Financial Audit: Federal Deposit Insurance Corporation's 1997 and 1996
Financial Statements (Letter Report, 06/29/98, GAO/AIMD-98-204).

Pursuant to a legislative requirement, GAO audited the financial
statements of the Bank Insurance Fund, the Savings Association Insurance
Fund, and the Federal Savings and Loan Insurance Corporation Resolution
Fund for the years ended December 31, 1997 and 1996. GAO also reviewed:
(1) the Federal Deposit Insurance Corporation (FDIC) management's
assertions regarding the effectiveness of its internal controls as of
December 31, 1997; (2) FDIC's compliance with laws and regulations
during 1997; and (3) FDIC's progress in correcting internal controls.

GAO noted that: (1) the financial statements of each fund were reliable
in all material respects; (2) although certain internal controls should
be improved, FDIC management fairly stated that internal controls in
place on December 31, 1997, were effective in safeguarding assets from
material loss, assuring material compliance with relevant laws and
regulations, and assuring that there were no material misstatements in
the financial statements of the three funds administered by FDIC; and
(3) no reportable noncompliance with laws and regulations GAO tested.

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

 REPORTNUM:  AIMD-98-204
     TITLE:  Financial Audit: Federal Deposit Insurance Corporation's 
             1997 and 1996 Financial Statements
      DATE:  06/29/98
   SUBJECT:  Internal controls
             Accounting procedures
             Financial statement audits
             Reporting requirements
             Auditing standards
             Federal corporations
             Fund audits
             Bank failures
IDENTIFIER:  Bank Insurance Fund
             Savings Association Insurance Fund
             FSLIC Resolution Fund
             BIF
             SAIF
             
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Cover
================================================================ COVER


Report to the Congress

June 1998

FINANCIAL AUDIT - FEDERAL DEPOSIT
INSURANCE CORPORATION'S 1997 AND
1996 FINANCIAL STATEMENTS

GAO/AIMD-98-204

FDIC's 1997 and 1996 Financial Statements

(917707)


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

  BIF - Bank Insurance Fund
  FDIC - Federal Deposit Insurance Corporation
  FDICIA - Federal Deposit Insurance Corporation Improvement Act
  FICO - Financing Corporation
  FIRREA - Financial Institutions Reform, Recovery, and Enforcement
     Act
  FMFIA - Federal Managers' Financial Integrity Act of 1982
  FRF - FSLIC Resolution Fund
  FSLIC - Federal Savings and Loan Insurance Corporation
  REMIC - Real Estate Mortgage Investment Conduit
  REFCORP - Resolution Funding Corporation
  RTC - Resolution Trust Corporation
  SAIF - Savings Association Insurance Fund
  SAVE - Standard Asset Valuation Estimation
  SEC - Securities and Exchange Commission

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


B-277746

June 29, 1998

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

This report presents our opinions on the financial statements of the
Bank Insurance Fund, the Savings Association Insurance Fund, and the
FSLIC Resolution Fund for the years ended December 31, 1997 and 1996. 
These financial statements are the responsibility of the Federal
Deposit Insurance Corporation (FDIC), the administrator of the three
funds.  This report also presents (1) our opinion on FDIC
management's assertions regarding the effectiveness of its internal
control as of December 31, 1997, and (2) our evaluation of FDIC's
compliance with laws and regulations during 1997.  In addition, it
discusses FDIC's progress in correcting internal control weaknesses
and presents our recommendations for further improvement.  The report
also provides information on the status of the FSLIC Resolution
Fund's liquidation activities and funding, and FDIC's Year 2000
efforts. 

We conducted our audits pursuant to the provisions of section 17(d)
of the Federal Deposit Insurance Act, as amended (12 U.S.C. 
1827(d)), and in accordance with generally accepted government
auditing standards. 

We are sending copies of this report to the Chairman of the Board of
Directors of the Federal Deposit Insurance Corporation; the Chairman
of the Board of Governors of the Federal Reserve System; the
Comptroller of the Currency; the Director of the Office of Thrift
Supervision; the Chairmen and Ranking Minority Members of the Senate
Committee on Banking, Housing and Urban Affairs and the House
Committee on Banking and Financial Services; the Secretary of the
Treasury; the Director of the Office of Management and Budget; and
other interested parties. 

