    Financial Audit: Resolution Trust Corporation's 1994 and 1993 Financial
    Statements (Letter Report, 06/22/95, GAO/AIMD-95-157).

    Pursuant to a legislative requirement, GAO audited the Resolution Trust
    Corporation's (RTC) financial statements for the years ended December
    31, 1994 and 1993. GAO also reviewed: (1) RTC internal control
    weaknesses; (2) RTC estimated recoveries from failed thrifts; (3) the
    estimated unused loss funds after RTC completion of all resolution
    activities; and (4) RTC progress in reducing risk.

    GAO found that: (1) RTC financial statements were reliable in all
    material aspects; (2) RTC internal controls 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 needs to improve its internal controls over computer systems;
    (2) uncertainties regarding general economic conditions, interest rates,
    and real estate markets could impact the cost of resolving failed
    institutions; (3) RTC has resolved two of the three previously
    identified operating control weaknesses; (4) based on current estimates,
    RTC may have $14.8 billion of unused loss funds after completing all its
    thrift resolutions; and (5) RTC, Congress, and the Federal Deposit
    Insurance Corporation have reduced RTC management risks sufficiently to
    remove RTC as a high-risk entity.

    --------------------------- Indexing Terms -----------------------------

     REPORTNUM:  AIMD-95-157
         TITLE:  Financial Audit: Resolution Trust Corporation's 1994 and
                 1993 Financial Statements
          DATE:  06/22/95
       SUBJECT:  Financial statement audits
                 Financial management
                 Internal controls
                 Corporate audits
                 Auditing standards
                 Accounting procedures
                 Savings and loan associations
                 Bank failures
                 Compliance
                 Financial records
    IDENTIFIER:  SAIF
                 Savings Association Insurance Fund

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    Cover
    ================================================================ COVER

    Report to the Congress

    June 1995

    FINANCIAL AUDIT - RESOLUTION TRUST
    CORPORATION'S 1994 AND 1993
    FINANCIAL STATEMENTS

    GAO/AIMD-95-157

    RTC's Financial Statements

    Abbreviations
    =============================================================== ABBREV

      FDIC - Federal Deposit Insurance Corporation
      FFB - Federal Financing Bank
      FSLIC - Federal Savings and Loan Insurance Corporation
      SAIF - Savings Association Insurance Fund

    Letter
    =============================================================== LETTER

    B-259541

    June 22, 1995

    To the President of the Senate and the
    Speaker of the House of Representatives

    This report presents the results of our audits of the financial
    statements of the Resolution Trust Corporation for the years ended
    December 31, 1994 and 1993.  This report also presents our opinion on
    management's assertions regarding the effectiveness of its system of
    internal controls on December 31, 1994, and our evaluation of
    compliance with laws and regulations.  We conducted our audits
    pursuant to the provisions of section 21A(k)(1) of the Federal Home
    Loan Bank Act (12 U.S.C.  1441a(k)(1)) and in accordance with
    generally accepted government auditing standards.

    The report also discusses (1) an internal control weakness we
    identified and our recommendation to correct this weakness, (2)
    issues affecting estimated recoveries from failed thrifts, including
    uncertainties and operating controls, (3) the estimated unused loss
    funds after the Corporation's completion of all resolution
    activities, and (4) the progress made in reducing risk.

    We are sending copies of this report to the Chairman and members of
    the Thrift Depositor Protection Oversight Board; the Deputy and
    Acting Chief Executive Officer of the Resolution Trust Corporation;
    the Director of the Office of Management and Budget; the Chairmen and
    Ranking Minority Members of the Senate Committee on Governmental
    Affairs, the House Committee on Government Reform and Oversight, the
    Senate Committee on Banking, Housing and Urban Affairs, and the House
    Committee on Banking and Financial Services; and other interested
    parties.

    This report was prepared under the direction of Robert W.  Gramling,
    Director, Corporate Financial Audits, who may be reached at (202)
    512-9406 if you or your staff have any questions.  Major contributors
    to this report are listed in appendix V.

