jurisdiction: US

text: b"\x0c\x0cOffice of Inspector General\n\n Semiannual Report\n to the Congress\n October 11998 thru March311999\n\n\n\n\nF e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n\n\x0c In our last semiannual report, I financial services industry, we also\n acknowledged the 20th anniversary issued a Material Loss Review of the\n of the passage of the Inspector Failure of BestBank, Colorado, during\n General (IG) Act. On April 17, 1999, the reporting period. The OIG attrib-\n our office marked another mile- uted BestBank\xe2\x80\x99s failure to losses in a\n stone\xe2\x80\x94the 10th anniversary of the risky sub-prime credit card lending\n Board of Directors\xe2\x80\x99 establishment of program. We made recommenda-\n the FDIC Office of Inspector General tions in this \xe2\x80\x9clessons learned\xe2\x80\x9d report\n (OIG). Both of these occasions have\n Inspector General\xe2\x80\x99s\n\n to strengthen supervisory practices\n provided us an opportunity to reflect and prevent recurrences of the types\n on the past and our evolution as an of problems that led to losses now\n organization. However, as is true of totaling more than $170 million. The\n the Corporation, the most important Corporation either agreed with or\n focus of our office is on the future. agreed to take alternative action that\n meets the intent of 10 of the\n At a time when society as a whole is 11 recommendations we made. We\n anxiously anticipating the arrival of recommended that the Corporation\n Year 2000, the Corporation is aggres- implement a policy where examiners\n Statement\n\n\n\n\n sively addressing the risks associ- take prompt action to address allega-\n ated with the uncompromising dead- tions of potential wrongdoing in open\n line of January 1, 2000. In a speech banks, including referrals of such\n to all FDIC employees on February 4, allegations to the regional director,\n 1999, Chairman Tanoue spoke of regional counsel, and, in certain\n Year 2000 as the number one safety circumstances, the OIG. DOS man-\n and soundness priority. She also dis- agement does not agree with that\n cussed two other corporate priori- portion of our recommendation con-\n ties: understanding the rapidly cerning referring allegations to the\n changing financial services environ- OIG. It believes that if there is a reg-\n ment and promoting diversity in the ulatory problem, DOS and the Legal\n workplace. The OIG has con- Division can handle it; if it is a crimi-\n ducted its work over the past nal problem, the Federal Bureau of\n 6 months with a view toward these Investigation is set up to handle it.\n and other related corporate issues, Further, DOS's view is that investiga-\n as discussed in detail in this report. tions of alleged wrongdoing by open\n As part of our most significant work banks, in most instances, is a pro-\n during the reporting period, we have gram responsibility of DOS, not the\nGaston L. Gianni, Jr. been proactively involved in the OIG.\nInspector General Corporation\xe2\x80\x99s Year 2000 activities\xe2\x80\x94\n both those involving the institutions We disagree and believe that under\n that the FDIC supervises and its own the IG Act, the OIG has responsibility\n internal systems. We issued several for investigating certain matters,\n memorandums and passed along including possible criminal obstruc-\n best practices suggestions to the tion of an FDIC examination. Under\n Division of Supervision (DOS) during the Act, I am required to report that\n the reporting period. Our principal disagreement to the Congress in this\n goal is to assist the Corporation in semiannual report. We have been\n successfully handling the imminent meeting with management and will\n century date change. continue to work with them to\n resolve this disagreement.\n In connection with the priority of\n understanding the rapidly changing\n\n\n\n\n 2\n\x0cAs for the third corporate priority of ship is essential. The Chairman had mits them to continue to serve until\npromoting diversity, we fully support just taken office as of the date of their successors have been\nthe Corporation\xe2\x80\x99s diversity definition our last semiannual report. She has appointed and qualified. The term of\nand related initiatives. We have also been dedicated in her pursuit of the office as director left vacant by\nconducted our own study of diversity corporate mission and especially vig- Mr. Neely will expire approximately\nwithin the OIG and will soon be issu- ilant regarding Year 2000 efforts. 15 months later. It is critical that this\ning a report to the House She supports the work of my office, vacancy be filled as soon as possible\nSubcommittee on Veterans\xe2\x80\x99 Affairs, commenting in recent testimony on to allow for an ample learning period,\nHousing and Urban Development, Year 2000 that our oversight \xe2\x80\x9cis an ensure continuity, and maintain\nand Independent Agencies, important part of the FDIC\xe2\x80\x99s quality needed historical perspective in the\nCommittee on Appropriations. This assurance of its Year 2000 effort, event the Chairman and Vice\nstudy was done in response to and we welcome the views and sug- Chairman leave office upon the expi-\nlanguage contained in the gestions for improvement that the ration of their terms. I understand\nSubcommittee\xe2\x80\x99s report on the fiscal OIG has provided.\xe2\x80\x9d The Chairman that a name has been submitted for\nyear 1999 appropriation. has also endorsed our authority to the President\xe2\x80\x99s consideration. I am\n establish an independent personnel hopeful that an appointment will be\nIn addition to focusing on these prior- function in the OIG and we are mak- made soon so that a full complement\nities, our office is looking inward and ing progress to that end, having of board members can deliberate sig-\nclosely examining the way we con- recently hired a Deputy Assistant nificant issues and make critical deci-\nduct our work. Throughout this Inspector General for Human sions in the best interest of the\nprocess we are seeking to be true to Resources. We appreciate the FDIC. A board operating at full\nthe mission of an independent OIG, Chairman\xe2\x80\x99s support and will continue strength is vital to the Corporation.\nas articulated 20 years ago in the IG to work cooperatively with her.\nAct; at the same time we are con- In closing, I wish to acknowledge\nstantly looking ahead for opportuni- Since taking office, the Chairman has two departures on my own senior\nties to learn, improve, and maximize designated Vice Chairman Hove as management staff during the report-\nour value to the Corporation. We the person that I report to directly. ing period. Patrick Noble, Assistant\nhave administered a client survey to Vice Chairman Hove also serves as Inspector General for Investigations,\nobtain feedback from FDIC senior head of the FDIC Audit Committee and Lew Sherman, Deputy Assistant\nmanagement and are currently con- and, along with the Chairman, serves Inspector General for Investigations,\nsidering that input to be able to on the FDIC Board of Directors. Five retired from the FDIC after more\nthoughtfully respond to it. Our own members comprise the FDIC\xe2\x80\x99s Board than 27 and 22 years of service,\nsenior management team has been of Directors: the FDIC Chairman, the respectively. I am grateful for the\nengaged in an in-depth review of our Vice Chairman, a third appointed contributions these individuals made\nwork processes and products. In the member, the Director of the Office to the success of our office. We\nspirit of the Government of Thrift Supervision, and the have recently hired Samuel Holland\nPerformance and Results Act, we Comptroller of the Currency. The to serve as Assistant Inspector\nhave also evaluated our success in Board has operated with only four General for Investigations. We wel-\nmeeting our 1998 performance goals members since the departure of for- come him to the OIG and look for-\nand have devised a new Strategic mer Director Joseph Neely (the third ward to the positive impact he will\nPlan and related performance and appointed member) in September have on our team as we confront the\noperating goals for the future. I am 1998. I am concerned about a challenges ahead.\nconfident that as we move forward, potential internal leadership void that\nall of these efforts will serve us and, may manifest itself later if action is\nmore importantly, the Corporation not taken to address this issue.\nvery well. Specifically, the terms of office as\n directors of both Chairman Tanoue April 30, 1999\nGiven the corporate priorities and and Vice Chairman Hove will expire\ncorresponding challenges facing the in October 2000, although the\nFDIC, strong and sustained leader- Federal Deposit Insurance Act per-\n\n\n\n\n 3\n\x0c the FDIC\xe2\x80\x99s many contracting\n activities are also essential to the\n Corporation\xe2\x80\x99s success.\n\n Major downsizing over the past\n 4 years and natural attrition have\n greatly impacted the FDIC work-\n place. The loss of human resources\n has resulted in corresponding losses\n Major Issues of leadership and, in some cases,\n expertise and historical knowledge.\n The Major Issues section of our\n The Corporation is also challenged\n report focuses on the challenges the\n by the changing composition of its\n FDIC faces as it works to accom-\n workforce, which is becoming\n plish its mission. The Corporation\n increasingly diverse. The FDIC must\n must address ever-present risks to\n ensure that its corporate diversity\n the insurance funds, including the\n plan is fully carried out and foster an\n upcoming century date change,\n environment that engenders the\n while supervising the financial insti-\n Corporation's definition of diversity.\n tutions it regulates and protecting\n Overview\n\n\n\n\n Finally, under the provisions of the\n consumers\xe2\x80\x99 rights. The FDIC must\n Government Performance and\n also be mindful of lessons it can\n Results Act, for all of these major\n learn from major bank failures, as\n issues, the Corporation must estab-\n we discuss in our Special Feature on\n lish goals, measure performance,\n the failure of BestBank. With\n and report on accomplishments.\n respect to managing and liquidating\n assets, the Corporation must always\n Our Major Issues section also dis-\n seek to maximize recoveries and be\n cusses the OIG\xe2\x80\x99s work to help the\n particularly vigilant regarding pro-\n Corporation achieve success in carry-\n grams where large sums of money\n ing out its programs and operations.\n are at stake and the FDIC does not\n There are multiple examples of our\n\n\n\n\nMajor OIG\nIssues Investigations Organization\n\n control the entire management and cooperative efforts with the Audit\n disposition process. In conducting Committee, FDIC management, and\n its information technology activities colleagues at the U.S. General\n in 1999, the Corporation needs to Accounting Office, the Federal\n follow sound system development Financial Institutions Executive\n life cycle procedures, carefully bud- Council, and other Offices of\n get and track costs and perfor- Inspector General as we work with\n mance, and ensure adequate sys- them to maximize our contribution to\n tem security. Strong controls over the FDIC. (See pages 8 to 29.)\n\n\n\n\n 4\n\x0c OIG Organization\n\n As the FDIC OIG nears its 10th\n anniversary, its mission remains\n constant: promoting the economy,\n efficiency, and effectiveness of\n FDIC programs and operations and\n protecting against fraud, waste,\n and abuse. In so doing, the OIG\n seeks to assist and augment the\n FDIC\xe2\x80\x99s contribution to the stability\n of and public confidence in the\n nation\xe2\x80\x99s financial system. The OIG\nInvestigations Organization section of our report\n briefly discusses the evolving role\nThe operations and activities of the of our organizational components in\nOIG's Office of Investigations are achieving that mission and visually\ndescribed beginning on page 30 of depicts some of the statistical\nthis report. As detailed in the results of our work over the past\nInvestigations section, the Office of five reporting periods. This section\nInvestigations' work this period led references some of the advisory\nto fines, restitution, and monetary assistance we have provided to Appendixes\nrecoveries totaling over $3.7 mil- management during the reporting\nlion. Cases leading to those results period, including our participation We list the IG Act reporting require-\nincluded investigations of fraud on the Corporation's Business ments and define some key terms\n in this section. The appendixes\nby contractors, concealment of Continuity Working Group and\n also contain much of the statistical\nassets by FDIC debtors, and fraud meetings of the FDIC Diversity data required under the Act and\nagainst open and closed financial Steering Committee. This part of other information related to our\ninstitutions. Some of the investiga- our report also captures some of work this period. (See pages 46\ntions described reflect work we our most significant internal initia- to 59.)\n\n\n\n\nhave undertaken in partnership with tives this period, including our\nother law enforcement agencies efforts to become a \xe2\x80\x9clearning\nand with the cooperation and assis- organization,\xe2\x80\x9d our administration\ntance of the FDIC\xe2\x80\x99s Division of of internal and external customer\nResolutions and Receiverships. To satisfaction surveys, our internal\nensure continued success, the OIG OIG diversity study, and our\ncontinues to work collaboratively on efforts to improve OIG audit and\na number of task forces and work- investigative information systems.\ning groups. (See pages 38 to 45.)\n\n\n\n\n 5\n\x0cHighlights\n The Office of Audits and Office of Congressional Relations and\n \xe2\x97\x8f\n\n\n Evaluations issue a total of 33 reports with questioned costs of\n $1.86 million and funds put to better use of $150,000. Management\n disallows $1.75 million of costs questioned.\n OIG reports include 133 non-monetary recommendations to improve\n \xe2\x97\x8f\n\n\n\n\n corporate operations. Among these are recommendations to\n strengthen the risk-focused examination process; enhance oversight\n of contractors; revise corporate policy and guidance; clarify perfor-\n mance reporting criteria; adhere to sound system development prac-\n tices; maintain and update project cost-benefit information; and\n improve the integrity, security, and documentation of systems.\n \xe2\x97\x8f\n\n\n\n\n OIG investigations result in 10 convictions; 9 indictments/informations;\n 4 arrests; and over $3.7 million in total fines, restitution, and monetary\n recoveries.\n \xe2\x97\x8f\n\n\n\n\n The OIG continues and expands partnering activities with FDIC\n management, the Office of Internal Control Management, the U.S.\n General Accounting Office, the President\xe2\x80\x99s Council on Integrity and\n Efficiency, the Federal Financial Institutions Examination Council, and\n the Department of Justice.\n \xe2\x97\x8f\n\n\n\n\n OIG staff reviews 6 proposed federal regulations and 17 proposed\n FDIC policies and responds to 21 requests and appeals under the\n Freedom of Information Act and the Privacy Act.\n \xe2\x97\x8f\n\n\n\n\n In keeping with Chairman Tanoue's acknowledgement that the OIG\n has the authority to make its own personnel decisions pursuant to the\n Inspector General Act, the OIG furthers its plan to establish an\n independent, full-service personnel function and establishes a position\n to lead that activity.\n The OIG continues efforts with Division of Resolutions and\n \xe2\x97\x8f\n\n\n\n\n Receiverships staff to pursue court-ordered restitution. More than\n $1.2 billion is owed to the FDIC. To date, about $139 million has been\n recovered.\n \xe2\x97\x8f\n\n\n\n\n The FDIC OIG serves as lead agency on the review of the Federal\n Financial Institutions Examination Council's training program.\n \xe2\x97\x8f\n\n\n\n\n The OIG continues its major audit effort of corporate Year 2000 (Y2K)\n activities and issues memoranda and best practices suggestions to the\n Division of Supervision related to internal and external Y2K matters.\n OIG and U.S. General Accounting Office staffs continue their joint\n \xe2\x97\x8f\n\n\n\n\n effort to audit the Corporation\xe2\x80\x99s financial statements, with the OIG\n playing a greater role.\n \xe2\x97\x8f\n\n\n\n\n The OIG coordinates with management on a number of projects relat-\n ing to the major issues facing the Corporation, including participating in\n the FDIC's Business Continuity Working Group, providing advice on\n contracting issues to the Acquisition and Corporate Services Branch,\n and consulting with management on Government Performance and\n Results Act-related issues.\n \xe2\x97\x8f\n\n\n\n\n The OIG carries out significant internal initiatives, including the launch\n of the \xe2\x80\x9clearning organization\xe2\x80\x9d concept, completion of an external sur-\n vey of client satisfaction, and implementation of the OIG Intranet\n web site.\n\n\n\n\n 6\n\x0c Inspector General\xe2\x80\x99s Statement 2\n\n Overview 4\n\n Highlights 6\n\n Major Issues 8\n\n Investigations 30\n\n OIG Organization 38\n\n Reporting Terms and Requirements 46\nTable of Contents\n\n\n Appendix I\n Statistical Information Required by the\n Inspector General Act of 1978, as amended 48\n\n Appendix II\n Reports Issued by the Office of\n Congressional Relations and Evaluations 57\n\n Appendix III\n Statistical Information Related to\n OIG Completion of RTC Contractor Reviews 58\n\n\n T a b l e s\n 1 Significant OIG Achievements\n October 1998 -March 1999 39\n 2 Nonmonetary\n Recommendations 45\n 3 OIG Review of\n Legislation and Regulations\n (October 1, 1998 - March 31, 1999)\n 45\n\n\n\n\n F i g u r e s\n 1 Reports Issued and Investigations\n Closed 44\n 2 Questioned Costs/Funds Put to\n Better Use 44\n 3 Fines, Restitution, and Monetary\n Recoveries Resulting from OIG\n Investigations 44\n\x0c Under the IG Act, the FDIC OIG is the FDIC symbol displayed in the\n charged with promoting the branches of banks across America\n economy, efficiency, and provides peace of mind to the\n effectiveness of FDIC programs public. When despositors see this\n and operations and protecting symbol, they know that their\n against instances of fraud, waste, insured deposits are safe. For\n and abuse that can threaten the 66 years, the FDIC's mission has\n Corporation\xe2\x80\x99s success. In that been to maintain stability in the\n regard, the OIG has identified a nation\xe2\x80\x99s financial system and\n number of major issues facing the sustain the confidence of the\n Corporation. The results of our public. Although the challenges to\n work over the past 6 months are stability have changed through the\n presented in the context of these years, the Corporation's goal has\n issues. The major issues are remained constant.