This report was prepared under the direction of Robert W.  Gramling,
Director, Corporate Audits and Standards.  Other major contributors
to this report are listed in appendix III. 

James F.  Hinchman
Acting Comptroller General
of the United States


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


B-277746

To the Board of Directors
Federal Deposit Insurance Corporation

We have audited the statements of financial position as of December
31, 1997 and 1996, of the three funds administered by the Federal
Deposit Insurance Corporation (FDIC), the related statements of
income and fund balance (accumulated deficit), and the statements of
cash flows for the years then ended.  In our audits of the Bank
Insurance Fund (BIF), the Savings Association Insurance Fund (SAIF),
and the FSLIC Resolution Fund (FRF), we found

  -- the financial statements of each fund were reliable in all
     material respects;

  -- although certain internal controls should be improved, FDIC
     management fairly stated that internal controls in place on
     December 31, 1997, were effective in safeguarding assets from
     material loss, assuring material compliance with relevant laws
     and regulations, and assuring that there were no material
     misstatements in the financial statements of the three funds
     administered by FDIC; and

  -- no reportable noncompliance with laws and regulations we tested. 

The following sections discuss our conclusions in more detail.  They
also present information on (1) the scope of our audits, (2) the
current status of FRF liquidation activities and funding, (3) FDIC's
Year 2000 efforts, (4) FDIC's progress in addressing reportable
conditions\1 identified during our 1996 audits, and a reportable
condition identified during our 1997 audits, (5) recommendations from
our 1997 audits, and (6) the Corporation's comments on a draft of
this report and our evaluation. 


--------------------
\1 Reportable conditions involve matters coming to the auditor's
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, and (3)
properly record, process, and summarize transactions to permit the
preparation of financial statements and to maintain accountability
for assets. 


   OPINION ON BANK INSURANCE
   FUND'S FINANCIAL STATEMENTS
------------------------------------------------------------ Letter :1

The financial statements and accompanying notes present fairly, in
all material respects, in conformity with generally accepted
accounting principles, the Bank Insurance Fund's financial position
as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended. 

At FDIC's request, we provided an audit opinion in March 1998 on the
Bank Insurance Fund's financial statements in order to facilitate
FDIC's Securities and Exchange Commission (SEC) reporting needs
resulting from BIF's 1996 asset securitization transaction.  The BIF
audit opinion provided to FDIC for this purpose is presented in
appendix I. 

As discussed in note 7 of BIF's financial statements, FDIC has
securitized some BIF receivership assets in two separate
securitization deals as part of FDIC's efforts to maximize the return
from the sale or disposition of assets.  The deals were accomplished
through the creation of Real Estate Mortgage Investment Conduit
(REMIC) trusts.  To facilitate the securitizations, BIF provided
limited guarantees to cover certain losses on the securitized assets
up to a specified maximum.  Because of the limited guarantee provided
by BIF, and the public holding of the securities from the 1996
securitization, the REMIC trust was required to include BIF's audited
financial statements as an exhibit in its Form 10-K report for the
year ended December 31, 1997. 


   OPINION ON SAVINGS ASSOCIATION
   INSURANCE FUND'S FINANCIAL
   STATEMENTS
------------------------------------------------------------ Letter :2

The financial statements and accompanying notes present fairly, in
all material respects, in conformity with generally accepted
accounting principles, the Savings Association Insurance Fund's
financial position as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended. 


   OPINION ON FSLIC RESOLUTION
   FUND'S FINANCIAL STATEMENTS
------------------------------------------------------------ Letter :3

The financial statements and accompanying notes present fairly, in
all material respects, in conformity with generally accepted
accounting principles, the FSLIC Resolution Fund's financial position
as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended. 

As discussed in note 9 of FRF's financial statements, a contingency
exists from the over 120 lawsuits pending against the United States
government in the United States Court of Federal Claims.  These
lawsuits assert that certain agreements were breached when Congress
enacted and the Office of Thrift Supervision implemented legislation
affecting the thrift industry. 

