type: other

jurisdiction: US

text: b'\x0cThe Federal Deposit Insurance Corporation (FDIC) is an independent\nagency created by the Congress to maintain stability and\nconfidence in the nation\xe2\x80\x99s banking system by insuring deposits,\nexamining and supervising financial institutions, and managing\nreceiverships. Approximately 4,900 individuals within seven\nspecialized operating divisions and other offices carry out the FDIC\nmission throughout the country. According to most current FDIC\ndata, the FDIC insured more than $4.7 trillion in deposits in over\n8,300 institutions, of which the FDIC supervised approximately\n5,100. The Corporation held insurance funds of $ 18.9 billion to\nensure depositors are safeguarded. Receiverships under FDIC\ncontrol totaled 41, with $15 billion of assets in liquidation.\n\x0c\x0c2\n\x0c Inspector General\xe2\x80\x99s\n Statement\n\n\n\n\nI\nI am pleased to provide this issued the results of 4 such reviews financial institutions. We have a\nsemiannual report on the activi- during the reporting period, large number of mortgage fraud\nties and accomplishments of the and had 18 others ongoing at cases that we are pursuing as well\nFederal Deposit Insurance Corpo- the end of the reporting period. as other cases involving bank\nration (FDIC) Office of Inspector Based on the cumulative results fraud, embezzlements, bribery,\nGeneral (OIG) from October 1, of such reviews, we have formu- and kickbacks. We continue to\n2008 through March 31, 2009. lated initial summary observa- work closely and partner with\nThe audits, evaluations, investiga- tions on the causes, trends, and the FDIC, Department of Justice,\ntions, and other activities high- characteristics of such failures. Federal Bureau of Investigation,\nlighted in this report illustrate the We intend to analyze certain of and other federal and state law\nOIG\xe2\x80\x99s on-going commitment to those issues in more detail and enforcement organizations to\npromoting efficiency, effective- form recommendations, as indi- successfully conduct this work\nness, and integrity and helping cated, in the upcoming months. and appreciate the solid working\nthe Corporation successfully relationships we have with them.\n We also evaluated the controls in\nachieve its longstanding mission\n the FDIC\xe2\x80\x99s processing of applica- In closing, I express my gratitude\nof maintaining stability and\n tions under the Troubled Asset to Patricia M. Black, former Deputy\npublic confidence in the nation\xe2\x80\x99s\n Relief Program\xe2\x80\x99s Capital Purchase Inspector General, who retired\nbanking system. Over the last\n Program and made several recom- after an exceptional federal career\n6 months, our office issued 14\n mendations in that regard. We of more than 34 years. She played\naudit and evaluation reports. We\n have initiated a number of key a critical role in assisting me and\nclosed 24 investigations, with over\n assignments to review aspects guiding others in the office as we\n$55 million in total fines, restitu-\n of the Corporation\xe2\x80\x99s mounting addressed the many challenges\ntion, and monetary recoveries.\n resolution and receivership of the day. I also thank the OIG\nAs discussed in more detail in activities and some of the new Executive team and staff for their\nthis report, our efforts and results programs the FDIC has under- efforts during these stressful times.\nare directly tied to the unfolding taken, such as the Temporary I look forward to continuing to\nevents of the economy and finan- Liquidity Guarantee Program, work with FDIC leadership, the\ncial services industry. For example, loan modification programs, Congress, and colleagues in the\nunder the Federal Deposit Insur- loss share arrangements, and Inspector General community\nance Act, my office is required to the Legacy Loan Program. In in helping to maintain stability\nperform a material loss review conducting all of this work, we and public confidence in the\nwhen an FDIC-supervised institu- are coordinating closely with nation\xe2\x80\x99s banking system.\ntion failure results in a material others in the Inspector General\nloss to the Deposit Insurance Fund, community to leverage resources\ncurrently defined as the greater and maximize our effectiveness.\nof $25 million or 2 percent of the\ninstitution\xe2\x80\x99s assets at the time of With respect to our investigative\nclosing. These reviews determine activity, we are currently working Jon T. Rymer\nthe cause of failure and assess about 175 active investigations, Inspector General\nsupervision of the institution. We most of which involve fraud at April 30, 2009\n or impacting open or closed\n 1\n\x0c2\n\x0cOIG Table of Contents\n\n\n\n Inspector General\xe2\x80\x99s Statement.........................................................................1\n Abbreviations and Acronyms............................................................................4\n Highlights and Outcomes..................................................................................5\n Strategic Goal Areas\n Supervision: Assist the FDIC to Ensure the Nation\xe2\x80\x99s\n Banks Operate Safely and Soundly.................................................................9\n Insurance: Help the FDIC Maintain the Viability of the\n Insurance Fund.................................................................................................... 22\n Consumer Protection: Assist the FDIC to Protect\n Consumer Rights and Ensure Customer Data\n Security and Privacy........................................................................................... 25\n Receivership Management: Help Ensure that the FDIC\n is Ready to Resolve Failed Banks and Effectively\n Manages Receiverships.................................................................................... 28\n Resources Management: Promote Sound Governance\n and Effective Stewardship and Security of Human,\n Financial, Information Technology, and Physical Resources.............. 30\n OIG Internal Processes: Build and Sustain a\n High-Quality Staff, Effective Operations,\n OIG Independence, and Mutually Beneficial\n Working Relationships...................................................................................... 36\n Reporting Requirements................................................................................. 42\n Information Required by the Inspector General Act of 1978,\n as amended........................................................................................................... 43\n Congratulations and Farewell to Retirees................................................. 49\n\n\n\n\n 3\n\x0c Abbreviations and Acronyms\n ADC\t acquisition, development, and construction\n ALLL\t allowance for loan and lease losses\n AMG\t American Macro Growth\n C&D\t Cease and Desist Order\n C&DC\t Computer & Data Consultants, Inc.\n CAMELS\t Capital Adequacy, Asset Quality, Management, Earnings,\n \t Liquidity, and Sensitivity to Market Risk\n CEP\t Corporate Employee Program\n CIGIE\t Council of the Inspectors General on Integrity and Efficiency\n CPP\t Capital Purchase Program\n CRE\t commercial real estate\n DIF\t Deposit Insurance Fund\n DIT\t Division of Information Technology\n DRR\t Division of Resolutions and Receiverships\n DSC\t Division of Supervision and Consumer Protection\n ECIE\t Executive Council on Integrity and Efficiency\n ECU\t Electronic Crimes Unit\n FBI\t Federal Bureau of Investigation\n FDI Act\t Federal Deposit Insurance Act\n FDIC\t Federal Deposit Insurance Corporation\n FNBB\t First National Bank of Blanchardville\n FPB\t First Priority Bank\n FY\t Fiscal Year\n GAO\t Government Accountability Office\n GPRA\t Government Performance and Results Act of 1993\n HELOC\t Home Equity Lines of Credit\n HUD\t Department of Housing and Urban Development\n IG\t Inspector General\n IndyMac\t IndyMac Bank, FSB\n IP\t Internet Protocol\n IT\t Information Technology\n Mercantile\t Mercantile-Safe Deposit & Trust Company\n MLR\t Material Loss Review\n OERM\t Office of Enterprise Risk Management\n OFR\t Office of Financial Regulation\n OI\t Office of Investigations\n OIG\t Office of Inspector General\n OMB\t Office of Management and Budget\n ORL\t Offsite Review List\n OSBC\t Office of the State Bank Commissioner\n PCA\t Prompt Corrective Action\n PCIE\t President\xe2\x80\x99s Council on Integrity and Efficiency\n RTC\t Resolution Trust Corporation\n SSB\t Silver State Bank\n TARP\t Troubled Asset Relief Program\n WaMu\t Washington Mutual Bank\n\n\n\n\n4\n\x0c Highlights and\n Outcomes\n\n\n\n\nT\nThe OIG\xe2\x80\x99s 2009 Business Plan real estate. In an evaluation of of a mortgage broker in a land-\ncontains five strategic goals that controls over the FDIC\xe2\x80\x99s processing flipping scheme. In another case,\nare closely linked to the FDIC\xe2\x80\x99s of Troubled Asset Relief Program 12 individuals were sentenced\nmission, programs, and activities, Capital Purchase Program applica- for their roles in a massive home\nand one that focuses on the OIG\xe2\x80\x99s tions from FDIC-supervised institu- equity line of credit fraud scheme\ninternal business and manage- tions, we determined that overall, that enriched them temporarily\nment processes. These highlights the FDIC\xe2\x80\x99s controls provide reason- and impacted at least 16 different\nshow our progress in meeting able assurance that the Corpora- lenders in the northern New Jersey\nthese goals during the reporting tion is complying with Department area. Their sentences ranged from\nperiod. A more in-depth discus- of the Treasury guidance. We 2 to 20 months, with restitution\nsion of OIG audits, evaluations, made two recommendations to orders totaling nearly $13 million.\ninvestigations, and other activities enhance those controls. Ongoing The Office of Investigations also\nin pursuit of these goals follows. work in support of this goal at continued its close coordination\nStrategic Goal 1 the end of the reporting period and outreach with the Division\nSupervision: Assist the included 18 material loss reviews of Supervision and Consumer\nFDIC to Ensure the of failed FDIC-regulated banks. Protection (DSC), the Division of\nNation\xe2\x80\x99s Banks Operate With respect to investigative work, Resolutions and Receiverships\nSafely and Soundly as a result of cooperative efforts (DRR), and the Legal Division by\n with U.S. Attorneys throughout way of attending quarterly meet-\nOur work in helping to ensure that ings, regional training forums,\nthe nation\xe2\x80\x99s banks operate safely the country, numerous individuals\n were prosecuted for financial and regularly scheduled meetings\nand soundly takes the form of with DSC and the Legal Division\naudits, investigations, evaluations, institution fraud, and we achieved\n to review Suspicious Activity\nand extensive communication and successful results in combating\n Reports and identify cases of\ncoordination with FDIC divisions a number of mortgage fraud\n mutual interest. (See pages 9-21.)\nand offices, law enforcement schemes. Our efforts in support of\nagencies, other financial regula- the Department of Justice\xe2\x80\x99s Opera- Strategic Goal 2\ntory OIGs, and banking industry tion Malicious Mortgage and other Insurance: Help the FDIC\nofficials. During the reporting mortgage fraud working groups Maintain the Viability\nperiod, we completed four mate- also supported this goal. Particu- of the Insurance Fund\nrial loss reviews of institutions larly noteworthy results from Our material loss review work\nwhose failures resulted in losses our casework include multiple supports this goal, as does the\nto the Deposit Insurance Fund sentencings for a mortgage fraud investigative work highlighted\nranging from $72 million to $533 scheme where three individuals above. In both cases, our work can\nmillion. Another audit in this area received prison sentences ranging serve to prevent future losses to\naddressed FDIC risk management from 18-60 months and were the fund by way of recommenda-\nexamination coverage of institu- ordered to pay restitution totaling tions that can help to prevent\ntion underwriting practices for $5.8 million. Another of our inves- future failures, and the deterrent\nconsumer loans not secured by tigations led to the sentencing aspect of investigations and the\n 5\n\x0cordered restitution that may help authority for misrepresentation of From an investigative standpoint,\nto mitigate an institution\xe2\x80\x99s losses. FDIC affiliation or insurance. In that we continued to coordinate with\nWe conducted audit work to regard, the OIG\xe2\x80\x99s Electronic Crimes DRR to pursue concealment of\nassess FDIC controls related to the Unit responded to instances assets investigations related to\nOff-site Review List, a monitoring where emails and facsimiles were the criminal restitution that the\ntool used to identify institutions misused to entice consumers to FDIC is owed. (See pages 28-29.)\nwith potential problems. We made divulge personal information and Strategic Goal 5\nrecommendations for improve- successfully deactivated 14 fraudu- Resources Management:\nments to that tool. At the end of lent email accounts and 6 fraudu- Promote Sound Gover-\nthe reporting period, ongoing lent facsimile numbers used for nance and Effective\nwork in this goal area included such purposes. (See pages 25-27.) Stewardship and Security\nan audit of the FDIC\xe2\x80\x99s investment\n Strategic Goal 4 of Human, Financial, IT,\nmanagement practices related to\n Receivership Manage- and Physical Resources\nthe Deposit Insurance Fund, an\n ment: Help Ensure that The OIG addressed a number of\nevaluation related to the failure\n the FDIC is Ready to important areas in conducting\nof IndyMac Bank, FSB focusing\n Resolve Failed Banks and work in support of this goal area.\non the FDIC\xe2\x80\x99s awareness of the\n Effectively Manages One of our evaluations examined\ncondition of the institution and\n Receiverships the FDIC\xe2\x80\x99s Corporate Employee\nactions it took as back-up regu-\nlator and deposit insurer, and an We had several key assignments Program, a training program\nassessment of internal controls in the planning stages in this designed to ensure that by training\npertaining to the Corporation\xe2\x80\x99s goal area as of the end of the and cross-divisional opportunities,\nTemporary Liquidity Guarantee reporting period. One evaluation the FDIC workforce will be fully\nProgram. (See pages 22-24.) will identify and evaluate controls capable and ready to respond to\nStrategic Goal 3 in place over the contracting and changes in examination or resolu-\nConsumer Protection: legal services functions to address tion and receivership priorities. We\nAssist the FDIC to the risks presented by a signifi- performed an audit of follow-up\nProtect Consumer cant increase in resolution and actions taken related to the FDIC\xe2\x80\x99s\nRights and Ensure receivership-related contracting controls over the confidentiality of\nCustomer Data Security activity. A second evaluation will sensitive email communications.\nand Privacy cover the loss share provisions, Other evaluations this period\n including those in the assistance focused on two security areas: mail\nAudits, evaluations, and investiga- agreements with Citigroup and handling and screening proce-\ntions can contribute to the FDIC\xe2\x80\x99s Bank of America, to ensure compli- dures at FDIC facilities and guard\nprotection of consumers in several ance with all related terms, such as services provided to protect FDIC\nways. We completed an evaluation those involving asset eligibility and buildings and people. Additionally,\nof enforcement actions for compli- institution management of guaran- we completed an audit of over-\nance violations, conducted at the teed assets. Planned work involves sight management of the FDIC\xe2\x80\x99s\nrequest of the FDIC Chairman. assessing the FDIC\xe2\x80\x99s efforts for contract with ARAMARK. In each\nManagement\xe2\x80\x99s response to this monitoring implementation of loan instance, we made recommenda-\nwork indicated a willingness and modification programs at various tions for improvements to controls\ncommitment to devote sufficient institutions. We are working jointly or other activities in the interest of\nresources to ensure an effective with the Department of the Trea- ensuring the success of the efforts.\nenforcement action program. sury OIG to determine the events We also promoted integrity\nThe OIG was pleased to learn leading to the need for the FDIC- in FDIC internal operations\nthat the Emergency Economic facilitated transaction involving through ongoing OIG Hotline\nStabilization Act of 2008 contains Washington Mutual Bank, including referrals and coordination\na long-supported provision that evaluating the FDIC\xe2\x80\x99s supervision with the FDIC\xe2\x80\x99s Ethics Office, as\nthe OIG helped to draft giving and monitoring of Washington warranted. (See pages 30-35.)\nthe FDIC increased enforcement Mutual Bank in its role as insurer.\n6\n\x0cStrategic Goal 6 We encouraged individual growth provided this assessment to FDIC\nOIG Internal Processes:\t through professional develop- management for inclusion in the\nBuild and Sustain a ment by planning and conducting Corporation\xe2\x80\x99s performance and\nHigh-Quality OIG Staff, a 4-day training conference for accountability report and factored\nEffective Operations, FDIC OIG and other financial this assessment into our FY 2009\nOIG Independence, and regulatory OIG staff related to planning. We submitted the OIG\xe2\x80\x99s\nMutually Beneficial Financial Institution Analysis and 2008 Assurance Statement to the\nWorking Relationships Supervision, with an emphasis on FDIC Chairman, in accordance with\n Material Loss Review training. We the annual requirement under\nTo ensure effective and efficient\n also offered opportunities for OIG which the OIG provides assurance\nmanagement of OIG resources,\n staff to attend graduate schools of that the OIG has made a reason-\namong other activities, we\n banking to further their expertise able effort to meet the internal\ncontinued realignment of the OIG\n and knowledge of the complex control requirements of the\ninvestigative resources with FDIC\n issues in the banking industry. Federal Managers\xe2\x80\x99 Financial Integ-\nregions, and examined staffing\nplans and budget resources to Our office continued to foster rity Act, OMB A-123, and other key\nensure our office is prepared to positive stakeholder relation- legislation. At GAO\xe2\x80\x99s request, we\nhandle our increasing workload. ships by way of Inspector General provided the OIG\xe2\x80\x99s perspectives\nFurther, we completed a project and other OIG executive meet- related to internal fraud risk at the\nto upgrade the OIG\xe2\x80\x99s audit and ings with senior FDIC executives; FDIC in connection with GAO\xe2\x80\x99s\nevaluation tracking system to presentations at Audit Committee responsibility under Statement of\nbetter monitor costs and time meetings; congressional inter- Auditing Standards No. 99, Consid-\nassociated with our work. We action; and coordination with eration of Fraud in Financial State-\ncompleted a quality monitoring financial regulatory OIGs, other ment Audits. (See pages 36-40.)\nreview in the Office of Audits to members of the Inspector General\nanalyze quality assurance activities community, other law enforce-\ncompleted in calendar year 2008. ment officials, and the Govern-\nWe also completed a training effort ment Accountability Office\nfor OIG staff related to protecting (GAO). The OIG participated in\npersonally identifiable informa- corporate diversity events, and\ntion by encrypting portable we maintained and updated the\nmedia devices and using Entrust OIG Web site to provide easily\nwhen sending sensitive email. accessible information to stake-\n holders interested in our office\nWe continued to administer a\n and the results of our work.\ncontract to a qualified firm to\nprovide audit and evaluation In the area of enhancing OIG\nservices to the OIG to enhance risk management activities, we\nthe quality of our work and the continued efforts to carry out and\nbreadth of our expertise. We monitor the OIG\xe2\x80\x99s fiscal year (FY)\ncontinued use of the OIG\xe2\x80\x99s end- 2009 business planning process.\nof-assignment feedback forms We also participated regularly at\nto provide staff with input on corporate meetings of the National\nperformance of individual audit Risk Committee to monitor\nand evaluation assignments, and emerging risks at the Corporation\nthe Inspector General feedback and tailor OIG work accordingly.