\n closely related to the Corporation\xe2\x80\x99s\n mission: to contribute to stability Y2K Remains Top Priority\n and public confidence in the Currently, the most immediate risk\nMajor Issues\n\n\n\n\n nation\xe2\x80\x99s financial system by to the banking industry and the\n insuring deposits, examining and FDIC are those that may emerge\n supervising financial institutions, due to the coming of Year 2000\n and managing receiverships. We (Y2K). The FDIC has identified Y2K\n have conducted our work over the as \xe2\x80\x9cthe number one safety and\n past 6 months to address these soundness priority\xe2\x80\x9d and has\n major issues and to add value in full worked diligently to address risks\n support of the corporate mission. related to the century date change.\n According to the Chairman, most of\n Addressing Risks the Y2K focus to date has been on\n to the Insurance Funds necessary system fixes. The\n Chairman has publicly claimed that\n As the FDIC Chairman emphasized 97 percent of the banks are on\n in an address to all corporate track in making sure their computer\n employees on February 4, 1999, systems are ready for the date\n\n\n\n\n Supervising Insured Institutions\n Addressing Risks and Protecting Consumer Maximizing Returns\n to the Insurance Funds Interests from Failed Institutions\n\n\n\n\n 8\n\x0c change. She has stated that the assigned to banks as a result of be improved by enhanced controls.\n FDIC must also continue DOS examinations are consistent, Specifically, we noted that the\n aggressive efforts in the areas of accurate, supported, and timely. reliability of data in DOS\xe2\x80\x99s Y2K\n examination, supervision, and During our review we discussed tracking system could be enhanced\n contingency planning. The our results with DOS and provided by revising default rating settings in\n Chairman's message to the public an interim communication to advise the system and by implementing an\n has been optimistic: \xe2\x80\x9cThere is no DOS of our conclusions as of effective audit trail and reconcil-\n safer place to keep your money February 24, 1999. We pointed out iation process for data entered into\n than in a federally insured account several areas that warranted the system. Additionally, we\n at a bank or savings institution.\xe2\x80\x9c management attention. suggested that the timely communi-\n As Y2K draws ever closer, the cation of examination results and\n Corporation's greatest challenge is DOS initially divided its Y2K having an effective process for\n to ensure that this statement supervisory efforts into two tracking this information could\n stands the test of time. phases. Phase I focused on the assist the institutions in initiating\n institutions' awareness, timely and meaningful corrective\n The OIG has focused its Y2K work assessment, and renovation action and promote meaningful\n both on the FDIC's Y2K efforts. Phase II focused on the examination follow-up.\n supervisory efforts and on its validation, implementation, and\n activities related to the readiness contingency planning efforts at In response to our memorandum,\n of the Corporation's internal financial institutions. We reviewed the FDIC incorporated a number of\n systems. During this reporting 89 Phase II examinations of FDIC- our suggestions into guidance for all\n period we issued two memoranda supervised financial institutions and regional directors with further distri-\n to management addressing these questioned the accuracy, bution to examiners. These\n areas. completeness, and consistency of included our suggestions regarding\n 14 of the 89 examinations. Our an independent, documented\n In a real-time mode, we have been work focused on identifying review process for workpapers;\n reviewing the FDIC's efforts to systemic weaknesses that may elimination of the suggested\n ensure Y2K readiness by the impact DOS's Y2K efforts, and we 24-staff-hour target for completing\n financial institutions it supervises. offered suggestions to DOS to Phase II examinations; confirmation\n The Division of Supervision (DOS) address possible systemic issues. that examination conclusions are\n primarily administers the FDIC's fully developed and supported;\n activities in this area with direction We suggested that enhanced enhanced rating criteria; and more\n\n\n\n\n Ensuring Sound Controls\nManaging and Oversight Operating Effectively Establishing Goals\nInformation Technology of Contracting Activities in a Changing Environment and Measuring Results\n\n from an inter-divisional Y2K guidance regarding the assignment timely communication of\n Oversight Committee. The of ratings, increased review of examination results. DOS is also\n objectives of our review are to examination reports and working working to address our concerns\n determine whether the policies and papers, and increased emphasis on related to revising default rating\n procedures developed by the FDIC examination thoroughness would settings, establishing audit trails,\n and the Federal Financial improve the FDIC\xe2\x80\x99s assurance that and implementing controls to track\n Institutions Examination Council its information regarding the status the timely issuance of transmittal\n (FFIEC) will ensure that FDIC- of supervised institutions was letters.\n supervised financial institutions consistent and accurate.\n have implemented a structured Subsequent to our review, in a\n approach to becoming Y2K- We also communicated two other March 15, 1999 memorandum to\n compliant and that Y2K ratings conditions that we believed could the Chairman we stated that we\n\n\n\n\n 9\n\x0cbelieved, overall, that the Y2K documentation preparation, and Banking activities related to\nsupervisory program to date has development. Once these cost cyberbanking, electronic cash, and\nbeen effective. We will continue to estimates were determined, other highly technical financial\nwork closely with DOS as it enters management would more defini- delivery systems also pose\nPhase III of the Y2K readiness tively know what it would cost to increasing risks that may impact\nassessment process. During this provide effective business the safety and soundness of the\nphase, according to DOS policy, continuity for critical services. banking industry and, consequently,\nexaminers should review financial the deposit insurance funds.\ninstitutions\xe2\x80\x99 ongoing responsibilities, In response to the memorandum, Additionally, personal bankruptcies,\nwhich include vendor and service the assistant director, Millennium syndicated lending, international\nprovider due diligence, business Information Technology Strategies, investments, and credit card\nresumption contingency planning, returned many of the contingency lending are areas where adverse\ncustomer awareness initiatives, plans to respective divisions and trends could cause losses to the\nliquidity assessment and planning, offices for correction based on the FDIC and banking industry. The\nand credit risk analysis and OIG's input. He requested that Corporation must guard against\nmonitoring. Examiners should also action be taken by January 31, these risks and at the same time\nensure that institutions continue to 1999; however, due to the Y2K continue to ensure that consumers\nreport regularly to their boards of testing workload, the deadline for have fair and equal access to\ndirectors on the status of Y2K most divisions and offices was financial services.\nreadiness efforts. extended to March 31,1999. We\n will continue to monitor the Another key consideration for the\nEarlier in the reporting period, we Corporation's progress. FDIC as insurer is to ensure that\nissued a memorandum to FDIC the risk-based premium system\nmanagement on the Corporation's Other Risks Require Vigilance avoids an excess build-up of risk.\ninternal efforts to ensure Y2K The Corporation cannot afford to The Chairman has urged FDIC staff\nreadiness. Our memorandum limit its focus to Y2K. It must to make sure the premium system\ncommunicated the results of our remain alert to emerging risks and reflects what the risk-focused\nreview of the FDIC's development adapt to a rapidly changing financial supervisory process indicates.\nof contingency plans and related services marketplace. In terms of According to the Chairman, the\nprocedures. We suggested that size, complexity, and sensitivity to Corporation will be looking to\nthe contingency plans for the the global marketplace, banks have identify banks whose overall\nFDIC's 39 mission-critical changed greatly over the past condition may be good but whose\n\n\n\n\napplications needed to be revised 5 years. The Chairman has urged practices make them \xe2\x80\x9coutliers\xe2\x80\x9c\nto include dates by which the the employees of the FDIC to find with respect to underwriting,\nCorporation would develop and test better ways to understand concentration of risk, or undisci-\nprocedures, train users, develop increasingly large, complex plined growth. Once supervisors\ndocumentation, and deploy institutions; the businesses they identify these banks, the\nsoftware. To ensure adequate conduct; and the risks they pose. supervisors need to be sure that\ninformation for management Two fundamental questions arise: the risk-based premium system\ndecision-making, we suggested (1) what companies should be reflects the additional risk these\nthat the plans should also include covered by the FDIC's \xe2\x80\x9csafety net,\xe2\x80\x9d institutions pose to the rest of the\nitemized cost estimates for and (2) how would the Corporation industry.\ncontingency procedure deal with a \xe2\x80\x9cmegabank\xe2\x80\x9d that is in\ndevelopment, testing, user training, trouble or fails?\n\n\n\n\n 10\n\x0cOIG Efforts to Mitigate Risks Federal Reserve Board and the nationwide feedback on DOS\xe2\x80\x99s\nContinue Conference of State Bank progress in implementing the risk-\nIn our last semiannual report, we Supervisors, began implementing a focused examination process. As a\nnoted two ongoing audits in the area new risk-focused examination result, we recommended that the\nof Addressing Risks to the process designed to target director of DOS take the following\nInsurance Funds that we have functions that pose the greatest actions:\nsubsequently completed during the risk exposure to the bank. Rather\ncurrent reporting period. These than following the traditional \xe2\x80\xa2 Develop and communicate the\naudits, discussed below, represent approach of reviewing a large program\xe2\x80\x99s goals and objectives to\n examiners to convey management\xe2\x80\x99s\ntwo of the OIG's most significant sample of loans, this approach first specific expectations for the\nproducts this period. requires the examiner to identify processes and outcomes of the risk-\n and test controls within the bank focused examination process.\nBestBank Causes over and then to modify the sample\n$170 Million Loss to selection as appropriate. This \xe2\x80\xa2 Clarify DOS\xe2\x80\x99s policy and instructions\nInsurance Fund targeted examination approach is to examiners regarding adequate\nWe conducted a material loss review intended to focus examination documentation of exam modules.\nof the failure of BestBank, Boulder, resources on the areas of greatest\nColorado, as required by law. risk within a bank, thereby \xe2\x80\xa2 Develop a supervisory review\nSection 38(k) of the Federal Deposit improving the effectiveness of the process.\nInsurance (FDI) Act, effective July 1, examination process without\n1993, requires the OIG to review the requiring increased resources. \xe2\x80\xa2 Provide a refresher course to all\nsupervision of FDIC-supervised field examiners on the use of the\n software used to conduct the\nbanks that cause a material loss During this reporting period, the exams.\n(generally defined as over OIG issued a report on the FDIC's\n$25 million) to a deposit insurance implementation of the risk-focused \xe2\x80\xa2 Develop a comprehensive\nfund. In the case of BestBank, examination process. We evaluation system that systemat-\nlosses were originally estimated at concluded that the risk-focused ically monitors and assesses\n$28 million. In fact, losses in excess process was not being imple- DOS\xe2\x80\x99s progress in achieving\nof $170 million have been booked so mented by examiners as it was desired risk-focused goals and\nfar. We issued a report that intended by (DOS) headquarters objectives and uses evaluation\nassessed why the institution's management. Examiners were results to improve program\nproblems caused a loss and made unclear as to the goals and processes and products.\n\n\n\n\nrecommendations to help prevent objectives of the new approach, Throughout this review, we kept\nany such losses in the future. (See and risk-focused procedures were DOS apprised of our findings so it\nnext page for Special Feature on seldom being implemented as could have real-time feedback on\nBestBank.) designed. Examiners were not the program's implementation.\n using the automated software Approximately 2 months before the\nRisk-Focused Exam Process Not because they felt it was too draft report was issued, we\nImplemented as Intended cumbersome and was adding to provided our preliminary\nA second report issued during the the time and effort necessary to observations to DOS management\nreporting period addressed the complete bank examinations. In for discussion at a regional\nFDIC's risk-focused examination addition, DOS management had not directors\xe2\x80\x99 conference. In his\nprocess. On October 1, 1997, the developed a systematic approach response to the draft report, the\nFDIC, in conjunction with the for measuring and obtaining director of DOS agreed with the\n\n\n\n\n 11\n\x0c \\\n BestBank Material Loss Review\n\n\n In January 1999, 6 months after the has not been completed and additional\n closing of BestBank, Boulder, losses may be forthcoming.\n Colorado, we reported that the Division\n of Supervision\xe2\x80\x99s (DOS) oversight could The Colorado State Banking Board\n have been more effective in controlling closed BestBank on July 23, 1998 with\n BestBank\xe2\x80\x99s undisciplined growth, an initial estimated loss to the BIF of\n concentration in unsecured subprime $28 million. In accordance with\n lending, and poor underwriting section 38(k) of the Federal Deposit\n practices. DOS\xe2\x80\x99s supervisory oversight Insurance Act, we initiated a material\nSpecial feature\n\n\n\n\n was severely hampered by bank loss review to (1) determine the cause\n management\xe2\x80\x99s actions and by the of the bank\xe2\x80\x99s failure and (2) evaluate\n examiners\xe2\x80\x99 restricted access to the the FDIC\xe2\x80\x99s supervision of the\n bank\xe2\x80\x99s third-party servicer, Century institution.\n Financial Group (Century). In addition,\n DOS missed opportunities to take We determined that BestBank's\n more timely and effective supervisory demise was attributable to bank\n actions at critical junctures in the management's failure to operate the\n bank\xe2\x80\x99s history. BestBank\xe2\x80\x99s failure is institution in a safe and sound manner,\n attributable to a which led to substantial\n concentration of losses in the bank\xe2\x80\x99s\n assets in a high-risk high-risk unsecured\n unsecured credit card credit card travel\n travel program that program. BestBank\n sustained substantial initiated the credit card\n losses. Century travel program in 1996\n exercised significant through telemarketing\n control over the credit efforts that targeted\n card program and subprime2 borrowers.\n applied $20 credits in The telemarketed\n an apparent attempt package included a\n to make delinquent travel club\n accounts appear membership, which\n current.1 DOS was provided an option to\n not aggressive in purchase a cruise\n pursuing access to vacation along with\n records supporting other offers and\n Century\xe2\x80\x99s financial statements, which discounts. Borrowers who met the\n we believe could have identified bank's minimal underwriting standards\n problems in the bank\xe2\x80\x99s unsecured and expressed an interest in obtaining\n credit card program and diminished the the credit card submitted an application\n loss to the Bank Insurance Fund (BIF). and a $20 application fee. Upon\n As of December 31, 1998, the FDIC approval, the credit card account was\n estimated that the BIF would incur a established with a $600 credit limit.\n loss of $171.6 million. To date, the With an initial charge of $543 to cover\n final resolution of the bank's assets the $498 travel package and a\n 1\n There are allegations of potential fraudulent activities involving BestBank and Century in connection with the\n unsecured credit card travel program. These allegations were beyond the scope of the material loss review\n and are currently being pursued by the FDIC and federal law enforcement agencies.\n\n 2\n A subprime borrower is one whose credit is below good credit standards. A subprime loan is usually\n referred to as marginal, nonprime, or below \xe2\x80\x9cA\xe2\x80\x9d quality. Subprime borrowers pose a greater risk and are\n characterized by paying debts late, filing for personal bankruptcy, and/or having an insufficient credit history.