Clinton Slaps a Freeze on New RTC Contracts : Banking: The unprecedented action follows reports of sloppy management at the thrift cleanup agency.


The Clinton Administration, disturbed by what it considers sloppy supervision and runaway spending at the Resolution Trust Corp., has imposed an unprecedented freeze on new contracts at the thrift cleanup agency.

Deputy Treasury Secretary Roger Altman, acting chief executive of the RTC, has ordered a full-scale review of the contracting process, a Treasury spokeswoman said Tuesday.

Interviews indicate that lower-level employees of the cleanup agency have routinely violated the RTC’s system of internal controls and approved spending large sums of taxpayer funds without proper authorization.

The surprise freeze, which could last as long as 30 days, was quietly imposed last week. It is the first temporary halt in RTC activities since the agency was created in mid-1989 to manage the cleanup of the failure-ridden savings and loan industry.


The Clinton Administration is anxious to demonstrate to Congress that it has firm control over the RTC because lawmakers are now mulling a White House request for $45 billion to finish the cleanup effort.

Altman is said to be especially concerned about the way in which the RTC handled contracts at the failed Homefed Bank in San Diego. At least two government investigations of activities at Homefed are now underway, including one inquiry by the RTC’s own inspector general, sources close to the probe said.

Investigators are also looking at the management of contracts awarded to at least three different firms whose job it was to verify the condition of the Homefed assets--namely loans and real estate--before they were sold by RTC.

RTC officials who handled the asset sales apparently agreed to broaden the work assignments and increase payments without the approval of the RTC’s own contracts division, according to one government investigator who insisted on anonymity.


The RTC sales officials “handed out more money without clearance,” the investigator said Tuesday. “They told the contractors: ‘You do the work and we will reach an agreement later on the increased price.’ But they had no right to do that.”

The Treasury spokeswoman on Tuesday confirmed that one of the contracts under investigation involves an agreement with Arthur Andersen--the large accounting firm.

The Clinton Administration learned from the General Accounting Office that an RTC employee in the field “made a unilateral decision” to broaden the scope of the contract, the spokeswoman said.

“It was just somebody overstepping their bounds,” the Treasury spokeswoman said. “There was nothing to indicate underhandedness or skulduggery.” An investigator familiar with the case said the RTC employee agreed to increase the contract from $200,000 to about $1.4 million.

The RTC already has been embarrassed at Homefed by revelations that it paid the accounting firm of Price Waterhouse 67 cents a page to copy more than 11 million pages of documents.

The contracting problem “goes far beyond Price Waterhouse” and extends to many other firms doing business with the RTC under lucrative agreements, according to the investigator. “People are handing out money without clearance,” he said.

High-ranking Clinton Administration officials, including Altman, as well as key members of Congress, are receiving regular reports on the investigations. Altman, given the task of running the RTC with a mandate to improve its efficiency, is reviewing all management policies, the spokeswoman said.

U.S. taxpayers have already spent $87 billion since the RTC was created. The final price tag will depend on future interest rates because the government is issuing bonds to pay for the cleanup, but the total could reach $300 billion or more.


The Senate Banking Committee voted last week to approve the latest $45-billion request but included amendments requiring the Clinton Administration to certify that it has improved the management and operations of the agency.

The temporary freeze on new contracts ordered last week may end within two weeks but could last as long as 30 days.