\nform for Office of Audits and In accordance with the Reports\nOffice of Evaluations assign- Consolidation Act of 2000, we\nments that focuses on overall assessed the most significant\nassignment quality elements, management and performance\nincluding time, cost, and value. challenges facing the FDIC, and\n 7\n\x0c Significant Outcomes\n (October 2008\xe2\x80\x93 March 2009)\n Audit and Evaluation Products Issued 14\n Nonmonetary Recommendations 28\n Investigations Opened 36\n Investigations Closed 24\n OIG Subpoenas Issued 20\n Judicial Actions:\n \t Indictments/Informations 82\n \t Convictions 48\n \t Arrests 51\n OIG Investigations Resulted in:\n \t Fines of $133,213\n \t Restitution of $54,960,585\n \t Asset Forfeiture of $10,000\n \t Other Monetary Recoveries of 0\n \t Total $55,103,798\n Cases Referred to the Department of Justice (U.S. Attorney) 28\n Cases Referred to FDIC Management 1\n OIG Cases Conducted Jointly with Other Agencies 154\n Hotline Allegations Referred 51\n Proposed Regulations and Legislation Reviewed 11\n Proposed FDIC Policies Reviewed 10\n Responses to Requests and Appeals under the Freedom of Information Act 10\n\n\n\n\n8\n\x0c Strategic Goal 1:\n The OIG Will Assist the FDIC\n to Ensure the Nation\xe2\x80\x99s Banks\n 1\n Operate Safely and Soundly\n\n\n\n\nT\nT\nThe Corporation\xe2\x80\x99s supervision\nprogram promotes the safety and\nsoundness of FDIC-supervised\ninsured depository institutions.\nThe FDIC is the primary federal\nregulator for approximately 5,100\nFDIC-insured, state-chartered\ninstitutions that are not members\n tion is to effectively evaluate the\n safety and soundness of the bank,\n including the assessment of risk\n management systems, financial\n condition, and compliance with\n applicable laws and regulations,\n while focusing resources on the\n bank\xe2\x80\x99s highest risks. Part of the\n identify what caused the mate-\n rial loss, evaluate the supervision\n of the federal regulatory agency\n (including compliance with the\n Prompt Corrective Action require-\n ments of the FDI Act), and propose\n recommendations to prevent\n future failures. In January 2009, the\nof the Federal Reserve System FDIC\xe2\x80\x99s overall responsibility and Inspectors General of the FDIC, the\n(generally referred to as \xe2\x80\x9cstate non- authority to examine banks for Department of the Treasury, and\nmember\xe2\x80\x9d institutions). The Depart- safety and soundness relates to the Federal Reserve Board wrote\nment of the Treasury (the Office of compliance with the Bank Secrecy to the Chairman of the House\nthe Comptroller of the Currency Act, which requires financial Financial Services Committee to\nand the Office of Thrift Supervi- institutions to keep records and ask that the Congress consider\nsion) or the Federal Reserve Board file reports on certain financial increasing the threshold for\nsupervise other banks and thrifts, transactions. An institution\xe2\x80\x99s conducting material loss reviews.\ndepending on the institution\xe2\x80\x99s level of risk for potential terrorist We explained that if the current\ncharter. The Corporation also has financing and money laundering threshold remained in effect, it\nback-up examination authority determines the necessary scope of would limit the OIGs\xe2\x80\x99 ability to\nto protect the interests of the the Bank Secrecy Act examination. effectively oversee many of the\nDeposit Insurance Fund (DIF) In the event of an insured deposi- new and significant programs\nfor nearly 3,200 national banks, tory institution failure, the Federal and initiatives the federal banking\nstate-chartered banks that are Deposit Insurance (FDI) Act agencies are undertaking. During\nmembers of the Federal Reserve requires the cognizant OIG to the past 6-month reporting period,\nSystem, and savings associations. perform a review when the DIF 33 FDIC-insured institutions failed.\n incurs a material loss. A loss is Nineteen of these triggered\nThe examination of the institu-\n considered material to the insur- the need for the FDIC OIG to\ntions that it regulates is a core FDIC\n ance fund if it exceeds $25 million conduct a material loss review.\nfunction. Through this process,\nthe FDIC assesses the adequacy of and 2 percent of the failed institu- The OIG\xe2\x80\x99s audits and evaluations\nmanagement and internal control tion\xe2\x80\x99s total assets. The FDIC OIG are designed to address various\nsystems to identify, measure, and performs the review if the FDIC aspects of the Corporation\xe2\x80\x99s super-\ncontrol risks; and bank examiners is the primary regulator of the vision and examination activities,\njudge the safety and soundness of institution. The Department of the as illustrated in the write-ups that\na bank\xe2\x80\x99s operations. The examina- Treasury OIG and the OIG at the follow. Through their investiga-\ntion program employs risk-focused Board of Governors of the Federal tions of financial institution fraud,\nsupervision for banks. According Reserve System perform reviews the OIG\xe2\x80\x99s investigators also play a\nto examination policy, the objec- when their agencies are the critical role in helping to ensure\ntive of a risk-focused examina- primary regulators. These reviews the nation\xe2\x80\x99s banks operate safely\n 9\n\x0cand soundly. Bank manage- the OIG\xe2\x80\x99s investigation caseload. period included 18 additional\nment is the first line of defense The OIG is also committed to material loss reviews to deter-\nagainst fraud, and the banks\xe2\x80\x99 continuing its involvement in inter- mine the causes for the failures of\nindependent auditors are the agency forums addressing fraud. FDIC-supervised financial institu-\nsecond line of defense. Because Such groups include national and tions and an audit of the FDIC\xe2\x80\x99s\nfraud is both purposeful and regional bank fraud, check fraud, brokered deposit waiver process.\nhard to detect, it can significantly mortgage fraud, cyber fraud,\nraise the cost of a bank failure, identity theft, and anti-phishing Material Loss Reviews\nand examiners must be alert working groups. Additionally, the\n We conducted four material loss\nto the possibility of fraudulent OIG engages in industry outreach\n reviews (MLR) during the reporting\nactivity in financial institutions. efforts to keep financial institu-\n period. Losses associated with\n tions informed on fraud-related\nThe OIG\xe2\x80\x99s Office of Investigations these failures ranged from $72\n issues and to educate bankers on\nworks closely with FDIC manage- million to $533 million. In accor-\n the role of the OIG in combating\nment in DSC and the Legal Divi- dance with the FDI Act, the audit\n financial institution fraud.\nsion to identify and investigate objectives for each review were\nfinancial institution crime, espe- To assist the FDIC to ensure the to (1) determine the causes of\ncially various types of fraud. OIG nation\xe2\x80\x99s banks operate safely and the financial institution\xe2\x80\x99s failure\ninvestigative efforts are concen- soundly, the OIG\xe2\x80\x99s 2009 perfor- and resulting material loss to the\ntrated on those cases of most mance goals are as follows: DIF and (2) evaluate the FDIC\xe2\x80\x99s\nsignificance or potential impact \xe2\x80\xa2\tHelp ensure the effectiveness supervision of the institution,\nto the FDIC and its programs. The and efficiency of the FDIC\xe2\x80\x99s including implementation of the\ngoal, in part, is to bring a halt to supervision program, and Prompt Corrective Action (PCA)\nthe fraudulent conduct under provisions of section 38. The\ninvestigation, protect the FDIC and \xe2\x80\xa2\tInvestigate and assist in four failures and corresponding\nother victims from further harm, prosecuting Bank Secrecy Act MLRs are discussed below.\nand assist the FDIC in recovery of violations, money laundering,\n terrorist financing, fraud, In addition to issuing separate\nits losses. Pursuing appropriate\n and other financial crimes in reports on each FDIC-supervised\ncriminal penalties not only serves\n FDIC-insured institutions. institution failure resulting in\nto punish the offender but can also\n a material loss, we also plan to\ndeter others from participating\n provide additional coverage of\nin similar crimes. Our criminal OIG Work in Support causes, trends, and characteristics\ninvestigations can also be of\n of Goal 1 in a series of summary reports and\nbenefit to the FDIC in pursuing\n other communications and make\nenforcement actions to prohibit The OIG\xe2\x80\x99s Office of Audits issued\n recommendations accordingly.\noffenders from continued partici- five reports during the reporting\npation in the banking system. period in support of our stra- Material Loss Review of First\n tegic goal of helping to ensure Priority Bank, Bradenton, Florida\nWhen investigating instances\n the safety and soundness of the\nof financial institution fraud, On August 1, 2008, the State of\n nation\xe2\x80\x99s banks. These reports\nthe OIG also defends the vitality Florida, Office of Financial Regu-\n communicated the results of\nof the FDIC\xe2\x80\x99s examination lation (OFR), closed First Priority\n four material loss reviews and an\nprogram by investigating asso- Bank (FPB) and named the FDIC\n audit of examination coverage\nciated allegations or instances as receiver. On August 19, 2008,\n of underwriting practices for\nof criminal obstruction of bank the FDIC notified the OIG that\n consumer loans not secured by\nexaminations and by working FPB\xe2\x80\x99s total assets at closing were\n real estate. We also completed our\nwith U.S. Attorneys\xe2\x80\x99 Offices to $241 million, and the estimated\n evaluation of the Troubled Asset\nbring these cases to justice. loss to the DIF was $72 million.\n Relief Program Capital Purchase\nThe OIG\xe2\x80\x99s investigations of finan- Program. Ongoing or planned FPB was a state-chartered\ncial institution fraud currently audit work in support of the goal nonmember bank insured on\nconstitute about 89 percent of area as of the end of the reporting December 8, 2003. As a \xe2\x80\x9cde novo\xe2\x80\x9d\n10\n\x0cbank for its first 3 years in opera- examinations of FPB. Addition- liquidity plans. However, we\ntion, FPB was subject to addi- ally, the FDIC provided oversight reported that FPB\xe2\x80\x99s loan documen-\ntional supervisory oversight and through its off-site monitoring tation and administration defi-\nregulatory controls, including process and accelerated exami- ciencies should have warranted\nthe development and main- nations as a result of identified greater concern during the 2006\ntenance of a current business deficiencies. As a result of the examination. Specifically, during\nplan and increased examination November 2006 examination, that examination, FPB was in a\nfrequency. With five branches in the FDIC delayed its approval of de novo status; the loan portfolio\nFlorida, FPB engaged principally three FPB branch applications had begun to deteriorate and was\nin traditional banking activi- until FPB provided information highly concentrated in high-risk\nties within its local marketplace, on how the bank would address CRE/ADC loans; loan administra-\nwhich experienced a significant examination concerns. As a result tion issues, identified as early as\neconomic downturn starting of the September 2007 examina- the FDIC\xe2\x80\x99s 2004 examination, were\nin 2006. FPB had no holding tion, and after various OFR and uncorrected or in need of improve-\ncompany, subsidiaries, or affiliates. FPB discussions regarding the ment; ALLL was inadequate; and\nFPB\xe2\x80\x99s assets consisted principally bank\xe2\x80\x99s condition and proposed FPB\xe2\x80\x99s risk profile was increasing.\nof commercial real estate (CRE) regulatory actions, the FDIC, in Greater concern regarding FPB\xe2\x80\x99s\nloans, including a significant conjunction with the OFR, took loan documentation and adminis-\nconcentration in residential acqui- supervisory action in February tration deficiencies could have led\nsition, development, and construc- 2008 to address management\xe2\x80\x99s to elevated supervisory attention\ntion (ADC) loans. The FDIC has failure to implement correc- and earlier supervisory action.\nrecognized the increased risk that tive actions in response to audit\n and/or examiner concerns. Such In its written response, DSC\nCRE loans present to financial insti-\n concerns included, but were not agreed with the OIG\xe2\x80\x99s conclu-\ntutions and has issued guidance\n limited to, inadequate manage- sions regarding the causes of\nthat describes a risk management\n ment oversight, poor asset quality, FPB\xe2\x80\x99s failure and resulting mate-\nframework to effectively identify,\n the need to increase capital and rial loss and the supervisory\nmeasure, monitor, and control CRE\n improve earnings, an inadequate activities related to FPB. DSC also\nconcentration risk. That frame-\n allowance for loan and lease losses agreed that the results of the\nwork includes effective oversight\n (ALLL), noncompliance with laws November 2006 examination\nby bank management, including\nthe Board of Directors and senior and regulations, and an outdated related to FPB\xe2\x80\x99s loan documen-\nexecutives, and sound loan liquidity policy. Further, in March tation and administration defi-\nunderwriting, administration, and and May 2008, the FDIC notified ciencies should have warranted\nportfolio management practices. FPB of applicable restrictions greater supervisory action.\n under PCA when FPB fell below\nOur MLR reported that FPB failed the well capitalized category, and Material Loss Review of The\nprimarily due to bank manage- in June 2008, the FDIC issued Columbian Bank and Trust\nment\xe2\x80\x99s aggressive pursuit of a PCA Directive. The FDIC has Company, Topeka, Kansas\nasset growth concentrated in authority to take a wide range of On August 22, 2008, the State of\nhigh-risk CRE loans with inad- supervisory actions. In the case\nequate loan underwriting and Kansas, Office of the State Bank\n of FPB, however, supervisory Commissioner (OSBC), closed\na lack of other loan portfolio actions were not always timely\nand risk management controls. Columbian and named the FDIC\n and effective in addressing the as receiver. On September 11,\nResulting losses severely eroded bank\xe2\x80\x99s most significant problems.\nFPB\xe2\x80\x99s earnings and capital, and 2008, the FDIC notified the OIG\nnegatively impacted liquidity, The FDIC has taken steps to that Columbian\xe2\x80\x99s total assets at\nleading to the bank\xe2\x80\x99s failure improve its supervisory review closing were $726 million, with a\nand a material loss to the DIF. of business plans, oversight of material loss to the DIF estimated\n financial institutions that have at $61.5 million. As of December\nWith respect to supervision, the CRE loan concentrations and use 31, 2008, the estimated loss to the\nFDIC and OFR conducted timely interest reserves, and contingency DIF increased to $232 million.\n 11\n\x0cColumbian, originally a national growth, and underfunding of the CRE loans while the 2007 examina-\nbank that became insured on ALLL. As a result of the July 2007 tion report was being processed\nOctober 2, 1978, was head- examination, the OSBC, in consul- from July to November 2007.\nquartered in Topeka, Kansas. tation with the FDIC, downgraded\n DSC\xe2\x80\x99s written response to the\nThe FDIC became the primary Columbian\xe2\x80\x99s composite rating,\n draft report agreed with the\nfederal regulator of Columbian and the FDIC expedited the 2008 OIG\xe2\x80\x99s conclusions regarding the\nin December 1996. At closing, examination. The FDIC did not causes of Columbian\xe2\x80\x99s failure\nthe bank had seven branches issue a PCA Directive to Columbian and resulting material loss and\nin Kansas and one in Missouri. because the bank had not become the supervisory activities related\nColumbian was wholly owned undercapitalized. In July 2008, to Columbian. DSC also agreed\nby a two-bank holding company, the FDIC and OSBC jointly issued that increased supervisory\nwhich was wholly owned by an a Cease and Desist Order (C&D) action, commensurate with the\nindividual serving as a Director in an attempt to stop Columbian risks these weaknesses posed\nand a Vice President of Columbian. from operating in an unsafe and to the institution, should have\nColumbian\xe2\x80\x99s loan portfolio largely unsound manner. Among the been implemented sooner.\nconsisted of CRE loans, with a 19 provisions, the C&D called\nsignificant concentration in land for improvements in the bank\xe2\x80\x99s Material Loss Review of Integrity\nADC loans, many of which were liquidity and funds manage- Bank, Alpharetta, Georgia\nbrokered and/or out-of-territory. ment, use of brokered deposits,\n concentrations of credit, use of On August 29, 2008, the Georgia\nWe reported that Columbian interest reserves, maintenance of Department of Banking and\nfailed primarily due to bank a sufficient ALLL, and loan policy. Finance (DBF) closed Integrity Bank\nmanagement\xe2\x80\x99s pursuit of rapid and named the FDIC as receiver.\nasset growth concentrated in Although FDIC and OSBC examina- On September 17, 2008, the FDIC\nhigh-risk CRE/ADC loans, without tions identified the weaknesses notified the OIG that Integrity\xe2\x80\x99s\nadequate loan underwriting in management, asset quality, total assets at closing were $1.045\nand credit administration prac- and liquidity that ultimately led billion, with a material loss to the\ntices. Resulting losses due to to Columbian\xe2\x80\x99s failure, super- DIF estimated at $295 million.\nasset quality deterioration and a visory action was not taken\n commensurate with the risks Integrity was a state-chartered\ndownturn in the economy severely nonmember bank that was estab-\neroded capital and, in turn, the these weaknesses posed to the\n institution. Rather, Columbian\xe2\x80\x99s lished and insured on November 1,\navailability of wholesale funding 2000. Integrity was headquartered\nsources used by the bank to fund apparent strong earnings and\n lack of non-performing loans, in Alpharetta, Georgia, and, at\nits growth. As a result, the bank closing, had five other branches\nwas unable to satisfy liquidity which were attributable to such\n factors as an understated ALLL and in Georgia. Integrity was closely\nrequirements, leading to its failure. held by Integrity Bancshares, Inc.,\n the mismanagement of interest\nWith respect to supervision, the reserves, overshadowed supervi- which had no other subsidiaries.\nFDIC and OSBC conducted regular sory concerns with Columbian\xe2\x80\x99s Integrity provided full-service\nexaminations of Columbian from weaknesses until they became commercial banking activities.\n1996 until its closing in 2008. In more pronounced based on Integrity\xe2\x80\x99s loan portfolio was\n2005, OSBC reported weaknesses changes in economic conditions. concentrated in ADC loans.\nin Columbian\xe2\x80\x99s credit administra- As a result, more timely supervi- Integrity failed primarily due to\ntion practices and noted the bank\xe2\x80\x99s sory action directed at Columbian\xe2\x80\x99s management\xe2\x80\x99s aggressive pursuit\nfirst use of brokered deposits as high-risk lending and weak credit of asset growth concentrating\na wholesale funding source. In underwriting and administra- in higher-risk ADC loans without\n2006, in addition to identifying tion practices should have been adequate controls. Integrity lacked\nsome of the weaknesses reported taken. In particular, the institution adequate loan underwriting\nin the 2005 examination, the FDIC continued to pay substantially and other loan portfolio and\nreported concerns regarding increased dividends, accept risk management controls and\nout-of-territory lending, rapid loan brokered deposits, and originate liquidity management practices\n12\n\x0cto support its growth strategy. DSC agreed with the OIG\xe2\x80\x99s conclu- and robust credit risk manage-\nResulting losses severely eroded sions regarding the causes of ment practices. The guidance also\nIntegrity\xe2\x80\x99s capital, leading to its Integrity\xe2\x80\x99s failure and the resulting re-emphasized the interagency\nfailure and material loss to the DIF. material loss. DSC noted that guidance provided to banks in\nOur report notes that the FDIC and facts regarding Integrity\xe2\x80\x99s largest December 2006 that provided\nDBF conducted timely examina- borrowing relationship and a framework for assessing CRE\ntions of Integrity. The FDIC also significant control weaknesses in concentrations. The FDIC also\nprovided oversight through its the loan approval processes did updated and re-emphasized\noff-site monitoring process. In not come to light until the 2007 CRE loan examination guidance\nFebruary 2008, the FDIC issued a examination. However, in our view, to examiners in July 2008. The\nC&D and conducted a visitation to greater concern for Integrity\xe2\x80\x99s guidance focused on examiner\nreview actions taken as a result of loan administration and under- understanding of concentrations,\nthe C&D. Further, in July 2008 and writing weaknesses identified in market conditions, underwriting\nagain in August 2008, the FDIC the 2005 and 2006 examinations and credit risk management, and\nused its authority under the PCA could have led to earlier super- capital and ALLL adequacy.