\n\n\n\n\n 12\n\x0c$45 annual fee, available credit to each examiners became concerned about these accounts. After the examiners\nborrower was only $57. BestBank the bank\xe2\x80\x99s rapid asset growth and determined that the bank did not have\nfunded the program while Century and continuing low delinquency rate. sufficient funds to absorb the\nits affiliated companies originated, BestBank\xe2\x80\x99s delinquency rate on the estimated losses from these\nmanaged, and accounted for the credit credit card travel program initially was delinquencies and that Century did not\ncard accounts. Century retained the high, but dropped substantially when have the financial capability to\nbulk of the funds, and BestBank Century modified its agreement with repurchase the delinquent accounts,\nrecorded an unsecured credit card the bank and agreed to repurchase the Colorado State Banking Board\nreceivable on its books. delinquent accounts more quickly. closed the bank.\n Meanwhile, BestBank officials began\nThe program was highly successful in impeding the examiners\xe2\x80\x99 access to As a result of our material loss review,\nterms of dollar volume. More than bank records and staff. Also, the FDIC we made 11 recommendations\n500,000 new cards were issued and did not obtain access to records designed to provide FDIC examiners\nBestBank's assets grew 648 percent in supporting Century\xe2\x80\x99s financial (1) access to third-party servicers that\n2 years, from $42 million in mid-1996 statements until 1998. While the have the ability to significantly affect\nto $314 million at the bank's closing. examiners were not certain that the safety and soundness of an\nThis increase was primarily attributable Century had sufficient resources to insured institution, (2) unfettered\nto the unsecured credit card travel cover potential future losses, they access to bank employees and records\nprogram. During this 2-year span, the relied on the fact that Century had during examinations, and (3) guidance\nbank\xe2\x80\x99s chief executive officer (CEO) been repurchasing delinquent accounts for improving the examination process.\nand president benefited from multi- as agreed. All the while, the We have reached agreement with the\nmillion dollar bonuses that were examiners were never fully aware of Corporation on 10 of the 11\ndirectly tied to the growth of these the toll the credit card operation was recommendations, including alternative\naccounts and the revenues generated taking on the bank or of the losses that actions for 3 recommendations.\nby the account fees. Century and its the credit card operation would later Regarding the remaining recommen-\naffiliates benefited from the costs and cause to the BIF. dation, DOS has agreed to take partial\nfees charged to the new account- action. DOS disagrees with our\nholders. Bank management\xe2\x80\x99s assertion that the recommendation that examiners refer\n bank could survive without Century\xe2\x80\x99s potential allegations of wrongdoing in\nRegarding supervisory oversight, we assistance prompted a visitation in open banks to the OIG. This\nconcluded that DOS could have been May 1998. The examiners reviewed disagreement is further discussed in\nmore effective in controlling the bank\xe2\x80\x99s the assumptions included in the bank\xe2\x80\x99s table 1.7 of this report. We will\nrapid asset growth and curbing the cash flow projections and concluded continue to work with DOS to reach an\nsubsequent losses to the BIF. that the assumptions were erroneous. understanding on this significant\nObstacles created by BestBank Prior to a June 1998 joint examination, management decision.\nmanagement and existing regulatory FDIC examiners researched several\nauthority impeded the examiners\xe2\x80\x99 consumer complaints of improper\naccess to the bank and restricted credits appearing on the accounts.\naccess to Century. The examiners The examiners found that the low\ncontinued to rate the bank without delinquency rates were the result of\nsufficient or reliable information to Century\xe2\x80\x99s application of $20 \xe2\x80\x9ccredits\xe2\x80\x9d\nsupport the ratings, particularly asset to 368,892 delinquent accounts\nquality. Moreover, the supervisory without actual payments from the\ntools that were available to the borrowers. These accounts\nregulators were not aggressively represented 74 percent of the total\npursued in a timely or effective active subprime credit card travel\nmanner. accounts, with an outstanding balance\n of $179.6 million. Apparently, the\nConsidering that unsecured subprime application of the $20 credits was an\naccounts usually have a high attempt to make the credit card\ndelinquency rate requiring sufficient accounts appear current, precluding\nreserves to cover potential losses, the the need for Century to repurchase\n\n\n\n\n 13\n\x0creport's contents and recommen- and Exchange Commission filings. electronic banking, and the\ndations. He acknowledged that the DOS also processes applications increase in consumer bankruptcy\nfeedback was timely and would be for numerous bank activities such rates. Further, due to the public\nfully incorporated into DOS's as new bank proposals, mergers, interest aspect of consumer\nongoing efforts to improve the and change of control requests. protections and potential consumer\nimplementation of the risk-focused Furthermore, DOS initiates formal exposures, the FDIC has a strong\nexamination process. In December enforcement actions and informal incentive for the early detection\n1998, the director of DOS issued a corrective programs as a result of and correction of problems in\nmemorandum to the regional its examinations. institutions, promoting compliance\ndirectors clarifying DOS's with consumer protection laws and\nexpectations for the risk-focused Protecting Consumers' regulations, and increasing public\nexamination process and took Rights understanding of and confidence in\naction to implement our In addition to the safety and the deposit insurance system. The\nrecommendations. soundness issues related to the Division of Compliance and\n financial condition of insured Consumer Affairs (DCA) projects\nSupervising Insured Institutions institutions, the Corporation must conducting over 2,300 compliance/\nand Protecting Consumer deal with matters related to bank CRA examinations in 1999, with a\nInterests compliance with laws pertaining to decrease to approximately 2,000\n consumer protections and civil examinations per year over the\nThe FDIC is the primary federal rights that are equally important in next 4 years. DCA functions\nregulator for almost 6,000 insti- today's banking environment. A include responding to consumer\ntutions that have assets totaling key consideration in this regard is complaints and inquiries. The\nnearly $1.2 trillion. In addition, the the Community Reinvestment Act volume of these complaints and\nFDIC provides supervisory (CRA), a 1977 law intended to inquiries is expected to range\noversight, although not as the encourage insured banks and thrifts between 90,000 and 140,000 per\nprimary regulator, for about to meet local credit needs, year from 1999 through 2003.\n4,600 institutions with total assets including those of low- and\nover $5.3 trillion. Although a moderate-income neighborhoods, OIG Targets Key\nsteady decline in the number of consistent with safe and sound Supervisory Areas\ninsured institutions is projected operations. The Congress has To help the FDIC more effectively\nover the next 5 years, total assets mandated that the bank regulatory fulfill its bank supervision responsi-\nare projected to increase. The agencies evaluate institutions' CRA bilities, the OIG has targeted a\nchallenge to the Corporation is to\nensure that its system of\nsupervisory controls will identify\nand effectively address financial\ninstitution activities that are unsafe,\nunsound, illegal, or improper before\nthe activities become a drain on the\ndeposit insurance funds.\n\nIn accordance with statutory\nrequirements and corporate policy, performance and that these number of key areas that include:\nDOS projects starting over evaluations be disclosed to the coordination with other federal and\n2,600 safety and soundness public starting in July 1990. state banking regulators; DOS's\nexaminations in 1999. DOS also case manager program; and the\nprovides off-site analysis for all Banking laws related to CRA and compliance examination program,\ninstitutions, including those for consumer protections have including the frequency, priority, and\nwhich it is not the primary changed some in the past several scope of these examinations as\nregulator. This analysis includes years. The environment in which well as CRA performance\nreviewing Office of the Comptroller financial institutions operate is evaluations. We issued the results\nof the Currency, Office of Thrift evolving rapidly, particularly with of our work in these areas during\nSupervision, and Federal Reserve the acceleration of interstate the reporting period.\nBoard examinations and Securities banking, new banking products,\n\n\n\n 14\n\x0c\\\nJoint Review of the Federal\nFinancial Institutions Examination\nCouncil\xe2\x80\x99s Training Program\n\n\n\n The Inspectors General of the Federal Deposit Insurance Corporation,\n Board of Governors of the Federal Reserve System, Department of the\n Treasury, and National Credit Union Administration completed a joint\n review of the Federal Financial Institutions Examination Council\xe2\x80\x99s\n (FFIEC) Training Program and issued a final report on March 31, 1999.\n This area was selected for review because it represents a principal\n function of the FFIEC as specifically mandated by legislation and has\n not been the particular focus of any recent Inspector General audits or\n reviews.\n The objectives of the review were to determine whether (1) the goals\n of the FFIEC\xe2\x80\x99s training program are being met, (2) the Task Force on\n Examiner Education (TFEE) is an efficient and effective vehicle for\n guiding the FFIEC\xe2\x80\x99s training program, and (3) the current budget\n process adequately serves the goals and objectives of the FFIEC\xe2\x80\x99s\n training program. The report contains four recommendations to help\n improve management of the FFIEC\xe2\x80\x99s training program and thereby\n maximize its usefulness to the member agencies.\n The executive secretary, on behalf of the Council, provided written\n comments on a draft of the report. The response states that the\n Council is generally receptive to the recommendations and has charged\n one of its members, the TFEE chair, and the executive secretary to\n develop a recommended course of action for discussion at the next\n Council meeting in June 1999. The executive secretary also suggested\n that the Council would welcome continued assistance and guidance\n from the Offices of Inspector General in implementing the recommen-\n dations. As lead agency on this audit, the FDIC\xe2\x80\x99s OIG will continue to\n monitor the status of the recommended actions.\n\n\n\n\n 15\n\x0cCoordination of Exams with the FDIC's database of call reports, companies to one individual,\nState Banking Authorities in the examination and structure regardless of charter and location,\nKansas CIty Region information, and other pertinent and by encouraging a more\nWe completed an audit of the information for use in safety and proactive, yet non-intrusive,\nFDIC's coordination of safety and soundness examinations. coordinated supervisory approach.\nsoundness examinations with state DOS implemented the program in\nbanking authorities in the Kansas Although DOS closely coordinates April 1997.\nCity region. The Kansas City examinations with the state\nregional office has primary banking departments, we found The OIG conducted an evaluation\nsupervisory responsibility for 80 instances where DOS did not review to learn how regional offices\napproximately 1,600 banks in comply with the examination have implemented the Case\n7 states. In accordance with frequency requirements of the FDI Manager Program, obtain regional\nsection 10(d) of the FDI Act, federal Act. In addition, we believe that management and staff's views on\nregulators must examine insured the process used to rely on state how well the program was\nfinancial institutions every 12 or examination reports could be achieving its objectives, and\n18 months, depending on asset size strengthened. Finally, we identify any issues warranting\nand CAMELS (capital adequacy, concluded that the Cooperative further review or management\nasset quality, management, Examination Agreements should be attention.\nearnings, liquidity, and sensitivity to updated, and that DOS should\nmarket risk) ratings. The FDIC may work closely with the state of Iowa Regional management and\nalternate examinations with a state to develop a more symmetrical 85 percent of case managers that\nbanking authority if it determines examination cycle that would were sampled viewed the program\nthat a state examination fulfills the provide a better assessment of risk favorably. Despite the overall\nexamination requirements and ease regulatory burden. The positive comments, however,\ncontained in the FDI Act. As a way report contained four recommen- 47 percent of case managers said it\nto conserve resources and minimize dations that address these issues. was difficult to effectively manage\nregulatory burden, the FDIC Management agreed with three of caseloads because of competing\nalternates examinations with most the four recommendations and has responsibilities. Case managers\nstate banking departments. taken the necessary steps toward were particularly concerned about\n implementation. The recommen- processing applications and the\nWe determined that DOS's Kansas dation that management did not quarterly reports prepared on large\nCity Regional Office closely fully agree with relates to reliance institutions. These functions took a\n\n\n\n\ncoordinates examinations with state on state examination reports and is considerable amount of their time\nbanking authorities. The regional the subject of an ongoing OIG and limited their ability to focus on\noffice has entered into Cooperative nationwide audit. risk and supervisory issues.\nExamination Agreements with all\nseven state banking departments in Implementation of DOS Case Some case managers also\nthe region. The agreements address Manager Program questioned whether the quarterly\nthe scheduling and frequency of The primary goal of the FDIC's reports, as presently structured,\nexaminations as well as pre- Case Manager Program is to signifi- resulted in a useful product for\nexamination procedures, examination cantly enhance risk assessment and management. Most significantly,\nreport processing, and enforcement supervision activities by assigning case managers did not view the\nactions. In addition, each state responsibility and accountability for reports as being timely or dynamic.\nbanking department has access to a caseload of institutions or Case managers indicated that the\n\n\n\n\n 16\n\x0c\\\nFDIC Addresses OIG Concerns over the\nProcessing, Collection, and Tracking of\nPublic Requests for Supervision Reports\n\n\n In September 1998, in response to a request from\n management, we completed an audit of the Division of\n Supervision\xe2\x80\x99s (DOS) processing, collection, and tracking of\n public requests for Uniform Bank Performance Reports and\n Call Reports. We concluded that there were no management\n controls over DOS\xe2\x80\x99s tracking and billing processes and that\n DOS\xe2\x80\x99s electronic tracking system was ineffective. As a result\n of our audit, DOS implemented a prepayment system that\n eliminates the need to track and monitor past due invoices\n and, with the assistance of the Division of Finance, initiated a\n collection of outstanding receivables. In a related matter, the\n FDIC\xe2\x80\x99s Internet Operating Committee (IOC) is in the process\n of determining the best approach to posting products for sale\n on the FDIC\xe2\x80\x99s Internet website and ensuring payment. In\n consideration of internal control concerns raised during our\n audit, the IOC is concerned that (1) there are no corporate-\n wide policies for pricing products offered for sale to the\n public or receiving payments on these products and (2) there\n is no corporate-wide listing of products for sale. The FDIC\xe2\x80\x99s\n Internal Control Liaison Council is assisting the IOC in this\n effort.\n\n\n\n\n 17\n\x0cunderlying financial data was 1 to laws and regulations using not detecting noncompliance in\n2 quarters behind by the time DOS aggressive scoping procedures banks. As a result, we\nexecutives in Washington reviewed (eliminating or reducing the review recommended that DCA re-\nthe reports. Given the dynamics of for certain laws and regulations) to examine the internal control risk\nthe industry, case managers the greatest extent possible to assessment. DCA management\nquestioned whether the reports save time during compliance agreed with our recommendation\nwere the best vehicle for communi- examinations. Although it was to separately identify and evaluate\ncating emerging risks to senior noted that DCA intended for this the risk areas related to the\nofficials in Washington. policy to improve risk management detection of noncompliance in\n procedures for conducting banks and DCA's ability to meet\nWe recommended that DOS study examinations within existing examination frequency\nwhat constitutes a manageable resources, we concluded that the requirements. Additionally, DCA\nworkload for a case manager and risk management policy permitted management will re-evaluate the\nevaluate Regional Office best changes to DCA's examination risk ranking level in the fourth\npractices for managing the process that would make it less quarter of 1999 for the year 2000\nfluctuating applications workload. comprehensive than the Management Control Plan\nWe also recommended that DOS compliance programs at the other submission.\nstudy the efforts to produce, and federal bank regulatory agencies.