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Highlights

GAO audited the financial statements of the Bank Insurance Fund, the Savings Association Insurance Fund, and the Federal Savings and Loan Insurance Corporation Resolution Fund for the years ended December 31, 1995 and 1994. GAO also highlighted the condition of the banking and thrift industries and the Federal Deposit Insurance Corporation's (FDIC) progress in addressing previously identified internal control weaknesses.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Deposit Insurance Corporation 1. To address weaknesses identified in this year's audits in the area of estimating recoveries for failed institution assets, the Chairman, FDIC, should direct heads of the Division of Depositor and Asset Services and Division of Finance to ensure that field office personnel maintain complete and current documentation in asset files to provide a basis for assumptions used to derive asset recovery estimates and that the assumptions used are appropriately documented.
Closed - Implemented
During 1996, FDIC implemented a new asset valuation methodology that provides specific guidance for valuation methods based on asset characteristics. The new methodology also provides guidance for disposition strategies and specific assumptions for the related liquidation expenses. FDIC uses the guidance in the methodology plus individual asset file documentation to arrive at individual asset recovery estimates. During GAO's 1996 audit, it found that FDIC's implementation of the new methodology addressed previously reported weaknesses. FDIC has improved its asset valuation process, thus improving the information used for recording key estimates in the financial statements of the Bank Insurance Fund and the FSLIC Resolution Fund. FDIC's actions should improve the quality of the estimates used in its financial reporting.
Federal Deposit Insurance Corporation 2. To address weaknesses identified in this year's audits in the area of estimating recoveries for failed institution assets, the Chairman, FDIC, should direct heads of the Division of Depositor and Asset Services and Division of Finance to ensure that supervisory reviews of asset recovery estimates are performed thoroughly and include a review of asset file documentation to identify and correct inaccurate or unsupported estimates.
Closed - Implemented
During 1996, FDIC implemented a new asset valuation methodology that addressed many past methodological weaknesses GAO had reported. However, during the 1996 audit, GAO continued to note quality control and implementation problems in FDIC's estimation process. During the 1996 audit, GAO continued to emphasize to FDIC the risk presented by these weaknesses. As a result, FDIC implemented improved procedures which required that reviewers compare estimated recoveries for individual assets to source documents and review the logic and analysis used to arrive at the estimates. During the 1997 audit, GAO noted significantly fewer errors in its review of estimated recoveries for individual assets. As a result of the improvements, GAO concluded that FDIC's review procedures provided adequate assurance that the resulting estimates for individual assets were reasonable.
Federal Deposit Insurance Corporation 3. To address weaknesses identified in this year's audits in the area of estimating recoveries for failed institution assets, the Chairman, FDIC, should direct heads of the Division of Depositor and Asset Services and Division of Finance to establish and enforce procedures to ensure that recovery estimates are updated for information made available between the valuation date and the year-end financial statement reporting date.
Closed - Implemented
During 1996, FDIC implemented specific procedures to update asset recovery estimates from the asset valuation date through the date of the financial statements. During GAO's 1996 audit, it found that FDIC's new procedures adequately addressed previously reported weaknesses. FDIC is now updating its estimated asset recovery values through the date of the financial statements, thus improving the information used for recording key estimates in the financial statements of the Bank Insurance Fund and the FSLIC Resolution Fund. FDIC's actions should improve the quality of the estimates used in its financial reporting.

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