\nprovisions of the FDI Act to issue visory action regarding Integ- We reported that SSB failed\nPCA Directives when Integrity rity\xe2\x80\x99s borrowing relationships. primarily due to bank manage-\nbecame undercapitalized and then ment\xe2\x80\x99s high-risk business\n Material Loss Review of Silver\nsignificantly undercapitalized. The strategy. SSB pursued aggressive\n State Bank, Henderson, Nevada\nFDIC has authority to take a wide loan growth, concentrating in\nrange of supervisory actions. In the On September 5, 2008, the higher-risk CRE loans, and relied\ncase of Integrity, however, super- Nevada Financial Institutions on funding from high-cost and\nvisory actions were not timely Division closed Silver State Bank volatile sources. This business\nand effective in addressing the (SSB), Henderson, Nevada, and strategy, coupled with weak\nbank\xe2\x80\x99s most significant problems. named the FDIC as receiver. On risk management practices and\n September 30, 2008, the FDIC noti- controls, left the bank unpre-\nOur report acknowledges that the\n fied the OIG that SSB\xe2\x80\x99s total assets pared and unable to effectively\nFDIC has taken steps to improve its\n at closing were $1.887 billion, with manage operations in a declining\nsupervisory oversight of financial\n a material loss to the DIF estimated economic environment. As loan\ninstitutions that have concentra-\n at $505 million. As of December losses increased, earnings and\ntions in ADC loans and use interest\n 31, 2008, the estimated loss to the capital eroded. SSB experienced\nreserves. However, examiners\n DIF increased to $553 million. a severe liquidity crisis as deposi-\nnoted deficiencies in Integrity\xe2\x80\x99s\nasset quality in the 2005 and 2006 SSB was a state-chartered, tors withdrew their funds, and the\nexaminations that should have nonmember bank that was bank was at significant risk of not\nwarranted greater concern. Specifi- established and insured on July being able to meet its obligations\ncally, these examinations identified 1, 1996. SSB was headquartered when it was closed by the Nevada\nsignificant risks in Integrity\xe2\x80\x99s loan in Henderson, Nevada. When the Financial Institutions Division.\nportfolio, including a high concen- bank failed, it operated 17 full- In our view, the FDIC could have\ntration in ADC and individual service branches in Nevada and exercised greater supervisory\nloans; out-of-territory lending; and Arizona. SSB\xe2\x80\x99s loan portfolio was concern and taken additional\nloan administration issues that concentrated in CRE loans and action to help prevent the\nwere not corrected in subsequent ADC loans. The FDIC has recog- bank\xe2\x80\x99s failure and/or to miti-\nexaminations as Integrity\xe2\x80\x99s risk nized the increased risk that CRE gate the potential level of losses\nprofile was increasing. Greater loans present to financial institu- incurred. Specifically, although\nconcern regarding Integrity\xe2\x80\x99s loan tions and updated and re-empha- the FDIC identified SSB\xe2\x80\x99s loan\nadministration and declining sized bank guidance in March concentrations and funding\nasset quality could have led to 2008. In particular, this guidance sources as potential high-risk\nelevated supervisory attention re-emphasized the importance of areas of concern in examina-\nand earlier supervisory action. strong capital, an adequate ALLL, tions completed as early as 2005,\n 13\n\x0cthe FDIC took limited actions to DSC\xe2\x80\x99s written response generally coverage of institution under-\nmitigate the bank\xe2\x80\x99s aggregate agreed with the OIG\xe2\x80\x99s conclusions writing practices for consumer\nlevel of risk exposure. With respect regarding the causes of SSB\xe2\x80\x99s loans not secured by real estate,\nto SSB\xe2\x80\x99s Capital Adequacy, Asset failure. However, DSC stated that we noted that examiners did not\nQuality, Management, Earn- SSB management was receptive to always properly complete the\nings, Liquidity, and Sensitivity to examiner recommendations and required Underwriting Survey.\nMarket Risk (CAMELS) ratings, identified positive actions that SSB The FDIC uses these surveys to\nDSC assigned SSB a composite 2 took to improve its operations in track whether institutions are\nrating as recently as the May 2007 response to the 2007 examination. making loans without adequate\nexamination, and only first identi- DSC indicated that asset quality collateral protection and the\nfied SSB as a potential supervi- deteriorated quickly in 2008. extent to which the institutions\nsory concern during the March Nonetheless, our view remains make loans to borrowers who\n2008 visit to SSB as part of DSC\xe2\x80\x99s that DSC could have exercised lack a demonstrable ability to\nCommercial Real Estate Lending greater supervisory concern repay. Completed surveys also\nVisitation Program. DSC did not and taken additional action to provide information about an\ndowngrade the bank\xe2\x80\x99s ratings address SSB conditions and risks. institution\xe2\x80\x99s underwriting trend\nuntil the following examination since the last examination and\nin July 2008\xe2\x80\x94SSB\xe2\x80\x99s last exami- Examination Coverage of current underwriting practices.\nnation before the bank failed. Underwriting Practices\nFurther, aside from placing a Bank We therefore recommended that\n for Consumer Loans Not the Director of DSC strengthen\nBoard Resolution in 2005, which\nincluded provisions related to Secured by Real Estate controls over the Underwriting\nCRE loan concentrations, the FDIC We conducted an audit to assess Surveys to ensure the complete-\ndid not place any other supervi- FDIC risk management examina- ness and accuracy of survey data.\nsory or corrective actions on the tion coverage of institution under- DSC indicated that it planned to\nbank, including PCA directives. writing practices for consumer meet the intent of our recom-\n loans not secured by real estate. mendation as part of its ongoing\nBased on our review of the FDIC\xe2\x80\x99s\n As of March 31, 2008, FDIC-super- revisions to the Underwriting\nReports of Examination and\n vised institutions held approxi- Survey, which will be renamed\navailable corresponding working\n mately $94.7 billion in consumer the Credit and Consumer\npapers and discussions with FDIC\n loans not secured by real estate. Products Survey, intended to\nand Nevada Financial Institutions\n Such loans are used by consumers enhance the quality and quan-\nDivision personnel, we identified\n to finance a wide array of items, tity of information collected.\nseveral concerns regarding the\nFDIC\xe2\x80\x99s supervision of SSB. Specifi- such as: automobiles, appliances,\ncally, DSC could have done more furniture, home repairs, education Controls Over the FDIC\xe2\x80\x99s\nto: recognize and/or analyze risk; costs, medical expenses, and vaca- Processing of Capital\nset a proper tone in the Reports tions. Accordingly, it is important Purchase Program Applica-\nof Examination; appropriately for FDIC examiners to adequately\n assess the risks associated with tions from FDIC-Supervised\nconsider risk in CAMELS ratings;\n such consumer loans when they Institutions\nensure that proper controls and\nrisk limitation and/or mitiga- represent a material percentage In October 2008, the Congress\ntion strategies were established of an institution\xe2\x80\x99s assets. passed and the President signed\nand appropriately implemented; We determined that DSC has the Emergency Economic Stabi-\nidentify in a timely manner SSB\xe2\x80\x99s established sound risk manage- lization Act of 2008, which estab-\nincreasing risk profile, including ment examination guidance for lished the Office of Financial\nconcentrations in targeted market the reviews of consumer loans not Stability within the Department of\nareas, as a potential concern; secured by real estate in FDIC- the Treasury (Treasury) and autho-\nand deal assertively with bank supervised institutions. Although rized the Troubled Asset Relief\nmanagement on examination our overall conclusion was posi- Program (TARP). Among other\nfindings and recommendations. tive with respect to examination things, the Act provides Treasury\n14\n\x0cwith broad, flexible authorities to CPP applications that provide or acquire other institutions.\nbuy up to $700 billion in \xe2\x80\x9ctroubled reasonable assurance that the We made two recommendations\nassets\xe2\x80\x9d and allows Treasury to Corporation is complying with\n to enhance controls over the\npurchase and insure mortgages Treasury\xe2\x80\x99s CPP guidance. Based\n CPP application review process\nand securities based on mort- on our review, we determined\n related to (1) forwarding applica-\ngages and, in consultation with that the FDIC followed the\n tions recommended for approval\nthe Chairman of the Board of Treasury guidance for substan-\n that do not meet one or more\nGovernors of the Federal Reserve tially all of the applications we\n of Treasury\xe2\x80\x99s criteria to the CPP\nSystem, purchase any other finan- reviewed. DSC issued examina-\n Council for additional review\ncial instrument deemed necessary tion procedures in February\n and (2) requiring Washington\nto stabilize financial markets. 2009 for monitoring compliance\n Office review of institutions\nUnder the TARP, Treasury will with CPP award provisions. Such\n recommended for withdrawal\npurchase up to $250 billion of procedures will allow the FDIC\n when the institutions technically\npreferred stock through a Capital to measure participating institu-\n meet the Treasury criteria. DSC\nPurchase Program (CPP). The CPP tions\xe2\x80\x99 success in deploying TARP\n concurred with both recom-\nis available to qualifying financial capital and ensure that the funds\n mendations and proposed\ninstitutions. Treasury will deter- are used in a manner consistent\n actions that were responsive\nmine eligibility and allocations for with the intent of the Congress.\n to our recommendations.\ninterested parties after consulta- DSC officials initially noted that\ntion with the appropriate federal Treasury did not specify limits Successful OIG Investiga-\nbanking agency. Specifically, in on institutions\xe2\x80\x99 use of CPP funds tions Uncover Financial\nthe case of the FDIC, the Corpora- and indicated that the FDIC did\ntion analyzes CPP applications\n Institution Fraud\n not intend to track applicants\xe2\x80\x99\nfrom state nonmember banks use of funds. CPP application As mentioned previously, the\nand makes a recommendation to forms developed by Treasury OIG\xe2\x80\x99s Office of Investigations\xe2\x80\x99\nTreasury on whether a CPP request also did not require applicants work focuses largely on fraud\nshould be approved or denied. to state their intended use of that occurs at or impacts finan-\n CPP funds. The FDIC advised cial institutions. The perpetra-\nWe conducted an evaluation to\n state nonmember banks that tors of such crimes can be those\nassess the FDIC\xe2\x80\x99s process and\n they could use the CPP to bolster very individuals entrusted with\ncontrols associated with reviewing\n capital or to support acquisitions, governance responsibilities at\napplications from FDIC-supervised\n both of which could ultimately the institutions\xe2\x80\x94directors and\ninstitutions to participate in the\n allow for prudent lending. bank officers. In other cases,\nTARP CPP and forwarding approval\n individuals providing profes-\nrecommendations to Treasury. In mid-January 2009, the FDIC\n sional services to the banks,\nAt the time of our review, as of issued a Financial Institution\n others working inside the bank,\nJanuary 15, 2009, the FDIC had Letter to state nonmember banks\n and customers themselves are\nreceived 1,615 applications from that it expected institutions to\n principals in fraudulent schemes.\nFDIC-supervised institutions monitor the use of CPP funds\nrequesting almost $34 billion and show how participation in The cases discussed below are\nin TARP funding. The FDIC had the CPP would expand prudent illustrative of some of the OIG\xe2\x80\x99s\nrecommended 408 applications to lending activity, such as through most important investigative\nTreasury for approval, of which 267 a plan with definable metrics success during the reporting\nhad received awards. FDIC officials for measuring performance. period. These cases reflect the\nestimated that the Corporation cooperative efforts of OIG investi-\n Based on our review of 172 appli-\nwould complete its review of the gators, FDIC divisions and offices,\n cations, about 44 percent of appli-\nremaining applications during U.S. Attorneys\xe2\x80\x99 Offices, and others\n cants indicated proposed uses\nthe second quarter of 2009. in the law enforcement commu-\n for CPP funds. The most common\nWe found that the FDIC has stated uses of CPP funds were to nity throughout the country.\nestablished controls for reviewing increase lending, bolster capital, About 40 percent of our active\n 15\n\x0ccases address the increased of Northern Texas for their roles plea in the U.S. District Court for\nincidence of mortgage fraud. in a mortgage fraud scheme. The the Eastern District of New York,\nOther significant cases during three defendants received prison Brooklyn, New York, to an indict-\nthe reporting period involve sentences ranging from 18 to 60 ment charging her for her role\nembezzlement, bribery and months, and were ordered to pay in a \xe2\x80\x9cstop foreclosure\xe2\x80\x9d scheme.\nkickbacks, and bank fraud. The restitution totaling $5,818,045. The indictment charged the\nOIG\xe2\x80\x99s success in all such investi- From December 2002 through defendant with bank fraud, wire\ngations contributes to ensuring March 2004, the defendants and fraud, and conspiracy to commit\nthe continued safety and sound- others engaged in a real estate bank and wire fraud. The defen-\nness of the nation\xe2\x80\x99s banks. scheme to defraud various real dant and her husband were loan\n estate lenders, buyers and sellers, officers or agents of Exoro Funding\nSuccessful Mortgage Fraud including Fremont Investment and New Era Funding and oper-\nCases and Loan (Fremont), Brea, CA. The ated out of offices in Queens, New\nOur office has successfully investi- defendants located single family York. The defendant recruited\ngated a number of mortgage fraud residences and then recruited individuals whose properties were\ncases over the past 6 months, straw purchasers and borrowers facing foreclosure and convinced\nseveral of which are described to purchase and finance the these people to sell their proper-\nbelow. Perpetrators of these mort- residences. Fraudulent loan docu- ties to straw buyers who were also\ngage schemes are receiving stiff ments were then submitted to the recruited by the defendant and\npenalties and restitution orders. lenders in the name of the straw her husband. The victims were\nOur involvement in such cases borrowers falsely indicating that typically promised that they could\nis supplemented by our partici- down payments had been made continue to live in their proper-\npation in a growing number of by the borrowers. One of the ties rent free while the defendants\nmortgage fraud task forces. Mort- defendants, who worked for a title \xe2\x80\x9crepaired\xe2\x80\x9d their credit. The victims\ngage fraud is one of the fastest company, would release the loan were further told that they could\n proceeds early to other conspira- buy back their properties after\ngrowing white-collar crimes and\n tors, who would then purchase their credit was \xe2\x80\x9crepaired.\xe2\x80\x9d None\nis taking on new characteristics\n cashiers checks in the name of of the victims either had their\nin the current economic crisis as\n the straw borrowers to represent credit repaired or were able to\nperpetrators seek to take advan-\n the requisite down payment. The buy back their property. After the\ntage of an already bad situation.\n scheme caused the mortgage defendants recruited the straw\nSuch illegal activity can cause\n lenders and financial institutions buyers, they, together with others,\nfinancial ruin to homeowners and\n to make inflated loans; the defen- fraudulently obtained mortgage\nlocal communities. It can further\n dants then conspired to distribute loans for the strawbuyers.\nimpact local housing markets and\n the fraudulently obtained loan Source: Suspicious Activity Reports.\nthe economy at large. Mortgage\n proceeds among themselves and Responsible Agencies: FBI and FDIC\nfraud can take a variety of forms OIG. Prosecuted by the U. S. Attorney\xe2\x80\x99s\n others. The defendants and others\nand involve multiple individuals. Office, Eastern District of New York.\n executed contracts with the straw\nWe also work these and other\n borrowers stating they would be\ncases based on a variety of Illinois Mortgage Broker is\n responsible for the loans, but they\nexcellent sources of referral and Sentenced in a Real Estate Land\n failed to fulfill their contract.\nwith partners both internal and Flipping Scheme\n Source: Federal Bureau of Investigation\nexternal to the FDIC, as shown On January 22, 2009, a mortgage\n (FBI). Responsible Agencies: FDIC OIG and\nin the write-ups that follow. the FBI. Prosecuted by the U.S. Attorney\xe2\x80\x99s broker was sentenced in the\n Office for the Northern District of Texas. U.S. District Court for the Central\nMultiple Sentencings in\n District of Illinois to 78 months of\nMortgage Fraud Case Guilty Plea in Mortgage Fraud\n imprisonment, to be followed by\nOn January 23, 2009, three indi- Case\n 60 months of supervised release.\nviduals were sentenced in the On February 27, 2009, a Queens Restitution in the amount of\nU.S. District Court for the District mortgage broker entered a guilty $1,752,445 was also ordered.\n16\n\x0cFrom 1999 through 2005, the Former Manager of Nations statements regarding his income.\ndefendant, along with others, Home Lending Sentenced for He then refinanced the mortgages\nengaged in a real estate \xe2\x80\x9cland Participating in a Mortgage Loan and created false documents, such\nflipping\xe2\x80\x9d scheme to defraud Fraud Scheme as a Satisfaction of Mortgage, to\nreal estate lenders, buyers, and deceive the parties associated\n On February 17, 2009, a former\nsellers. The scheme involved more with the refinanced transactions.\n manager of Nations Home\nthan 150 fraudulent real estate In doing so, the defendant directly\n Lending, a division of Sutton\nsales and financing transactions obtained the loan proceeds for his\n Bank, Attica, Ohio, was sentenced\ntotaling more than $8 million personal benefit instead of using\n in the U.S. District Court for the\nand resulted in the fraudulent the loan proceeds to pay off the\n Southern District of Ohio, to 51\nreceipt of more than $3 million, mortgages. The value of these\n months of incarceration, to be\nwhich the parties converted to two mortgages was $2.3 million.\n followed by 3 years of supervised\ntheir personal use or used to Source: Division of Supervision and\n release. He was also ordered to\npromote their ongoing scheme. Consumer Protection (DSC), Chicago\n pay $645,925 in restitution. Region. Responsible Agencies: FBI,\nSource: Request from U.S. Attorney\xe2\x80\x99s Office,\n The defendant acquired residential FDIC OIG, and the U.S. Postal Inspection\nCentral District of Illinois. Responsible\n Service. Prosecuted by the U.S. Attor-\nAgencies: FBI, FDIC OIG, and the U.S. Postal real estate and two mortgages ney\xe2\x80\x99s Office, Southern District of Ohio.\nInspection Service. Prosecuted by the U.S. in his own name by making false\nAttorney\xe2\x80\x99s Office, Central District of Illinois.\n Accountant Pleads Guilty in\n Keeping Current with Mortgage Fraud Activities Nationwide Mortgage Fraud Case\n The FDIC OIG participates in the Department of Justice\xe2\x80\x99s Operation Malicious On October 6, 2008, a practicing\n Mortgage and in the following mortgage fraud working groups throughout accountant entered a guilty plea\n the country. We benefit from the perspectives, experience, and expertise of in the U.S. District Court for the\n all parties involved in combating the growing incidence of mortgage fraud Eastern District of New York,\n schemes. Brooklyn, New York, to a criminal\n National Bank Fraud National Mortgage Fraud Working Sub-group. information charging him with\n Working Group conspiracy to commit wire fraud.\n Northeast Region Long Island Mortgage Fraud Task Force, Eastern\n The defendant is an accountant\n District New York Mortgage Fraud Task Force; the\n Northern Virginia Real Estate Fraud Initiative Working\n who operates a practice on Long\n Group, Manassas, Virginia; the New England Mort- Island, New York. At the request\n gage Fraud Working Group. of other co-conspirators, the\n defendant provided false and\n Southeast Region Middle District of Florida Mortgage and Bank Fraud\n Task Force, Southern District of Florida Mortgage fraudulent tax returns and other\n Fraud Working Group, Northern District of Georgia documents to support false state-\n Mortgage Fraud Task Force, Eastern District of North ments on mortgage applications\n Carolina Bank Fraud Task Force. related to the borrower\xe2\x80\x99s income.