\nthe value provided by, the quarterly Moreover, we were concerned that Maximizing Returns from Failed\nreports, and whether actions could the extended examination cycle Institutions\nbe taken to increase the value of and reduced testing of certain laws\nthe reports. DOS agreed with two and regulations could diminish the The FDIC is charged with\nof our three recommendations. FDIC's ability to adequately enforce minimizing the negative financial\nDOS will evaluate best practices of consumer protections and may give effects of failing and failed insured\nthe regions for managing the banks and the public the perception depository institutions in its\napplications workload and that the FDIC had placed a lower receivership management program.\nanticipates amending the structure, priority on conducting these The focus for this goal is on four\nfrequency, and distribution of the examinations. areas: resolving institutions in the\nquarterly reports. DOS believed least costly manner, managing and\nthat existing regional processes As a result of our audit, the new marketing failed-institution assets\nprovide for proper monitoring of policy has been superseded and to maximize return, pursuing\nworkload fluctuations. examiners are again required to monies due to the failed institution,\n conduct full-scope compliance and resolving debts of the\nDCA Policy for Determining examinations at least once every institution fairly. Because of the\nExamination Frequency, Scope, 3 years, depending on a bank's decline in the number of problem\nand Priority previous ratings and asset size. banks and, therefore, the need for\nDuring this reporting period we Also, compliance examiners are resolutions, the areas of asset\nissued our first report related to the now required to conduct management and disposition gain\nFDIC's CRA and consumer examinations using a risk-focused relative importance.\ncompliance examination function. approach based on the risks\nThe report addressed the FDIC's identified in the individual banks As of January 1, 1999, the FDIC\npolicy for determining the under review. held assets for liquidation that\nfrequency, scope, and priority of totaled $2.4 billion in book value.\nCRA performance evaluations and We also found that in 1996 DCA The Division of Resolutions and\ncompliance examinations for state redefined its internal control risk Receiverships (DRR) noted in its\nnon-member financial institutions. assessment related to meeting March 1999 activity report that\n examination frequency require- during the 3-month period ending\nIn January 1998,the FDIC's DCA ments and detecting noncom- March 31, 1999, total receivership\nissued a new risk management pliance by banks and that in 1997 assets managed by the Corporation\npolicy for the examination process. DCA lowered the associated risk declined from $2.4 billion to\nThe policy extended examination ranking from \xe2\x80\x9cmedium\xe2\x80\x9d to \xe2\x80\x9clow.\xe2\x80\x9d $2.1 billion (rounded), a 10 percent\nfrequency requirements for up to However, we believe that the reduction. The current and\n5 years and required examiners to redefined internal control risk did projected asset workload is far\nevaluate compliance with certain not adequately represent the risk of below the $165 billion held by the\n\n\n\n\n 18\n\x0cFDIC and Resolution Trust $786 million remained in the FDIC\xe2\x80\x99s The audit determined that approxi-\nCorporation (RTC) in 1992. Still, inventory. Underlying assets mately $28.2 million of the\none of the FDIC\xe2\x80\x99s priorities include sub- and non-performing $60.3 million (or 47 percent) in\ncontinues to be that of effectively mortgage loans and owned real PRFs that the RTC had established\nmanaging assets to ensure their estate. The Corporation has a for four Lomas securitized\ntimely, efficient resolution at the limited ownership interest in the transactions had not been properly\nleast cost to the insurance fund. equity partnerships, which are set accounted for or returned to the\n up so that the private-sector party FDIC as of September 1998.\nFocus on Protecting the that holds the general ownership Moreover, the FDIC had not\nCorporation\xe2\x80\x99s Interests in interest is responsible for disposing adequately overseen the\nSecuritizations and Equity of the assets. transactions since assuming the\nPartnerships RTC\xe2\x80\x99s responsibilities in January\nThe OIG\xe2\x80\x99s work is designed to OIG Questions Handling of 1996. For example, the FDIC did\nensure that the FDIC\xe2\x80\x99s interests in Payment Retention Funds by not protect the Corporation\xe2\x80\x99s\nsecuritizations and equity Master Servicer and FDIC and interests by filing a proof of claim\npartnerships (further described Raises Other Oversight Issues for the outstanding PRFs with the\nbelow) are adequately protected During the current reporting period bankruptcy court when Lomas filed\nand that the related entities are we completed seven audits that for bankruptcy. Also, the FDIC did\nperforming as stipulated by the focused on the roles, responsi- not determine the new master\nvarious agreements. The following bilities, and effectiveness of servicer\xe2\x80\x99s legal liability for returning\nbriefly summarizes the financial servicers, trustees, and the FDIC in the outstanding PRFs or the\nmagnitude of these areas: certain securitizations and an equity relationship of $10.1 million received\n partnership. These audits resulted from a primary servicer to the Lomas\nThe FDIC inherited a total of in questioned costs of $1.2 million. transaction. Finally, the FDIC did not\n72 securitization transactions with One of the audits, Payment effectively communicate with the\nan initial total reserve fund balance Retention Funds Established by the new master servicer to promptly\nof $7.8 billion from the RTC. As of Resolution Trust Corporation for reconcile and settle the transactions.\nMarch 25, 1999, the FDIC reported Securitized Transactions Serviced The OIG recommended that a task\nthat 54 active securitizations with a by Lomas Mortgage USA, reviewed force consisting of staff from DRR,\nreserve fund balance of $3.3 billion whether the master servicer had the Division of Finance (DOF), and\nremained in its inventory. A securi- properly accounted for the payment the Legal Division be formed to\ntization involves selling securities retention funds (PRFs). (This was a jointly review and resolve all\nthat are primarily collateralized by follow-up to a similar audit outstanding issues related to the\nvarious types of real estate loans to performed in November 1996 that Lomas transactions.\ninvestors. In an effort to rapidly questioned $3.5 million in PRFs\nsell large amounts of loans to that another servicer had not As a result of an OIG recommen-\nobtain the greatest financial benefit, returned to the RTC.) PRFs were dation for the report entitled Audit of\nreceivership loans are pooled established to ensure that investors the Credit Enhancement Reserve\ntogether as collateral to back in a securitized product received a Fund for 1993-03, DRR issued more\nsecurities sold to investors in the predictable, steady stream of specific guidance to its oversight\nsecondary market. This process payments. As these securities are contractor to enhance the quality of\nresults in mortgage-backed backed by mortgages, the PRFs the realized loss1 reviews that the\nsecurities, or pass-through provided the master servicer with contractor performs. Also,\ncertificates. funds to make up shortfalls in NationsBanc, the successor servicer\n monthly payments from borrowers; for this and various other securiti-\nThe FDIC assumed 42 equity the PRFs were ultimately to have zation transactions, has returned\npartnerships (not including the been returned to the Corporation. $262,912 to the FDIC for\nJudgments, Deficiencies, and During the audit, the OIG expanded unsupported and unallowable claims\nCharge-offs Program) with assets the scope to include the FDIC\xe2\x80\x99s to the reserve fund. NationsBanc is\nhaving an original book value of oversight of the master servicer further cooperating with DRR to\n$9 billion from the RTC at its and efforts to reconcile and settle determine an overall historical error\nsunset. As of February 28, 1999, the outstanding PRFs. rate for the prior claims submitted\n37 equity partnership agreements for reimbursement from the reserve\nwith assets having a book value of fund by its predecessor servicer. As\n 1\n A realized loss consists of the net proceeds upon\n liquidation of an asset, advances made by the servicer,\n and the remaining principal balance on the loan.\n 19\n\x0csuch, a recovery to the reserve fund allow for those goals to be adjusted others. As of the end of this\nbased on this work is likely. We will by any new assets added during reporting period, about $139 million\ncontinue to monitor the progress of the goal year. However, the has been collected.\nthis potential recovery and report on results, which are measured\nit in future semiannual reports. against the goal, include both the Although DRR tracks this kind of\n sales of the assets comprising the outstanding debt for the FDIC and\nFuture audits of securitizations and established goal and the sales of pursues collections, the OIG\nequity partnerships will concentrate any assets received and sold during Investigations staff assists DRR by\non calculations of realized losses, the year. The OIG suggested that sharing information, especially in\nunallowable expenses, the DRR may obtain more meaningful cases where the debtors may be\nadequacy of the oversight in DRR, results by either increasing the goal deliberately concealing assets, and\nand affiliate transactions. However, during the year to include added by participating in investigations of\nwe have concluded that we will not assets that DFOB expects to sell or debtors alleged to be fraudulently\nperform additional audit work for establish a separate goal for assets avoiding making payments.\nresidential securitization added during the year. This type of Examples of some of these cases\nterminations at this time as our approach is an example of how we are included in the Investigations\nsurvey results show no significant intend to continue linking our section of this report.\nsystemic problems with these planned reviews to corporate\nterminations. We may, though, strategic goals. (See OIG Plans The OIG believes that teamwork is\nreview commercial securitization Future Results Act Strategies the key to resolving these\nterminations. Also, the OIG may section.) investigative matters most\nperform audits and make successfully. Some ongoing team\nrecommendations that will support Partnering with the Corporation: efforts the OIG is engaged in\nDRR in achieving its own 1999 Collecting Court-Ordered include its continuing work with\nAnnual Performance Goals related Restitution two Massachusetts groups, the\nto strengthening both oversight As first noted in our March 1998 New England Bank Fraud Task\nmethodologies for securitization semiannual report, the OIG is Force and the Judicial Enforcement\ntransactions and policies and working with DRR to collect Team. In these endeavors, agents\nprocedures for processing $1.2 billion in court-ordered from the Federal Bureau of\nreceivership claims. restitution from several hundred Investigation, Secret Service, and\n individuals and entities. Those FDIC OIG work with the U.S.\n\n\n\n\nSurvey Issued Regarding court orders result from criminal Attorneys Offices, U.S. Marshals,\nProceeds from Sales of Loans convictions stemming from and employees of the U.S.\nThe OIG performed a survey of schemes to defraud federally Probation Office to identify those\nproceeds from loan sales by the insured institutions that have individuals who may be fraudulently\nDallas Field Operations Branch resulted in losses to the FDIC. Our avoiding court-ordered restitution.\n(DFOB), DRR, to gather background work in the restitution area focuses The OIG has been coordinating with\ninformation on how DFOB handles on individuals who have attempted the Office of the U.S. Trustee to\nproceeds from the sales of loans. to avoid making payments to the identify individuals who have\nThe survey disclosed one issue for FDIC by making false statements avoided payment to the FDIC of\nDRR\xe2\x80\x99s consideration: Sales goals concerning their assets and/or court-ordered restitution by filing\nthat were set in the quarter ability to pay, and/or by concealing false bankruptcy claims. As part of\npreceding the goal year did not or illegally transferring assets to this effort, we have become active\n\n\n\n\n 20\n\x0cparticipants on Bankruptcy Fraud The OIG\xe2\x80\x99s work in the IT area is During the current reporting period\nTask Forces in Phoenix and conducted with a view toward the we issued a second report\nTucson, Arizona. goals the Corporation is trying to discussing TAPS. We concluded\n achieve. As discussed earlier, a that the TAPS project team\nManaging Information principal focus of our work related continued to deviate from the\nTechnology to IT has been in connection with FDIC's SDLC process, did not\n the Corporation\xe2\x80\x99s Y2K efforts. Our provide senior management with\nAccording to the Corporation\xe2\x80\x99s other IT work generally focuses on the information needed to make\nInformation Technology (IT) systems development efforts; informed decisions, and did not\nStrategic Plan for 1998-2003, IT is specific application reviews; perform effective contractor\ncritical to the Corporation\xe2\x80\x99s success computer services and security; oversight. As a result, the FDIC\nand can be leveraged to support and planning, procurement, and terminated the TAPS project in July\nthe FDIC\xe2\x80\x99s business goals. The administration. During the 1998 after expending at least\nCorporation is focusing its efforts reporting period, we issued the $6.5 million and completing only a\non key business processes that are results of work in several of these functional requirements and\nmost fundamental to the areas. external design document.\nCorporation\xe2\x80\x99s success and is\nworking to improve these DIRM Needs to Adhere to Systems We made eight recommendations\nprocesses. At the same time, it is Development Life Cycle Process to strengthen controls over and\nseeking to identify where and how Second Report on TAPS Project enhance SDLC procedures and\ntechnology can be used to support A major systems development processes. The response to the\nthese efforts and better support effort that the Corporation draft report from DIRM's director\nthe Corporation and its customers. undertook was its effort to develop and subsequent correspondence\n a time and attendance processing with him and the special assistant\nThe Strategic Plan contains six key system. The two-phased process to the deputy to the Chairman and\ngoals in the IT area: Improve to develop a fully automated time chief operating officer provided\nCustomer Satisfaction with and attendance system was responses to all recommendations\nApplication Systems; Reduce initiated in 1995. The Time and that satisfy the concerns addressed\nCorporate Costs Through the Use of Attendance Processing System in the audit report.\nTechnology; Manage Information for (TAPS) was to be the final solution.\nthe Corporation; Provide an IT In our last semiannual report, we\n\n\n\n\nInfrastructure that Works reported that the TAPS project GENESYS Project\nEverywhere, All the Time; Improve team had failed to follow the FDIC\xe2\x80\x99s A second major systems\nthe Efficiency and Effectiveness of system development life cycle development effort that the\nIT Management; and Fix the Year (SDLC) methodology, and we Corporation has conducted is the\n2000 Problem. Accomplishing recommended actions intended to General Examination System\nthese goals efficiently and improve the development effort. (GENESYS) development project.\neffectively requires significant Despite these recommendations, GENESYS is the FDIC's most\nexpenditures of funds and wise the Division of Information comprehensive initiative to apply\ndecision-making and oversight on Resources Management (DIRM) technology to the bank safety and\nthe part of managers. The Corp- continued to deviate from the soundness examination process.\noration has budgeted $211.2 million FDIC\xe2\x80\x99s SDLC. GENESYS will replace the FDIC's\nfor IT expenditures in 1999. Automated Report of Examination\n\n\n\n\n 21\n\x0cand WordPerfect templates used agreements and obtain FDIC Board Accounts Payable and Purchase\nby DOS examiners to generate the of Director approval prior to Order system was well protected,\nReport of Examination. GENESYS investing significant FDIC but controls over the LAN, Liability\nis intended to improve the quality resources to satisfy non-FDIC Dividend System, Personnel Action\nof the Report of Examination and requirements of GENESYS. The Request System, and LAN\nthe efficiency of the report Corporation's response provided us equipment needed improvement.\npreparation process by incorpo- with the requisite elements of a We found problems with password\nrating time saving and data management decision for all procedures, granted levels of\nintegration features of Microsoft recommendations. access, security reviews, security\nWindows 95 and Office 97 officer duties, access revocation,\nsoftware. Audit Addresses Information independent reviews for\n Systems Security in Regional programming changes and dividend\nWe recently issued the results of Office processing, edit report details, door\nour second review of the GENESYS The FDIC Dallas office is important locks, and fire protection. Also,\ndevelopment project. We to corporate operations as the Dallas DIRM's contingency plan did\nconcluded that although DIRM and leading liquidation site for failed not ensure that important systems\nDOS had improved the financial institutions. DRR's Field could be restored in the event of a\ndevelopment practices for Operations Branch and DOF's Field disaster. Our audit acknowledged\nGENESYS following our initial audit, Finance Center are both located in that significant corporate changes\nGENESYS development continued Dallas. Although the overall had affected information security in\nto deviate from the FDIC's SDLC management of mainframe Dallas. Specifically, when the\nprocess. We also identified applications, data, initial passwords, FDIC's Southeast Service Center in\nopportunities for the FDIC to and Local Area Network (LAN) Atlanta, Georgia, transferred its\nimprove the efficiency of the security policies resides with FDIC workload to the Dallas office, a\nGENESYS development process by operations in Washington, D.C., new LAN operating system was\nformalizing up-front, inter-agency sound security practices in Dallas installed, and all Dallas divisions\ndevelopment agreements and support corporate information relocated to new office space.