On July 1, 1996, the United States Supreme Court concluded that the
government is liable for damages in three other cases, consolidated
for appeal to the Supreme Court, in which the changes in regulatory
treatment required by the Financial Institutions Reform, Recovery,
and Enforcement Act (FIRREA) led the government to not honor its
contractual obligations.  However, because the lower courts had not
determined the appropriate measure or amount of damages, the Supreme
Court returned the cases to the Court of Federal Claims for further
proceedings.  Until the amount of damages is determined by the court,
the amount of costs from these three cases is uncertain.  Further,
with respect to the other pending cases, the outcome of each case and
the amount of any possible damages remain uncertain. 

Claims against the federal government are generally paid from the
Judgment Fund, a permanent, indefinite appropriation established by
31 U.S.C.  1304, and administered by the Department of the Treasury. 
However, the Department of the Treasury may determine that payment of
a judgment is otherwise provided for by another dedicated source of
funds.  FDIC believes that FRF should not be considered a dedicated
source of funds for payment of such judgments against the United
States.  Because the Department of the Treasury has not yet
determined the source of payment for these judgments, the extent to
which FRF will be responsible for any payments is uncertain. 


   OPINION ON FDIC MANAGEMENT'S
   ASSERTIONS ABOUT THE
   EFFECTIVENESS OF INTERNAL
   CONTROLS
------------------------------------------------------------ Letter :4

For the three funds administered by FDIC, we evaluated FDIC
management's assertions about the effectiveness of its internal
controls designed to

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

  -- assure the execution of transactions in accordance with
     provisions of selected laws and regulations that have a direct
     and material effect on the financial statements of the three
     funds; and

  -- properly record, process, and summarize transactions to permit
     the preparation of reliable financial statements and to maintain
     accountability for assets. 

FDIC management fairly stated that those controls in place on
December 31, 1997, provided reasonable assurance that losses,
noncompliance, or misstatements material in relation to the financial
statements would be prevented or detected on a timely basis.  FDIC
management made this assertion based on criteria established under
the Federal Managers' Financial Integrity Act of 1982 (FMFIA).  FDIC
management, in making its assertion, also fairly stated the need to
improve certain internal controls. 

Our work also identified the need to improve certain internal
controls, as described in a later section of this report.  The
weakness in internal controls, although not considered a material
weakness,\2 represents a significant deficiency in the design or
operation of internal controls which could have adversely affected
FDIC's ability to fully meet the internal control objectives listed
above.  The internal control weakness relates to FRF only, and
although the weakness did not materially affect FRF's financial
statements, misstatements may nevertheless occur in other
FDIC-reported financial information for FRF as a result of the
internal control weakness.  The weakness is discussed in detail in a
later section of this report. 


--------------------
\2 A material weakness is a reportable condition in which the design
or operation of the internal control 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. 


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

Our tests for compliance with selected provisions of laws and
regulations disclosed no instances of noncompliance that would be
reportable under generally accepted government auditing standards. 
However, the objective of our audits was not to provide an opinion on
overall compliance with laws and regulations.  Accordingly, we do not
express such an opinion. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :6

FDIC's management is responsible for

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

  -- establishing, maintaining, and evaluating the internal control
     to provide reasonable assurance that the broad control
     objectives of FMFIA 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 all material respects, in conformity with
generally accepted accounting principles and (2) FDIC management's
assertion about the effectiveness of internal controls is fairly
stated, in all material respects, based upon the criteria established
under FMFIA.  We are also responsible for testing compliance with
selected provisions of laws and regulations and for performing
limited procedures with respect to certain other information in
FDIC's annual financial report. 

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 management;

  -- evaluated the overall presentation of the financial statements;

  -- obtained an understanding of the internal controls related to
     safeguarding assets, compliance with laws and regulations,
     including the execution of transactions in accordance with
     management's authority, and financial reporting;

  -- tested relevant internal controls over safeguarding, compliance,
     and financial reporting and evaluated management's assertion
     about the effectiveness of internal controls; and

  -- tested compliance with selected provisions of the Federal
     Deposit Insurance Act, as amended; the Chief Financial Officers
     Act of 1990; and the Federal Home Loan Bank Act, as amended. 

