial Officer should direct RTC staff to review the field offices' journal entry preparation and review processes to determine the reason for high error rates relating to wire disbursements. Based on the results of that review, control procedures should be strengthened or enforced accordingly and field offices should be periodically tested and evaluated to ensure required procedures are being followed.

    Agency Affected: Resolution Trust Corporation

 

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