\nreducing the turnover of key systems integrity and safeguard FDIC Dallas was addressing these\nprogram office staff assigned to the corporate assets. Effective changes and working to enhance\nproject. In addition, we found that security practices require restricted controls during the course of our\nGENESYS security features needed and monitored access to systems audit.\nto be improved and that more and a timely recovery in the event\ncomplete and up-to-date cost- of a catastrophe. Based on our audit work, we made\nbenefit information on GENESYS 17 recommendations to FDIC\nneeded to be tracked and reported. During the reporting period we Dallas officials addressing various\n completed an audit of information elements of systems security.\nAs a result of the audit, we systems security in the FDIC's Corporation officials in DIRM, the\nrecommended that the director, Dallas office. Our objectives were Division of Administration (DOA),\nDIRM, modify and adhere to the to determine whether FDIC and DOF provided written\nFDIC's SDLC methodology, Dallas's security controls protected responses to a draft of our report.\nmaintain and update project cost- computer systems and local area The Corporation agreed with all of\nbenefit information, follow a network equipment and whether the recommendations.\nphased testing approach for future contingency plans ensured\nsystems initiatives, and improve restoration of general support and Additional OIG Work in the\nthe security of the GENESYS major application systems should a IT Area\napplication. We also recommended disaster occur. Additional OIG work this reporting\nthat the director, DOS, evaluate the period in the IT area included a\nfeasibility of establishing a Our audit revealed a number of report on the Corporation\xe2\x80\x99s\npermanent core staff to manage security lapses that, when taken Cryptographic Infrastructure Design\nthe development of major DOS together, raised concerns relating and on its Call Processing System.\nsystems, including GENESYS. to security over vital information Cryptography is the process of\nFinally, we recommended that the and costly equipment relied upon writing in or interpreting secret\ndirectors, DIRM and DOS, formalize by FDIC staff to accomplish the code. The Corporation uses this\ninteragency development Corporation's mission. The type of process in applications like\n\n\n\n\n 22\n\x0cits Electronic Travel Voucher regarding the status of the nation\xe2\x80\x99s awarded in headquarters.\nPayment System that is designed banking system. Therefore, it is of Approximately $123 million of this\nto provide a paperless method of paramount importance to preserve expenditure authority had been\nhandling travel arrangements and the data\xe2\x80\x99s integrity and accuracy. spent and $253 million remained to\nexpense reimbursements. be used. Also, the FDIC\xe2\x80\x99s Legal\n Our audit of the Call Processing Division projects that nearly\nWe concluded that DIRM System identified opportunities to $40 million will be paid to outside\nimplemented sufficient controls to improve the integrity, security, and law firms in 1999.\nsupport the use of software that documentation of the system. All\nencoded sensitive data related to but one of the findings in our report The OIG continues to focus\nfinancial institution performance were corrected by DIRM staff prior resources on auditing contracts and\nreports. We also concluded that to our draft report issuance. The agreements. In this reporting\nDIRM implemented partial controls Corporation agreed with the one period, the OIG audited contracts in\nto support the use of other security recommendation we ultimately such varied areas as property\nsoftware as the prime ingredient made. management, legal billing,\nfor establishing trusted information employee food services, and\nsharing among select individuals. Ensuring Sound Controls and assisting the FDIC with its\nHowever, we determined that Oversight of Contracting monitoring of equity partnership\nDIRM testing of this software was Activities oversight (see also Maximizing\nincomplete and that DIRM had not Returns from Failed Institutions).\nestablished adequate checks and Despite a decline in the number of\nbalances over sensitive operations. both awarded and active contracts,\nIn addition, DIRM's intended use of the FDIC continues to rely on Non-Legal Audits Include\nthe software did not comply with private-sector contractors to Contracts for Software, Food\nNational Institute of Standards and accomplish its mission. In all areas Service, and Property\nTechnology and General Accounting where contractors are involved, the Management\nOffice requirements, and internal Corporation must ensure that it is The OIG audited billings of The\ncontrol practices were not fully receiving the services it is paying Application Support Company\ndocumented. In addition, we for and that it has sufficient (TASC), a firm that was hired by the\ndetermined that the FDIC's controls over contractor billings to FDIC to upgrade its all-\nautomated registration process of help prevent fraud and abuse. The encompassing financial information\nthis software allowed the possibility Corporation must also guard management software and to\nfor users to masquerade as other against finding itself in a position create a new financial information\nusers. where it cannot pursue claims management system. The OIG\n against contractors because of questioned $296,585 of the\nThe FDIC\xe2\x80\x99s Call Processing System lapses in its own oversight of their $7.4 million invoiced and paid\nis used by DOS to record and activities. during the 17-month audit period\nprocess information received from ended May 31, 1997. (The\nFDIC-insured financial institutions Contractors assist the FDIC in $7.4 million audited is approxi-\nregarding each institution\xe2\x80\x99s income, many areas including legal matters, mately 64 percent of the total\nassets, and liabilities. Information property management, loan contract amount of $11.6 million.)\ncontained in this system is used by servicing, asset management, Specifically, TASC billed the FDIC\nother FDIC reporting and information technology, and for such items as incorrect hourly\nmonitoring systems. It is also used financial services. Projections of rates, excessive hours billed per\nextensively by the FDIC and other 1999 non-legal contract awards and day, and for work performed by\nfinancial institution regulatory purchases total 4,400 actions 33 subcontractors that did not have\nagencies in their daily off-site bank valued at $275 million. One of the prior written approval to begin work\nmonitoring activities. Call data are most active areas of contracting in as required by the contract.\nalso used by the public, the the Corporation regards information\nCongress, state banking authorities, technology. As of March 31, 1999, The directors of both DOA, which\nresearchers, bank rating agencies, there were more than 340 active performed the contracting function,\nand the academic community. information resources management and DIRM, which was responsible\nThese data provide the only publicly contracts valued at over for the contract oversight, jointly\navailable source of information $376 million that had been responded to and generally agreed\n\n\n\n\n 23\n\x0cwith the OIG\xe2\x80\x99s recommendations. reporting period we issued five number of senior managers and\nAs a result, the directors agreed to reports on legal fee bill audits and professionals in most divisions and\ndisallow $293,621 of the $296,585 questioned $293,643. offices.\nin questioned costs (99 percent). Management agreed to disallow\nFurther, DOA has agreed to review $187,763 (64 percent) of that Looking back over the past\nthe current policy covering the use amount. 12 months, in addition to the new\nof the invoice check-list and make Chairman assuming her position,\nany revisions necessary to its In addition, of the 24 OIG legal fee many other significant personnel\nAcquisition Policy Manual. DIRM bill memoranda (also known as changes have occurred at the FDIC.\nagreed to select a sample of \xe2\x80\x9csmall dollar\xe2\x80\x9d reports where the Among others, Director Joseph\ninvoices from two other related OIG believed questioned costs Neely, who also served as head of\ncontracts to test for billing errors would be less than $100,000) the Audit Committee, left the\nsimilar to those identified in the issued in prior reporting periods, 23 Corporation and his director\nTASC audit. are closed. Of the $422,825 in position has not yet been filled.\n disallowed costs consisting of The chief financial officer, who was\nAlso, the OIG performed an audit of inappropriately charged fees and also serving as the director of DOF,\nthe FDIC\xe2\x80\x99s food services contract expenses, management has retired in June 1998, and the\nwith Aramark Services, Inc., and recovered $329,296 (78 percent) to directors of three other major\nanother audit of the property date and written off $34,810. divisions--DOA, the Office of\nmanagement of Shelter Cove, a Diversity and Economic\ncondominium park, by the Hilton Operating Effectively in a Opportunity, and DCA--also left. As\nGroup Company. The food service Changing Environment of March 31, 1999, permanent\naudit brought out the need for successors have not been named\ngreater internal controls, while the Since 1994, as the work for the chief financial officer\nShelter Cove audit resulted in emanating from the banking and position as well as the directorships\n$74,633 in questioned costs, most thrift crises has declined and of the four divisions mentioned\nof which regarded Hilton\xe2\x80\x99s billings continued consolidation of the previously. The division director of\nfor subcontractors. financial services industry has one of the FDIC's most critical\n occurred, the FDIC has accordingly divisions, DOS, left in December\nOIG Reviews Remaining Legal reduced its workforce substan- 1998 and has subsequently been\nFee Bills tially. The workforce has fallen replaced. The Office of Policy\nA major area of audit over the past from a high of about 15,600 in\nseveral years has been our review mid-1993 to 7,340 as of February 8,\nof legal fee bills submitted by firms 1999. More downsizing may be in Special Update\ndoing business for both the RTC store going forward. On May 18, 1999, Chairman\nand FDIC. The OIG\xe2\x80\x99s goal in Tanoue announced\nconducting audits of the firms\xe2\x80\x99 At the same time, the FDIC is appointments to the following\nbillings has been to ensure that addressing staffing shortages in corporate positions:\nfirms adhere to the legal services certain critical skill areas owing to\nagreements\xe2\x80\x99 billing requirements the loss of such a high number of \xe2\x80\xa2 Chief Financial Officer\nand that the FDIC pays only for staff and strict prohibitions on\nallowed and supported fees and hiring from 1992 through 1997. \xe2\x80\xa2 Directors of\nexpenses. We have worked in Additionally, through employee - Division of Administration\nclose cooperation with the Legal buyouts, early retirements, and - Division of Compliance\nDivision throughout this endeavor. other downsizing activities, the and Consumer Affairs\n Corporation has lost a number of - Division of Finance\nThrough March 31, 1999, the RTC highly experienced managers and - Office of Diversity and\nand FDIC OIGs have issued 300 senior technical experts. The Economic Opportunity\nlegal fee bill audit reports with Corporation has predicted that\nquestioned costs totaling more approximately one of every six\nthan $37 million. Although the remaining FDIC employees either is\nnumber of contracts in this area or will become eligible to retire\nhas declined, risks to the FDIC within the next 5 years. This\nremain. During the current number includes a disproportionate\n\n\n\n\n 24\n\x0cDevelopment was also eliminated presented to the Board of Directors concluded that management\nover the past reporting period. in the second quarter of 1999. This oversight could be improved to help\nGiven the number of such plan will outline in greater detail the ensure that completed matters are\ndepartures and organizational Corporation's vision and mission closed in LMIS timely.\nchanges, the Corporation must plan with respect to diversity and will\nfor the successful transition to new provide a long-term blueprint for As a result of our review, we made\nleadership in the months ahead and the implementation of diversity recommendations to improve\nensure that, as a whole, the initiatives. It will also serve as a controls over closing matters and to\nCorporation is well prepared to tool for managers in the increase matter accountability and\nperform its mission and respond to Corporation. The Corporation will client responsiveness. We also\nany emerging problems in the need to monitor its progress in identified management information\nfinancial services industry. implementing the plan and ensure system issues that resulted in the\n that it cultivates an environment as Legal Division eliminating the\nThe FDIC's Diverse Workforce set forth in its definition of duplication of effort involved in\nThe Corporation must also address diversity. using two case tracking systems\nanother significant organizational and clarifying guidance for the\nchallenge: diversity. The FDIC OIG Review Addresses Legal division's system of record to\nChairman has noted that as the Caseload Allegation Related to provide greater assurance that the\nface of banking has changed, so Downsizing system accurately presents the\nhas the face of the FDIC. The In connection with the current status of the division's\nCorporation has encouraged the Corporation's downsizing efforts caseload.\ncreation of a diverse workforce by over the past months, the OIG\nculture, by experience, and by received a related Hotline allegation. Processing Freedom of\ngender. As part of her February 4, It was alleged that to preserve their Information Act Requests\n1999 remarks to the Corporation, jobs, FDIC attorneys were claiming One of the Corporation\xe2\x80\x99s activities\nthe Chairman underscored the to have as their workload a large affected by a changing environment\nimportance of promoting diversity number of current matters, when, was the processing of Freedom of\nin the workplace. The FDIC has in fact, many of the matters were Information Act (FOIA) requests.\nadopted the following definition of actually closed. We conducted an FOIA was enacted in 1966 and\ndiversity: evaluation to determine the merits provides that any person has the\n of this complaint. right to request access to federal\n Diversity is about who we are as agency records or information.\n individuals, both differences and Our review revealed no intentional\n similarities. The Corporation coordinated effort to delay the The Corporation\xe2\x80\x99s Office of the\n recognizes that its strength reporting of closed matters in the Executive Secretary (OES) is\n comes from the dedication, Legal Management Information responsible for administering the\n experience, and diversity of its System (LMIS). We saw no FDIC\xe2\x80\x99s FOIA program. OES\xe2\x80\x99s task\n employees and believes that, evidence that the number of became more challenging when\n given the opportunity, each matters was a factor in determining FOIA was amended in October\n employee can make a difference. required Legal Division staffing. 1996 by the Electronic Freedom of\n The FDIC is committed to Our analysis of sampled matters Information Act Amendments\n promoting and supporting an found no unreasonable delays in (E-FOIA) of 1996. Among other\n inclusive environment that assigning matters to attorneys but things, E-FOIA established\n provides to all employees the did find indications that some expedited FOIA processing\n chance to work to their full matters should have been closed procedures and granted access to\n potential-individually and sooner in LMIS. For a substantial the public to certain government\n collectively--in the pursuit of the number of active, inactive, and documents via computer telecom-\n Corporation's mission. closed matters, there was no munications. The Corporation\n documented activity for more than received 1,011 FOIA requests in\nThe Chairman appointed a Diversity 90 days. This finding raised 1997 and 811 requests during 1998.\nSteering Committee consisting of questions as to the veracity of the OES was processing these\nsenior corporate executives, and reported matter status and the requests and initiating efforts to\nthis group has developed a progress being made in completing implement E-FOIA in the midst of\nDiversity Strategic Plan to be outstanding matters. We losing staff.\n\n\n\n\n 25\n\x0cWe conducted an evaluation of this system to better monitor FOIA We expect to provide the report to\nactivity to determine whether FOIA responses. the Subcommittee and share it with\nrequests were being logged, all OIG staff by the end of May 1999.