    Charles A.  Bowsher
    Comptroller General
    of the United States

    Letter
    =============================================================== LETTER

    B-259541

    June 22, 1995

    To the Thrift Depositor Protection
     Oversight Board
    Resolution Trust Corporation

    We have audited the Resolution Trust Corporation's accompanying
    statements of financial position as of December 31, 1994 and 1993,
    and the related statements of revenues, expenses, accumulated
    deficit, and cash flows for the years then ended.  We found:

      The Corporation's financial statements referred to above were
         reliable in all material respects.

      The Corporation fairly stated that internal controls in place on
         December 31, 1994, were effective in safeguarding material
         assets against loss from unauthorized acquisition, use, or
         disposition; assuring the execution of transactions in
         accordance with management's authority and material laws and
         regulations; and assuring that there were no material
         misstatements in the financial statements.  While we identified
         one internal control weakness, we did not consider it to be
         material.

      There were no reportable instances of noncompliance with laws and
         regulations we tested.

    The following section presents significant matters considered in
    performing our audit and forming our opinions.  This report also
    discusses each of the above audit conclusions in more detail and our
    recommendation for improving the Corporation's internal control
    structure.

    Appendix I discusses the scope of our audit.  Appendix II presents
    the Corporation's financial statements.  Appendix III presents
    management's report on internal controls.  The Corporation's written
    comments on a draft of this report are included in appendix IV.
    Major contributors to this report are included in appendix V.  A list
    of related GAO products is presented at the end of this report.

       SIGNIFICANT MATTERS
    ------------------------------------------------------------ Letter :1

    The following information is presented to highlight (1) uncertainties
    that could affect the Corporation's loss estimates, (2) the current
    status of the Corporation and its funding, (3) the potential
    continuing impact of past weaknesses in contract issuance and
    contractor oversight, and (4) the progress made in reducing the risk
    associated with weak internal controls and uncertain funding.

          UNCERTAINTIES COULD AFFECT
          ESTIMATED RECOVERIES FROM
          RECEIVERSHIP ASSETS
    ---------------------------------------------------------- Letter :1.1

    Although the Corporation continued to use an appropriate methodology
    for estimating the future recovery value of receivership assets\1 and
    has used the best information available, uncertainties regarding
    general economic conditions, interest rates, and real estate markets
    could increase or decrease the final cost of resolving failed
    institutions.  The uncertainties impact the final cost of resolving
    failed institutions by affecting the amount the Corporation
    ultimately recovers from disposing of receivership assets.

    As described in notes 4 and 5 to the financial statements, the
    Corporation records as assets the full amount advanced to
    conservatorships and receiverships for liquidity and working capital
    (Advances) or paid to close failed thrifts (Subrogated Claims).  The
    Corporation then establishes loss allowances against these assets by
    estimating the difference between the amounts paid or advanced and
    the expected recovery.  As of December 31, 1994, the Corporation
    estimated a total net recovery of $20.3 billion from its outstanding
    Subrogated Claims and Advances.  The amounts ultimately recovered and
    repaid to the Corporation may increase or decrease as a result of
    changes in general economic conditions, interest rates, and real
    estate markets.

    Recoveries from conservatorship and receivership assets are used to
    repay the Corporation.  As of March 31, 1995, approximately 26
    percent of the book value of assets held for sale by the
    Corporation's receiverships\2 were performing 1-4 family mortgages,
    cash, and investment securities.  The remaining 74 percent were
    delinquent loans, real estate owned, other assets, other mortgages
    and loans, and investments in subsidiaries of failed thrifts and are
    considered hard-to-sell by the Corporation.  It is particularly
    difficult for the Corporation to predict the recovery value and
    timing of sales for these hard-to-sell assets.  Typically, if a
    receivership's assets sell later or for less than predicted, the
    final loss on resolving the failed institution will be higher than
    estimated.  Conversely, higher or earlier recoveries would typically
    lower the final loss.

    As discussed in note 15 to the financial statements, the
    Corporation's loss allowances also include estimated losses arising
    from securitization transactions,\3 and representations and
    warranties\4 made in the process of disposing of the assets of failed
    institutions.  As of December 31, 1994, the allowances included $1.7
    billion representing the expected credit losses on securitization
    transactions and $1.2 billion representing losses arising from
    representations and warranties.  However, the Corporation's loss
    experience has been limited to date.  Although the Corporation used
    the best information available to estimate these losses, the amount
    of future losses may significantly increase or decrease over the
    remaining life of the loans that were sold, which could be as long as
    20 years.  These future losses will be affected by the behavior of
    the economy, interest rates, and real estate markets, as well as the
    performance of the collateral underlying the transactions.  Changes
    in these factors, which are beyond the Corporation's control, could
    result in higher or lower credit and claims losses than currently
    estimated.