\n Midwest Region Chicago Mortgage Fraud Task Force, Dayton Area Source: Request from the U.S. Attorney,\n Mortgage Fraud Task Force, Cincinnati Area Mortgage Eastern District of New York, Brooklyn, New\n Fraud Task Force, St. Louis Mortgage Fraud Task Force, York. Responsible Agencies: Immigra-\n tion and Customs Enforcement, FDIC OIG,\n Kansas City Mortgage Fraud Task Force.\n and the Internal Revenue Service, Criminal\n Southwest Region Seattle Mortgage Fraud Working Group, FBI Seattle Investigation Division. Prosecuted by the U.S.\n Mortgage Fraud Task Force, Mortgage Fraud Task Attorney\xe2\x80\x99s Office, Eastern District of New York.\n Force for the Southern District of Mississippi,\n Oklahoma City Financial Crimes Suspicious Activity\n Report Review Work Group, North Texas Mortgage\n Fraud Working Group, the Eastern District of Texas\n Mortgage Fraud Task Force, the Texas Attorney\n General\xe2\x80\x99s Residential Mortgage Fraud Task Force,\n Houston Mortgage Fraud Task Force, and the Los\n Angeles Mortgage Fraud Working Group.\n\n 17\n\x0cOther Investigative Case interests would not yet be publicly services to the bank; and autho-\nResults recorded. Sentences ranged from rizing payment by or on behalf\n 2 to 20 months, and restitution of the bank for IT services.\nMultiple Sentencings in New orders totaled $12,967,385.\n During the summer of 2002,\nJersey Home Equity Line of Credit Source: Request from the U.S. Attorney\xe2\x80\x99s the former senior vice presi-\nFraud Case Office, District of New Jersey, Newark,\n dent learned that there was an\n New Jersey. Responsible Agencies: FBI\nDuring the period December 9-12, and FDIC OIG. Prosecuted by the U. S. unused balance of approximately\n2008, 12 defendants were sentenced Attorney\xe2\x80\x99s Office, District of New Jersey. $400,000 in Mercantile\xe2\x80\x99s \xe2\x80\x9csoft\nfor their roles in a scheme to fraudu- dollars\xe2\x80\x9d account at UBS Warburg.\nlently obtain more than $20 million Contractor Sentenced in Bribery In return for utilizing UBS Warburg\nin home equity loans and business and Kickback Case to conduct trades of stocks and\nlines of credit. Victims include at least On November 21, 2008, a former bonds, Mercantile accumulated\n16 different lenders in northern New contractor for Mercantile-Safe \xe2\x80\x9csoft dollar\xe2\x80\x9d credits. Brokers like\nJersey, including Woori American Deposit & Trust Company (Mercan- UBS Warburg typically set aside a\nBank and Royal Asian Bank. tile), Baltimore, Maryland, was percentage of the commissions\nThree of the defendants were loan sentenced to serve 2 months charged for securities transac-\nbrokers with American Macro in home confinement and 24 tions as a credit or rebate that\nGrowth (AMG), in Palisades Park, months of supervised release after may be used by their clients to\nNew Jersey. AMG employees his period of confinement ends. purchase \xe2\x80\x9csoft dollar\xe2\x80\x9d services.\nhelped other defendants use the The defendant was also ordered \xe2\x80\x9cSoft dollar\xe2\x80\x9d services typically\nsame properties as collateral for to pay restitution of $87,500. consist of investment-related\nmultiple home equity lines of data or products, such as research\n The defendant was an electrical\ncredit or \xe2\x80\x9cHELOCs,\xe2\x80\x9d even though reports pertaining to compa-\n engineer and computer technician\nthe loan amounts far exceeded nies or computer software, that\n who worked for a business known\nthe value of the properties that assist clients in either selecting\n as EMAX Electric. In early 2003,\nwere to serve as security. AMG or valuing securities. The former\n the defendant established his\nmisrepresented clients\xe2\x80\x99 income senior vice president devised a\n own business, EMAX Technology.\nand other important information scheme to defraud Mercantile and\n Both during the period when he\nin order to increase the amounts its customers of the $400,000.\n was working for EMAX Electric\nthat clients would be eligible to and once he established his own In the late winter and spring of\nborrow. AMG regularly submitted business as EMAX Technology, 2003, Mercantile\xe2\x80\x99s former senior\nfalsified income tax returns on the defendant spent most of his vice president began to use the\nbehalf of its clients while applying time working at the Mercantile defendant\xe2\x80\x99s new business, EMAX\nfor lines of credit. The falsified headquarters building on various Technology, as an intermediary\nincome tax returns grossly inflated electrical wiring and computer- for what were supposed to be\nthe clients\xe2\x80\x99 income to create the related tasks. While he was working purchases of computer hardware\nillusion that the applicants would for the bank, the defendant was and software for Mercantile from\nbe able to repay the loans. supervised by a former Mercantile a company known as Computer &\nIn a HELOC, a borrower pledges the senior vice president. (The former Data Consultants, Inc. (C&DC). The\nequity in the borrower\xe2\x80\x99s property Mercantile senior vice president defendant received invoices from\nas security for the line of credit. was convicted and sentenced C&DC reflecting hardware and soft-\nThe bank\xe2\x80\x99s security interest in the during a previous reporting ware items supposedly delivered\nproperty is then publicly recorded period.) Among other things, the directly to the former senior vice\nso that other lenders will be aware former senior vice president\xe2\x80\x99s president at Mercantile. The defen-\nof prior claims on the property. responsibilities included selecting dant calculated a mark-up on the\nThe defendants executed the vendors to provide informa- amount of C&DC\xe2\x80\x99s invoice and then\nscheme by closing on multiple tion technology (IT) services to submitted an EMAX Technology\nHELOCs in a short period of time Mercantile; reviewing the perfor- invoice for the revised amount to\nso that the earlier lenders\xe2\x80\x99 security mance of vendors supplying IT the former senior vice president.\n18\n\x0cOnce the defendant received incarceration to be followed by knowingly hiring illegal aliens.\npayment from Mercantile, he then 5 years of supervised release.\n According to the information, in\nissued a check to C&DC in the He was ordered to pay restitu-\n 2003, the defendant obtained a\namount of its original invoice. The tion to the FDIC in the amount\n commercial construction loan of\ndefendant had no direct contacts of $3,445,981. The defendant\n approximately $4 million from\nwith anyone at C&DC, and never was immediately remanded into\n Chittenden Trust Company (Chit-\npersonally handled or transmitted custody at the sentencing hearing.\n tenden), Burlington, Vermont,\nany of the hardware or software\n The defendant, who formerly for the purpose of building a\nitems that C&DC was suppos-\n operated a used car business Hampton Inn in Brattleboro,\nedly providing to Mercantile.\n in Blanchardville, Wisconsin, Vermont. The defendant alleg-\nIn late November or early known as Trucks-4-U, engaged edly conspired with a construc-\nDecember 2003, while he was in a scheme to defraud the First tion contractor to inflate the\nstill working at Mercantile, the National Bank of Blanchardville stated cost of the construction\ndefendant was questioned by (FNBB), Blanchardville, Wisconsin. project. Two separate construction\nanother Mercantile bank officer To carry out the scheme, the contracts were completed. One of\nabout some of his work with the defendant deposited approxi- the contracts between the parties\ninstitution. The defendant subse- mately $15 million worth of either referenced the true construction\nquently called the former senior NSF or closed account credit card cost; the other contract reflected\nvice president to let him know checks into his accounts at FNBB inflated cost figures. The inflated\nthat questions were being raised for the purpose of fraudulently cost figures were given to Chit-\nabout the transaction. The two reducing substantial overdrafts tenden, and the loan was based\nmen agreed to meet at the former in the accounts. As a result of the on those false figures. During\nsenior vice president\xe2\x80\x99s residence. scheme to defraud, the defen- the course of the construction\nAt this meeting, the defendant dant received approximately $6.1 project, a series of percentage of\ntold the former senior vice million in fraudulently obtained completion construction draw\npresident that he knew someone loans from FNBB and thereafter requests were submitted based on\nwhom he could hire to prepare defaulted on the loans, causing the false contract amount; Chit-\ndocuments that could be supplied a loss to FNBB of approximately tenden paid those draw requests.\nto Mercantile to make it appear $3.8 million. FNBB lost an addi-\nthat the subject work had actu- tional $250,000 as a result of Also, between 2003 and 2006,\nally been performed. The former overdraft accounts when FNBB the defendant received a series of\nsenior vice president agreed was closed by the Office of the additional commercial loans from\nto pay the defendant a total of Comptroller of Currency. Chittenden, valued at approxi-\n$87,500 in return for generating mately $4.9 million. The defendant\n Source: Division of Resolutions and Receiver-\ndocuments that could be supplied ships (DRR). Responsible Agencies: FBI; allegedly falsified his operating\nto Mercantile in response to FDIC OIG; Internal Revenue Service, Criminal entities\xe2\x80\x99 books and records by\nthe questions that were being Investigation Division; and Department of inflating revenue to make it appear\n Agriculture OIG. Prosecuted by the U.S. Attor- that his properties were operating\nraised about the project. ney\xe2\x80\x99s Office, Western District of Wisconsin.\nSource: Request from the FDIC New York\n profitably. Chittenden approved\nRegional Office, DSC. Responsible Agen- Hotel Operator Pleads Guilty to and funded the loans based, in\ncies: FBI, FDIC OIG, and the U.S. Postal\n Defrauding a Financial Institution part, on the financial statements.\nInspection Service. Prosecuted by the U.S.\nAttorney\xe2\x80\x99s Office, District of Maryland. On October 2, 2008, a hotel The defendant also admitted that\n operator entered a guilty plea he hired at least 10 individuals\nBank Customer Sentenced for in the U.S. District Court for the whom he knew to be illegal aliens.\nBank Fraud District of Vermont to a criminal Source: Request for assistance from the\nOctober 23, 2008, a bank customer information charging him with U.S. Attorney\xe2\x80\x99s Office for the District of\n Vermont and the FBI. Responsible Agencies:\nwas sentenced in the U.S. District conspiracy, making false state- FBI, Immigration and Customs Enforce-\nCourt for the Western District ments in connection with ment, FDIC OIG. Prosecuted by the U. S.\nof Wisconsin to 100 months of commercial loan applications, and Attorney\xe2\x80\x99s Office, District of Vermont.\n\n 19\n\x0cFormer Bank Operations embezzlement. The defendant applications were approved. The\nManager Sentenced was sentenced to serve 18 pre-funding of loans resulted\nOn March 17, 2009, in the Colo- months in prison to be followed in an increased volume of new\nrado District Court for the 14th by 36 months of supervised loans that benefited the defen-\nJudicial District, a former bank release; she was also ordered to dant with high performance\noperations supervisor of Alpine pay restitution of $330,724. ratings, bonuses, promotions,\nBank, Steamboat Springs, and a \xe2\x80\x9cBanner\xe2\x80\x99s Best\xe2\x80\x9d recognition\n The defendant embezzled funds\nColorado, was sentenced to 96 award, as well as several raises.\n from Center through unauthorized\nmonths of incarceration to be debit/credit activities involving The defendant knew that the\nfollowed by 60 months of manda- commercial bank accounts, loan applications would require\ntory parole. The defendant was unauthorized fund disbursements more scrutiny, and that Banner\nalso ordered to pay $1,386,390 through fraudulent block deposit would have required additional\nin restitution and several thou- entries, and misdirection of collateral. He manipulated\nsand dollars in court fees. customer deposits. The proceeds numerous loan documents in\nThe defendant and an accom- from these illegal activities order to obtain credit approvals for\nplice embezzled approximately were diverted, using the bank\xe2\x80\x99s select customers. The documents\n$1.4 million from Alpine Bank. computer system, to individual manipulated by the defendant\n(The defendant\xe2\x80\x99s accomplice, a and business bank accounts included credit bureau reports,\nformer Alpine Bank teller, was controlled by the defendant. appraisal reports, and on-line\nalso sentenced to 96 months of Source: Suspicious Activity Report. tax assessment evaluations. The\nincarceration during a previous Responsible Agencies: FBI and the FDIC defendant also misrepresented\nreporting period.) The defen- OIG. Prosecuted by the U.S. Attorney\xe2\x80\x99s and altered real estate values,\n Office, Central District of California.\ndants created internal documents borrower income, and credit\ncalled \xe2\x80\x9cAdvice of Charges,\xe2\x80\x9d forged histories and subsequently\n Former Bank Officer Sentenced\ncustomer signatures to the docu- approved loan applications\nments, and made unauthorized On February 17, 2009, a former that he knew to be fictitious.\ncash withdrawals from customer branch manager and loan officer Source: Suspicious Activity Report.\naccounts. In an attempt to conceal for Banner Bank (Banner), Walla Responsible Agencies: FBI and FDIC OIG.\ntheir theft, \xe2\x80\x9chold mail\xe2\x80\x9d was placed Walla, Washington, was sentenced Prosecuted by the U.S. Attorney\xe2\x80\x99s Office\non the customer accounts to in the U.S. District Court for the for the Eastern District of Washington.\nprevent the customers from Eastern District of Washington to\nreceiving their monthly account Former Bank President Indicted\n 12 months and 1 day of incarcera-\nstatements and discovering the and Pleads Guilty\n tion to be followed by 5 years of\nunauthorized debit transactions. supervised release. The defendant On February 13, 2009, a two-count\nSource: Suspicious Activity Report and was also ordered to perform 240 information was filed charging the\nthe Steamboat Springs Police Depart- hours of community service and former president of the Benton\nment. Responsible Agencies: FDIC OIG, pay restitution of $440,042. Banking Company (Benton), Benton,\nSteamboat Police Department, and Routt\nCounty Sheriff\xe2\x80\x99s Office. Prosecuted by Routt Tennessee, with misapplication of\n From December 2005 through\nCounty, Colorado, District Attorney. bank funds. On March 31, 2009, the\n April 2006, the defendant devised\n defendant entered a guilty plea to\n a scheme to defraud Banner. As a\nFormer Bank International Opera- the charges in the U.S. District Court\ntions Manager Sentenced branch manager and loan officer\n for the Eastern District of Tennessee.\n for Banner, the defendant made\nOn February 18, 2009, a former approximately 40 unauthor- The defendant embezzled approxi-\ninternational operations manager ized and undisclosed monetary mately $1.3 million beginning in\nfor Center Bank (Center), Los advances on one bank customer\xe2\x80\x99s 2002 and used the proceeds for\nAngeles, California, was sentenced credit line. He then used the his own personal use. He admitted\nin the U.S. District Court for the money to \xe2\x80\x9cgap fund\xe2\x80\x9d or pre-fund to funding false loans totaling $4\nCentral District of California, loans or line increases for other million to shell limited liability\nLos Angeles, California, for bank bank customers before their loan companies that were owned by\n20\n\x0ca Benton bank customer. The release, and was ordered to pay when he did not qualify for the\npurpose of these loans was to restitution of $3,343,298 for his role loans. In 2005 and 2006, the\nenable the bank customer to list in a bank bribery and mail fraud customer mailed false financial\nthese funds as \xe2\x80\x9coutside investors\xe2\x80\x9d scheme to fund his investments. statements to BB&T, Charles, West\non loan applications to other insti- Two other defendants, former Virginia, and the First National\ntutions, so that the bank customer officers of First National Bank of Bank of Ronceverte, which falsely\ncould repay Benton for $2 million Ronceverte, Ronceverte, West inflated his assets and under-\nin legitimate loans and $2 million Virginia, were sentenced to serve stated his liabilities. He received\nin overdrafts that had been 5 months and 9 months, respec- loan proceeds based on the false\ndisguised as loans to third parties. tively, and will each be on super- financial statements. The defen-\nSource: FDIC DSC. Responsible Agencies: vised release for 36 months after dant used approximately $4.2\nFBI and FDIC OIG. Prosecuted by the U. S. they serve their prison sentences. million in funds he received from\nAttorney\xe2\x80\x99s Office for the Eastern District of The former officers were also fined the banks for his personal use.\nTennessee.\n $50,000 and $75,000, respectively. Source: U.S. Attorney\xe2\x80\x99s Office. Responsible\n Agencies: FBI and FDIC OIG. Prosecuted by\nMultiple Sentencings in Bank Our investigation established the U.S. Attorney\xe2\x80\x99s Office for the Southern\nBribery and Bank Fraud Case that the customer bribed the two District of West Virginia.\n other defendants while they were\nOn October 17, 2008, a bank\n officers at the First National Bank Sentencing of Former Bank Loan\ncustomer was sentenced in the\n of Ronceverte. A $10,000 bribe Officer\nU.S. District Court for the Southern\n was made to influence the offi-\nDistrict of West Virginia, to serve On December 2, 2008, a former\n cers to advance over $4 million\n97 months in prison, to be followed loan officer for Peoples Inde-\n in loan proceeds to the customer\nby 60 months of supervised pendent Bank (Peoples), Boaz,\n Alabama, entered a guilty plea in\n Blount County, Alabama, to theft\n Strong Partnerships with Law Enforcement Colleagues of property and was sentenced.\n The OIG has partnered with many U.S. Attorneys\xe2\x80\x99 Offices throughout He was given a split sentenced\n the country in bringing to justice individuals who have defrauded of 2 years in jail and 5 years of\n the FDIC or financial institutions within the jurisdiction of the probation. The defendant was\n FDIC, or criminally impeded the FDIC\xe2\x80\x99s examination and resolution also ordered to pay $321,946.\n processes. The alliances with the U.S. Attorneys\xe2\x80\x99 Offices have yielded He also agreed to consent to\n positive results during this reporting period. Our strong partnership an Order of Prohibition from\n has evolved from years of hard work in pursuing offenders through Further Participation pursuant\n parallel criminal and civil remedies resulting in major successes, with to section 8(e) of the FDI Act.\n harsh sanctions for the offenders. Our collective efforts have served Our investigation disclosed\n as a deterrent to others contemplating criminal activity and helped that the former loan officer,\n maintain the public\xe2\x80\x99s confidence in the nation\xe2\x80\x99s financial system. over a 2-year period, embez-\n During the reporting period, we partnered with U.S. Attorneys\xe2\x80\x99 zled over $320,000 in bank\n Offices in the following states: Alabama, Arizona, Arkansas, Cali- funds by diverting bank\n fornia, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Massa- customers\xe2\x80\x99 funds to himself.\n chusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Source: FDIC DSC. Responsible Agencies:\n Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, FBI and FDIC OIG. Prosecuted by the Blount\n County Alabama District Attorney\xe2\x80\x99s Office.\n Tennessee, Texas, Utah, Vermont, Washington, and West Virginia.\n We also worked closely with the Department of Justice, FBI, other\n OIGs, state and local law enforcement officials, and FDIC divisions\n and offices as we conducted our work during the reporting period.