WASHINGTON The Resolution Trust Corp. and Federal Deposit Insurance Corp. are vulnerable to fraud, abuse, or mismanagement because of inadequate employment screening, according to a recently released General Accounting Office report.
In the aftermath of the banking and thrift scandals that plunged many institutions into insolvency, some people linked to those losses have found jobs with the regulatory agencies assigned to oversee the industry, the congressional watchdog agency found.
The GAO reported that the FDIC and RTC haven't properly identified job applicants or current employees who have been found culpable in the losses of federally insured institutions.
It identified 14 RTC, FDIC, or top conservatorship employees who were subjects of professional liability suits or criminal referrals to the Department of Justice.
The study reviewed 1,132 RTC and FDIC employees but did not examine most RTC conservatorship workers because the RTC did not consider them to be government employees.
"There is a lot of vulnerability because many of the institutions were very large... the employees had control over hundreds of millions of dollars of assets," said Daniel Schultz, GAO senior evaluator.
The report suggested that the agencies update and enhance their data bases, improve their screening techniques, and communicate better to identify risky employees.
Steve Katsanos, director of corporate communications for the RTC, acknowledged that the previous screening procedures weren't foolproof.
"We swamped the apparatus that was then in place," Mr. Katsanos said of the period when the RTC was expanding rapidly by taking over failed thrifts. "We needed to rely on the employees of these institutions."
Mr. Katsanos said the RTC is now able to perform more effective background checks.
However, he said, it's difficult to identify individuals connected with failed institutions unless they were charged with an offense.
He added that the RTC will not maintain a data base of employees at conservatorship institutions, as suggested by the GAO. Mr. Katsanos said the agency did not see this as a significant concern because the RTC is scheduled to dispose of its two remaining institutions by year's end.
An FDIC spokesman said the agency was not yet prepared to comment,
Mr. Nielsen writes for Medill New Service.
