S&L; Agency Has $1-Billion Discrepancy in Its Records
The controversial agency handling the savings and loan cleanup has chaotic and confused record-keeping, including $1 billion in discrepancies in its financial accounts, federal officials said Thursday.
The damaging new admissions about the much-criticized Resolution Trust Corp. will create serious political problems, coming just as the agency is seeking $80 billion in additional funds from an already-skeptical Congress.
“I cannot support additional funding for the RTC,” said an angry Rep. Frank Annunzio (D-Ill.), chairman of the financial institutions subcommittee of the House Banking Committee. “It is an agency that has shown in its two-year existence that it is more interested in taking care of itself than in reducing the burden on the American taxpayer,” Annunzio said at a hearing examining the operations of the RTC.
Because of the confused bookkeeping, the RTC will be unable to get formal certification of the accuracy of its financial statement for 1990 from the General Accounting Office, the investigative arm of Congress, Deputy Treasury Secretary John Robson said at the hearing.
The GAO had previously criticized the RTC and indicated that it could not give the agency the conventional accountants’ bill of good health. However, members of Congress had expected the RTC to improve its record-keeping systems sufficiently to satisfy the GAO.
Robson admitted Thursday that the agency is still unable to meet the standards of GAO auditors because its records on the values of its massive assets do not match records kept at local offices of S&Ls; it has seized or at firms that manage loan portfolios for the thrifts.
Despite these problems, Robson urged approval of the $80-billion request, warning that in October the agency will otherwise run out of money it needs to shut down defunct thrifts.
Joining in the defense was RTC Chairman L. William Seidman, who said the agency’s records are incomplete and uncertain because no one can be sure of the ultimate likely sales price for billions of dollars of loans and foreclosed real estate.
The uncertainty and confusion in RTC records caused a $1-billion “reconciliation problem” in the agency’s records, Seidman, former head of a large accounting firm, told the subcommittee. However, he said a $1-billion gap is reasonable in an agency that has handled assets worth $300 billion.
The money cannot be accounted for because information in local files often doesn’t tally with values listed in the RTC’s general ledgers and because of confusion over the best way to estimate losses from the sale of loans and real estate held by the RTC.
“These accounting problems are not more or less than could be expected in (this) situation,” said Seidman, who retires next month as chairman of the RTC and the Federal Deposit Insurance Corp., which manages RTC activities.
His explanation failed to persuade Rep. Bruce Vento (D-Minn.), who complained, “Here we are, over two years into this effort (the RTC began operating in August, 1989) and the GAO cannot issue its audit of the RTC because the information is simply not there.”
Vento and other legislators, impatient with the RTC, are pushing for reorganization of the agency, which has an executive director with limited authority and an oversight board controlled by the Bush Administration.
“We really don’t believe any restructuring is necessary,” Robson told the subcommittee.
Rep. Doug Barnard (D-Ga.) lectured Robson, “Brace yourself. I think it’s coming.”
If Congress insists on reorganizing the RTC, Robson said, the Administration “can live with” a Seidman plan upgrading the power of the RTC chief executive. The FDIC would be removed as the operating agent for the RTC.
The Oversight Board, which now has relatively tight controls on RTC policies, would loosen the reins and become more like a corporate board of directors.