\n\n\n\n\n 21\n\x0c 2 Strategic Goal 2:\n The OIG Will Help the FDIC\n Maintain the Viability of\n the Insurance Fund\n\n\n\n\nFFederal deposit insurance remains\n a fundamental part of the FDIC\xe2\x80\x99s\n commitment to maintain stability\n and public confidence in the\n Nation\xe2\x80\x99s financial system. With\n enactment of the Emergency\n Economic Stabilization Act of\n 2008, the limit of the basic FDIC\n trends and risks are communi-\n cated to the financial industry,\n its supervisors, and policymakers\n through a variety of regularly\n produced publications and ad\n hoc reports. Risk management\n activities include approving the\n entry of new institutions into\n in July 2008, which caused an\n estimated $10.7 billion loss to\n the DIF. Over recent years, the\n consolidation of the banking\n industry has resulted in fewer\n and fewer financial institutions\n controlling an ever expanding\n percentage of the Nation\xe2\x80\x99s\n deposit insurance coverage was the deposit insurance system, financial assets. In recent years,\n raised temporarily from $100,000 off-site risk analysis, assessment the FDIC has taken a number\n to $250,000 per depositor, of risk-based premiums, and of measures to strengthen its\n through December 31, 2009. A special insurance examinations oversight of the risks to the\n priority for the FDIC is to ensure and enforcement actions. In light insurance fund posed by the\n that the DIF remains viable to of increasing globalization and largest institutions, and its key\n protect depositors in the event the interdependence of finan- programs include the following:\n of an institution\xe2\x80\x99s failure. This cial and economic systems, the \xe2\x80\xa2\tLarge Insured Depository\n fund was at $18.9 billion as of FDIC also supports the devel- Institution Program,\n the fourth quarter of 2008\xe2\x80\x94this opment and maintenance of\n effective deposit insurance and \xe2\x80\xa2\tDedicated Examiner Program,\n compared to a balance of $52.4\n billion as of the fourth quarter banking systems world-wide. \xe2\x80\xa2\tShared National Credit\n of 2007. To maintain sufficient Primary responsibility for identi- Program, and\n DIF balances, the FDIC collects fying and managing risks to the \xe2\x80\xa2\tOff-site monitoring systems.\n risk-based insurance premiums DIF lies with the FDIC\xe2\x80\x99s Division\n from insured institutions and The Congress enacted deposit\n of Insurance and Research, DSC,\n invests deposit insurance funds. insurance reform in early 2006\n and DRR. To help integrate the\n to give the FDIC more discretion\n The FDIC, in cooperation with risk management process, the\n in managing the DIF and allow\n the other primary federal regula- FDIC established the National\n the Corporation to better price\n tors, proactively identifies and Risk Committee (NRC), a\n deposit insurance based on risk. In\n evaluates the risk and financial cross-divisional body. Also, a\n light of recent economic events,\n condition of every insured deposi- Risk Analysis Center monitors\n the Board has taken a number of\n tory institution. The FDIC also emerging risks and recommends\n actions in this regard. The assess-\n identifies broader economic and responses to the NRC. In addi-\n ment system has been modified,\n financial risk factors that affect all tion, a Financial Risk Committee\n and the Corporation adopted a\n insured institutions. The FDIC is focuses on how risks impact the\n restoration plan in October 2008\n committed to providing accurate DIF and financial reporting.\n to increase the reserve ratio to\n and timely bank data related to Large banks pose unique risks to the 1.15 percent threshold within\n the financial condition of the the DIF, as illustrated by the failure 5 years. In February 2009, the\n banking industry. Industry-wide of IndyMac Bank, FSB (IndyMac) Board invoked the \xe2\x80\x9cextraordinary\n22\n\x0ccircumstances\xe2\x80\x9d provision of the tion Fund portfolios are managed reviews of institutions on the\nFDI Act and voted to extend the consistent with the FDIC\xe2\x80\x99s ORL. As part of our audit, we also\nrestoration plan horizon to 7 years. approved investment policies, reviewed DSC\xe2\x80\x99s implementa-\nTo help the FDIC maintain the procedures, and practices. This tion of a recommendation by\nviability of the DIF, the OIG\xe2\x80\x99s 2009 assignment is a follow-on to work the Government Accountability\nperformance goal is as follows: we conducted in 2005 related to Office (GAO) for strengthening\n the FDIC\xe2\x80\x99s investment policies. the FDIC\xe2\x80\x99s risk assessment activi-\n \xe2\x80\xa2\tEvaluate corporate programs The FDIC Chairman at the time ties through periodic evaluations\n to identify and manage risks requested that the OIG conduct and monitoring of the Corpora-\n in the banking industry that an independent audit of the tion\xe2\x80\x99s offsite monitoring systems.\n can cause losses to the fund. corporate investment program Our audit determined that DSC\nWe would note that the OIG\xe2\x80\x99s every 3 years and include the has established internal controls\naudit and evaluation work refer- investment policies applicable to for performing offsite monitoring\nenced in Goal 1 also fully supports the National Liquidation Fund. of insured financial institutions.\nthe goal of maintaining the Also at the end of the reporting Specifically, each institution on the\nviability of the DIF. Each material period, we were conducting an ORL must have an offsite review\nloss, by definition, causes a loss evaluation related to the IndyMac completed and approved within\nto the DIF. The OIG\xe2\x80\x99s MLR work is failure, focusing on such areas 3 months after the end of each\ndesigned to help prevent such as the FDIC\xe2\x80\x99s monitoring and quarter. We sampled 60 of the 577\nlosses in the future. Similarly, awareness of the institution and institutions on the December 31,\ninvestigative activity described the actions it took as back-up 2007 ORL and found that DSC had\nin Goal 1 also fully supports regulator and deposit insurer. completed offsite reviews for each\nthe strategic goal of helping to sampled institution, developed\nmaintain the viability of the DIF. FDIC\xe2\x80\x99s Controls Related to supervisory strategies, and docu-\nThe OIG\xe2\x80\x99s efforts often lead to the Offsite Review List mented the reviews in accordance\nsuccessful prosecutions of fraud in with DSC policies and procedures.\n The federal banking agen-\nfinancial institutions, and/or fraud\n cies, including the FDIC, have Additionally, DSC has initiated a\nthat can cause losses to the fund.\n developed a number of tools process for periodically evaluating\n for monitoring the health of its offsite monitoring systems in\nOIG Work in Support individual institutions and the response to a February 2007 GAO\nof Goal 2 industry as a whole. The FDIC has recommendation to evaluate\n developed eight offsite systems and monitor these systems. DSC\nAs of the end of the reporting\n to monitor insured institutions plans to evaluate, on a rotational\nperiod, we had completed one\n between examinations. Three basis, its offsite monitoring\naudit in this strategic goal area.\n of these systems are used to systems. However, at the time of\nAs described below, we assessed\n produce the Offsite Review List our audit, no details regarding\nthe Corporation\xe2\x80\x99s internal controls\n (ORL), which identifies insured a schedule or procedures for\nfor performing off-site monitoring\n institutions with potential prob- conducting evaluations were\nactivities of insured depository\n lems. Within the FDIC, DSC is available, and no system evalu-\ninstitutions. Another ongoing\n responsible for performing ations had been performed.\naudit in support of this goal area\n offsite monitoring of FDIC-\ninvolves the FDIC investment Although the FDIC has developed\n insured depository institutions.\nprogram. We contracted with an extensive offsite monitoring\nKPMG, LLP to perform an audit During the reporting period, we program, we reported that\nof the FDIC investment program, conducted an audit to assess opportunities exist for improve-\nincluding the DIF portfolio and DSC\xe2\x80\x99s internal controls for ment. Specifically, we found\nthe National Liquidation Fund. performing offsite monitoring that the ORL was not capturing\nThe audit objective is to assess of insured financial institu- a significant percentage of\nthe FDIC\xe2\x80\x99s controls for ensuring tions. The audit focused on institutions that DSC, through\nthat the DIF and National Liquida- the controls related to offsite its risk management examina-\n 23\n\x0ctions, downgraded to a 3 rating\nor worse, including many of the\ninstitutions that ultimately failed.\nWe therefore recommended that\nDSC: (1) validate the assump-\ntions and methodology used in\nthe Statistical CAMELS Off-site\nRating; (2) ensure that the regular\nevaluations of all offsite moni-\ntoring systems used to create the\nORL are performed as scheduled;\nand (3) establish procedures to\nevaluate all models-based offsite\nmonitoring systems and, as part of\nthese procedures, consider recent\nfailure and downgrade informa-\ntion to test the efficacy of the\nlogic and assumptions used in the\noffsite monitoring systems. In its\nresponse to the audit, DSC stated\nthat it concurred with the recom-\nmendations and completed the\nrecommended actions. Addition-\nally, DSC provided comments\nregarding the accuracy of the ORL\nas a predictive tool and stated that\nDSC had completed the first of the\nGAO-recommended evaluations.\n\n\n\n\n24\n\x0c Strategic Goal 3:\n The OIG Will Assist the FDIC to\n Protect Consumer Rights\n 3\n and Ensure Customer Data\n Security and Privacy\n\n\n\n\nC\nConsumer protection laws are\nimportant safety nets for Ameri-\ncans. The U.S. Congress has long\nadvocated particular protec-\ntions for consumers in relation-\nships with banks. For example:\n \xe2\x80\xa2\tThe Community Rein-\n vestment Act encourages\n of credit and leasing terms.\n \xe2\x80\xa2\tThe Fair and Accurate Credit\n Transaction Act further\n strengthened the country\xe2\x80\x99s\n national credit reporting\n system and assists financial\n institutions and consumers in\n the fight against identity theft.\n committed to working with the\n Congress and others to ensure\n that the banking system remains\n sound and that the broader\n financial system is positioned\n to meet the credit needs of the\n economy, especially the needs\n of creditworthy households that\n may experience distress. Another\n federally insured banks to\n The FDIC serves a number of key important priority is financial\n meet the credit needs of\n roles in the financial system and literacy. The Chairman has\n their entire community.\n among the most important is promoted expanded opportuni-\n \xe2\x80\xa2\tThe Equal Credit Opportunity its work in ensuring that banks ties for the underserved banking\n Act prohibits creditor practices serve their communities and population in the United States\n that discriminate based on race, treat consumers fairly. The FDIC to enter and better understand\n color, religion, national origin, carries out its role by providing the financial mainstream.\n sex, marital status, or age. consumers with access to infor- Consumers today are also\n \xe2\x80\xa2\tThe Home Mortgage Disclo- mation about their rights and concerned about data security\n sure Act was enacted to disclosures that are required and financial privacy. Banks are\n provide information to the by federal laws and regula- increasingly using third-party\n public and federal regula- tions and examining the banks servicers to provide support for\n tors regarding how deposi- where the FDIC is the primary core information and transac-\n tory institutions are fulfilling federal regulator to determine tion processing functions. Of\n their obligations towards the institutions\xe2\x80\x99 compliance with note, the increasing globaliza-\n community housing needs. laws and regulations governing tion and cost saving benefits of\n consumer protection, fair lending, the financial services industry\n \xe2\x80\xa2\tThe Fair Housing Act prohibits and community investment. As a are leading many banks to make\n discrimination based on means of remaining responsive to greater use of foreign-based\n race, color, religion, national consumers, the FDIC\xe2\x80\x99s Consumer service providers. The obliga-\n origin, sex, familial status, and Response Center investigates tions of a financial institution to\n handicap in residential real- consumer complaints about protect the privacy and security of\n estate-related transactions. FDIC-supervised institutions and information about its customers\n \xe2\x80\xa2\tThe Gramm-Leach Bliley responds to consumer inquiries under applicable U.S. laws and\n Act eliminated barriers about consumer laws and regula- regulations remain in full effect\n preventing the affiliations of tions and banking practices. when the institution transfers the\n banks with securities firms Recent events in the credit and information to either a domestic\n and insurance companies and mortgage markets present regula- or foreign-based service provider.\n mandates new privacy rules. tors, policymakers, and the finan- Every year fraud schemes rob\n \xe2\x80\xa2\tThe Truth in Lending Act cial services industry with serious depositors and financial institu-\n requires meaningful disclosure challenges. The FDIC Chairman is tions of millions of dollars. The\n 25\n\x0cOIG\xe2\x80\x99s Office of Investigations privacy, the OIG\xe2\x80\x99s 2009 perfor- enforcement actions, particu-\ncan identify, target, disrupt, and mance goals are as follows: larly fair lending-related refer-\ndismantle criminal organiza- rals or enforcement actions.\n \xe2\x80\xa2\tContribute to the effective-\ntions and individual operations\n ness of the Corporation\xe2\x80\x99s We presented the results of our\nengaged in fraud schemes that\n efforts to ensure compliance evaluation to the Chairman,\ntarget our financial institutions\n with consumer protections at including a description of actions\nor that prey on the banking\n FDIC-supervised institutions. the FDIC had taken and planned\npublic. OIG investigations have\n that were responsive to our find-\nidentified multiple schemes that \xe2\x80\xa2\tSupport corporate efforts\n ings and suggestions. In our view,\ndefraud depositors. Common to promote fairness and\n management\xe2\x80\x99s response indicated\nschemes range from identity inclusion in the delivery of\n a willingness and commitment\nfraud to Internet scams such as products and services to\n to devote sufficient resources\n\xe2\x80\x9cphishing\xe2\x80\x9d and \xe2\x80\x9cpharming.\xe2\x80\x9d consumers and communities.\n and improve processes associ-\nThe misuse of the FDIC\xe2\x80\x99s name or \xe2\x80\xa2\tConduct investigations ated with carrying out the Home\nlogo has also been identified as of fraudulent representa- Mortgage Disclosure Act outlier\na scheme to defraud depositors. tions of FDIC affiliation or program, conducting fair lending\nSuch misrepresentations have insurance that negatively examinations, and pursuing\nled depositors to invest on the impact public confidence related enforcement actions.\nstrength of FDIC insurance while in the banking system.\nmisleading them as to the true Office of Investigations Works\nnature of the investment products to Curtail Misrepresentation of\nbeing offered. These depositors\n OIG Work in Support FDIC Insurance or Affiliation and\nhave lost millions of dollars in of Goal 3 Identity Theft Schemes\nthe schemes. The OIG has been a During the reporting period, Unscrupulous individuals some-\nstrong proponent of legislation to at the Chairman\xe2\x80\x99s request, our times attempt to misuse the FDIC\xe2\x80\x99s\naddress such misrepresentations. evaluations group conducted name, logo, abbreviation, or other\nWe are pleased that the Emer- work in the area of enforcement indicators to suggest that deposits\ngency Economic Stabilization Act actions for compliance violations. or other products are fully insured.\nof 2008, signed by the former Pres- Investigative work related to Such misrepresentations induce\nident on October 3, 2008 contains protection of personal informa- the targets of schemes to trust\nprovisions that address this issue. tion also supported this strategic in the strength of FDIC insur-\nInvestigative work related to such goal area during the reporting ance while misleading them as to\nfraudulent schemes is ongoing period, as described below. the true nature of the insurance\nand will continue. With the help investments being offered. Abuses\nof sophisticated technology, the Enforcement Actions for Compli- of this nature harm consumers\nOIG continues to work with FDIC ance Violations and can also erode public confi-\ndivisions and other federal agen- We conducted an evaluation at dence in federal deposit insur-\ncies to help with the detection of the request of the FDIC Chairman ance. Our Office of Investigations\nnew fraud patterns and combat to determine: to what extent the works to counteract these abuses\nexisting fraud. Coordinating FDIC issues formal enforcement and also partners with others\nclosely with the Corporation actions to address certain compli- to pursue cases of this type.\nand the various U.S. Attorneys\xe2\x80\x99 ance violations and deficien-\nOffices, the OIG will help to sustain Identity theft also continues to\n cies; the factors, conditions, become more sophisticated,\npublic confidence in federal and circumstances involved in\ndeposit insurance and goodwill and the number of victims is\n determining whether and what growing. Identity theft includes\nwithin financial institutions. type of enforcement action is using the Internet for crimes\nTo assist the FDIC to protect initiated; and the efficiency of such as \xe2\x80\x9cphishing\xe2\x80\x9d emails and\nconsumer rights and ensure the FDIC\xe2\x80\x99s process for initiating, \xe2\x80\x9cpharming\xe2\x80\x9d Web sites that attempt\ncustomer data security and reviewing, and issuing formal to trick people into divulging\n26\n\x0ctheir private financial informa-\ntion. Schemers pretend to be\nlegitimate businesses or govern-\nment entities with a need for the\ninformation that is requested.\nThe OIG\xe2\x80\x99s Electronic Crimes\nUnit (ECU) responds to scams\ninvolving the FDIC and the OIG.\n\nElectronic Crimes Unit Success\nDuring the reporting period,\nthe ECU responded to allega-\ntions of fraudulent email and\nfacsimiles that represented\nthey were from the FDIC. The\nECU had 14 fraudulent email\naccounts and 6 fraudulent\nfacsimile numbers deactivated.\nThe ECU responded to eight\nbank closings. At these closings,\nECU agents collected electronic\nevidence from 50 computers.\nThe ECU also collected electronic\nevidence related to network\nfiles and email accounts. This\nelectronic evidence was later\nanalyzed and provided to FDIC\nOIG agents working fraud cases\nrelated to the failed financial\ninstitutions. (See also a write-up of\nthe ECU\xe2\x80\x99s work involving a \xe2\x80\x9cWhite\nPowder Mailing Case\xe2\x80\x9d in the\nsection on Goal 5 in this report.)\n\n\n\n\n 27\n\x0c 4 Strategic Goal 4:\n The OIG Will Help Ensure that\n the FDIC is Ready to Resolve\n Failed Banks and Effectively\n Manages Receiverships\n\n\n\n\nT\nThe FDIC protects depositors\nof insured banks and savings\nassociations. In the FDIC\xe2\x80\x99s history,\nno depositor has experienced a\nloss on the insured amount of his\nor her deposit in an FDIC-insured\ninstitution due to a failure. One\nof the FDIC\xe2\x80\x99s most important\n failed bank; liquidating any\n remaining assets; and distrib-\n uting any proceeds to the\n FDIC, the bank customers,\n general creditors, and those\n with approved claims.\n The FDIC\xe2\x80\x99s resolution and receiver-\n ship activities pose tremendous\n While OIG audits and evaluations\n address various aspects of reso-\n lution and receivership activi-\n ties, OIG investigations benefit\n the Corporation in other ways.\n That is, in the case of bank clos-\n ings where fraud is suspected,\n our Office of Investigations (OI)\nroles is acting as the receiver sends case agents and computer\n challenges. As indicated by the\nor liquidating agent for failed forensic special agents from the\n trends in mergers and acquisi-\nFDIC-insured institutions. The ECU to the institution. ECU agents\n tions, banks have become more\nsuccess of the FDIC\xe2\x80\x99s efforts in use special investigative tools to\n complex, and the industry is\nresolving troubled institutions has provide computer forensic support\n consolidating into larger organi-\na direct impact on the banking to OI\xe2\x80\x99s investigations by obtaining,\n zations. As a result, the FDIC has\nindustry and on the taxpayers. preserving, and later examining\n been called upon to handle failing\nDRR\xe2\x80\x99s responsibilities include evidence from computers at the\n institutions with significantly larger\nplanning and efficiently handling bank. As referenced earlier, during\n numbers of insured deposits than\nthe resolutions of failing FDIC- the reporting period, OI attended\n it has had to deal with in the past.\ninsured institutions and providing eight bank closings and provided\nprompt, responsive, and efficient During 2008, 25 FDIC-insured forensics support for those.