We did not evaluate all internal controls relevant to operating
objectives as broadly defined by FMFIA, such as those controls
relevant to preparing statistical reports and ensuring efficient
operations.  We limited our internal control testing to those
controls necessary to achieve the objectives outlined in our opinion
on management's assertion about the effectiveness of internal
controls.  Because of inherent limitations in any internal control,
losses, noncompliance, or misstatements may nevertheless occur and
not be detected.  We also caution that projecting our evaluation to
future periods is subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of
compliance with controls may deteriorate. 

We conducted our audits between July 1997 and May 1998.  Our audits
were conducted in accordance with generally accepted government
auditing standards. 

FDIC provided comments on a draft of this report.  FDIC's comments
are discussed and evaluated in a later section of this report and are
included in appendix II. 


   CURRENT STATUS OF FRF'S
   LIQUIDATION ACTIVITIES AND
   FUNDING
------------------------------------------------------------ Letter :7

FDIC, as administrator of FRF, is responsible for liquidating the
assets and liabilities of the former Resolution Trust Corporation
(RTC), as well as the former FSLIC's assets and liabilities.\3 As
shown in table 1, the majority of FRF's losses from liquidation
activities have been realized as of December 31, 1997. 



                                Table 1
                
                FRF's Realized and Unrealized Losses as
                          of December 31, 1997

                        ((Dollars in billions))

                                                        FRF-     Total
                                           FRF-RTC     FSLIC       FRF
----------------------------------------  --------  --------  --------
Realized losses                              $83.2     $41.4    $124.6
Unrealized losses                              1.6       0.8       2.4
======================================================================
Total realized and unrealized losses         $84.8     $42.2    $127.0
 (accumulated deficit)
----------------------------------------------------------------------
The accumulated deficit for FRF includes losses that have already
been realized, as well as future estimated losses from assets and
liabilities not yet liquidated.  Losses are realized when failed
financial institution assets in receiverships are disposed of and the
proceeds are not sufficient to repay amounts payable to FRF.  Losses
are also realized if assets that FRF purchases from terminating
receiverships are later sold for less than the purchase price. 
Losses are also realized when certain estimated liabilities
associated with FRF's liquidation activities are paid out. 
Uncertainties still exist with regard to the unrealized losses, and
the final amount will not be known with certainty until all remaining
assets and liabilities are liquidated. 

In total, $135.5 billion was received to cover liabilities and losses
associated with the former FSLIC and RTC resolution activities.  Of
the $135.5 billion total, $91.3 billion\4 was received by RTC through
December 31, 1995, the date of RTC's termination, to cover losses and
expenses associated with failed institutions from its caseload.  FRF
received $44.2 billion to cover the liabilities and losses associated
with the former FSLIC activities. 

As shown in table 2, after reducing the total amount of funding
received by the amount of recorded accumulated deficit, an estimated
$8.5 billion in available funds will remain.  The RTC Completion Act
requires FDIC to deposit in the general fund of the Treasury any
funds transferred to RTC pursuant to the Completion Act but not
needed for RTC-related losses.  Also, after providing for all
outstanding RTC liabilities, FDIC must transfer to the Resolution
Funding Corporation (REFCORP) the net proceeds from the sale of
RTC-related assets.  Any such funds transferred to REFCORP pay the
interest on REFCORP bonds issued to provide funding for the early RTC
resolutions.  Any payments to REFCORP benefit the U.S.  Treasury,
which is otherwise obligated to pay the interest on the bonds. 
Separately, any FSLIC-related funds remaining are to be deposited to
the U.S.  Treasury.  The final amount of unused funds will not be
known with certainty until all of FRF's remaining assets and
liabilities are liquidated. 



                                Table 2
                
                Estimated Unused Funds After Completion
                    of FRF's Liquidation Activities

                        ((Dollars in billions))

                                                        FRF-     Total
                                           FRF-RTC     FSLIC       FRF
----------------------------------------  --------  --------  --------
Total funds received                         $91.3     $44.2    $135.5
Less: accumulated deficit                     84.8      42.2     127.0
======================================================================
Estimated unused funds                       $ 6.5     $ 2.0     $ 8.5
----------------------------------------------------------------------

--------------------
\3 On January 1, 1996, FRF assumed responsibility for all remaining
assets and liabilities of the former RTC. 