    The final cost of resolving failed institutions will also be affected
    by uncertainties related to the Federal Deposit Insurance
    Corporation's (FDIC) treatment of the Resolution Trust Corporation's
    remaining receivership assets after it ceases operations on December
    31, 1995.\5 The Corporation's estimated loss on resolving failed
    institutions at December 31, 1994, includes estimates of future asset
    recoveries and related expenses.  These estimates are largely based
    on the Corporation's experience in disposing of receivership assets.
    The actual amounts for some asset recoveries and related expenses
    will be determined after the Corporation ceases operations.  After
    December 31, 1995, FDIC may apply different asset disposition
    strategies and valuing methodologies which could result in changes to
    the estimated recovery values of the remaining receivership assets.

    --------------------
    \1 The Corporation's estimated recovery values are based in part on a
    statistical sampling of receivership assets subject to a sampling
    error of plus or minus $700 million with a 95 percent confidence
    interval.

    \2 The Corporation's one institution in conservatorship at December
    31, 1994, was resolved prior to March 31, 1995.

    \3 Securitization refers to the Corporation's practice of selling
    securities backed by the underlying future cash flows of groups of
    loans.  To protect purchasers of the securities against credit losses
    arising from defaults and delinquencies of the underlying loans, the
    Corporation has set aside a portion of the securitization proceeds
    for possible future credit losses.

    \4 The Corporation and its receiverships and conservatorships provide
    representations and warranties on the unpaid principal balance of
    certain loans sold for cash, sold as part of securitization
    transactions, exchanged for mortgage-backed securities, or sold under
    contracts that convey the right to service mortgages.

    \5 Under the Resolution Trust Corporation Completion Act, the
    Corporation will terminate on or before December 31, 1995.  All
    remaining assets and liabilities will be transferred to the FSLIC
    Resolution Fund, which is managed by FDIC.

          FUNDING AND CURRENT STATUS
          OF THE CORPORATION
    ---------------------------------------------------------- Letter :1.2

    For each institution it resolves, the Corporation calculates the
    amount it will have to pay to cover depositor claims and then
    estimates how much it will recover from the sale of the failed
    institution's assets.  The portion not recovered from the sale of
    receivership assets is a loss to the Corporation and must be covered
    with loss funds.  The amount expected to be recovered is borrowed
    from the Federal Financing Bank (FFB) and is considered working
    capital.

    As shown in table 1, the Congress has made $105 billion available to
    the Corporation to cover losses associated with resolutions.

                               Table 1

               Total Loss Funding Made Available as of
                          December 31, 1994

                        (Dollars in billions)

    --------------------------------------------------  --------
    Financial Institutions Reform, Recovery,              $ 50.0
     and Enforcement Act of 1989
    Resolution Trust Corporation Funding Act of 1991        30.0
    Resolution Trust Corporation Refinancing,              6.7\a
     Restructuring, and Improvement Act of 1991
    Resolution Trust Corporation Completion Act           18.3\a
    ============================================================
    Total                                                 $105.0
    ------------------------------------------------------------
    \a The Resolution Trust Corporation Refinancing, Restructuring, and
    Improvement Act of 1991 (Public Law 102-233) provided $25 billion in
    December 1991, which was only available for obligation until April 1,
    1992.  After the deadline passed, the Corporation returned $18.3
    billion of unobligated funds to the Treasury in April 1992.  In
    December 1993, the RTC Completion Act removed the April 1, 1992,
    deadline, thus making the $18.3 billion available to the Corporation
    for resolution activities.