\nadministration of failing and institutions failed, with total assets\n The OIG also coordinates closely\nfailed financial institutions in at failure of $361.3 billion and total\n with DRR on concealment of assets\norder to maintain confidence and losses to the DIF of about $17.9\n cases. In many instances, the FDIC\nstability in our financial system. billion. During the first 4 months\n debtors do not have the means\n of 2009, another 29 institutions\n \xe2\x80\xa2\tThe resolution process to pay fines or restitution owed to\n have failed, with total assets at\n involves valuing a failing feder- the Corporation. However, some\n failure of $14.7 billion and an\n ally insured depository institu- individuals do have the means\n estimated loss to the DIF of about\n tion, marketing it, soliciting to pay but hide their assets and/\n $3.9 billion. To meet the workload\n and accepting bids for the sale or lie about their ability to pay.\n demands associated with these\n of the institution, considering OI works closely with both DRR\n and future failures, DRR has been\n the least costly resolution and the Legal Division in aggres-\n authorized to hire both perma-\n method, determining which sively pursuing criminal inves-\n nent and temporary employees.\n bid to accept, and working tigations of these individuals.\n DRR is also taking advantage of\n with the acquiring institution the Corporation\xe2\x80\x99s cross-training to To help ensure the FDIC is ready\n through the closing process. create a flexible workforce where to resolve failed banks and\n \xe2\x80\xa2\tThe receivership process examiners can support resolution effectively manages receiver-\n involves performing the activities, and resolution specialists ships, the OIG\xe2\x80\x99s 2009 perfor-\n closing function at the can support examination activities. mance goals are as follows:\n28\n\x0c \xe2\x80\xa2\tEvaluate the FDIC\xe2\x80\x99s plans Loan Modification Programs. the FDIC became aware of the\n and systems for managing The FDIC implemented a Loan IndyMac problem; what the Corpo-\n bank resolutions. Modification Program at IndyMac ration knew and how it knew it;\n Federal Bank, FSB, and the imple- and what actions the Corpora-\n \xe2\x80\xa2\tInvestigate crimes involved in\n mentation of a similar program has tion took given its knowledge\n or contributing to the failure of\n been a condition of several large of the risks posed by IndyMac.\n financial institutions or which\n lessen or otherwise affect FDIC-facilitated institution sales. WaMu was the largest bank\n recoveries by the DIF, involving The goal of these programs was failure in the history of the United\n restitution or otherwise. to achieve affordable and sustain- States, but because the resolution\n able mortgage payments for structure resulted in no loss to the\n borrowers and increase the value Fund, the threshold for conducting\nOIG Work in Support of distressed mortgages by reha- an MLR was not triggered. Given\nof Goal 4 bilitating them into performing the size, the circumstances\nDuring the reporting period, the loans. Other institutions have leading up to the resolution, and\nOIG planned a number of new agreed to implement loan the non-Fund losses (i.e., loss\nassignments in this goal area, modification programs as part of shareholder value), we are\nlargely in response to events of their financial stability agree- working jointly with the Depart-\ninvolving resolution and receiver- ments with the FDIC and other ment of the Treasury OIG to\nship of institutions. These efforts financial regulatory agencies. determine the events leading to\nare briefly discussed below: We will be assessing the FDIC\xe2\x80\x99s the need for the FDIC-facilitated\n efforts for monitoring imple- transaction. We plan to evaluate\nPlanned Work Focuses on New mentation of loan modification the Office of Thrift Supervision\xe2\x80\x99s\nResolution and Receivership programs at institutions such as supervision of WaMu, including\nChallenges CitiBank and US Bank. We will implementation of PCA provi-\n also be looking at the former sions of section 38, if required;\nThe resolution and receiver-\n evaluate the FDIC\xe2\x80\x99s supervision\nship activity is a vulnerable area IndyMac program to evaluate the\n and monitoring of WaMu in its role\nwhere independent oversight controls to detect and prevent\n as insurer; and assess the FDIC\xe2\x80\x99s\nand review are essential. We are, participation in the program by\n resolution process for WaMu.\nat present, planning to undertake those who obtained their initial\ntwo evaluations in areas where loan under fraudulent pretenses. Results of this work will be\nwe believe FDIC has the most presented in upcoming\n Large Bank Failures. The fail-\nexposure. One evaluation will semiannual reports.\n ures of IndyMac and Washington\nidentify and evaluate controls in Mutual Bank (WaMu) were historic,\nplace over the contracting and each for their own reasons. As\nlegal services functions to address such, we believed that an inde-\nthe risks presented by a signifi- pendent analysis of the activities\ncant increase in resolution and of the regulators involved is in the\nreceivership-related contracting public\xe2\x80\x99s best interest. IndyMac\xe2\x80\x99s\nactivity. A second evaluation will failure in July 2008 was the third\ncover the loss share provisions, largest in the history of the United\nincluding those in the assistance States. Because this institution was\nagreements with Citigroup supervised by the Office of Thrift\nand Bank of America, to ensure Supervision, the Inspector General\ncompliance with all related terms, at the Department of the Treasury\nsuch as those involving asset conducted the MLR. However,\neligibility and institution manage- we believe it important to deter-\nment of guaranteed assets. mine the role the FDIC played as\nOther areas that will receive back-up regulator and deposit\nattention are as follows: insurer. We are determining when\n 29\n\x0c 5 Strategic Goal 5:\n The OIG Will Promote Sound\n Governance and Effective\n Stewardship and Security\n of Human, Financial, IT,\n and Physical Resources\n\n\n\n\nT\nThe FDIC must effectively manage\nand utilize a number of critical\nstrategic resources in order to\ncarry out its mission successfully,\nparticularly its human, financial,\nIT, and physical resources.\nHuman Resources: The FDIC\xe2\x80\x99s\nauthorized staffing for 2009 is\n that challenge. Further, the FDIC\n has established a process for\n conducting privacy impact assess-\n ments of its information systems\n containing personally identifiable\n information that is consistent\n with relevant privacy-related\n policy, guidance, and standards.\n budgets approved by the Board\n of Directors for major investment\n projects. Budgets for invest-\n ment projects are approved on a\n multi-year basis, and funds for an\n approved project may be carried\n over from year to year until the\n project is completed. Expenditures\n6,269, an increase of 1,459 posi- Financial Resources: The from the Corporate Operating\ntions from 2008, principally due to Corporation does not receive and Investment Budgets are paid\nthe need to address greater receiv- an annual appropriation, except from two funds managed by the\nership and resolution activity and for its OIG, but rather is funded FDIC\xe2\x80\x94the DIF and the Federal\nthe elevated examination work- by the premiums that banks Savings and Loan Insurance\nload. Most of the increase is for and thrift institutions pay for Corporation Resolution Fund.\nhiring non-permanent employees deposit insurance coverage, the IT Resources: At the FDIC, the\nto aid in the current crisis. sale of assets recovered from Corporation seeks to leverage\n failed banks and thrifts, and IT to support its business goals\nSupplementing the FDIC work-\n from earnings on investments in insurance, supervision and\nforce are contractors providing\n in U.S. Treasury securities. consumer protection, and receiv-\nservices for the Corporation. The\nFDIC awarded approximately The FDIC Board of Directors ership management, and to\n$652 million in contracts during approves an annual Corporate improve the operational effi-\n2008. As a good steward, the Operating Budget to fund the ciency of its business processes.\nFDIC must ensure it receives the operations of the Corporation. For The FDIC needs to continue to\ngoods and services purchased 2009, the approved budget totaled focus on the capital planning and\nwith corporate funds and have $2.4 billion, an increase of $1.03 investment processes for IT and\neffective contractor oversight billion from 2008. The operating maximize the effectiveness of the\ncontrols in place as well. budget provides resources for Chief Information Officer Council\n the operations of the Corpora- and Project Management Office,\nIn an age of identity theft risks,\n tion\xe2\x80\x99s three major programs both of which play an important\nan important human capital\n or business lines\xe2\x80\x94Insurance, role in reviewing the portfolio of\nmanagement responsibility at\n Supervision, and Receivership approved IT projects and other\nthe FDIC is to maintain effec-\n Management\xe2\x80\x94as well as its major initiatives. The Corporation has\ntive controls to protect personal\n program support functions (legal, also worked to enhance its Enter-\nemployee-related information\n administrative, financial, IT, etc.). prise Architecture program by\nthat the Corporation possesses.\nThe appointment of a chief In addition to the Corporate identifying duplicative resources/\nprivacy officer and implementa- Operating Budget, the FDIC has a investments and opportunities for\ntion of a privacy program have separate Investment Budget that internal and external collaboration\nbeen positive steps in addressing is composed of individual project to promote operational improve-\n30\n\x0cments and cost-effective solu- managed by a five-person Board \xe2\x80\xa2\tPromote IT security measures\ntions to business requirements. of Directors, all of whom are that ensure the confidenti-\nAlong with the positive benefits appointed by the President and ality, integrity, and availability\nthat IT offers comes a certain confirmed by the Senate, with no of corporate information.\ndegree of risk. In that regard, more than three being from the \xe2\x80\xa2\tPromote personnel and\ninformation security has been same political party. The Board physical security.\na long-standing and widely includes the Comptroller of the\n Currency and the Director of the \xe2\x80\xa2\tPromote sound corporate\nacknowledged concern among\n Office of Thrift Supervision. Given governance and effec-\nfederal agencies. The Federal Infor-\n the relatively frequent changes tive risk management and\nmation Security Management Act\n in the Board make-up, it is essen- internal control efforts.\nrequires each agency to develop,\ndocument, and implement an tial that strong and sustainable\nagency-wide information security governance and communication OIG Work in Support\n processes are in place throughout\nprogram to provide adequate of Goal 5\nsecurity for the information and the FDIC and that Board members\n possess and share the informa- The OIG committed a number of\ninformation systems that support\n tion needed at all times to under- audit and evaluation resources\nthe operations and assets of the\n stand existing and emerging to work in this strategic goal area\nagency. Section 522 of the Consoli-\n risks and make sound policy during the reporting period. One\ndated Appropriations Act of 2005\n and management decisions. of our evaluations examined\nrequires agencies to establish and\n the FDIC\xe2\x80\x99s Corporate Employee\nimplement comprehensive privacy Enterprise risk management is a\n Program. We also performed an\nand data protection procedures key component of governance.\n audit of follow-up actions taken\nand have periodic third-party The FDIC\xe2\x80\x99s numerous enterprise\n related to the FDIC\xe2\x80\x99s controls over\nreviews performed of their risk management activities need\n the confidentiality of sensitive\nprivacy programs and practices. to consistently identify, analyze,\n email communications. Other\nPhysical Resources: The FDIC and mitigate operational risks\n evaluations this period focused on\ncurrently employs approximately on an integrated, corporate-\n two security areas: mail handling\n4,900 people. It is headquartered wide basis. Additionally, such\n and screening procedures at\nin Washington, D.C., but conducts risks need to be communicated\n FDIC facilities and guard services\nmuch of its business in six throughout the Corporation and\n provided to protect FDIC build-\nregional offices and in field offices the relationship between internal\n ings and people. Additionally,\nthroughout the United States. and external risks and related\n we audited oversight manage-\nEnsuring the safety and security of risk mitigation activities should\n ment of the FDIC\xe2\x80\x99s contract\nthe human and physical resources be understood by all involved.\n with ARAMARK. Results of these\nin those offices is a fundamental To promote sound governance reviews are discussed below.\ncorporate responsibility that and effective stewardship and\nis directly tied to the Corpora- security of human, financial, IT, and Evaluation of the FDIC\xe2\x80\x99s\ntion\xe2\x80\x99s successful accomplishment physical resources, the OIG\xe2\x80\x99s 2009 Corporate Employee Program\nof its mission. The FDIC needs performance goals are as follows: In 2005, the FDIC initiated the\nto be sure that its emergency Corporate Employee Program\n \xe2\x80\xa2\tEvaluate corporate efforts to\nresponse plans provide for the (CEP) to respond to the growing\n manage human resources\nsafety and physical security of consolidation and complexity\n and operations efficiently,\nits personnel and ensure that its within the financial services\n effectively, and economically.\nbusiness continuity planning and\n industry. The CEP is intended\ndisaster recovery capability keep \xe2\x80\xa2\tPromote integrity in FDIC\n to: (1) provide opportunities for\ncritical business functions opera- internal operations.\n FDIC employees at all levels to\ntional during any emergency.\n \xe2\x80\xa2\tPromote alignment of IT identify, develop, and apply skills\nCorporate Governance and with the FDIC\xe2\x80\x99s business in multiple corporate functions\nRisk Management: The FDIC is goals and objectives. through various training oppor-\n 31\n\x0ctunities and cross-divisional work ists\xe2\x80\x99 efforts\xe2\x80\x94an indication of the the five issues. The Director, DIT,\nassignments and (2) create a work- program\xe2\x80\x99s positive impact to date. also separately requested that\nforce that possesses a common the OIG assess DIT\xe2\x80\x99s efforts to use\n We made six recommenda-\ncorporate perspective and is content filtering technology for\n tions for incremental program\ncapable of responding rapidly to corporate email communications.\n improvement as the Corporation\nshifting priorities and changes in In response to these requests,\n continues to refine its program\nworkload. The FDIC\xe2\x80\x99s Corporate the OIG contracted with KPMG\n related to enhancing and final-\nUniversity manages the CEP. LLP (KPMG) to audit these areas.\n izing CEP draft policy, establishing\n\n\n\n\n T\nOur objective was to assess performance goals, improving KPMG found that the control\nthe FDIC\xe2\x80\x99s efforts to imple- how CEP costs are identified and improvements described in the\nment the CEP by determining: measured, developing a system DIT memorandum were adequate,\n(1) the number of employees for tracking deployments and fully implemented, and generally\nparticipating and the degree to continuing education, ensuring operating as intended. Although\nwhich they have completed the that employees retain and utilize KPMG\xe2\x80\x99s work identified the need\nprogram, (2) whether the CEP the knowledge they have gained for additional control improve-\nhas stated measurements for through the CEP, and clarifying ments to fully address the five\ngauging program effectiveness, plans for expanding the program. email security issues contained in\n(3) participant and manage- Management concurred with the DIT memorandum, DIT took\nment views on the benefits and five of the recommendations prompt action to implement these\nsuccess of the program, and (4) and agreed with the intent of additional control improvements\nthe extent to which the CEP has the remaining recommendation. prior to the close of the audit.\nproduced cross-trained employees Management plans to implement DIT had also completed a pilot\ncapable of responding to changes corrective actions sufficient to implementation of email content\nin examination or resolution address each recommendation. filtering technology. However, DIT\nand receivership priorities. temporarily discontinued the use\n Control Improvements Under- of the email content filtering prior\nWe reported that the FDIC has taken by the Division of Informa- to the start of the audit. Based\nmade progress toward imple- tion Technology to Ensure the on concerns that KPMG raised\nmenting the CEP, particularly Confidentiality of Sensitive Email during the audit, DIT developed\nwith respect to hiring employees Communications a formal policy and configuration\nand cross training them through\n The FDIC uses email extensively management plan to govern email\ncertificate and commissioning\n to exchange business informa- content filtering at the FDIC.\nprograms. Corporate University\nhas also drafted guidelines and tion internally and externally. The KPMG recommended that the\nprocedures for the program and National Institute of Standards Director, DIT, implement content\nprovided program results to and Technology recommends filtering technology on corporate\nkey stakeholders. Most financial that organizations consider the email to mitigate the risk of loss\ninstitution specialists are pleased use of email content filtering of sensitive business data consis-\nwith the CEP, and FDIC manage- technology to mitigate the risk of tent with National Institute of\nment generally had positive views loss of sensitive business data. Standards and Technology-recom-\nregarding the program. Further, On October 6, 2008, the Director mended practices and the FDIC\xe2\x80\x99s\nCorporate University has been of the FDIC\xe2\x80\x99s Division of Informa- policies and procedures. Manage-\nresponsive to concerns or requests tion Technology (DIT) issued ment concurred with our recom-\nfor changes to the CEP. The FDIC a memorandum to the FDIC mendation and plans to take\nhas deployed a number of finan- Chairman, summarizing the responsive actions, subject to the\ncial institution specialists and status of control improvements concurrence of the FDIC Chairman.\ncertificate holders to assist with an intended to address five specific\nincrease in resolution activity, and email security issues. The Director,\nDRR staff have been complimen- DIT, requested the FDIC OIG to\ntary of financial institution special- assess DIT\xe2\x80\x99s actions to address\n32\n\x0cEvaluation of the FDIC\xe2\x80\x99s Security facility opposite the FDIC\xe2\x80\x99s tracking and delivery\nControls over Mail Handling and Virginia Square facility, management system at two\nMail Screening Processes at FDIC of six facilities visited,\n \xe2\x80\xa2\tdisciplined implementation\nFacilities\n of established mail handling \xe2\x80\xa2\troutine and frequent\nThe FDIC receives mail from a security controls at certain training sessions for mail\nvariety of sources in the Wash- regional offices that were security staff, and\nington, D.C. area at two locations; closely aligned with recom-\nregional and area offices in Atlanta, \xe2\x80\xa2\tmail processing personnel as\n mended security controls,\nBoston, Chicago, Dallas, Kansas well as their supervisors and\nCity, Memphis, New York, and San \xe2\x80\xa2\tnationwide contracts for managers displayed a positive\nFrancisco; and at 76 field offices. screening and processing work attitude and an earnest\nIn October 2008, the FDIC\xe2\x80\x99s Virginia mail to enhance manage- desire to do good work.\nSquare facility received a threat- ment\xe2\x80\x99s ability to control\n Further, both before and after\nening letter containing a white, quality and manage change\n the October 2008 incidents, the\npowdery substance. In subsequent across the organization,\n FDIC took action to improve\ndays, the FDIC received similar \xe2\x80\xa2\tutilization of a package safe mailing practices.\nthreatening letters at its Dallas and\nWashington, D.C. facilities. While\nthe white powder was determined\nto be harmless, three of the six Guilty Plea in White Powder Mailing Case\nthreatening letters, addressed to On March 16, 2009, in the U.S. District Court for the Northern\nFDIC executives, were not detected District of Texas, Amarillo Division, an individual entered a guilty\nby the FDIC\xe2\x80\x99s mail screening plea to 2 counts of a 65-count indictment that charged him with\nprocedures prior to delivery. Making Threats and False Information, and Threats and Hoaxes.