Bankruptcy Trustees:

Oversight Improved, But Extent of Trustee Fraud Is Unknown

GGD-93-54: Published: Jan 27, 1993. Publicly Released: Feb 26, 1993.

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Pursuant to a congressional request, GAO analyzed trustee fraud, Department of Justice (DOJ) bankruptcy trustee oversight, and conflicts of interest in the DOJ U.S. Trustee (UST) program.

GAO found that: (1) DOJ designated bankruptcy trustee oversight and monitoring as high risk because the trustee system was vulnerable to fraud due to the large number of trustees and limited resources available for thorough monitoring of trustee audits and reports; (2) limitations of Federal Bureau of Investigations (FBI) and U.S. Attorney data on the number or type of trustee fraud cases investigated or prosecuted made it difficult to assess the extent of trustee fraud; (3) to improve the bankruptcy system's accountability and oversight, the DOJ Executive Office for U.S. Trustees has attempted to institute greater oversight in trustee selection, reporting requirements, training, and audits; (4) DOJ has demanded that trustees adhere more closely to fiduciary standards to combat the growth of bankruptcy fraud; (5) challenges that increase the bankruptcy system's vulnerability to trustee fraud include the number and duration of cases which remain open, DOJ internal control problems in identifying trustee audit inconsistencies, insufficient authority to hold trustees accountable for fiduciary responsibility violations, and funding limitations; (6) it could not substantiate concerns over possible conflicts of interest, which arose over DOJ roles in bankruptcy administration and as creditor in bankruptcy cases; and (7) required court approval of key case administration decisions provides checks and balances within the DOJ system to prevent abuse.

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