    Table 2, which is based on estimates in the Corporation's December
    31, 1994, financial statements and the related notes, shows
    cumulative estimated loss funding needs of $90.2 billion.  This
    amount includes funding used to cover the Corporation's losses to
    date as well as amounts needed to complete the resolution of all
    receiverships, conservatorships, and institutions for which it is
    probable that government assistance may be required on or before June
    30, 1995.\6

                               Table 2

               Cumulative Estimated Loss Funding Needs
                       as of December 31, 1994

                        (Dollars in billions)

    --------------------------------------------------  --------
    Receiverships                                          $89.8
    Conservatorships and probable failures                    .4
    Possible failures\a                                        0
    ============================================================
    Total                                                  $90.2
    ------------------------------------------------------------
    \a As of the date of our report, it is highly unlikely that the
    Corporation will have to resolve any institutions considered possible
    failures before June 30, 1995.  Institutions classified as possible
    failures will more likely become the responsibility of the Savings
    Association Insurance Fund (SAIF) if failures are to occur.  SAIF
    will assume the Corporation's resolution responsibilities beginning
    July 1, 1995.

    The Corporation's estimates show that $89.8 billion will be used to
    resolve the 744 institutions closed as of December 31, 1994, and an
    estimated $.4 billion will be used to resolve the 1 institution in
    conservatorship and
    3 institutions considered probable failures before the Corporation's
    authority to resolve institutions expires on June 30, 1995.

    As shown in table 3, the Corporation estimates it will have $14.8
    billion of unused loss funds after resolving all institutions for
    which it is responsible.  This is based on the estimates presented in
    the Corporation's 1994 financial statements, which are subject to the
    uncertainties discussed previously and in notes 5 and 10 to the
    financial statements.  The need to use any of the $14.8 billion of
    estimated unused loss funds is dependent on the Corporation's actual
    recoveries from receiverships and its actual cost of future
    resolutions.

                               Table 3

                  Estimated Unused Loss Funds After
                   Completion of the Corporation's
                        Resolution Activities

                        (Dollars in billions)

    --------------------------------------------------  --------
    Total loss funding made available                     $105.0
    Less: cumulative estimated loss                       (90.2)
     funding needed
    ============================================================
    Estimated unused loss funds                           $ 14.8
    ------------------------------------------------------------
    At December 31, 1994, the Corporation had sufficient net assets to
    repay its $23 billion in working capital borrowings from FFB.  The
    Corporation would only be unable to repay its FFB borrowings if its
    combined additional losses on receivership assets and future
    resolutions exceeded the $14.8 billion in estimated unused loss
    funds.

    Currently, the Corporation, FDIC, and the Thrift Depositor Protection
    Oversight Board are reviewing the funding needed to dispose of the
    Corporation's assets and settle liabilities remaining after December
    31, 1995.  This review will consider the need for any additional
    funding in excess of the Corporation's currently estimated loss
    funding needs of $90.2 billion.

    Loss funds not used by the Corporation are available for losses
    incurred by the Savings Association Insurance Fund (SAIF) subject to
    the conditions set forth in the Resolution Trust Corporation
    Completion Act.\7 Also, according to the act, funds in excess of the
    amounts needed by both the Corporation and SAIF will be returned to
    the general fund of the Treasury.

    --------------------
    \6 The Corporation's estimated loss funding needs does not include up
    to $1 billion in losses that the Corporation could possibly incur
    from pending lawsuits and as yet unasserted claims as discussed in
    note 11 to the financial statements.

    \7 The Resolution Trust Corporation Completion Act makes available to
    SAIF, during the 2-year period beginning on the date of the
    Corporation's termination, any of the $18.3 billion in appropriated
    funds not needed by the Corporation.  However, prior to receiving
    such funds, FDIC must first certify, among other things, that SAIF
    cannot fund insurance losses through industry premium assessments or
    Treasury borrowings without adversely affecting the health of its
    member institutions and causing the government to incur greater
    losses.

          CONTROLS OVER CONTRACTING
          COULD AFFECT RECOVERIES FROM
          RECEIVERSHIPS
    ---------------------------------------------------------- Letter :1.3

    The Corporation has used thousands of private contractors to manage
    and dispose of assets from failed thrifts, including activities such
    as collecting income and paying expenses.  The estimated recoveries
    from receiverships included in the Corporation's financial statements
    include the results of the receipts and disbursements made by
    contractors that perform services for receiverships during the year.
    Weak operating controls over contract issuance and contractor
    oversight could impact these estimated recoveries from receiverships.
    While we assess, as part of our financial statement audit, internal
    accounting controls over receivership receipts and disbursements, the
    Corporation's operating controls over contract issuance and
    contractor oversight are not part of the scope of our audit.  These
    operating controls are considered as part of GAO's other reviews of
    the Corporation's operations\8 as well as by the Corporation's
    Inspector General and Office of Contract Oversight and Surveillance.