\4 FIRREA provided an initial $50 billion to RTC.  The Resolution
Trust Corporation Funding Act of 1991 provided an additional $30
billion.  The Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 provided $25 billion in
December 1991, of which $6.7 billion was obligated prior to the April
1, 1992 deadline.  In December 1993, the RTC Completion Act removed
the April 1, 1992, deadline, thus making the remaining $18.3 billion
available to RTC for resolution activities.  Prior to RTC's
termination on December 31, 1995, RTC drew down $4.6 billion of the
$18.3 billion that was made available by the RTC Completion Act. 


   INFORMATION ON FDIC'S YEAR 2000
   EFFORTS
------------------------------------------------------------ Letter :8

The Year 2000 computing crisis is a sweeping and urgent information
technology challenge facing public and private organizations.\5 In
addition to facing Year 2000 issues with its internal systems, FDIC,
as administrator of the deposit insurance funds, faces exposure and
potential loss from banks and thrifts that fail to adequately address
their own Year 2000 system issues.  In addition, as regulator, FDIC
has responsibility to ensure that the banks it oversees are
adequately addressing systems issues related to the Year 2000. 

In February 1998, we testified on FDIC's progress in addressing the
Year 2000 challenges it faces.\6 In summary, we found that FDIC is
taking action to address its Year 2000 risks.  With regard to FDIC's
efforts to correct its internal systems, we concluded that at the
time of our testimony, FDIC was behind in assessing whether its
systems were Year 2000 compliant.  In response, FDIC has revised its
project plan to include earlier completion dates for certain phases
of the project and is allocating resources to support the plan.  In
addition, as discussed in the notes to FDIC's financial statements,\7
FDIC is currently assessing, testing, modifying, or replacing its
automated systems in order to ensure that they become Year 2000
compliant. 

We also testified that FDIC is devoting considerable effort and
resources to ensure that the banks it oversees mitigate their Year
2000 risks.  FDIC is also working closely with the other banking
regulators to provide guidance and supervision for the banking and
savings institution industries as a whole.  However, as discussed in
the notes to BIF's and SAIF's financial statements, as of December
31, 1997, the potential exposure to the deposit insurance funds
resulting from the Year 2000 problem was not estimable.  During 1998,
FDIC is continuing its monitoring efforts, and is gathering
additional data to analyze and estimate potential exposure to the
insurance funds from the potential Year 2000 problems of the banks
and thrifts it insures.  We will evaluate FDIC's analysis of exposure
to the insurance funds from banks' and savings institutions' Year
2000 problems during our audits of FDIC's 1998 financial statements. 


--------------------
\5 For the past several decades, information systems have typically
used two digits to represent the year, such as "98" for 1998, in
order to conserve electronic data storage and reduce operating costs. 
In this format, however, 2000 is indistinguishable from 1900 because
both are represented as "00." As a result, if not modified, computer
systems or applications that use dates or perform date- or
time-sensitive calculations may generate incorrect results beyond
1999. 

\6 Year 2000 Computing Crisis:  Federal Deposit Insurance
Corporation's Efforts to Ensure Bank Systems Are Year 2000 Compliant
(GAO/T-AIMD-98-73, February 10, 1998). 

\7 See the following notes to FDIC's financial statement:  number 16
for BIF; number 13 for SAIF; and number 17 for FRF. 


   REPORTABLE CONDITIONS
------------------------------------------------------------ Letter :9

The following sections discuss (1) FDIC's progress in addressing
reportable conditions identified during our 1996 audits and (2)
reportable conditions found during our 1997 audits. 


      PROGRESS ON WEAKNESSES
      IDENTIFIED IN PREVIOUS
      AUDITS
---------------------------------------------------------- Letter :9.1

In our 1996 audit report on the three funds administered by FDIC, we
identified two reportable conditions which affected FDIC's ability to
ensure that internal control objectives were achieved.\8 These
weaknesses related to FDIC's internal controls designed to ensure
that (1) contracted asset servicers properly safeguarded failed
institution assets and accurately reported financial information to
FDIC and (2) data used in the calculation of the year-end allowance
for losses was adequately reviewed for accuracy prior to inclusion in
the year-end calculation. 