\nFollowing these incidents, FDIC On or about October 18, 2008, the defendant mailed 65 threatening\nmanagement requested that the letters, of which 64 contained harmless white powder, to various\nFDIC OIG evaluate the FDIC\xe2\x80\x99s mail branches of J.P. Morgan Chase, the Office of Thrift Supervision, and\nhandling and screening proce- to the FDIC. The last envelope contained the threatening letter, but\ndures. We contracted with KPMG no powder. All of the letters were postmarked from Amarillo, Texas.\nto perform the evaluation. KPMG\n The OIG Electronic Crimes Unit (ECU) coordinated with other FDIC\nevaluated the mail handling and\n divisions and collected evidence relating to the case. Specifically,\nscreening operations at the FDIC\xe2\x80\x99s\n the ECU worked with DIT to collect a summary of Internet traffic\nWashington, D.C. headquar-\n to the fdic.gov Web site for the period of September 24, 2008 to\nters buildings and the Atlanta,\n October 19, 2008. The summary consisted of Internet Protocol (IP)\nDallas, Kansas City, and San\n addresses for individuals connecting to the Web site. Additionally,\nFrancisco Regional Offices during\n the ECU contacted various FDIC divisions, such as DSC, DRR, Office\nNovember and December 2008.\n of the Ombudsman, the Chairman\xe2\x80\x99s Office, and the OIG Hotline to\nKPMG found that the FDIC has collect any complaints relating to the FDIC\xe2\x80\x99s appointment as receiver\nestablished mail handling and of a certain closed Office of Thrift Supervision-regulated institu-\nscreening centers, procedures, tion. The ECU collected all complaint information in email, letter, or\nand measures that are gener- telephone call form and passed it along to the case agents. Later,\nally consistent with published when the FBI developed a specific IP address of interest, the ECU\nfederal guidelines. Further, KPMG\xe2\x80\x99s coordinated with DIT to determine whether the IP address had\nexamination of the FDIC\xe2\x80\x99s mail accessed fdic.gov on a specific date. DIT found the IP address on\nscreening and handling prac- the date in question. The information was included in the search\ntices identified several strengths. warrant application and the complaint against the subject.\nSuch strengths included: Source: FDIC Division of Administration. Responsible Agencies: FBI and FDIC OIG. Pros-\n ecuted by the U.S. Attorney\xe2\x80\x99s Office for the Northern District of Texas, Amarillo Division\n \xe2\x80\xa2\tuse of a remote screening\n\n 33\n\x0cKPMG did find, however, oppor- consistent with contract cost achieve these potential savings\ntunities for improvement that and performance expectations because of the costs involved\nwould better protect the health and is meeting the contract\xe2\x80\x99s in mitigating any increased\nand safety of FDIC employees objective of protecting FDIC risk that results from imple-\nand the continuity of its busi- employees and FDIC property. menting the recommendation.\nness operations and made Based on our observations, the\neight recommendations to contract security guards were Oversight Management of the\nthat effect. FDIC management generally attentive and acted Contract with the ARAMARK\nconcurred or partially concurred in a professional and courteous Corporation\nwith each recommenda- manner. We also concluded In February 2007, the FDIC\xe2\x80\x99s Divi-\ntion and proposed corrective that the FDIC had negotiated sion of Administration awarded a\nactions that were responsive contract labor rates for guard contract to the ARAMARK Corpo-\nto the recommendations. services that were lower than ration (ARAMARK) to manage and\n most offered under the General operate the Corporation\xe2\x80\x99s Student\nThe FDIC\xe2\x80\x99s Guard Services Services Administration schedule. Residence Center in Arlington,\nContract and Controls Over Virginia, and cafeterias in the\n Further, in 2007, the FDIC\nAccess to Facilities Virginia Square facility and head-\n procured an independent\nPhysical security of FDIC facili- physical security assessment of quarters building in Arlington and\nties is important to achieving the its headquarters facilities. The Washington, D.C., respectively.\nCorporation\xe2\x80\x99s mission. Recent resulting Security Assessment The contract, which has a ceiling\nturmoil in the financial services Report concluded that the FDIC price of approximately $51 million\nindustry and the FDIC\xe2\x80\x99s increasing had implemented a well-planned and a term of 10 years (including\nrole in resolving the banking crises security program. The assessment option periods), is one of the\nheighten the need to ensure that also made a number of recom- FDIC\xe2\x80\x99s highest-dollar contracts.\nFDIC employees and facilities are mendations related to physical We completed an audit to\nadequately protected. The FDIC security procedures and staffing. assess key oversight manage-\nrelies on private sector guard We determined that the FDIC had ment controls pertaining to the\nservices at headquarters and addressed or was studying several FDIC\xe2\x80\x99s contract with ARAMARK\nregional office locations to protect of those recommendations. and focused on assessing 11 key\nFDIC employees, property, and the controls designed to ensure that\n We identified several areas where\ngeneral public. In January 2006, ARAMARK complies with the terms\n the FDIC could further strengthen\nthe FDIC consolidated security and conditions of its contract with\n security or could reduce guard\nguard services into a single the FDIC. The 11 controls pertain\n services cost without sacrificing\ncontract. In November 2007, the to contractor personnel quali-\n security and made five recom-\nFDIC awarded a 7-year, $74.6 fications, contractor insurance\n mendations for management\xe2\x80\x99s\nmillion guard services contract coverage, FDIC-furnished equip-\n consideration. Management\nto provide nationwide physical ment, internal contractor audits,\n concurred or partially concurred\nsecurity services. During the invoice review and approval,\n with 4 of the 5 recommendations\nreporting period, we performed accounting for contractor cash\n and offered an acceptable expla-\nan evaluation to assess the extent receipts, emergency prepared-\n nation for not concurring with the\nto which the Corporation has ness, evaluating contractor\n one remaining recommendation.\nadministered guard services in performance, quality assurance,\n We are including a range of $2.1\na manner that balances secu- monitoring and inspection of\n million to $5.2 million as funds put\nrity needs and efficiency and contractor performance, and\n to better use in this Semiannual\nimplemented adequate controls contract management planning.\n Report to the Congress associ-\nover access to FDIC facilities.\n ated with one recommendation We found that the FDIC has\nWe reported that the FDIC is to improve the efficiency of guard established controls to help ensure\nadministering its nationwide services. However, management proper oversight management\nsecurity guard services contract indicated that it may not fully of its contract with ARAMARK\n34\n\x0cin all but 1 of the 11 oversight\nmanagement areas that we\nassessed (contractor personnel\nqualifications). However, the\nFDIC\xe2\x80\x99s implementation of controls\nneeded improvement in 9 of\nthe 11 areas that we assessed.\nOf particular note, the FDIC had\nnot obtained a physical inven-\ntory of FDIC-furnished equip-\nment including small wares (e.g.,\nglassware, tableware, and flat-\nware) for the cafeterias covered\nunder the contract. The FDIC had\nalso not identified emergency\nresponse and continual-use\nrequirements pertaining to the\nStudent Residence Center and\ncafeterias operated by ARAMARK.\nIn addition, although the FDIC\nreviews ARAMARK\xe2\x80\x99s invoices and\nsupporting documentation for\naccuracy, reasonableness, and\ncompliance with the terms of the\ncontract, charges on the invoices\nwere not traced (on a sample\nbasis) to original documenta-\ntion. We made recommendations\nto address these concerns.\nThe FDIC took responsive actions\nto address the recommendations\nrelated to personnel qualifications\nand amendments to the Contract\nManagement Plan prior to the issu-\nance of our report. The FDIC was\nin the process of taking responsive\naction to address the recommen-\ndation related to the emergency\nresponse and continual-use\nrequirements for the Student\nResidence Center and cafeterias\nat the time we issued our report.\n\n\n\n\n 35\n\x0c 6 Strategic Goal 6:\n OIG Internal Processes:\n Build and Sustain a High-Quality\n Staff, Effective Operations, OIG\n Independence, and Mutually\n Beneficial Working Relationships\n\n\n\n\nW\nWhile the OIG\xe2\x80\x99s audit, evalua-\ntion, and investigation work is\nfocused principally on the FDIC\xe2\x80\x99s\nprograms and operations, we have\nan obligation to hold ourselves to\nthe highest standards of perfor-\nmance and conduct. We seek to\ndevelop and retain a high-quality\n tional impairments to their inde-\n pendence. The OIG adheres to the\n Quality Standards for Federal Offices\n of Inspector General, issued by\n the former President\xe2\x80\x99s Council on\n Integrity and Efficiency (PCIE) and\n the Executive Council on Integrity\n and Efficiency (ECIE), combined in\n occur throughout the year as\n OIG officials meet with division\n and office leaders and attend\n and participate in internal FDIC\n conferences and other forums.\n The OIG also places a high\n priority on maintaining positive\n relationships with the Congress\nstaff, effective operations, OIG a single Council of the Inspectors and providing timely, complete,\nindependence, and mutually General on Integrity and Efficiency and high-quality responses to\nbeneficial working relation- (CIGIE) with passage of the IG congressional inquiries. In most\nships with all stakeholders. Reform Act on October 14, 2008. instances, this communication\nTo ensure a high-quality staff, Further, the OIG conducts its audit would include semiannual reports\nwe must continuously invest in work in accordance with generally to the Congress, issued audit and\nkeeping staff knowledge and accepted Government Auditing evaluation reports, information\nskills at a level equal to the work Standards; its evaluations in accor- related to completed investiga-\nthat needs to be done, and we dance with PCIE Quality Standards tions, comments on legislation\nemphasize and support training for Inspections; and its investiga- and regulations, written state-\nand development opportunities tions, which often involve allega- ments for congressional hear-\nfor all OIG staff. We also strive to tions of serious wrongdoing that ings, contacts with congressional\nkeep communication channels may involve potential violations staff, responses to congressional\nopen throughout the office. We of criminal law, in accordance with correspondence, and materials\nare mindful of ensuring effec- Quality Standards for Investiga- related to OIG appropriations.\ntive and efficient use of human, tions established by the PCIE and\n We have fully supported and\nfinancial, IT, and procurement ECIE, and procedures established\n participated in CIGIE activities and\nresources in conducting OIG by the Department of Justice.\n coordinate closely with represen-\naudits, evaluations, investiga- Strong working relationships are tatives from the other financial\ntions, and other support activities, fundamental to our success. We regulatory OIGs. Additionally, the\nand have a disciplined budget place a high priority on main- OIG meets with representatives\nprocess to see to that end. taining positive working relation- of the U.S. Government Account-\nTo carry out our responsibilities, ships with the FDIC Chairman, ability Office to coordinate work\nthe OIG must be professional, Vice Chairman, other FDIC Board and minimize duplication of\nindependent, objective, fact- members, and management effort and with representatives\nbased, nonpartisan, fair, and officials. The OIG is a regular of the Department of Justice,\nbalanced in all its work. Also, the participant at Audit Committee including the FBI and U.S. Attor-\nIG and OIG staff must be free both meetings where recently issued neys\xe2\x80\x99 Offices, to coordinate our\nin fact and in appearance from audit and evaluation reports criminal investigative work and\npersonal, external, and organiza- are discussed. Other meetings pursue matters of mutual interest.\n36\n\x0cThe FDIC OIG has its own strategic The OIG strongly supports GPRA \xe2\x80\xa2\tEffectively and efficiently\nand annual planning processes, and is fully committed to applying manage OIG human, financial,\nindependent of the Corporation\xe2\x80\x99s its principles of strategic planning IT, and physical resources\nplanning process, in keeping with and performance measurement\nthe independent nature of the and reporting to our operations. \xe2\x80\xa2\tEnsure quality and efficiency\nOIG\xe2\x80\x99s core mission. The Govern- The OIG\xe2\x80\x99s Business Plan lays the of OIG audits, evaluations,\nment Performance and Results basic foundation for establishing investigations, and other\nAct of 1993 (GPRA) was enacted goals, measuring performance, projects and operations\nto improve the management, and reporting accomplishments, \xe2\x80\xa2\tEncourage individual growth\neffectiveness, and accountability consistent with the principles\n and strengthen human capital\nof federal programs. GPRA requires and concepts of GPRA. We are\nmost federal agencies, including management and leadership\n continuously seeking to better\nthe FDIC, to develop a strategic through professional devel-\n integrate risk management\nplan that broadly defines the considerations in all aspects of opment and training\nagency\xe2\x80\x99s mission and vision, an OIG planning\xe2\x80\x94both with respect \xe2\x80\xa2\tFoster good client, stake-\nannual performance plan that to external and internal work. holder, and staff relationships\ntranslates the vision and goals of\nthe strategic plan into measurable To build and sustain a high-quality \xe2\x80\xa2\tEnhance OIG risk manage-\nobjectives, and an annual perfor- staff, effective operations, OIG ment activities\nmance report that compares actual independence, and mutually\n beneficial working relationships, A brief listing of selected OIG\nresults against planned goals.\n the OIG\xe2\x80\x99s 2009 performance activities in support of these\n goals are as follows: performance goals follows.\n\n\n Effectively and Efficiently Manage OIG Human, Financial, IT, and Physical Resources\n 1 Continued realignment of the OIG\xe2\x80\x99s investigative resources with FDIC regions, by reassigning OI staff,\n and advertising and filling vacancies.\n 2 Prepared informational materials outlining needed financial resources for presentation to the FDIC\n Chairman, Office of Management and Budget (OMB), and the House and Senate Appropriations\n Subcommittees in support of the OIG\xe2\x80\x99s FY 2010 budget request.\n 3 Completed an office-wide initiative focusing on protecting personally identifiable information and\n other sensitive data through the use of encryption of portable media devices and use of Entrust when\n sending sensitive email.\n 4 Continued to partner with DIT to ensure the security of OIG information in the FDIC computer network\n infrastructure.\n\n\n\n\n 37\n\x0c Ensure Quality and Efficiency of OIG Audits, Evaluations, Investigations, and Other Projects\n and Operations\n 1 Completed first annual quality monitoring review in Office of Audits, a new requirement under Gener-\n ally Accepted Government Auditing Standards, to summarize and analyze quality assurance activities\n completed in calendar year 2008.\n 2 Conducted a quality assessment review addressing data reliability for calculating OIG audit costs in\n STAR, the OIG\xe2\x80\x99s audit and evaluation tracking system.\n 3 Continued to use a contract awarded to a qualified firm to provide audit and evaluation services to\n the OIG to enhance the quality of our work and the breadth of our expertise as we conduct audits and\n evaluations, and closely monitored contractor performance.\n 4 Continued use of the OIG\xe2\x80\x99s end-of-assignment feedback forms to provide staff with\n input on performance of individual audit and evaluation assignments, and use of the\n IG\xe2\x80\x99s feedback form to assess time, cost, and value of audits and evaluations.\n 5 Planned for the conduct of a peer review of the audit operations of the Department of Commerce OIG\n Office of Audit, as required by the CIGIE. Also spearheaded the IG community\xe2\x80\x99s peer review training\n program for OIGs government-wide.\n 6 Reported the results of the FDIC OIG peer review of the investigative operations of the Environmental\n Protection Agency OIG, as required by the former PCIE.\n\n\n\n\n Encourage Individual Growth and Strengthen Human Capital Management and Leadership Through\n Professional Development and Training\n 1 Conducted a comprehensive Material Loss Review training program for FDIC OIG staff and staff from\n other financial regulatory OIGs to better equip participants with skills and expertise needed to meet\n demands of our collective increased material loss review workload.\n 2 Continued to support members of the OIG attending long-term graduate banking school programs\n sponsored by Stonier, the Southeastern School of Banking at Vanderbilt University, and the Univer-\n sity of Wisconsin to enhance OIG staff expertise and knowledge of the banking industry.\n 3 Employed college interns in the OIG to provide assistance to the Offices of Audits, Evaluations, and\n Investigations.\n\n\n\n\n38\n\x0c Foster Good Client, Stakeholder, and Staff Relationships\n1 Maintained congressional working relationships by providing our Semiannual Report to the Congress\n for the 6 month period ending September 30, 2008; notifying interested congressional parties\n regarding the OIG\xe2\x80\x99s completed audit and evaluation work; attending or monitoring FDIC-related hear-\n ings on issues of concern to various oversight committees; and coordinating with the Corporation\xe2\x80\x99s\n Office of Legislative Affairs on issues of mutual interest.\n2 Communicated with the FDIC Chairman, Vice Chairman, Director Curry, and other senior FDIC officials\n through the Inspector General\xe2\x80\x99s regularly scheduled meetings with them and through other forums.\n3 Participated in DSC regional meetings to provide general information regarding the OIG and\n OI case studies on bank frauds that are of importance to DSC and the banking industry.\n4 Held quarterly meetings with FDIC Directors and other senior officials to keep them apprised of\n ongoing audit and evaluation reviews and results.\n5 Kept DSC, DRR, the Legal Division, and other FDIC program offices informed of the status and results\n of our investigative work impacting their respective offices. This was accomplished by notifying FDIC\n program offices of recent actions in OIG cases and providing OI\xe2\x80\x99s quarterly reports to DSC, DRR, the\n Legal Division, and the Chairman\xe2\x80\x99s Office outlining activity and results in our cases involving closed and\n open banks, concealed assets, and restitution.\n6 Participated at FDIC Audit Committee meetings to present the results of significant completed audits\n and evaluations for consideration by Committee members.\n7 Reviewed 10 draft corporate policies on a range of topics, among those: FDIC Enterprise Data Manage-\n ment System; Access Control for Division of Information Technology Resources; Corporate Outreach\n Program; Use of Personal Digital Assistants; and Cell Phone and Cell Modem Assignments, Usage,\n Safeguards and Asset Management.\n8 Supported the Inspector General community by having the IG serve as Chair of the CIGIE Audit\n Committee and coordinating the activities of that group; attending monthly CIGIE meetings and partic-\n ipating in Inspection & Evaluation Committee and Council of Counsels to the IGs meetings; providing\n audit, investigative, and counsel resource assistance to other OIGs; spearheading writing and publica-\n tion of the IG community\xe2\x80\x99s annual report for 2008; and providing support to the Inspector General\n community\xe2\x80\x99s investigative meetings and training activities.\n9 Met regularly with representatives of the OIGs of the federal banking regulators (Board of Governors of\n the Federal Reserve System, Department of the Treasury, National Credit Union Administration, Securi-\n ties and Exchange Commission, Farm Credit Administration, Commodity Futures Trading Commission,\n Federal Housing Finance Agency, and Export-Import Bank) to discuss audit, evaluation, and investiga-\n tive matters of mutual interest and leverage knowledge and resources.