Resolution Trust Corporation:

Subcontractor Cash Management Practices Violate Policy and Reduce Income

GGD-93-7: Published: Oct 20, 1992. Publicly Released: Oct 20, 1992.

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GAO reviewed: (1) weaknesses in the Resolution Trust Corporation's (RTC) Standard Asset Management and Disposition Agreement (SAMDA) subcontractors' cash management practices; and (2) RTC policy on using interest-bearing bank accounts.

GAO found that: (1) RTC policy requires that SAMDA contractors and subcontractors deposit all funds from asset management-related activities into a receipt account and make all asset-related expenditures from disbursement accounts; (2) 82 percent of SAMDA subcontractors used one account for both activities; (3) some subcontractors were using cash generated from RTC properties to pay expenses; (4) this policy makes it difficult for RTC to fully account for and verify asset-related receipts and disbursements and adequately protect the assets from loss due to waste, fraud, and abuse; (5) RTC field offices were not ensuring that SAMDA contractors were complying with its policy governing the use of cash generated from RTC properties; (6) SAMDA contractors are required to open interest-bearing operating accounts, but SAMDA subcontractors are not; and (7) $111,000 in interest income would have been earned if SAMDA subcontractors had been required to open interest-bearing accounts from January 1991 through February 1992.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In April 1993, GAO was advised that RTC's Office of Contractor Oversight and Surveillance (OCOS) audits were planned to facilitate assessment and oversight of contractors and subcontractors and provide a vehicle to evaluate the need to revise policies and procedures. On August 10, 1993, RTC sent a memorandum to all SAMDA contractors reiterating their responsibilities. As part of that memo, RTC stated that property management contractor reviews completed by OCOS verified the findings of the GAO report related to cash receipt and disbursement accounts. The memo also identifies deposit accounts, and other related cash management issues as priorities for RTC staff.

    Recommendation: The Chief Executive Officer, RTC, should improve oversight of SAMDA contractors and their property management subcontractors to better ensure that they comply with RTC policy governing the use and control of cash. This should include requiring that SAMDA contractors report to the RTC oversight managers on whether their property management subcontractors: (1) have established separate cash receipt and disbursement accounts; (2) are properly using cash received from asset management and disposition activities, and (3) have adequate accounting for total receipts and disbursements.

    Agency Affected: Resolution Trust Corporation

  2. Status: Closed - Implemented

    Comments: RTC revised its policy to require property management subcontractors to establish interest-bearing accounts.

    Recommendation: The Chief Executive Officer, RTC, should revise the RTC policy and SAMDA contracts to require that property management subcontractors establish interest-bearing operating accounts for RTC assets, with the interest accruing to RTC.

    Agency Affected: Resolution Trust Corporation

 

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