Failed Thrifts:

Allegations at FirstSouth Receivership in Little Rock, Arkansas

GGD-89-98: Published: Jun 16, 1989. Publicly Released: Jun 21, 1989.

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Pursuant to a congressional request, GAO investigated four allegations of wrongdoing concerning a Federal Savings and Loan Insurance Corporation (FSLIC) receivership.

GAO found that the receivership: (1) had an invalid contract with a former receivership property manager to appeal property taxes, since the managing officer exceeded her authority in entering the contract, and the contractor charged for work he performed while still a receivership employee; (2) improperly restricted a property auction to employees and did not determine fair market value for the property; (3) approved a loan to a debtor with other loans in default, although, contrary to allegations, the loan was secured by an escrow account; and (4) did not violate procedures in obtaining insurance from a debtor whose loan was in default, since no law or regulation precluded such contracting. GAO also found that: (1) the Federal Home Loan Bank Board's (FHLBB) Office of Inspector General (OIG) closed its investigation regarding the former employee's contract, stating that it could not apply federal conflict-of-interest statutes to receivership employees, since they were not federal employees; (2) FHLBB OIG did not investigate the restricted auction, since it did not believe that the action violated any laws or regulations; and (3) FSLIC suspended the receivership's managing officer pending further review of the contract with the former employee.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Chairman, FHLBB, should instruct the Executive Director, FSLIC, to take action to recover the property disposed of inappropriately at the employee auction.

    Agency Affected: Federal Home Loan Bank Board

    Status: Closed - Not Implemented

    Comments: Cost of recovery and resale of these items would probably exceed the amount recovered through subsequent sales. The agency was abolished.

    Recommendation: The Chairman, FHLBB, should instruct the Executive Director, FSLIC, to take action to recover funds paid to the former FirstSouth Receivership property manager under the invalid contract for work he did or for which he was responsible as a receivership employee.

    Agency Affected: Federal Home Loan Bank Board

    Status: Closed - Not Implemented

    Comments: Prudent and cost efficient recovery of funds is not likely.

    Recommendation: The Chairman, FHLBB, should instruct the Executive Director, FSLIC, to make no further payments to the former FirstSouth Receivership property manager for any work billed absent additional information that the work was not substantially completed while he was employed by the receivership and absent clear evidence of a benefit to the receivership.

    Agency Affected: Federal Home Loan Bank Board

    Status: Closed - Implemented

    Comments: No further payment has been made nor do they have any intentions of making any future payments.

    Recommendation: The Chairman, FHLBB, should instruct the Executive Director, FSLIC, to appoint as federal employees those receivership employees who carry out federal functions under direct federal supervision.

    Agency Affected: Federal Home Loan Bank Board

    Status: Closed - Not Implemented

    Comments: FHLBB and FSLIC were abolished in August 1989.

    Recommendation: The Chairman, FHLBB, should instruct the Executive Director, FSLIC, to adopt a policy on the circumstances and conditions under which receiverships can and cannot do business with debtors in default.

    Agency Affected: Federal Home Loan Bank Board

    Status: Closed - Not Implemented

    Comments: Policy was being developed for sale of assets to debtors in default. Subsequently, the agency was abolished.

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