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Resolution Trust Corporation: Asset Pooling and Marketing Practices Add Millions to Contract Costs

GGD-93-2 Published: Oct 07, 1992. Publicly Released: Oct 07, 1992.
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Highlights

GAO reviewed whether Resolution Trust Corporation (RTC) portfolio development and management practices could be improved.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Resolution Trust Corporation The Chief Executive Officer, RTC, should improve controls over assets included in future SAMDA portfolios by identifying and excluding: (1) assets that would more appropriately be disposed of through direct RTC sales; (2) real estate that has already been sold or that is under contract for sale with imminent closings; and (3) loans that already have been paid by the borrowers or are nearly settled, and performing loans that will be managed by loan servicing contractors.
Closed – Implemented
New SAMDAs are not being awarded. RTC acknowledges that settled loans or those already paid off by borrowers should be taken out of SAMDA portfolios. This action will be implemented on a case-by-case basis.
Resolution Trust Corporation The Chief Executive Officer, RTC, should revise SAMDA to clearly avoid the payment of unearned or duplicative fees to contractors entering into agreements with RTC in the future, by including provisions covering removal of assets without payment of fees when post-award discoveries are made of assets requiring little or no services form the contractor.
Closed – Implemented
RTC has developed Standard Asset Management Amendments (SAMA) to SAMDA contracts. Assets targeted for RTC-sponsored sales initiatives will be placed under a SAMA. Disposition fees will not be paid for assets placed under SAMAs.
Resolution Trust Corporation The Chief Executive Officer, RTC, should renegotiate disposition fees payable to SAMDA contractors on assets included in sales center marketing efforts or sold through other direct RTC sales or disposition activities to avoid payments of unearned or duplicate fees.
Closed – Implemented
This recommendation has been implemented on a case-by-case basis when mutually agreeable with the contractor.
Resolution Trust Corporation The Chief Executive Officer, RTC, should improve management controls over portfolio development and fee payments to ensure that RTC staff have adequate guidance on structuring and making changes to SAMDA portfolios and that they follow consistent practices in their treatment of SAMDA contractors.
Closed – Implemented
A directive issued July 6, 1993, provides guidance on the assignment of assets to SAMDAs and SAMAs.
Resolution Trust Corporation The Chief Executive Officer, RTC, should resolve problems with information and accounting systems to ensure that they support effective asset management.
Closed – Not Implemented
Changes are being made to REOMS and AMS to facilitate and support asset management. No changes to the accounting system have been made. The RTC Completion Act limits RTC's systems improvement or enhancement efforts to those that are cost-effective given the period of time RTC will remain in operation. RTC does not view the changes required to implement this recommendation as cost-effective at this point in RTC's life. GAO agrees and is closing the recommendation.
Resolution Trust Corporation The Chief Executive Officer, RTC, should encourage the transfer of management responsibility for assets between field offices to create geographically concentrated portfolios for new assets placed with contractors.
Closed – Not Implemented
The ability to implement this recommendation is tied to changes in RTC accounting system. RTC explored the possibility of making adjustments to asset management to achieve the intent of this recommendation. However, both GAO and RTC conclude that it is too late in RTC's life to reassign management responsibilities given that RTC will begin the process of closing its six remaining field offices early next year. GAO is therefore closing this recommendation.
Resolution Trust Corporation The Chief Executive Officer, RTC, should ensure that adequate management controls are maintained over SAMDA contracts, particularly in view of the widespread asset and subcontractor locations that exist now.
Closed – Implemented
RTC has improved its Asset Manager System (AMS) which collects asset management contract revenue and expense data; issued a subcontractor oversight directive; focused internal control reviews on this problem; and taken other steps to provide a better structure for management control over SAMDA contracts. RTC is assessing field office compliance with the revised management control procedures. Although RTC internal control reviews and contract audits are still being conducted that include steps to assess the adequacy of management controls, GAO is closing this recommendation at this time. It will be unlikely that RTC will be able to take and complete any significant future corrective actions before it ceases operations in December 1995. At that time, all but a few asset management contracts will be closed. Those remaining open will be transferred to FDIC.

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Accounting proceduresBank failuresContract administrationContract costsContractor paymentsOverpaymentsProperty disposalReal estate salesRisk managementSurplus federal property