Opinion on RTC Management’s Assertion About the Effectiveness of Internal Controls

We evaluated RTC management’s assertion about the effectiveness of its internal controls designed to safeguard assets against loss from unauthorized acquisition, use, or assure the execution of transactions in accordance with management’s authority and with laws and regulations that have a direct and material effect on the financial statements; and properly record, process, and summarize transactions to permit the preparation of reliable financial statements and to maintain accountability for assets. Specifically, the information describes (1) background on the savings and loan crisis and the creation of RTC, (2) the completion of RTC’s mission, (3) RTC’s estimated costs and funding, (4) RTC’s controls over contracting, (5) the cost of resolving the savings and loan crisis, and (6) remaining fiscal implications of the crisis. By the end of 1987, 505 savings and loan institutions were insolvent. In addition, FIRREA created a new insurance fund, the Savings Association Insurance Fund (SAIF). Another important part of RTC’s activities included ensuring that as many thrift violators as possible were brought to justice and that funds were recovered on behalf of taxpayers. RTC’s Estimated Costs and Funding

As of December 31, 1995, RTC estimated that the total cost for resolving the 747 failed institutions was $87.9 billion. Of the $160.1 billion in total direct and indirect costs, approximately $132.1 billion, or 83 percent was provided from taxpayer funding sources. All of the funding for the estimated $152.6 billion in estimated costs related to FSLIC and RTC has been provided as of December 31, 1995. The annual interest expense on the $38.2 billion of bonds issued by FICO and REFCORP has and will continue to have a significant impact on taxpayers and the savings and loan industry. As a result, SAIF’s capitalization has been delayed, creating ongoing implications in terms of high deposit insurance premiums.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO audited the Resolution Trust Corporation's (RTC) financial statements for the years ended December 31, 1995 and 1994. GAO also reviewed: (1) RTC internal control weaknesses; (2) RTC mission and its completion; (3) RTC costs and funding; and (4) the cost of resolving the savings and loan crisis.

What GAO Found

GAO found that: (1) RTC financial statements were reliable in all material aspects; (2) although RTC internal controls need improvement, they were effective in safeguarding assets, ensured that transactions were in accordance with management authority and material laws and regulations, and ensured that there were no material misstatements; and (3) there was no material noncompliance with applicable laws and regulations. GAO also found that: (1) RTC essentially accomplished its mission of closing insolvent institutions, liquidating institution assets, insuring depositor accounts, and bringing many thrift violators to justice; (2) the estimated cost of RTC activities totalled $87.9 billion; (3) RTC contractor control weaknesses and performance problems could adversely affect receivership recoveries; (4) all of the $160.1 billion in estimated direct and indirect costs of RTC and Federal Savings and Loan Insurance Corporation activities have been provided for as of December 31, 1995; (5) the cost of present and future litigation resulting from the savings and loan crisis is unknown; (6) the annual interest expense on the $38.2 billion in Financing Corporation and Resolution Funding Corporation bonds will continue to significantly impact taxpayers and the savings and loan industry; and (7) because the Savings Association Insurance Fund has not been fully capitalized, thus deposit insurance premiums have remained high.