Failed Financial Institutions:

RTC/FDIC Risk Fraud and Mismanagement by Employing Those Deemed Culpable

OSI-95-1: Published: Oct 3, 1994. Publicly Released: Nov 10, 1994.

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Pursuant to a congressional request, GAO reviewed whether the Resolution Trust Corporation (RTC) and the Federal Deposit Insurance Corporation (FDIC) have sufficient systems to assist hiring and management officials in culpability determinations.

GAO found that: (1) RTC and FDIC are vulnerable to fraud, abuse, or mismanagement because they do not systematically screen employees or applicants found culpable for bank failures; (2) RTC and FDIC databases do not include the names of all culpable directors and officers of failed institutions; (3) RTC and FDIC databases do not include personal identifiers of culpable individuals; (4) the RTC database includes the names of individuals against whom no suits have been filed; (5) RTC and FDIC have no systematic means for promptly notifying managers and supervisors of employees against whom a culpability determination has been made; (6) RTC and FDIC do not share information regarding individuals found culpable for institution failures; (7) certain employees of RTC, FDIC, and conservatorship institutions hold vital positions although they have previously been determined to be culpable; (8) RTC and FDIC cannot ensure the identification of all culpable employees; (9) RTC is vulnerable to conservatorship employees who have been found culpable, since it does not maintain a database of non-federal conservatorship employees; and (10) RTC and FDIC should address these vulnerability issues to ensure the proper disposition of failed institutions' assets and to protect insurance funds' and taxpayers' interests.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FDIC's Office of Personnel Management Circular 2120.5 (November 4, 1994) set forth the minimum standards for employment with FDIC, as mandated by the Resolution Trust Corporation Completion Act. All required applicant/employee screening and appropriate database support will be operational by September 30, 1995. RTC's Thrift Investigation Management System has been updated to more effectively identify former officers/directors culpable in institution losses.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to perform employment screening before hiring individuals and routinely do so for their current employees, using reliable databases of individuals found responsible for institution failures.

    Agency Affected: Federal Deposit Insurance Corporation

  2. Status: Closed - Implemented

    Comments: FDIC's Office of Personnel Management Circular 2120.5 (November 4, 1994) set forth the minimum standards for employment with FDIC, as mandated by the Resolution Trust Corporation Completion Act. All required applicant/employee screening and appropriate database support will be operational by September 30, 1995. RTC's Thrift Investigation Management System has been updated to more effectively identify former officers/directors culpable in institution losses.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to perform employment screening before hiring individuals and routinely do so for their current employees, using reliable databases of individuals found responsible for institution failures.

    Agency Affected: Resolution Trust Corporation

  3. Status: Closed - Implemented

    Comments: All new hires will be screened using existing systems and new databases. New procedures for screening applicants and current employees include a systematic exchange of information between FDIC and RTC.

    Recommendation: The Deputy and Acting Chief Executive Officer, RTC, should ensure that conservatorship employees who occupy positions with responsibilities for asset disposition, such as those performing loan workout functions, be included in the employment screening process.

    Agency Affected: Resolution Trust Corporation

  4. Status: Closed - Implemented

    Comments: Utilizing existing systems and a new database, the Financial Institution Regulator Agency Criminal Referral System, will provide information to FDIC, RTC, NCUA, OTS, OCC, and the Federal Reserve regarding the suitability of proposed officers and directors of financial institutions. Information in existing databases, i.e., RTC's Thrift Investigation Management System, is being updated to ensure the accuracy of the data.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to develop reliable databases that will effectively identify individuals found culpable in institution failures.

    Agency Affected: Federal Deposit Insurance Corporation

  5. Status: Closed - Implemented

    Comments: Utilizing existing systems and a new database, the Financial Institution Regulator Agency Criminal Referral System will provide information to FDIC, RTC, NCUA, OTS, OCC, and the Federal Reserve regarding the suitability of proposed officers and directors of financial institutions. Information in existing databases, i.e., RTC's Thrift Investigation Management System, is being updated to ensure the accuracy of the data.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to develop reliable databases that will effectively identify individuals found culpable in institution failures.

    Agency Affected: Resolution Trust Corporation

  6. Status: Closed - Implemented

    Comments: There are at least four databases available to the FDIC Office of Personnel Management, including RTC's Thrift Investigation Management System, to assist in screening current and prospective employees. Additionally, the FDIC/RTC Transition Task Force is addressing best practices of the Corporations. New procedures for screening applicants and current employees include a systematic exchange of information between FDIC and RTC.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to share information systematically, enabling each to be aware of those individuals the other has found culpable in the failure of federally insured institutions.

    Agency Affected: Federal Deposit Insurance Corporation

  7. Status: Closed - Implemented

    Comments: There are at least four databases available to the FDIC Office of Personnel Management, including RTC's Thrift Investigation Management System, to assist in screening current and prospective employees. Additionally, the FDIC/RTC Transition Task Force is addressing best practices of the Corporations. New procedures for screening applicants and current employees include a systematic exchange of information between FDIC and RTC.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to share information systematically, enabling each to be aware of those individuals the other has found culpable in the failure of federally insured institutions.

    Agency Affected: Resolution Trust Corporation

  8. Status: Closed - Implemented

    Comments: FDIC Circular 2120.5, Minimum Standards for Employment with the FDIC, as Mandated by the Resolution Trust Corporation Completion Act (RTCCA), implements practicable policy guidance for the recommendation. FDIC is finalizing regulations based on the RTCCA minimum standards for employment provisions, and RTC issued guidance on May 1, 1995, concerning employees who may be culpable in losses to institutions.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to ensure that personnel guidance is clear and appropriate regarding employees and prospective employees for whom the agencies have made culpability determinations.

    Agency Affected: Federal Deposit Insurance Corporation

  9. Status: Closed - Implemented

    Comments: FDIC Circular 2120.5, Minimum Standards for Employment with the FDIC, as Mandated by the Resolution Trust Corporation Completion Act (RTCCA), implements practicable policy guidance for the recommendation. FDIC is finalizing regulations based on the RTCCA minimum standards for employment provisions, and RTC issued guidance on May 1, 1995, concerning employees who may be culpable in losses to institutions.

    Recommendation: The Acting Chairman, FDIC, and the Deputy and Acting Chief Executive Officer, RTC, should direct their agencies to ensure that personnel guidance is clear and appropriate regarding employees and prospective employees for whom the agencies have made culpability determinations.

    Agency Affected: Resolution Trust Corporation

 

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