\ntracked, and addressed in a timely OIG Initiates Diversity Study\nmanner. We focused our efforts on The OIG is fully committed to Establishing Goals and Measuring\nidentifying ways to accelerate the promoting diversity and has Results\nturnaround time on FOIA requests undertaken a study of diversity\nand to ensure that the FDIC can within the OIG. We are currently The Government Performance and\ndemonstrate good faith efforts in preparing a report that will be Results (Results) Act of 1993 was\nresponding to FOIA requests as submitted to the House enacted to improve the efficiency,\npromptly as possible. Subcommittee on Veterans\xe2\x80\x99 Affairs, effectiveness, and accountability of\n Housing and Urban Development, federal programs by establishing a\nOur review showed that OES had and Independent Agencies, system for setting goals, measuring\nmade progress in improving the Committee on Appropriations. We performance, and reporting on\nprocessing time for FOIA requests. initiated this study in response to accomplishments. Specifically, the\nOES had adopted measures language contained in the Results Act requires most federal\ndesigned to streamline and improve Subcommittee's report on the fiscal agencies, including the FDIC, to\nthe process. OES also reduced its year 1999 appropriation. prepare a strategic plan that broadly\nbacklog of outstanding FOIA defines the agencies\xe2\x80\x99 mission and\nrequests and had undertaken Our objectives were to (1) identify vision, an annual performance plan\ninitiatives to address some of the workplace diversity issues within that translates the vision and goals\nrequirements of E-FOIA. However, the OIG, (2) catalogue OIG of the strategic plan into\nOES still experienced delays in initiatives taken to address the measurable objectives, and an\nresponding to FOIA requests in issues, and (3) develop suggestions annual performance report that\n1997 and the first half of 1998. that could further advance the OIG compares actual results against\nSome of the delays were to be an organization where every planned goals.\nunavoidable and were due to the employee can excel and reach his\nmagnitude, sensitivity, or remote or her full potential in assisting us The Corporation\xe2\x80\x99s strategic plan and\nlocation of requested records. to achieve our mission. annual performance plan lay out the\nHowever, other delays were due to agency\xe2\x80\x99s mission and vision and\nthe following: To carry out the objectives, a articulate goals and objectives for\n steering group of OIG executive the FDIC\xe2\x80\x99s three major program\n\xe2\x80\xa2 OES was not always timely in management and a task group of areas: Insurance, Supervision, and\n assigning FOIA requests to FDIC OIG staff composed of diverse Receivership Management. The\n divisions and offices for representation including race, plans focus on four strategic results\n responses, gender, grades, and organizational that communicate desired\n components conducted the study. outcomes identified for each\n\xe2\x80\xa2 FDIC divisions and offices took The steering group provided program area. The four strategic\n longer than OES\xe2\x80\x99s prescribed time guidance to the task group and results are: (1) Insured Depositors\n to respond to FOIA requests, and used the work of the task group are Protected From Loss Without\n and other data to prepare a report. Recourse to Taxpayer Funding,\n\xe2\x80\xa2 OES required more than its The task group gave every OIG (2) Insured Depository Institutions\n allotted time to review division employee an opportunity to Are Safe and Sound, (3) Con-\n and office responses for express his or her views about sumers\xe2\x80\x99 Rights Are Protected and\n appropriateness and to prepare diversity-related issues and actions FDIC-Supervised Institutions Invest\n documents for release. needed in the OIG. Approximately in Their Communities, and\n 80 percent of the staff participated (4) Recovery to Creditors of\nWe made recommendations to in individual or group meetings. Receiverships Is Achieved.\nimprove the efficiency and The FDIC's Office of Diversity and Through its annual performance\neffectiveness of the processes for Economic Opportunity provided reports, the FDIC will be\nboth original FOIA requests and statistics on the OIG's workforce accountable for reporting actual\nFOIA appeals, ensure that FOIA composition that we are using to performance and achieving these\nadministrative files are complete, prepare our report. strategic results, which are closely\nand modify the FOIA tracking linked to the major issues\n\n\n\n\n 26\n\x0cdiscussed in this semiannual report. program outcomes described in In addition, the OIG completed a\nAs required by the Results Act, the their annual performance plan and pilot review in November 1998 of\nCorporation must submit its initial (2) verification and validation of an FDIC division\xe2\x80\x99s systems used to\nprogram performance report to the selected data sources and capture performance information\nPresident and the Congress no information collection and and the procedures used to verify\nlater than March 31, 2000. accounting systems that support and validate performance data\n Results Act plans and reports. reported in the Corporation\xe2\x80\x99s annual\nThe Corporation has made Findings and recommendations performance plan and quarterly\nsignificant progress in from Results Act reviews would be performance reports. The specific\nimplementing the Results Act and included in each subsequent review objective was to determine\nwill continue to address the semiannual report. The Congress the adequacy and reliability of\nchallenges of developing more attaches great importance to information systems and data\noutcome-oriented performance effective implementation of the supporting DRR's receivership\nmeasures, linking performance Results Act and believes that activity as reported in FDIC\ngoals and measures to strategic Inspectors General have an performance reports. An OIG\ngoals, and establishing processes important role to play in informing standard work program for\nto verify and validate reported agency heads and the Congress on evaluating the adequacy and\nperformance data. As the General a wide range of issues concerning reliability of information systems\nAccounting Office noted in its efforts to implement the Results and data supporting the\nreview of the Corporation\xe2\x80\x99s 1998 Act. performance results was also\nAnnual Performance Plan, the FDIC developed. The program can be\nis seriously committed to fulfilling The FDIC OIG is fully committed to used for similar Results Act-related\nboth the requirements of the taking an active role in the reviews.\nResults Act and congressional Corporation\xe2\x80\x99s implementation of the\nexpectations that the plans inform Results Act. In this regard, we We found established goals,\nthe Congress and the public about completed a number of initiatives in targets, and performance indicators\nthe FDIC\xe2\x80\x99s performance goals, 1998 related to providing oversight for managing FDIC receiverships\nincluding how the agency will of the Corporation\xe2\x80\x99s implementation and information in FDIC's quarterly\naccomplish those goals and process. Although the FDIC is not performance reports to show DRR's\nmeasure the results. As of an agency subject to the CFO Act, progress in meeting those goals\nFebruary 1, 1999, the Corporation we are developing a Results Act and objectives. However,\nhad finalized and submitted its review plan that establishes an performance reporting could be\n1999 performance plan to the oversight strategy for future OIG improved. We found a number of\nCongress. work in the Results Act area. reporting discrepancies in FDIC\n These initiatives and strategy are quarterly performance reports. The\nOIG Prepares Results Act more fully described below. discrepancies occurred because\nReview Plan DRR did not clearly communicate\nOn October 7, 1998, the House In 1998, the OIG reviewed the performance reporting criteria to\nLeadership sent a letter to the FDIC\xe2\x80\x99s strategic and annual DRR service centers, have service\nInspectors General of agencies performance plans that were being center staff confirm performance\ndirectly subject to the Chief revised and updated as part of the results, or effectively use an\nFinancial Officers (CFO) Act 1999 planning cycle and provided existing information system to\nrequesting that they develop and comments to FDIC management report termination activity.\nimplement a plan for reviewing their regarding the draft plans\xe2\x80\x99\nagencies\xe2\x80\x99 Results Act activities. compliance with the Results Act. DRR took actions to clarify\nThe Results Act review plan would For the year 2000 and future performance reporting criteria and\nbe submitted as part of the OIG\xe2\x80\x99s planning cycles, the OIG will correct the discrepancies we\nApril 1999 semiannual reports to continue its practice of providing identified. As a result of our review,\nthe Congress (and updated annually advisory services to management DOF also established reporting\nthereafter) and would examine regarding the Corporation's Results requirements for instances when\n(1) agency efforts to develop and Act plans and reports undergoing division goals, measures, or\nuse performance measures for development or revision. reporting methodologies change to\ndetermining progress toward preserve the historical continuity of\nachieving performance goals and performance reporting trends.\n\n\n\n\n 27\n\x0cOIG Plans Future Results Act\n \\\nStrategies OIG,GAO Continue Collaboration on\nFor the future, the OIG is Financial Statement Audit\ndeveloping a Results Act review\nplan for the independent oversight\nof the Corporation\xe2\x80\x99s implemen-\ntation of the Results Act. This plan The OIG continues to work in partnership with the U.S.\nconsists of the following integrated General Accounting Office (GAO) toward the goal of\nstrategies designed to help ensure assuming complete responsibility for the FDIC annual\nthat the Corporation complies with financial statement audit. The OIG experienced a shift in audit\nthe Results Act and has systems in responsibilities for the 1998 audit. The OIG Dallas staff has\n assumed complete responsibility for auditing the\nplace to reliably measure its\n methodology for determining the estimated values of\nprogress toward achieving its receivership assets, internal controls over receivership cash\nstrategic and annual performance receipts and disbursements, and the FDIC\xe2\x80\x99s oversight of\ngoals: contractors who manage and dispose of receivership assets\n for the FDIC. The OIG Washington staff has assumed full audit\n\xe2\x80\xa2Linking Planned Reviews to responsibility for cash and investments. This year the OIG\n GPRA. We will link planned staff planned the audit approach and methodology for these\n reviews to corporate strategic areas, which were approved by GAO. GAO will rely\n and annual performance goals completely on the OIG work for these key components of the\n and objectives and provide financial statement audit.\n appropriate Results Act coverage The OIG is committed to the effort of assuming the duties of\n through audits and evaluations. performing the annual FDIC financial statement audit and will\n As part of this strategy, the OIG continue to allocate staff to ensure the successful transfer of\n has established specific goals in this critical function.\n its own annual performance plan Also, in connection with the government-wide consolidated\n to ensure OIG reviews are financial statement audit, this year the Inspectors General\n relevant and linked to corporate certified for the first time the accuracy of their agency\xe2\x80\x99s fiscal\n strategic goals. year financial data included in the government consolidated\n financial audits. The Inspectors General were also required to\n\xe2\x80\xa2Targeted Verification Reviews. submit an \xe2\x80\x9cagreed-upon audit procedures\xe2\x80\x9d report to the\n Department of the Treasury and GAO.\n We will maintain a continual\n program of independent reviews To prepare the consolidated financial statements, the Treasury\n to evaluate the adequacy and receives financial data from the agencies and enters the\n reliability of selected information information in the Federal Agencies Centralized Trial Balance\n systems and data supporting System (FACTS). Treasury then returns that data to the\n agencies for review and certification. The OIG team certified\n FDIC performance reports. As\n the accuracy of the FACTS data and issued the required report\n part of the pilot review discussed by the March 3, 1999 deadline.\n above, the OIG developed a\n standard work program to\n conduct these evaluations.\n\n\xe2\x80\xa2Advisory Comments. We will\n continue our practice of providing\n advisory comments to the\n Corporation regarding their\n update or cyclical preparation of\n strategic and annual performance\n plans and reports.\n\n\n\n\n 28\n\x0cThe OIG will continue to develop\nits integrated oversight strategy so\nthat the OIG's Results Act-related\nefforts fully conform to the spirit\nand intent of the Act.\n\nThe OIG will also continue to\nmonitor and review legislation\nproposed in the Congress to amend\nthe Results Act and will actively\nparticipate through the President\xe2\x80\x99s\nCouncil on Integrity and Efficiency\nand the inter-agency groups it\nsponsors to refine appropriate OIG\nResults Act roles, responsibilities,\nand activities. The results of these\nactivities will be used, as\nappropriate, to adjust the OIG\noversight strategy.\n\n\n\n\n OICM Pursues OIG-Identified Cash\n Management Issues\n\n Based on an October 1998 meeting where the OIG questioned\n the Legal Division\xe2\x80\x99s compliance with the FDIC directive\n regarding cash, check, and wire transfer procedures, the\n Office of Internal Control Management (OICM) has taken this\n issue one step further by reviewing the current procedures\n and actual practices of all FDIC divisions. OICM\xe2\x80\x99s goal is to\n work with each division/office to establish lockbox procedures\n for all remittances due the FDIC and strong internal controls\n when use of the lockbox is not feasible.\n In addition, OICM has developed and implemented a cash and\n cash equivalents (receipts) review program. This program\n tests the effectiveness of controls for receipt identification,\n segregation of duties, and implementation of policies and\n procedures.\n OICM will work with the Division of Finance on this effort and\n provide periodic updates to the OIG and the U.S. General\n Accounting Office as this review continues.\n\n\n\n\n 29\n\x0c from further harm, and assist the\n FDIC in recovery of its losses.\n Another consideration in dedicating\n resources to these cases is the\n need to pursue appropriate criminal\n penalties not only to punish the\n offender but to deter others from\n participating in similar crimes.\n\n Joint Efforts\n\n The OIG works closely with U.S.\n Attorneys\xe2\x80\x99 offices throughout the\n country in attempting to bring to\n justice individuals who have\n Investigations\n\n\n\n\n defrauded the FDIC. The\n prosecutive skills and outstanding\n direction provided by Assistant\n The Office of Investigations is United States Attorneys with\n responsible for carrying out the whom we work are critical to our\n investigative mission of the OIG. success. The results we are\n Staffed with agents in Washington, reporting for the last 6 months\n D.C., Atlanta, Dallas, Chicago, and include cases prosecuted by U.S.\n San Francisco, the Office of Attorneys\xe2\x80\x99 offices in the Middle\n Investigations conducts investi- District of Florida, the Northern and\n gations of alleged criminal or Southern Districts of Texas, the\n otherwise prohibited activities Northern and Central Districts of\n impacting the FDIC and its California, the District of Maine, the\n programs. As is the case with District of Massachusetts, and the\n most OIG offices, Office of District of Columbia.\n Investigations agents exercise full\n law enforcement powers as special\n\n\n\n\nJoint Efforts Results\n\n deputy marshals under a blanket Support and cooperation among\n deputation agreement with the other law enforcement agencies is\n Department of Justice (DOJ). The also a key ingredient for success in\n Office of Investigations' main focus the investigative community. We\n is on investigating criminal activity frequently \xe2\x80\x9cpartner\xe2\x80\x9d with the\n that may harm or threaten to harm Federal Bureau of Investigation\n the operations and integrity of the (FBI), the Internal Revenue Service\n FDIC and its programs. In pursuing (IRS), the U.S. Secret Service, and\n these cases, our goal, in part, is to other law enforcement agencies in\n bring a halt to the fraudulent conducting investigations of joint\n conduct under investigation, interest. We also participate\n protect the FDIC and other victims actively on a number of task forces.\n\n The New England Bank Fraud Task Fcrce has contributed\n significantly in the fight against financial institution fraud.\n Pictured above from left to right are:\n 30 William Stapleton, Task Force Director; Dana Bedwell, OIG;\n Paul Andrews, Task Force Attorney; Gary Sherrill, OIG.\n\x0cAmong these task forces is the\nNew England Bank Fraud Task\nForce (NEBFTF), which was\nestablished by DOJ in 1991 to\ncombat fraud against federally\ninsured financial institutions.\nCurrently, one of our agents serves\nfull time on the NEBFTF, while\nothers are routinely assigned to\nwork cases arising from it. The\nNEBFTF is scheduled to disband\nlater this year and intensive efforts\nare underway to complete work on\nall substantive cases remaining.\nUnder the guidance of a senior\nDOJ official and staffed by highly\nskilled and experienced DOJ\nprosecutors, the NEBFTF has been\nhighly effective in prosecuting Investigative Statistics\nindividuals whose fraud schemes\ncontributed to the failures of\nfinancial institutions, as well as in\npursuing those who have Judicial Actions:\ndefrauded institutions still in Arrests 4\noperation. Indictments/Informations 9\n Convictions 10\nWe have also dedicated resources\nthis period to work being conducted Actions Involving FDIC Employees\nby the newly formed Philadelphia as a Result of Investigations:\nBank Fraud Task Force. Additionally, Terminations 4\nwe have recently joined the Internet Suspensions 1\nFraud Task Force that was Resignations/Retirements 2\n\n OIG Investigations Resulted in:\n Fines of $ 221,600\n Restitution of 261,516\n Monetary Recoveries of 3,239,500\n Total $ 3,722,616\n\n Cases Referred to the\n Department of Justice (U.S. Attorney) 28\nestablished by the Securities and\nExchange Commission\xe2\x80\x99s Office of Referrals to:\nInternet Enforcement and the FBI to\n FDIC Management 7\nidentify and investigate potentially\nfraudulent activities on the Internet\nrelating to banking and securities OIG Cases Conducted Jointly with Other Agencies 39\nissues.