First, during our 1996 audits, we found that FDIC had limited
assurance that contracted asset servicers properly safeguarded failed
institution assets and accurately reported financial information to
FDIC because of deficiencies in FDIC's contractor oversight program. 
Specifically, FDIC's contractor oversight procedures did not ensure
that (1) contracted asset servicers had adequate controls over daily
collections and bank reconciliations, (2) servicers' fees and
reimbursable expenses were valid, accurate, and complete, and (3)
servicers' loan system calculations relating to the allocation of
principal and interest were accurate. 

During 1997, FDIC implemented a contracted asset servicer visitation
program to address the specific areas of weaknesses noted during our
1996 audits.  Also, FDIC completed an interdivisional memorandum of
understanding to clarify the roles and responsibilities related to
contractor oversight.  As a result, we found that FDIC's new
procedures ensured that contracted asset servicers had adequate
controls over daily collections and bank reconciliations and loan
system calculations relating to the allocation of principal and
interest.  Although we continued to find instances where FDIC
oversight personnel did not ensure that servicer fees and expenses
were valid and accurate, we concluded that the extent of the problems
was not significant to BIF's and FRF's financial statements.  We will
discuss this matter further in a management letter. 

During our 1997 audits, we found that the action FDIC took to address
the second reportable condition was not fully effective.  Therefore,
we are continuing to report the weakness regarding integrity of data
used for calculating the allowance for losses as a reportable
condition.  Additional details are provided below. 


--------------------
\8 Financial Audit:  Federal Deposit Insurance Corporation's 1996 and
1995 Financial Statements (GAO/AIMD-97-111, June 30, 1997). 


      REPORTABLE CONDITION
      IDENTIFIED IN 1997
---------------------------------------------------------- Letter :9.2

FDIC estimates recoveries on assets acquired from failed financial
institutions and uses these estimates to calculate the allowance for
losses on receivables from resolution activities and investment in
corporate-owned assets.  FDIC uses multiple data sources to calculate
the estimated recoveries from these assets.  Generally, FDIC
estimates recoveries on loans, real estate owned, equity in
subsidiaries, and other assets (including furniture and fixtures and
miscellaneous receivables) using its Standard Asset Valuation
Estimation (SAVE) process.  FDIC values securities and other types of
equity interests outside of its SAVE process. 

During our 1996 audits, we found that FDIC did not have effective
procedures in place to ensure that recovery estimates received from
the various sources were adequately reviewed for accuracy prior to
being included in the year-end calculation of the allowance for
losses.  In response to our finding, FDIC implemented enhanced review
procedures intended to mitigate the occurrence of errors and ensure
the quality and reasonableness of the recovery estimates.  The new
procedures required certification that recovery estimates submitted
for inclusion in the allowance for loss calculations had been
formally reviewed for accuracy. 

During our 1997 audits, we continued to note problems with recovery
estimates for FRF assets not valued as part of FDIC's SAVE process. 
For example, we found that significant errors were made in estimating
the recoveries for a portfolio of partnership interests, causing the
portfolio to be undervalued by $125 million.  In addition, we found
unsupported recoveries and other errors in the estimated recoveries
for another portfolio of debt and equity securities causing the
portfolio to be overvalued by $26 million.  The estimated recoveries
for both the partnership interests and debt and equity securities
portfolios described above had been certified and reviewed for
accuracy by FDIC personnel.  The combined effect of the above
valuation errors was an understatement of FRF's estimated recoveries
and an overstatement of its allowance for losses on amounts due from
receiverships. 

FRF assets valued outside of FDIC's SAVE process were valued using
various, inconsistent methods with varying degrees of examination of
underlying documentation.  This situation, combined with ineffective
verification and review increases the risk that errors will occur and
remain undetected by FDIC. 

In addition to the weaknesses described above, we noted other less
significant matters involving FDIC's system of internal accounting
controls and FDIC's electronic data processing controls which we will
be reporting separately to FDIC in two management letters. 