    In response to previously reported operating control weaknesses, the
    Corporation has taken actions to improve the process of contract
    issuance and contractor oversight.  In addition, the Corporation has
    recently placed increased emphasis on the process of closing out\9
    contracts to ensure that contractors have fulfilled all contractual
    responsibilities.

    However, during 1994, reports issued by the Corporation's Inspector
    General and the Office of Contract Oversight and Surveillance
    demonstrate that despite the Corporation's actions to correct
    contracting problems, the effects of early neglect of contracting
    operations remain.  These reports also identified significant
    performance problems with contracts that were issued before many
    contracting reforms and improvements were implemented by the
    Corporation.  As a result, the Corporation remains vulnerable to the
    risks associated with contracting operations and contractors'
    performance and cannot be sure that it is recovering all it should
    from receiverships.

    --------------------
    \8 High-Risk Series:  An Overview (GAO/HR-95-1, February 1995);
    High-Risk Series:  Quick Reference Guide (GAO/HR-95-2, February
    1995); and Resolution Trust Corporation:  Efforts Under Way to
    Address Management Weaknesses (GAO/GGD-95-109, May 12, 1995).

    \9 The Corporation's contracting manual states that a contract
    closeout includes, among other things, a determination by the
    contracting officer that (1) all deliverables, including reports,
    have been received by the Corporation and accepted, (2) final payment
    has been made, (3) all collections of funds due to the Corporation
    have been completed, (4) all financial documents are in the file, (5)
    all Corporation property has been returned and accounted for, and (6)
    all Corporation files have been returned.

          PROGRESS IN REDUCING RISK
    ---------------------------------------------------------- Letter :1.4

    In 1992, we reported that the Corporation was designated as a
    high-risk entity because of weaknesses in its asset disposition,
    contracting, information systems, and financial management and
    accountability.\10 We also noted our concerns about uncertainties
    affecting its resolution activities and funding levels.  Finally, we
    warned that the thrift clean-up would not be completed before the
    Corporation closed down and that the total cost would depend, in
    part, on how effectively FDIC settled any remaining assets and
    liabilities.

    Since 1992, the Congress, the Corporation, and FDIC have reduced
    these risks to the point that we no longer consider the Corporation a
    high-risk.\11 The Congress provided the additional funding needed to
    complete the thrift clean-up, mandated management reforms, and
    required that a task force be formed to facilitate transition.  In
    addition, the Corporation made substantial progress in addressing
    internal control and operating weaknesses by implementing mandated
    reforms and taking additional actions to strengthen operating
    procedures, information systems, and internal controls.  Also, as
    required, the Corporation and FDIC established a task force to
    facilitate the transfer of remaining assets, personnel, and
    operations to FDIC in a coordinated manner.  However, one continuing
    source of concern is the difficulty in terminating a large and
    complex organization with thousands of personnel and billions in
    assets, while attempting to minimize disruption.  Although transition
    planning has gone well, the Corporation faces the challenge of
    disposing of its remaining assets and working successfully to carry
    out the transition while maintaining internal controls and
    accountability.

    --------------------
    \10 High-Risk Series:  Resolution Trust Corporation (GAO/HR-93-4,
    December 1992).

    \11 See footnote 9.

       OPINION ON FINANCIAL STATEMENTS
    ------------------------------------------------------------ Letter :2

    In our opinion, the financial statements present fairly, in all
    material respects, in accordance with generally accepted accounting
    principles, the Corporation's

      assets, liabilities, and equity as of December 31, 1994 and 1993;

      revenues, expenses, and accumulated deficit for the years then
         ended; and

      cash flows for the years then ended.

    However, misstatements may nevertheless occur in other financial
    information reported by the Corporation as a result of the internal
    control weakness described below.  Additionally, significant
    uncertainties discussed earlier in this report and in notes 5 and 10
    to the financial statements, may ultimately result in higher or lower
    resolution costs than those estimated in these statements.