\n\nOur work with task forces and\nother agencies has been an integral\ncomponent of our investigative\ninitiatives targeting fraud by FDIC\n\n\n\n\n 31\n\x0cdebtors. Our proactive work in this individuals subject to court-ordered identify areas requiring Office of\narea is designed to identify and restitution. We have reported past Investigations attention.\npursue cases in which FDIC successes working with JET in\ndebtors have concealed assets or prior semiannual reports. For this Results\ncommitted other fraud in period, our work with JET resulted\nattempting to avoid repayment of in the first ever revocation of an Over the last 6 months the Office\ntheir obligations to the FDIC. In individual\xe2\x80\x99s probation for failure to of Investigations opened 35 new\ndeveloping these cases, we have pay restitution. cases and closed 36 cases, leaving\nbeen working closely with the 146 cases underway at the end of\nOffice of the United States Trustee OIG Office of Investigations the period. Our work during the\nto identify FDIC debtors who have managers and agents nationwide period led to indictments or\nfraudulently filed for bankruptcy in also regularly attend meetings, criminal charges against\nan attempt to escape their provide assistance, and participate 9 individuals, and 10 defendants\nobligation to pay. We have also with a number of other task forces were convicted during the period.\nbeen participating with the U.S. and working groups designed to Criminal charges remained pending\nTrustee Bankruptcy Fraud Task identify and pursue financial against 60 individuals as of the end\nForces in Phoenix and Tucson, institution fraud. These groups of the reporting period. Fines,\nArizona, in connection with these include the U.S. Attorneys\xe2\x80\x99 office restitution, and recoveries\nefforts. Bank Fraud Working Group in Los stemming from our cases totaled\n Angeles, California, the U.S. Postal over $3.7 million. During the period\nOur proactive work involving FDIC Inspection Service Financial Crimes 12 civil settlements were reached,\ndebtors includes efforts to identify Task Force in Dallas, Texas, the with 34 suits pending at the end of\nand pursue individuals subject to U.S. Secret Service Metro the reporting period. Some of the\ncourt-ordered restitution who have Alien/Financial Crimes Task Force in case highlights resulting from our\nconcealed and/or misrepresented Dallas, Texas, and the Financial investigative activity over the last\ntheir assets to avoid making Fraud Task Force in Tampa, Florida. 6 months are as follows:\npayment. We have been working Our participation in these and other\nclosely with the FDIC\xe2\x80\x99s Division of multi-agency working groups Former Officers of Famous\nResolutions and Receiverships, the demonstrates the importance we Kentucky Horse Farm Indicted in\nFinancial Litigation Units of U.S. place on working with our law Connection with Alleged Scheme\nAttorneys\xe2\x80\x99 offices, and U.S. enforcement colleagues to to Defraud Bank\n\n\n\n\nProbation officials on this project, maximize efficiency and produce Two former executives of a famed\nwhich was undertaken after earlier results. Kentucky thoroughbred horse farm\ninvestigations in the restitution area that went bankrupt 8 years ago\nled to substantial recoveries for the Internal cooperation is also were indicted this period on an array\nFDIC. Our work with the Judicial important in achieving results. The of charges stemming from an\nEnforcement Team (JET), a task OIG's Office of Investigations and alleged scheme to defraud the now\nforce created by the Financial the Office of Audits coordinate to defunct First City Bancorporation of\nLitigation Unit of the U.S. identify matters that warrant our Texas. As outlined in the indictment\nAttorneys\xe2\x80\x99 office, District of combined resources. OIG returned by a federal grand jury in\nMassachusetts, has been partic- representatives also meet period- Houston, Texas, in December 1998\nularly successful in this area. The ically with FDIC managers from and unsealed in March 1999, the\ngroup was formed for the purpose various divisions to coordinate on farm\xe2\x80\x99s president conspired with the\nof pursuing hidden assets of matters of mutual concern and to chief financial officer to pay a\n\n\n\n\n 32\n\x0c$1.1 million bribe to a former most heavily insured thoroughbred The investigation regarding First\ndirector of First City to obtain $65 in history. After his death, the farm City, which we joined in progress\nmillion in loans for their financially collected $36.5 million in insurance after it was first initiated by the\ntroubled horse farm. Among other claims. Over $16 million of those FBI, earlier led to the conviction of\nracing greats, the farm once housed funds went to First City. This seven individuals on fraud-related\nAlydar, the famous stallion who phase of our investigation earlier charges. One of those convicted\ncame in runner-up to Affirmed in led to the conviction of a stable was the First City vice chairman\neach of the 1978 Triple Crown groom who was present at the who was tried and convicted twice\nraces. Alydar, who later became farm the evening Alydar suffered in connection with fraudulent\none of the most valuable sires in his leg injury. The groom was activity at the bank. He is still\nthoroughbred history, was used as found guilty of lying to a grand jury serving a sentence of almost\ncollateral for over $50 million in regarding the circumstances 22 years. Restitution orders\nloans that the farm obtained from surrounding Alydar\xe2\x80\x99s death. As a stemming from the First City\nFirst City. The indictment alleged result, he was sentenced to serve investigation now total over\nthat the two farm executives, along 5 months incarceration, followed by $10 million. Fines of $900,000\nwith the former First City director, 5 months of home confinement. have been imposed.\nintentionally failed to disclose to He was also sentenced to serve\nbank officials that the director had a 2 years of probation.\nvaluable lifetime breeding right in\n The death of the race horse Alydar and the\nAlydar. Further, the farm\xe2\x80\x99s president demise of the Kentucky stables that housed\nallegedly failed to disclose that the him are not just the subjects of a criminal\nfarm had sold and transferred more investigation. A book, as well as a number\nthan 15 lifetime breeding rights in of magazine feature stories, have been\nAlydar. The former director allegedly dedicated to the mystery surrounding the\n racing legend\xe2\x80\x99s untimely death.\nused his position with the bank to\nfacilitate the approval of\ndisbursements of loan proceeds and\nextensions of credit to the horse\nfarm. He also allegedly impeded\nbank officers\xe2\x80\x99 attempts to collect\nfrom the farm.\n\n\n\n\n Photo of Alydar\xe2\x80\x99s stall.\nThe latest charges in the case stem\nfrom our ongoing investigation with\nthe FBI and the Criminal\nInvestigations Division of the IRS\ninto loan activities involving First\nCity, which failed in 1992. Part of\nour investigation centers on the\ncircumstances surrounding Alydar\xe2\x80\x99s\nuntimely death in 1990. Alydar was\neuthanized after sustaining a The investigation of fraud at the First City\nbroken leg while housed in his stall Bancorporation of Texas, Inc., has led to the\n conviction of seven individuals, restitution\nat the Kentucky horse farm. At the orders of over $10 million, and fines of\ntime of his death, Alydar was the $900,000.\n\n\n\n\n 33\n\x0c Civil Case Leads to Recovery companies were allegedly used to\n from Contractor overbill the FDIC and RTC. In\n A couple who provided auction some instances the companies\n services to the FDIC and the were found to have charged as\n former Resolution Trust much as $80 per hour for work that\n Corporation (RTC) agreed to pay actually cost $24 per hour.\n the government $1.6 million to\n settle a law suit brought against The FDIC and RTC paid the shell\n them under the False Claims Act. company more than $1 million in\n As part of the settlement, the commissions, the equivalent of\n couple also agreed to drop a about 1 percent of the proceeds\n lawsuit they had filed against the from the auctions. The firm also\n FDIC that exposed the Corporation received more than $2.5 million for\n to potential liability in excess of expenses it claimed to have\n $366,000. incurred in connection with the\n auctions. Under the False Claims\n The suit was filed by the United Act, the defendants were\n States Attorneys\xe2\x80\x99 office for the personally liable for up to three\n Central District of California based times the nearly $3.6 million paid\n upon evidence developed during an the shell company by the FDIC and\n OIG investigation indicating that RTC. Had the couple gone to trial,\n the couple had fraudulently they also could have faced an\n obtained contracts with the FDIC additional $5 million penalty under\n and RTC and had overbilled both the provisions of the Financial\n agencies. As described in the Institutions Reform Recovery and\n lawsuit, the couple allegedly Enforcement Act of 1989 for\n obtained lucrative contracts under making false statements designed\n the FDIC and RTC Minority and to influence the RTC and FDIC.\n Women Owned Business program\n by falsely certifying that a company To date, the couple has paid\n established by the husband was $1 million of the agreed upon\n owned and controlled by the wife. $1.6 million settlement. The\nThe outstanding effots of Assistant U.S. Attorney Our investigation disclosed that the remaining $600,000, plus interest\n(AUSA) Mark Labaton led to a $1.6 million civil company was in fact a \xe2\x80\x9cshell\xe2\x80\x9d for of more than $40,000, is to be paid\nrecovery from an FDIC contractor. Pictured at\ntop, left to right: Jim Connolly, OIG; AUSA Mark\n the husband\xe2\x80\x99s auction firm. Based over the next 2 years and is\nLabaton; U.S. Attorney Alejandro N. Mayorkas; upon the false representations secured by homes and property\nRoy Nilsen, OIG. made to the FDIC and RTC, the owned by the couple in California.\nAlso, pictured here are properties seized in shell firm received contracts to As part of the settlement, property\nconnection with the OIG\xe2\x80\x99s investigation of a perform more than a dozen previously seized by the\ncouple accused of fraudulently obtaining auctions. The auctions, conducted government under a seizure order\ncontracts with the FDIC and RTC and overbilling in California, Texas, Louisiana, will be released.\nboth agencies.\n Massachusetts, Connecticut, and\n New Jersey, were for the purpose Former FDIC Contractor Agrees\n of liquidating property that the to Pay $600,000 Settlement to\n FDIC and RTC obtained when the FDIC\n agencies took control of failed Following our investigation into\n banks and savings and loans. allegations made in a \xe2\x80\x9cqui tam\xe2\x80\x9d\n suit, a settlement was negotiated\n The civil complaint also alleged that under which an FDIC contractor is\n the couple used subsidiaries of the to pay the FDIC $600,000. (A \xe2\x80\x9cqui\n auction company to perform work tam\xe2\x80\x9d suit is a civil action brought\n related to the auctions and failed to by a private party under the False\n identify these subcontractors as Claims Act, which the government\n \xe2\x80\x9crelated entities.\xe2\x80\x9d The subsidiary may elect to join as a complainant.\n\n\n\n 34\n\x0cIf the government proves the case, The defendant, a former\nthe party initiating the suit may be Massachusetts developer, had\nentitled to share in any resulting been sentenced in 1995 to serve\nmonetary recoveries.) Over 24 months in prison and was\n$400,000 of the funds have been ordered to pay the FDIC\nreceived by the FDIC. The $10.9 million in restitution for\nremainder of the funds are being defrauding the former Bank of New\nheld pending resolution of claims England. Her conviction was in\nmade on those funds by the two part based on her use of\nbrothers who brought the qui tam $28 million in loan proceeds to\nsuit. In their complaint, the support her extravagant lifestyle.\nbrothers alleged that the FDIC had She used loan proceeds to rent a\nbeen defrauded by a bank in luxury apartment at the Boston Ritz\nMaine. The Maine bank had Carlton and to buy a Ferrari, a Shown below is a storage space that a former\nentered into an assistance Lincoln Continental, jewelry, and Massachusetts developer rented to attempt to conceal\nagreement with the FDIC under boats. many valuable assets from the courts and the FDIC. A few\nwhich the bank was responsible for of those assets, works of art, are pictured here.\noperating another bank on behalf of After serving her 2-year sentence,\nthe FDIC. The brothers alleged the developer was placed on\nthat the defendant bank falsified probation. During that time she\ndocumentation in order to require has failed to make any restitution\nthe FDIC to repurchase the payments to the FDIC,\nequivalent of $1.6 million of their representing to her parole officer\nunsecured promissory notes. The that she was indigent and unable\nbrothers had defaulted on the to work because her spouse was\nnotes, and virtually all of their terminally ill and blind. Our investi-\nassets had been sold. Although gation, which is still underway,\nour investigation developed suggests otherwise\xe2\x80\x94evidence\nevidence to support the allegations, developed during our investigation\nthe contractor made no admissions led to a probation revocation\nwhen entering into the settlement hearing. As disclosed at the\nagreement. hearing, our investigation\n determined that the developer lied\nRestitution Case Leads to to probation officials about where\nRevocation of Probation she lived. She falsely claimed to\nA milestone was reached this be living in a spare bedroom of a\nperiod in an ongoing restitution friend's house. In order to fool\ninvestigation we are conducting probation officials during their\nwith the Judicial Enforcement home visits, she arranged for her\nTeam in the U.S. Attorneys\xe2\x80\x99 office friend to display photographs of the\nfor the District of Massachusetts. defendant\xe2\x80\x99s family in the spare\nThe case marks the first time a room. In reality, the developer was\njudge has ever revoked an living in a luxury condominium in an\nindividual\xe2\x80\x99s probation as a result of affluent Connecticut suburb which\nfailure to pay court-ordered she had leased under an assumed\nrestitution. The judge did so based name. She also established a bank\non evidence developed in our case account and secured a post office\nto date, indicating that the box under an assumed name,\ndefendant had misrepresented her neither of which was reported to\nability to make restitution probation officials. Further, the\npayments to the FDIC and had woman maintained a number of\nviolated the terms of her probation. credit cards that she failed to\n disclose to probation officials.\n The investigation also developed\n\n\n\n 35\n\x0cevidence that the woman has the dismissal of a bankruptcy filing operated television stations in the\ntraveled extensively in violation of by an individual subject to a District of Columbia and\nher parole, which requires that she criminal restitution order. Our Massachusetts. The other\nremain in the state of Connecticut. ongoing investigation, which defendant served as the chief\nFor instance, we found that she focuses on the subject\xe2\x80\x99s alleged financial officer for the corporation.\nhad traveled to an exclusive concealment of assets, is being Our investigation found that the\nBahamas resort for her daughter\xe2\x80\x99s conducted under the guidance of two were responsible for the\nwedding. During their trip to the the Financial Litigation Unit of the submission of false tax returns,\nBahamas, her purportedly blind U.S. Attorneys\xe2\x80\x99 office for the understating more than $162,000 in\nspouse was observed driving a golf Northern District of California. In income over a 3-year period.\ncart around the island. Evidence 1987, the subject and his brother\nhas also been produced indicating pled guilty to misapplying funds Our investigation originated as part\nthat the developer has other assets and overvaluing securities to of an Independent Counsel investi-\nshe has not reported. For instance, Golden Pacific Savings Bank. As a gation exploring an alleged conflict\nthe developer's monthly rent result, he served 5 years in a of interest involving the television\nexpenses alone exceed the amount federal correctional institution and broadcasting company\xe2\x80\x99s CEO and a\nof her husband's social security was ordered to make restitution of former cabinet official. Following\ncheck, which she reported to be over $6.7 million to the FDIC. A the cabinet official\xe2\x80\x99s death, the\nher sole source of income. balance of over $4.8 million of that investigation of the television\nAdditionally, as described at the debt still remains. In December broadcast company officers\nprobation revocation hearing, our 1998 the subject filed a petition for continued as part of a Justice\ninvestigation developed evidence relief under Chapter 13 of the Department Task Force. Our parti-\nthat the developer, despite her United States Bankruptcy Code. cipation in the investigation was\nclaims of indigency, had attempted During the course of our investi- initiated based on allegations that\nto open an interior decorating and gation, the OIG determined that the the officers of the broadcasting\nfurniture store in Connecticut, subject had failed to list the business had concealed and\nusing friends to mask her restitution debt in his petition for diverted assets from the\nownership. She allegedly offered relief. He also failed to notify the corporation, which was a debtor to\nto supply her friends with all the U.S. Attorneys\xe2\x80\x99 office and the FDIC the FDIC. The corporation had\nmerchandise necessary to open the of the filing of the petition. Based defaulted on a $21 million loan\nstore. She indicated that it would on this information, the U.S. from a Texas savings and loan,\nbe necessary to lease a large space Attorneys\xe2\x80\x99 office filed a motion to which later failed. As a result, the\nfor the store to accommodate all of dismiss the petition, and the FDIC assumed the loan. As part of\nher furniture. Bankruptcy Court dismissed the her plea agreement, the\n case. broadcasting company\xe2\x80\x99s CEO\nBased on the evidence presented admitted that she had made false\nat her probation revocation hearing, Officers of Texas Corporation in statements to the FDIC by claiming\nthe judge revoked the developer\xe2\x80\x99s Debt to FDIC Plead Guilty to Tax she was receiving no salary from\nprobation and remanded her to a Fraud Charges the corporation when in fact she\nfederal halfway house for Our participation with the IRS and was drawing $250,000 per annum\n6 months, followed by 90 days of the FBI on a Justice Department in salary compensation.