   RECOMMENDATIONS
----------------------------------------------------------- Letter :10

In order to address the above weakness, we recommend that the
Chairman of FDIC direct the heads of the Division of Resolutions and
Receiverships and the Division of Finance to implement an improved
process for estimating recoveries for securities and other assets
currently being valued outside of its Standard Asset Valuation
Estimation process.  The process should have the objectives of
producing valid and defensible estimates for financial statement
purposes.  In addition, FDIC should reemphasize the importance of the
review and certification procedures for the estimated recoveries on
assets valued outside of its standard asset valuation process. 


   CORPORATION COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :11

In commenting on a draft of this report, FDIC acknowledged the
reportable condition cited in our report and described its planned
approach to improve the reliability of estimated recoveries for FRF
assets valued outside of the SAVE process.  We plan to evaluate the
adequacy and effectiveness of these corrective actions as part of our
audits of FDIC's 1998 financial statements.  FDIC's comments also
address the progress made in addressing the reportable condition
regarding contractor oversight discussed in our 1996 report. 

The complete text of FDIC's response to our report is included in
appendix II. 

Robert W.  Gramling
Director, Corporate Audits
 and Standards

May 15, 1998


BANK INSURANCE FUND'S FINANCIAL
STATEMENTS
=========================================================== Appendix 0

   Statements of Financial
   Position

   (See figure in printed
   edition.)

   Statements of Income and Fund
   Balance

   (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.)


SAVINGS ASSOCIATION INSURANCE
FUND'S FINANCIAL STATEMENTS
=========================================================== Appendix 1

   Statements of Financial
   Position

   (See figure in printed
   edition.)

   Statements of Income and Fund
   Balance

   (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.)


FSLIC RESOLUTION FUND'S FINANCIAL
STATEMENTS
=========================================================== Appendix 2

   Statements of Financial
   Position

   (See figure in printed
   edition.)

   Statements of Income 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.)Appendix I
OPINION ON THE BANK INSURANCE
FUND'S 1997 FINANCIAL STATEMENTS
PROVIDED FOR SECURITIES AND
EXCHANGE COMMISSION FILING
=========================================================== Appendix 2




(See figure in printed edition.)Appendix II
COMMENTS FROM THE FEDERAL DEPOSIT
INSURANCE CORPORATION
=========================================================== Appendix 2



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON
D.C. 

Jeanette M.  Franzel, Assistant Director
Lynda E.  Downing, Audit Manager
Gary P.  Chupka, Audit Manager
James V.  Rinaldi, Senior Auditor
Bonnie L.  Lane, Senior Auditor
Dennis L.  Clarke, Auditor
John C.  Craig, Auditor
Diane B.  Davis, Senior Auditor
Carol A.  Langelier, EDP Specialist
Wilfred B.  Holloway, Senior Computer Specialist
Sharon O.  Byrd, Computer Specialist

DALLAS FIELD OFFICE

Norman C.  Poage, Audit Manager
Miguel A.  Salas, Senior Auditor
James B.  Smoak, Senior Auditor
Steven D.  Boyles, Auditor
John E.  Clary, Auditor
Syrene D.  Mitchell, Auditor
Dale W.  Seeley, Auditor
Linda Kay Willard, Auditor

FDIC OFFICE OF INSPECTOR GENERAL

W.  Kevin Hainsworth, Audit Manager
Robert W.  Allmang, Senior Auditor
James J.  Ballenger, Senior Auditor
Arlene S.  Boateng, Senior Auditor
Warren V.  Bush, Senior Auditor
H.  Kenneth Copeland, Senior Auditor
Christopher P.  Dodd, Senior Auditor
R.  William Harrington, Senior Auditor
Amelia S.  Laguilles, Senior Auditor
Foxhall A.  Parker, Senior Auditor
Michael L.  Rexrode, Senior Auditor
Thomas F.  Ritz, Senior Auditor
Duane H.  Rosenberg, Senior Auditor
Titus S.  Simmons, Senior Auditor
Ross E.  Simms, Senior Auditor
Loretta D.  Weibel, Senior Auditor
R.  Leon Wellons, Senior Auditor


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