       OPINION ON MANAGEMENT'S
       ASSERTION ABOUT THE
       EFFECTIVENESS OF INTERNAL
       CONTROLS
    ------------------------------------------------------------ Letter :3

    We evaluated management's assertion about the effectiveness of its
    internal controls designed to

      safeguard assets against loss from unauthorized acquisition, use,
         or disposition;

      ensure 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 in accordance with
         generally accepted accounting principles and to maintain
         accountability for assets.

    The Corporation's management fairly stated that those controls in
    effect on December 31, 1994, provided reasonable assurance that
    losses, noncompliance, or misstatements material in relation to the
    financial statements would be prevented or detected on a timely
    basis, based on the control criteria used.  Management's assertion,
    which is included in appendix III, was made using the internal
    control and reporting criteria set forth in the implementing guidance
    for the Federal Managers' Financial Integrity Act of 1982.

    However, our work identified the need to improve internal controls,
    as described in the following section.  This weakness, although not
    considered material,\12 represents a significant deficiency in the
    design or operation of internal controls which could adversely affect
    the Corporation's ability to fully meet the internal control
    objectives listed above.  In making its assertion, the Corporation's
    management considered the internal control weakness we identified.

    While management's assertion about the effectiveness of internal
    controls was reasonable, misstatements may nevertheless occur in
    other financial information reported by the Corporation.  Because of
    inherent limitations in any system of internal controls, losses,
    noncompliance, or misstatements may nevertheless occur and not be
    detected.

    --------------------
    \12 A material weakness is a reportable condition in which the design
    or operation of the internal controls does not reduce to a relatively
    low level the risk that losses, noncompliance, or misstatements in
    amounts that would be material in relation to the financial
    statements may occur and not be detected within a timely period by
    employees in the normal course of their assigned duties.  Reportable
    conditions involve matters coming to our attention relating to
    significant deficiencies in the design or operation of internal
    controls that, in the auditor's judgment, could adversely affect an
    entity's ability to (1) safeguard assets against loss from
    unauthorized acquisition, use, or disposition, (2) ensure the
    execution of transactions in accordance with management's authority
    and in accordance with laws and regulations, or (3) properly record,
    process, and summarize transactions to permit the preparation of
    financial statements and to maintain accountability for assets.
    Reportable conditions that are not considered to be material
    nevertheless represent significant deficiencies in the design or
    operation of internal controls and need to be corrected by
    management.

       REPORTABLE CONDITION
    ------------------------------------------------------------ Letter :4

    The Corporation's corrective actions during 1993 and 1994 resolved
    two of the three reportable conditions identified in our audit of its
    1993 financial statements.  The Corporation strengthened controls
    over posting wire receipts to the general ledger and in reconciling
    receivership assets.  For the remaining reportable condition,
    weaknesses in general controls over some computerized information
    systems,\13 the Corporation addressed the weaknesses we identified.
    However, our audit of the 1994 financial statements identified
    additional weaknesses such that this reportable condition continued
    to exist.

    Because the Corporation relies on its computer systems extensively,
    both in its daily operations and in processing and reporting
    financial information, the effectiveness of general controls is a
    significant factor in ensuring the integrity and reliability of
    financial data.  Our audit of the Corporation's 1994 financial
    statements found that the general controls still did not provide
    adequate assurance that data files and computer programs were fully
    protected from unauthorized access and modification.  However, prior
    to completion of our fieldwork in June 1995, we found that the
    Corporation had already corrected several of the weaknesses we
    identified.  In addition, for the remaining weaknesses, the
    Corporation had prepared corrective action plans.

    During 1994, the Corporation performed accounting and control
    procedures, such as reconciliations and manual comparisons, which
    would have detected material data integrity problems resulting from
    inadequate general controls.  Without these procedures, the
    weaknesses in general controls would raise significant concerns over
    the integrity of information obtained from the affected systems.

    We also noted other less significant matters involving the internal
    control structure and its operation which we will communicate
    separately to the Corporation's management.

    --------------------
    \13 General controls are policies and procedures that apply to an
    entity's overall effectiveness and security of operations, and that
    create an environment in which application controls and certain user
    controls operate.  General controls include the organizational
    structure, operating procedures, software security features, system
    development and change control, and physical safeguards designed to
    ensure that only authorized changes are made to computer programs,
    that access to data is appropriately restricted, that back-up and
    recovery plans are adequate to ensure the continuity of essential
    operations, and that physical protection of facilities is provided.

