Audit of FDIC's Equity Interest in Saugus Corporation

(Audit Report No. 98-031, March 23, 1998)

The Office of Inspector General (OIG) has completed an audit of the Federal Deposit Insurance Corporation's (FDIC) equity interest in Saugus Corporation, a wholly owned subsidiary of Eastland Savings Bank, in receivership. The audit objective was to determine whether property managers properly accounted for Saugus' funds.

One of Saugus' property managers--Eastland Property Management--properly accounted for Saugus' funds. However, the second property manager--Buckhead Hotel Management Company--did not properly account for or remit the FDIC's $406,674 of equity in Saugus' funds. In addition, the asset that was managed by Eastland was overstated by $139,367 in the FDIC's receivership records because the FDIC recorded the asset balance twice.

We recommended that the Regional Director, Northeast Service Center (NESC), take the following actions:

(1) Increase the receivable due from Buckhead at June 30, 1997, from
$392,477 to $406,674.

(2) Recover $406,674 (questioned cost) in equity due from Buckhead plus any
additional interest from June 30, 1997, until the cash and other equity are
collected.

(3) Write off the $139,367 account receivable balance for asset number
4458-003994931.

On March 13, 1998, the Regional Director, NESC, provided a written response to a draft of this report. The response agreed with the recommendations and provided the requisites for management decisions for the three recommendations.

Based on the audit work, the OIG will report $406,674 in questioned costs in its Semiannual Report to the Congress.