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GGD-92-17R 1 (1992-07-16)

handle is hein.gao/gaobackco0001 and id is 1 raw text is: United States General Accounting Office Washington, D.C. 20548 General Government Division B-248699 July 16, 1992 The Honorable Bruce F. Vento House of Representatives Dear Mr. Vento: This letter responds to your February 12, 1991 request that we review the Resolution Trust Corporation's (RTC) implementation of the cost test used in making resolution decisions. You asked us to look at a sample of transactions to determine whether the cost test is being applied properly and whether it is a valid reflection of market values. As discussed with your staff, we examined the asset valuation review (AVR) process and the cost test implementation in three resolution transactions from RTC's Southwest Region. The AVR process provides estimated market values for failed thrift assets for use in the cost test. The cost test calculates and compares the estimated costs of various resolution transactions with an insured deposit payout to show the least costly resolution method. Based on our review of RTC guidelines in effect at the time, we believe that the AVR process contained elements necessary to arrive at reasonable estimates of market value. However, in one of the three cases that we reviewed, we found weaknesses in the implementation of the AVR process that caused us to question the reasonableness of the asset valuations. In addition, in April 1992, RTC's Office of Inspector General reported that it could not determine whether AVRs were done in accordance with applicable policies and procedures, and whether the asset valuations were reasonable or reliable, due to poor or non-existent supporting documentation.' As agreed with your office, we are assessing the implementation of the AVR process further and will provide the results of this work in a separate report. We believe that the cost test was applied properly in the three transactions that we reviewed. However, there were some 'Asset Valuation Methods and the Appraisal Review Process, RTC Office of Inspector General Audit Report A92-016, April 28, 1992. GAO/GGD-92-17R, Asset Valuation Reviews and Cost Test

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