       COMPLIANCE WITH LAWS AND
       REGULATIONS
    ------------------------------------------------------------ Letter :5

    Our tests for compliance with significant provisions of selected laws
    and regulations disclosed no instances of noncompliance that would be
    reportable under generally accepted government auditing standards.\14

    --------------------
    \14 The Federal Deposit Insurance Corporation Improvement Act of 1991
    requires that the Resolution Trust Corporation resolve institutions
    in the least costly manner and that we report to the Congress
    annually on the Corporation's compliance with the least-cost
    provisions.  Our most recent least-cost compliance review identified
    no significant compliance issues.  A detailed discussion of our
    findings and the Corporation's comments is presented in 1993 Thrift
    Resolutions:  RTC's Resolution Process Generally Adequate to
    Determine Least Costly Resolutions (GAO/GGD-95-119, May 15, 1995).

       RECOMMENDATION
    ------------------------------------------------------------ Letter :6

    We recommend that the Deputy and Acting Chief Executive Officer
    direct the Corporation's staff to monitor the implementation and
    progress of the corrective actions related to the weakness we
    identified in general controls over some of the Corporation's
    computerized information systems.

       CORPORATION COMMENTS AND OUR
       EVALUATION
    ------------------------------------------------------------ Letter :7

    In comments on a draft of this report, the Corporation's Chief
    Financial Officer agreed with our findings and recommendation.  The
    Chief Financial Officer's written comments, provided in appendix IV,
    discuss efforts, many of which are ongoing, intended to address the
    reportable condition.  We plan to evaluate the adequacy and
    effectiveness of these efforts as part of our audit of the
    Corporation's December 31, 1995, financial statements.

    Charles A.  Bowsher
    Comptroller General
    of the United States

    June 2, 1995

    OBJECTIVES, SCOPE, AND METHODOLOGY
    =========================================================== Appendix I

    The Corporation's management is responsible for

      preparing annual financial statements in conformity with generally
         accepted accounting principles;

      establishing, maintaining, and evaluating the internal control
         structure to ensure that it provides reasonable assurance that
         the internal control objectives previously mentioned are met;
         and

      complying with applicable laws and regulations.

    We are responsible for obtaining reasonable assurance about whether
    (1) the financial statements are free of material misstatement and
    presented fairly in conformity with generally accepted accounting
    principles and (2) management's assertion about the effectiveness of
    internal controls is fairly stated in all material respects based
    upon the criteria in GAO's Standards for Internal Controls in the
    Federal Government required by the Federal Managers' Financial
    Integrity Act.  We are also responsible for testing compliance with
    significant provisions of selected laws and regulations.

    In order to fulfill these responsibilities, we

      examined, on a test basis, evidence supporting the amounts and
         disclosures in the financial statements;

      assessed the accounting principles used and significant estimates
         made by the Corporation's management;

      evaluated the overall presentation of the financial statements;

      evaluated and tested relevant internal controls over the following
         significant cycles, classes of transactions, and account
         balances:

    resolved institutions, consisting of policies and procedures related
    to (1) resolution activities, (2) receipts and disbursements in
    receiverships, and (3) valuation of the Corporation's net receivables
    from resolution transactions and assistance;

    unresolved institutions, consisting of policies and procedures
    related to identifying and estimating the cost of future resolutions
    and of providing advances to institutions in conservatorship;

    Federal Financing Bank borrowings, consisting of policies and
    procedures related to the borrowing, use, and repayment of working
    capital;

    treasury, consisting of policies and procedures related to Corporate
    cash receipts and disbursements; and

    financial reporting, consisting of policies and procedures related to
    the processing of journal entries into the general ledger and the
    preparation of financial statements; and

      tested compliance with significant provisions of the following laws
         and regulations:

    section 21A of the Federal Home Loan Bank Act (12 U.S.C.  1441a) and

    Chief Financial Officers Act of 1990 (Public Law 101-576).

    We limited our work to accounting and other controls necessary to
    achieve the objectives outlined in our opinion on management's
    assertion about the effectiveness of internal controls.

    We conducted our audit between July 1994 and June 1995 in accordance
    with generally accepted government auditing standards.  We believe
    that our audits provide a reasonable basis for our opinions.

