Watchdog review finds FDIC contract problems

AP News
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Posted: Nov 10, 2009 4:08 PM

The Federal Deposit Insurance Corp. has sometimes failed to complete background checks for contractors hired to help with its mounting workload of failed banks, the agency watchdog has found.

The FDIC inspector general's office noted the lapses and some instances of insufficient documentation in contract files in a report completed in September and released Tuesday. The review covered FDIC contracting activity from December 2008 through June.

A total of 120 banks have failed so far this year _ the highest number since the early 1990s at the height of the savings-and-loan crisis. After a state or Treasury Department banking regulator decides to close a bank, the FDIC is appointed receiver and takes over the process of selling its deposits, loans and other assets, sometimes keeping a portion of the assets to be sold later.

The FDIC hires contractors to perform real estate marketing, appraisals, credit card consulting, loan servicing and other activities. When 25 banks failed last year, the agency awarded contracts worth a total $651.8 million _ nearly double the $345.4 million in 2007, according to the report by E. Marshall Gentry, acting assistant inspector general for evaluations. As of June 30, 2009, the FDIC had awarded more than $1 billion in contracts.

Despite having controls in place for its contracting, the FDIC "did not always complete background investigations for contractor personnel," the report says. FDIC oversight managers usually didn't prepare contract management plans or find them to be useful, and there were elements lacking in the contract documents.

The FDIC's Division of Resolutions and Receiverships has found similar weaknesses in the contracting activities and has taken action to remedy them, the report says.

The FDIC's management chose not to provide written comments on the findings. Agency spokesmen didn't immediately return a telephone call seeking comment Tuesday afternoon.