\n\n\n\n\n 39\n\x0c Enhance OIG Risk Management Activities\n 1 Held meetings to assess emerging issues and risk areas impacting the FDIC and the banking\n and financial services industry as a whole. Determined those assignments to include in our\n FY 2009 Business Plan.\n 2 Participated regularly at corporate meetings of the National Risk Committee to monitor emerging risks\n at the Corporation and tailor OIG work accordingly.\n 3 Provided OIG perspectives on risk of fraud at the FDIC to GAO. We did so in response to GAO\xe2\x80\x99s respon-\n sibility under Statement of Auditing Standards No. 99, Consideration of Fraud in Financial Statement\n Audits.\n 4 Provided the FDIC Chairman our 2008 assurance letter, under which the OIG provides assurance\n that the OIG has made a reasonable effort to meet the internal control requirements of the Federal\n Managers\xe2\x80\x99 Financial Integrity Act, OMB A-123, and other key legislation.\n 5 Provided the OIG\xe2\x80\x99s assessment of the management and performance challenges facing the\n FDIC, in accordance with the Reports Consolidation Act of 2000. We identified the following\n broad areas of challenges: Restoring and Maintaining Public Confidence and Stability in the\n Financial System; Resolving Failed Institutions; Ensuring the Viability of the Deposit Insurance\n Fund; Ensuring Institution Safety and Soundness Through an Effective Examination and Super-\n vision Program; Protecting and Educating Consumers and Ensuring an Effective Compliance\n Program; Effectively Managing the FDIC Workforce and Other Corporate Resources. Management\n included a detailed write-up of the challenges in its performance and accountability report.\n\n\n\n\n40\n\x0cCumulative Results (2-year period)\n\n Nonmonetary Recommendations\n April 2007 - September 2007 7\n October 2007 - March 2008 52\n April 2008 - September 2008 24\n October 2008 - March 2009 28\n\n\n\n\nProducts Issued and Investigations Closed\n 40\nL E G E N D 39\n 35\n\xe2\x80\xa2 4/07 - 9/07 30\n\xe2\x80\xa2 10/07 - 3/08 25\n 23 24\n\xe2\x80\xa2 4/08 - 9/08 20\n\xe2\x80\xa2 10/08 - 3/09 15\n 15 15 14 14\n 12\n 10\n 5\n 0\n\n Audits & Investigations\n Evaluations\n\n\n\nFines, Restitution, and Monetary Recoveries\nResulting from OIG Investigations (in millions)\n\nL E G E N D 352.9\n 400\n\n\xe2\x80\xa2 4/07 - 9/07 300\n\xe2\x80\xa2 10/07 - 3/08\n\xe2\x80\xa2 4/08 - 9/08 200\n\xe2\x80\xa2 10/08 - 3/09 86.9\n 54.9 100\n 40.7\n\n 0\n\n\n\n\n 41\n\x0c Reporting Requirements\n Index of Reporting Requirements \xe2\x80\x93 Inspector\n General Act of 1978, as amended\n\n\n Reporting Requirements Page\n\n Section 4(a)(2): Review of legislation and regulations 43\n\n Section 5(a)(1): Significant problems, abuses, and deficiencies 9-35\n\n Section 5(a)(2): Recommendations with respect to significant problems, abuses, and deficiencies 9-35\n\n Section 5(a)(3): Recommendations described in previous semiannual reports on which corrective\n 43\n action has not been completed\n\n Section 5(a)(4): Matters referred to prosecutive authorities 8\n\n Section 5(a)(5) and 6(b)(2): Summary of instances where requested information was refused 48\n\n Section 5(a)(6): Listing of audit reports 45\n\n Section 5(a)(7): Summary of particularly significant reports 9-35\n\n Section 5(a)(8): Statistical table showing the total number of audit reports and the total dollar value of\n 46\n questioned costs*\n\n Section 5(a)(9): Statistical table showing the total number of audit reports and the total dollar value of\n 47\n recommendations that funds be put to better use*\n\n Section 5(a)(10): Audit recommendations more than 6 months old for which no management decision\n 48\n has been made\n\n Section 5(a)(11): Significant revised management decisions during the current reporting period 48\n\n Section 5(a)(12): Significant management decisions with which the OIG disagreed 48\n\n * Evaluation report statistics are shown on pages 47 and 48, in accordance with the IG Reform Act of 2008.\n\n\n\n\n42\n\x0cInformation Required by the\nInspector General Act of 1978,\nas Amended\n\nReview of Legislation and Regulations\nIt is the responsibility of the OIG Office of Counsel to review, pursuant to Section 4(a) of the Inspector General\nAct, pending and enacted legislation and regulations relating to programs and operations of the FDIC. In\nthis regard, Counsel\xe2\x80\x99s Office has continued to monitor the status of various bills relating to the tumultuous\nlandscape of the financial industry as well as legislation pertaining to the Inspector General community\nat large. Counsel reviewed H.R. 1349, the Federal Accounting Standards Board Act of 2009; H.R. 1264, the\nMultiple Peril Insurance Act of 2009; H.R. 478, the Federal Agency Performance Review and Efficiency Act;\nH.R. 885, the Improved Financial and Commodity Markets Oversight and Accountability Act; H.R. 216,\nthe Government Credit Card Abuse Act; H.R. 113, which would require the IGs of government corpora-\ntions to audit earmarked funds; and S. 2321, the E-Government Reauthorization Act. Counsel\xe2\x80\x99s Office also\nreviewed and prepared an analysis on House Rule XI, which proposed amendments regarding committee\nreview of OIG and GAO reports; provided substantive comments on the Omnibus Appropriations Act of\n2009; drafted statutory language for S.383, requiring coordination between the FDIC OIG and the Special\nInspector General for the Troubled Asset Relief Program; and worked jointly with other federal banking\nInspectors General to propose legislation that would raise the statutory threshold on conducting material\nloss reviews under Section 38(k) of the FDI Act. Counsel\xe2\x80\x99s Office has continued to provide legal advice to\nMaterial Loss Review teams and criminal investigative teams on issues related to failed financial institutions.\n\n\n\nTable I: Significant Recommendations From Previous Semiannual Reports on Which\nCorrective Actions Have Not Been Completed\nThis table shows the corrective actions management has agreed to implement but has not completed, along\nwith associated monetary amounts. In some cases, these corrective actions are different from the initial\nrecommendations made in the audit reports. However, the OIG has agreed that the planned actions meet\nthe intent of the initial recommendations. The information in this table is based on (1) information supplied\nby the FDIC\xe2\x80\x99s Office of Enterprise Risk Management (OERM) and (2) the OIG\xe2\x80\x99s determination of closed\nrecommendations for reports issued after March 31, 2002. These 4 recommendations from 4 reports involve\nimprovements in operations and programs. OERM has categorized the status of these recommendations as\nfollows:\n\nManagement Action in Process: (4 recommendations from 4 reports)\nManagement is in the process of implementing the corrective action plan, which may include modifications\nto policies, procedures, systems or controls; issues involving monetary collection; and settlement negotia-\ntions in process.\n\n\n\n\n 43\n\x0c Table I: Significant Recommendations From Previous Semiannual Reports on Which\n \t Corrective Actions Have Not Been Completed\n\n\n Significant Brief Summary of Planned Correc-\n Report Number, Title & Date Recommenda- tive Actions and Associated\n tion Number Monetary Amounts\n\n Management Action In Process\n\n 06-025 3t Develop a written plan that defines\n Controls for Monitoring Access to a risk-based, enterprise-wide\n Sensitive Information Processed approach to audit logging and\n by FDIC Applications monitoring for the FDIC\xe2\x80\x99s port-\n folio of information systems.\n September 29, 2006\n\n AUD-08-003 1n Clarify guidance to examiners on\n FDIC\xe2\x80\x99s Implementation of the the identification and reporting\n USA PATRIOT Act of apparent customer identifica-\n tion program (CIP) violations,\n November 30, 2007\n including the consideration of\n supplemental procedures and\n forms and whether transaction\n testing is a necessary basis for\n citing apparent CIP deficiencies.\n\n AUD-08-014 1l Revise the Case Manager Procedures\n FDIC\xe2\x80\x99s Controls Over the CAMELS Manual to require that changes\n Rating Review Process made to examiner-in-charge\n proposed CAMELS ratings in the\n August 12, 2008 draft Report of Examination be\n centrally managed by DSC, including\n tracking, monitoring, and main-\n taining the documented justifica-\n tion and approval for changes.\n\n AUD-08-019 1 Conduct an assessment of supervi-\n sory information accessed through\n Reliability of Supervisory Information\n the ViSION system in order to define\n Accessed Through the Virtual Supervi-\n an acceptable accuracy rate and\n sory Information on the Net (ViSION)\n define controls and responsibilities\n System\n over the reliability of supervisory\n September 25, 2008 information consistent with the\n results of the assessment.\n\n t\t The OIG has received some information but has requested additional information to evaluate management\xe2\x80\x99s actions in response\n \t to the recommendation.\n n\t The OIG is reviewing management\xe2\x80\x99s actions in response to the recommendation.\n Implementation scheduled for June 2009.\n l\t\n44\n\x0cTable II: Audit Reports Issued by Subject Area\n\n\n\n Audit Report Questioned Costs Funds Put to\n Number and Date Title Total Unsupported Better Use\n Supervision\n AUD-09-002 Examination Coverage of Under-\n February 6, 2009 writing Practices for Consumer\n Loans Not Secured by Real Estate\n\n AUD-09-003 Material Loss Review of First\n February 18, 2009 Priority Bank, Bradenton, Florida\n\n\n AUD-09-005 Material Loss Review of The\n March 11, 2009 Columbian Bank and Trust\n Company, Topeka, Kansas\n\n AUD-09-006 Material Loss Review of Integ-\n March 17, 2009 rity Bank, Alpharetta, Georgia\n\n\n AUD-09-008 Material Loss Review of Silver\n March 30, 2009 State Bank, Henderson, Nevada\n\n\n Insurance\n AUD-09-004 FDIC\xe2\x80\x99s Controls Related to the\n February 19, 2009 Offsite Review List\n\n\n Resources Management\n AUD-09-001 Verification of the FDIC\xe2\x80\x99s Data\n December 17, 2008 Submissions through the\n Governmentwide Financial\n Report System as of\n September 30, 2008\n AUD-09-007 Control Improvements Under-\n March 26, 2009 taken by the Division of Informa-\n tion Technology to Ensure the\n Confidentiality of Sensitive Email\n Communications\n AUD-09-009 Oversight Management of the\n March 31, 2009 Contract with the ARAMARK\n Corporation\n\n Totals for the Period $0 $0 $0\n\n\n\n 45\n\x0c Table III: Evaluation Reports and Memoranda Issued\n\n Evaluation Reports & Memoranda Questioned Costs Funds Put to\n Number and Date Title Total Unsupported Better Use\n Supervision\n EVAL-09-004 Controls Over the FDIC\xe2\x80\x99s\n March 20, 2009 Processing of Capital\n Purchase Program Applica-\n tions from FDIC-Supervised\n Institutions\n Consumer Protection\n EM-09-001\t Enforcement Actions for\n December 12, 2008\t Compliance Violations at\n \t FDIC-Supervised Institutions\n Resources Management\n EVAL-09-001 FDIC\xe2\x80\x99s Corporate Employee\n January 9, 2009 Program\n EVAL-09-002 FDIC\xe2\x80\x99s Guard Services $2,094,750a\n February 6, 2009 Contract and Controls Over\n Access to Facilities\n\n EVAL-09-003 FDIC\xe2\x80\x99s Security Controls\n March 11, 2009 Over Mail Handling and Mail\n Screening Processes at FDIC\n Facilities\n Totals for the Period $0 $0 $2,094,750\n a\t Funds Put to Better Use are part of a range, from $2,094,750 to $5,236,872.\n\n\n\n Table IV: Audit Reports Issued with Questioned Costs\n\n Questioned Costs\n Number\n Total Unsupported\n A. For which no management decision has been 0 0 0\n \t made by the commencement of the reporting\n \t period.\n B. Which were issued during the reporting period. 0 0 0\n Subtotals of A & B 0 0 0\n C. For which a management decision was made 0 0 0\n \t during the reporting period.\n \t (i) dollar value of disallowed costs. 0 0 0\n \t (ii) dollar value of costs not disallowed. 0 0 0\n D. For which no management decision has been 0 0 0\n \t made by the end of the reporting period.\n \t Reports for which no management decision 0 0 0\n \t was made within 6 months of issuance.\n\n\n46\n\x0cTable V: Evaluation Reports and Memoranda Issued with Questioned Costs\n\n Questioned Costs\n Number\n Total Unsupported\nA. For which no management decision has been 0 0 0\n\t made by the commencement of the reporting\n\t period.\nB. Which were issued during the reporting period. 0 0 0\nSubtotals of A & B 0 0 0\nC. For which a management decision was made 0 0 0\n\t during the reporting period.\n\t (i) dollar value of disallowed costs. 0 0 0\n\t (ii) dollar value of costs not disallowed. 0 0 0\nD. For which no management decision has been 0 0 0\n\t made by the end of the reporting period.\n\t Reports for which no management decision 0 0 0\n\t was made within 6 months of issuance.\n\n\n\nTable VI: Audit Reports Issued with Recommendations for Better Use of Funds\n\n Number Dollar Value\nA. For which no management decision has been made by the 0 0\n\t commencement of the reporting period.\nB. Which were issued during the reporting period. 0 0\nSubtotals of A & B 0 0\nC. For which a management decision was made during the reporting 0 0\n\t period.\n\t (i)\t dollar value of recommendations that were agreed to by 0 0\n\t\t management.\n\t\t - based on proposed management action. 0 0\n\t\t - based on proposed legislative action. 0 0\n\t (ii)\t dollar value of recommendations that were not agreed to by 0 0\n\t\t management.\nD. For which no management decision has been made by the end of 0 0\n\t the reporting period.\n\t Reports for which no management decision was made within 0 0\n\t 6 months of issuance.\n\n\n\n\n 47\n\x0cTable VII: Evaluation Reports and Memoranda Issued with Recommendations for\n\t Better Use of Funds\n\n Number Dollar Value\n A. For which no management decision has been made by the 0 0\n \t commencement of the reporting period.\n B. Which were issued during the reporting period. 1 $2,094,750\n Subtotals of A & B 1 $2,094,750\n C. For which a management decision was made during the reporting 0 0\n \t period.\n \t (i) dollar value of recommendations that were agreed to by 0 0\n \t\t management.\n \t - based on proposed management action. 0 0\n \t - based on proposed legislative action. 0 0\n \t (ii) dollar value of recommendations that were not agreed to by 0 0\n \t\t management.\n D. For which no management decision has been made by the end of 0 0\n \t the reporting period.\n \t Reports for which no management decision was made within 0 0\n \t 6 months of issuance.\n\n\n\nTable VIII: Status of OIG Recommendations Without Management Decisions\nDuring this reporting period, there were no recommendations more than 6 months old without management decisions.\n\nTable IX: Significant Revised Management Decisions\nDuring this reporting period, there were no significant revised management decisions.\n\nTable X: Significant Management Decisions with Which the OIG Disagreed\nDuring this reporting period, there were no significant management decisions with which the OIG disagreed.\n\nTable XI: Instances Where Information Was Refused\nDuring this reporting period, there were no instances where information was refused.\n\n\n\n\n48\n\x0c C\nThe OIG acknowledges the following\nformer staff who retired after\n Congratulations and\n Farewell to Retirees\n\n\n\n\n at the Department of Housing\n and Urban Development (HUD)\n merger of the RTC and FDIC Offices\n of Inspector General, Ms. Black was\ndistinguished federal careers: as an accountant. By 1978 he the Assistant IG for Inspections and\n had transferred to the General Legal Support. She then served\n Services Administration where as Counsel to the FDIC IG and as\nAlban Abraham, Office of\n he worked as an accountant Deputy IG under former IG Gaston\nEvaluations in the Indian Trust Accounting Gianni for several years. Following\n Mr. Abraham Unit. He then joined the Depart- the retirement of Mr. Gianni in\n retired after more ment of Health and Human December 2005, Ms. Black was\n than 38 years of Services in 1980 and served as the FDIC Acting IG for a 6-month\n federal service. His an accountant and supervisory period. When IG Rymer took\n career began in accountant until February 1988. office in July 2006, she resumed\n 1970 at the Army He subsequently joined the FDIC her role as Deputy Inspector\n Audit Agency. In as a criminal investigator and was General up to her retirement.\n1979, he joined the OIG for the with the OIG\xe2\x80\x99s Office of Investiga-\nGeneral Services Administration, tions for nearly 20 years. During\n Joan Dwyer, Office of\nwhere he was responsible for his last 8 years with the OIG, he\nconducting and managing special provided valuable advice and Investigations\naudits and audits of building support as the Senior Technical Ms. Dwyer retired\nmanagement. His career shifted its Advisor to the Assistant Inspector after nearly 28\nfocus to the banking industry in General for Investigations. years of federal\n1988 when he joined the Federal government\nHome Loan Bank Board, which Patricia Black, Deputy service. Her career\nwas merged with the FDIC in 1989, included service at\nand he was a valued member Inspector General the Federal Bureau\nof the FDIC OIG up to his retire- Ms. Black retired of Investigation; the Bureau of\nment. At the FDIC, in particular, he after more than Alcohol, Tobacco, and Firearms;\nplayed a key role in conducting 34 years of the Department of Defense; RTC;\nand managing audits of FDIC federal service. and the FDIC. At the FDIC, in\ncontractors and others providing She entered the particular, Ms Dwyer was a primary\nservices to the Corporation, government in contact between the headquar-\nincluding numerous law firms. 1970 as a co-op ters and field offices and provided\n student at the Department of advice and technical assistance\n Health, Education, and Welfare. to agents based on her extensive\nKarl Berberich, Office of\n Her career included service as law enforcement experience\nInvestigations a law clerk at GSA and later an and expertise. During her last 9\n Mr. Berberich attorney with GSA\xe2\x80\x99s Board of months at the FDIC, she served\n retired after Contract Appeals. She also served with distinction in piloting an\n more than 34 for 11 years with the HUD Office of Ombudsman program for FDIC\n years of federal General Counsel. She was Counsel employees, an activity that was a\n service. His career to the Inspector General of the top priority for the FDIC Chairman.\n began in 1974 Resolution Trust Corporation (RTC)\n when he worked throughout its existence. With the\n 49\n\x0cNancy Frank, Office of Ben Hsiao, Office of Audits Craig Russell, Office of\nManagement Mr. Hsiao retired Audits\n Ms. Frank retired after nearly 32 Mr. Russell retired\n after nearly 37 years of federal after nearly 42 years\n years of federal government of combined military\n service. Her career service. His and federal govern-\n began in 1969 and distinguished ment service. His\n the early 1970\xe2\x80\x99s career included career included\n when she worked civilian service as military service to his country\nat the Federal Trade Commission an Operations Research Analyst in the U.S. Army as well as a\nin clerical positions on an intermit- in both the Navy and the Air civilian career at the U.S. General\ntent basis while attending college. Force and service at the OIGs of Accounting Office, RTC, and the\nBeginning in 1975, she served as the Department of Energy, the FDIC. For many years, Mr. Russell\na budget analyst at the Commis- Environmental Protection Agency, served the important role of Site\nsion, advancing steadily in her HUD, and finally, the FDIC. At the Coordinator in the OIG\xe2\x80\x99s Dallas\ncareer over the years. By 1979 she FDIC, in particular, Mr. Hsiao played Office. Throughout his career\nhad transferred to the U.S. Secret a key role in helping to ensure he developed other audit staff\nService and served as a budget the security of the Corporation\xe2\x80\x99s who grew professionally under\nanalyst for nearly 11 years. In information systems. He was also his guidance. More recently, Mr.\n1990, she joined the RTC Office of actively involved, including serving Russell was involved in OIG work\nFinance and soon thereafter joined as president, in the National related to the failure of IndyMac\nthe RTC OIG and held the posi- Capital Area Chapter of the Infor- Bank, FSB, and invested tremen-\ntion of Financial/Budget Analyst mation Systems Audit Control dous time and energy on that\nuntil the RTC\xe2\x80\x99s sunset in December Association, an organization for assignment prior to his retirement.\n1995. She then transitioned to the information governance, control,\nFDIC OIG where she served our security, and audit professionals.\noffice with distinction for nearly\n13 years. She worked tirelessly\nto ensure that the OIG\xe2\x80\x99s budget\nand financial systems worked\nefficiently and effectively. She\nwas also an excellent steward of\nOIG funds and ensured financial\naccountability and integrity.\n\n\n\n\n50\n\x0c\x0c\x0c'