    The Corporation's Chief Financial Officer provided written comments
    on a draft of this report.  These comments are discussed in the
    "Corporation Comments and Our Evaluation" section of the opinion
    letter and are reprinted in appendix IV.  We have incorporated the
    Corporation's views where appropriate.

    FINANCIAL STATEMENTS
    ========================================================== Appendix II

       Statements of Financial
       Position

       (See figure in printed
       edition.)

       Statements of Revenues,
       Expenses and Accumulated
       Deficit

       (See figure in printed
       edition.)

       Statements of Cash Flows

       (See figure in printed
       edition.)

       Notes to Financial Statements

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

       (See figure in printed
       edition.)

    (See figure in printed edition.)Appendix III
    MANAGEMENT'S REPORT ON INTERNAL
    CONTROLS
    ========================================================== Appendix II

    (See figure in printed edition.)

    (See figure in printed edition.)

    (See figure in printed edition.)Appendix IV
    COMMENTS FROM THE RESOLUTION TRUST
    CORPORATION
    ========================================================== Appendix II

    (See figure in printed edition.)

    (See figure in printed edition.)

    MAJOR CONTRIBUTORS TO THIS REPORT
    =========================================================== Appendix V

    ACCOUNTING AND INFORMATION
    MANAGEMENT DIVISION, WASHINGTON,
    D.C.

    John J.  Reilly, Assistant Director
    Lynda E.  Downing, Audit Manager
    Christine A.  Robertson, Audit Manager
    Vera M.  Seekins, Audit Manager
    Phyllis L.  Anderson, Auditor
    Diane P.  Boch, Auditor
    Oscar J.  Castro, Auditor
    Phillip W.  McIntyre, Auditor

    ATLANTA REGIONAL OFFICE

    Shawkat Ahmed, Audit Manager
    Johnny Barnes, Auditor
    Rhonda P.  Rose, Auditor
    Cynthia C.  Teddleton, Auditor
    Lisa M.  Warde, Auditor

    DENVER REGIONAL OFFICE

    Paul S.  Begnaud, Auditor
    Mary B.  Gaston, Auditor
    Miguel A.  Lujan, Auditor
    Anna L.  Fruik, Member

    KANSAS CITY REGIONAL OFFICE

    Patricia S.  Dickerson, Audit Manager
    Rose M.  Dorlac, Auditor
    Richard S.  Schupbach, Auditor

    RELATED GAO PRODUCTS

    Resolution Trust Corporation:  Better Data Could Improve
    Effectiveness of Nonperforming Loan Auctions (GAO/GGD-95-1, November
    14, 1994).

    Failed Financial Institutions:  RTC/FDIC Risk Fraud and Mismanagement
    by Employing Those Deemed Culpable (GAO/OSI-95-1, October 3, 1994).

    RTC Affordable Housing Open House (GAO/GGD-95-23R, October 31, 1994).

    Resolution Trust Corporation:  Affordable Housing Disposition Program
    Achieving Mixed Results (GAO/GGD-94-202, September 28,1994).

    Resolution Trust Corporation:  Recommendations Addresssed to Oversee
    and Account for Cash Flow Mortgages (GAO/GGD-94-179, July 26, 1994).

    Resolution Trust Corporation:  Better Analyses Needed Before
    Terminating Asset Management Contracts (GAO/GGD-94-147, July 8,
    1994).

    Special Resource Properties (GAO/GGD-94-161R, July 1, 1994).

    Resolution Trust Corporation:  Interim Report on the Management
    Reforms in the RTC Completion Act (GAO/GGD-94-114, June 30, 1994).

    1992 Thrift Resolutions:  RTC Policies and Practices Did Not Fully
    Comply With Least-Cost Provisions (GAO/GGD-94-110, June 17, 1994).

    Bank and Thrift Regulation:  Better Guidance is Needed for Real
    Estate Evaluations (GAO/GGD-94-144, May 24, 1994).

    Resolution Trust Corporation:  Real Estate Recoveries 1993
    (GAO/GGD-94-84FS, March 25, 1994).

    Resolution Trust Corporation:  Analysis of Selected Asset Sales and
    Financial Data (GAO/GGD-94-37, February 1, 1994).