GAO Discredits S&L; Cleanup Agency’s Books : Thrifts: The report by the General Accounting Office may stymie the Administration’s request to double funding to $160 billion.

The General Accounting Office on Friday branded as only partly reliable the books of the agency handling the savings and loan cleanup, a sharp criticism likely to bolster members of Congress balking at an Administration request to double the cleanup fund to $160 billion.

The GAO refused to certify the adequacy and accuracy of the 1990 financial statements from the Resolution Trust Corp., which is disposing of the assets of more than 600 defunct S&Ls.; The records of the RTC “have limited reliability,” the GAO said in its review.

According to the report, the GAO found severe “internal control weaknesses” and major uncertainties about how much the taxpayers will recover through the sale of real estate from failed S&Ls.;

Such stringent criticism will provide more ammunition to congressional opponents of the RTC. It has already spent $80 billion to pay off depositors at failed S&Ls; under the federal insurance program that guarantees accounts up to $100,000, and the Bush Administration has requested another $80 billion in funding for the agency.

At the end of this month, the agency will run out of funds to handle additional takeovers of financially crippled thrifts. The Administration wants renewed funding without strings attached. But many Democrats in Congress are insisting on a reduction in the power of a special Oversight Board, controlled by the Administration, that sets policy for the RTC.

A sampling of records showed that the RTC “lacked strong controls . . . in many key areas related to cash receipts (and) disbursements,” the GAO said in its audit report.

In response, the RTC said Friday that much of the sampling of records for the audit was performed early this year before the agency installed new, effective control and record-keeping systems.

“We are pleased that the GAO has recognized its limited testing of RTC’s internal controls occurred almost a year ago and that a complete field audit has yet to be done,” said Albert V. Casey, the new president and chief executive of the RTC. “We are confident that, once the GAO has had an opportunity to complete the field work, it will find that the RTC has implemented additional controls and has satisfied the concerns raised by the GAO.”

The RTC has also asked for authority to borrow an additional $160 billion to use as working capital in the S&L; cleanup, with the money going into troubled thrifts to acquire assets and help the institutions clean up their balance sheets. As those assets--office buildings, shopping centers, condominiums, land and delinquent mortgages--are sold, the working capital would be repaid.

But while the Administration has predicted that virtually all the $160 billion would be repaid, a Times computer study of the RTC’s own records shows that the agency anticipates losses of 40% from the original book value of the troubled properties. This would add billions of dollars to the cost of the S&L; cleanup.

The GAO warned: “The continuing weakness in the economy and the seriously overbuilt real estate market will have a significant effect on (RTC) recovery values.”

There is tremendous competition to unload troubled real estate, with the sellers including the RTC, the Federal Deposit Insurance Corp.--which is disposing of assets from failed banks--as well as individual banks and S&Ls; trying to dispose of foreclosed assets, the GAO noted. “Given the market problems, the income flows from many of these properties may never support the valuations that were assigned to them when they first entered the government inventory,” the audit report noted. The RTC “must compete with the growing number of distressed sellers and institutions seeking to liquidate their holdings.”

Because of the uncertain and confused real estate market, “present estimates of recovery value for these assets are problematic,” the GAO warned.