\nelectronically monitored home Task Force culminated this period\ndetention. She was also ordered to with guilty pleas of two defendants Charges Brought in Independent\nimmediately obtain employment who were earlier indicted on Counsel Investigation Stem in\nand commence payment of $300 charges of conspiring to defraud Part from Alleged False\nper month in restitution to the the FDIC and IRS. Under the terms Statements to OIG Agents\nCorporation. of a plea agreement, the In November 1998, the Grand Jury\n defendants ultimately pled guilty to in the United States District Court\nOIG Investigation Thwarts three counts of aiding and assisting for the District of Columbia indicted\nDebtor\xe2\x80\x99s Attempt to Declare in the preparation and submission former Rose Law Firm partner and\nBankruptcy of false federal tax returns. One of former Assistant Attorney General\nInformation developed by the OIG the defendants was the chief of the United States, Webster L.\nin connection with another ongoing executive officer (CEO) of a Texas Hubbell, on 15 counts, including\nrestitution case led this period to corporation that owned and corruptly impeding the functions of\n\n\n\n\n 36\n\x0cthe RTC and FDIC, defrauding the made to the FDIC prior to\nRTC and FDIC, making false sentencing.\nstatements to the FDIC and RTC,\nand committing mail fraud. The Former FDIC Attorney Placed on\nindictment alleges that Hubbell Probation After Making\nwithheld and concealed material Harassing Calls from FDIC\nfacts from the FDIC and RTC to Telephones\nobtain and maintain employment As a result of another employee\ncontracts for legal work from those investigation conducted jointly with\nagencies and that he later falsified the Long Beach, California, Police\nand concealed from agents and Department, a former FDIC senior\ninvestigators of the FDIC and RTC attorney was sentenced to serve\ninformation pertaining to the Rose 3 years of probation after pleading\nLaw Firm\xe2\x80\x99s representation of no contest to violation of a\nMadison Guaranty Savings and California state criminal statute\nLoan Association. Portions of the governing telephone calls made\nindictment arose out of statements with the intent to annoy. The\nmade by Mr. Hubbell to FDIC and former employee was also fined\nRTC special agents during the OIG $3,600 and was ordered to perform\ninvestigations into potential 150 hours of community service,\nconflicts of interest in the Rose continue psychological counseling;\nLaw Firm\xe2\x80\x99s representation of the and write a letter of apology to a\nFDIC and RTC during the late California rape crisis hotline.\n1980s and early 1990s. It is Allegations that the attorney had\ncurrently expected that the case placed at least 24 harassing calls to\nwill be tried during the summer of the hotline while using FDIC\n1999. telephones prompted our investi-\n gation. The employee resigned\nFormer FDIC Employee from the FDIC in the midst of the\nSentenced for Embezzling Funds investigation.\nAfter earlier pleading guilty to\nembezzlement, a former FDIC Misconduct Investigation Leads\nemployee was sentenced in the to Employee Dismissals\nNorthern District of Texas to serve In keeping with its mission to brochure\n18 months imprisonment, followed prevent fraud, waste, and abuse,\nby 3 years of supervised release. the OIG, in addition to its criminal\nOur investigation found that while work, is required to conduct\nemployed by the FDIC, the administrative investigations of\ndefendant had embezzled over employee misconduct when the\n$350,000 from savings and loan alleged offense is serious enough\nassociation pension plans in Texas and the potential consequences\nand Oklahoma. The FDIC had grave enough to warrant our\nbecome receiver for the pension involvement. One such investi-\nplans funds as a result of savings gation, conducted at the request of\nand loan failures. The defendant FDIC management, led this period\nused the funds to purchase to the dismissal of four FDIC\npersonal items including a employees. The OIG\xe2\x80\x99s investi-\nresidence and a BMW automobile. gation determined that the four had\nDuring the course of our investi- engaged in illegal drug activity.\ngation, the car was turned over to Dismissal charges against the\nthe government and the home was employees also cited their history\nsold so that the proceeds could be of leave abuses.\napplied to restitution, a significant\nportion of which the defendant\n\n\n\n\n 37\n\x0c when the FDIC has focused its\n work on new challenges facing the\n This year marks the 10th American banking industry at the\n anniversary of the FDIC Office of dawn of a new century. The\n Inspector General, which was banking industry has emerged from\n established on April 17, 1989 the crisis at the beginning of the\n pursuant to the Inspector General decade to experience unprece-\n Act Amendments of 1988. Prior to dented prosperity. Given the\n establishing the OIG, audit and record earnings of commercial\n banks and the low rate of bank\n OIG Organization\n\n\n investigative functions were\n performed by the Office of failures over the past several years,\n Corporate Audits and Internal the FDIC has changed its focus\n Investigations. Until 1996, the from handling and resolving failed\n Inspector General was appointed institutions to monitoring and\n by the Chairman of the FDIC. The assessing risks in insured\n Resolution Trust Corporation institutions. As the banking crisis\n Completion Act, enacted on receded, the OIG responded by\n December 1, 1993, provided that broadening its audit and\n the FDIC Inspector General be a investigative focus and becoming\n presidential appointee confirmed by more proactive. The office also\n the Senate. sought opportunities to engage in\n collaborative efforts with other\n A Decade of Evolution corporate offices, Offices of\n Inspector General, and law\n Over its 10-year existence, the OIG enforcement agencies.\n has responded to a myriad of\n changing issues and challenges OIG Increasingly Focused on\n facing the FDIC, from managing Corporate Goals and Partnerships\n and resolving a significant banking\n crisis to addressing emerging risks Over the years, the OIG has\n\n\n\n\n OIG Increasingly Focused on\nA Decade of Corporate Goals and OIG Launches Learning\nEvolution Partnerships Organization Concept\n\n in an increasingly complex banking continued to look for new ways to\n industry. From 1980 through 1994, add value to the Corporation\xe2\x80\x99s\n the FDIC managed the failures of mission. Our current strategic\n 1,617 banks; during that time, in goals, objectives, and operating\n 1988, the insurance fund suffered a principle are intended to provide a\n $4.2 billion loss, the largest in its value-added focus to the\n 55-year history. Throughout that Corporation and are directly linked\n time the OIG focused heavily on to the FDIC\xe2\x80\x99s mission, strategic\n liquidation activities and the FDIC\xe2\x80\x99s goals and objectives, and operating\n Division of Accounting and principle. In recent years, the OIG\n Corporate Services. The middle has conducted its audits and\n and later 1990s marked a time evaluations in the following seven\n\n\n\n\n 38\n\x0c strategic areas that closely parallel\n corporate operations:\n\n \xe2\x80\xa2Supervision and Consumer\n Affairs;\n\n \xe2\x80\xa2Asset Management and\n Liquidation;\n\n \xe2\x80\xa2Award, Administration, and\n Oversight of Contracts and\n Agreements;\n\n\n\n\n October 1998 \xe2\x80\x93\n March 1999\n \xe2\x80\xa2Financial Accountability and\n Internal Controls;\n\n \xe2\x80\xa2Financial and Management\n Information Systems;\n\n \xe2\x80\xa2Deposit Insurance; and\n Table 1\n \xe2\x80\xa2Corporate Activities and Significant OIG Achievements\n Administration.\n $ millions\n In addition, OIG investigations have\n sought to uncover and investigate Audit Reports Issued 28\n criminal conduct that could harm or Questioned Costs and Funds Put to Better Use $ 2\n threaten the operations and Investigations Opened 35\n integrity of the FDIC and its Investigations Closed 36\n programs. OIG Subpoenas Issued 14\n Convictions 10\n Fines, Restitution, and Monetary Recoveries $ 3.7\n Evaluations Initiated 7\n Evaluation Reports Issued 5\n Hotline Allegations Referred 13\n Allegations Substantiated 2\n Allegations Closed 24\nOrganization Results Proposed Regulations Reviewed 6\n Proposed FDIC Policies Reviewed 17\n The OIG has adopted a spirit of Responses to Requests and Appeals\n partnership in conducting its work. Under the Freedom of Information and Privacy Acts 21\n In this spirit, the office has worked\n diligently to build strong alliances\n with the FDIC\xe2\x80\x99s divisions and\n offices and the FDIC Audit\n Committee. In partnering with the\n FDIC to address current challenges,\n the OIG attempts to assist\n management in resolving issues\n and identify corporate vulnera-\n bilities that the OIG must address\n\n\n\n\n 39\n\x0cto meet the OIG\xe2\x80\x99s mission under Inspector General actively partic- management. The plan contains\nthe Inspector General Act. ipates in professional organizations five goals that focus on the OIG\xe2\x80\x99s\n including the President\xe2\x80\x99s Council on core mission activities of audits,\nThe OIG has also continued its Integrity and Efficiency on which he evaluations, and investigations by\nstrong cooperative relationships serves as chairman of the Audit adding value to the Corporation,\nwith other agencies\xe2\x80\x99 Offices of Committee, the Financial expanding the breadth of the OIG\xe2\x80\x99s\nInspector General, law enforcement Institutions Regulatory Agency contributions, emphasizing\nagencies, professional organi- Inspectors General Group, the AGA, communications with our\nzations, and the U.S. General the IIA, and the Intergovernmental stakeholders, and increasing the\nAccounting Office. We have sought Audit Forum. efficiency of OIG internal\nopportunities to work with the operations. In keeping with the\nPresident\xe2\x80\x99s Council on Integrity and Our partnerships and collaboration spirit of the Government\nEfficiency, the Executive Council on with the Corporation are reflected in Performance and Results Act of\nIntegrity and Efficiency, and the the OIG mission and vision 1993, the plan also includes goals\nFederal Financial Institutions statements and in our planning for that commit the OIG to the\nExamination Council on several joint key activities and operational continued development of\nprojects. These efforts are geared processes. To that end, we performance indicators that better\ntoward sharing ideas and continue to participate on FDIC task measure the impact and results of\ncapitalizing on the collective forces to address critical issues OIG work.\nexpertise of colleagues in other facing the Corporation and review\nOffices of Inspector General, partic- legislation, regulations, and OIG Launches Learning\nularly those in other federal financial proposed corporate policies that Organization Concept\nregulatory agencies. OIG staff affect the FDIC\xe2\x80\x99s programs and\nparticipate in a variety of profes- operations. In keeping with our performance\nsional organizations, such as the goals, the OIG is committed to\nAssociation of Government The OIG\xe2\x80\x99s annual performance plan being a learning organization in\nAccountants (AGA), the Institute of continues to reflect the OIG\xe2\x80\x99s which we continuously examine our\nInternal Auditors (IIA), the American emphasis on adding value to the products and services, processes\nInstitute of Certified Public Corporation and doing work that is and operations, and working\nAccountants, and internal responsive and relevant to the FDIC relationships. During this reporting\nconferences. In addition, the Chairman, Congress, and corporate period we launched the learning\n\n\n\n\n Four Inspectors General have played a key role in the evolution of\n the FDIC OIG over the past 10 years. They are Robert D. Hoffman;\n James A. Renick; John J. Adair (from the former Resolution Trust\n Corporation); and Gaston L. Gianni, Jr.\n\n\n\n\n 40\n\x0c October 1998 \xe2\x80\x93\n March 1999\norganization initiative and have\nmade it a central theme of an OIG\nconference planned for 1999. We\nbegan a process of self-analysis by\ngathering data about our operations\nand analyzing it to target areas for\nimprovement. We completed the\nfollowing four surveys during the OIG Assistance to FDIC Management\nreporting period, and various groups\nwithin the OIG are now analyzing\nthe data:\n \xe2\x97\x8f Participated on FDIC Y2K Steering Committee with recommendation that\n\xe2\x80\xa2 OIG management perceptions of the Y2K Oversight committee develop a corporate-wide Business\n our organization\xe2\x80\x99s mission, role, Continuity Plan using the U.S. General Accounting Office\xe2\x80\x99s guidelines for\n structure, work processes, and Y2K business continuity planning. This recommendation resulted in the\n work products; chairman of the Y2K Steering Committee\xe2\x80\x99s request for the OIG to\n participate in the FDIC\xe2\x80\x99s Business Continuity Working Group and, in this\n\xe2\x80\xa2 Internal client satisfaction; capacity, review and advise in the committee\xe2\x80\x99s development of the\n broader FDIC Business Continuity Plan.\n\xe2\x80\xa2 External client satisfaction; and \xe2\x97\x8f Provided the Division of Supervision with five best practice suggestions\n to enhance the quality controls over and consistency of approach for the\n\xe2\x80\xa2 Diversity within the OIG.\n Corporation\xe2\x80\x99s Y2K examination process.\nOrganization \xe2\x97\x8f Continued to advise and consult with FDIC management regarding\n required documents and activities under the Government Performance\nTo meet its core responsibilities and Results Act.\nunder the Inspector General Act,\nthe OIG maintains a compre- \xe2\x97\x8f Provided input to the Division of Administration's Acquisition and\nhensive, nationwide structure for Corporate Services Branch (ACSB) on various administrative issues,\nauditing, investigating, and which ACSB used in its decision-making process, including: suggestions\nperforming reviews of FDIC on how to improve the food services contract, which were used to\nprograms and operations. This modify the current contract, and comments on the Draft Occupational\nstructure is based on the functional Health and Building Environmental Monitoring Service Request for\nresponsibilities legislated by the Proposal (RFP), which were used by FDIC in preparing the RFP.\nInspector General Act of 1978.\n \xe2\x97\x8f Participated in a meeting of the Information Technology Technical\nThe Office of Audits performs full- Committee to discuss certain recommendations from a recently\nscope audits and reviews of completed OIG audit of FDIC\xe2\x80\x99s Time and Attendance Processing System\ncorporate and receivership activities Development Project and provided recommendations related to the\nincluding any residual Resolution approval process for initiating system development projects and for\nTrust Corporation matters. Audits continuing projects that have significantly departed from planned\nare conducted in the headquarters budgets or milestones.\nor field offices, various sites\nnationwide, or FDIC contractors\xe2\x80\x99 \xe2\x97\x8f Participated in meetings with the FDIC Diversity Steering Committee to\noffices. The Office of Audits establish a link with the OIG\xe2\x80\x99s diversity efforts.\nensures compliance with applicable\nprofessional audit standards,\n \xe2\x97\x8f Advised General Counsel that the remittance processing practices\nincluding those established by the followed by the Professional Liability and Legal Operations Sections\nComptroller General of the United contained potentially serious internal control weaknesses and conflicted\nStates. with corporate policy.\n\nThe OIG also performs quick, short-\nterm evaluations of specific FDIC\noperations or activities as a result of\n\n\n\n\n 41\n\x0c October 1998 \xe2\x80\x93\n March 1999\nOIG Hotline referrals or requests OIG Internal Management Initiatives\nfrom the FDIC Board of Directors,\nthe Congress, or senior FDIC\nmanagers. The Office of\nCongressional Relations and \xe2\x97\x8f Launched \xe2\x80\x9cLearning Organization\xe2\x80\x9d concept within the OIG.\nEvaluations plays a key role in this\nregard. \xe2\x97\x8f Completed external survey of client satisfaction with OIG operations and processes.\n\nThe Office of Investigations \xe2\x97\x8f Conducted internal customer satisfaction surveys of activities of the OIG\xe2\x80\x99s Office of\ncarries out a comprehensive Quality Assurance and Oversight, Counsel's office, and Office of Management and\nnationwide program for the Policy.\nprevention, detection, and investi-\ngation of criminal or otherwise \xe2\x97\x8f Completed internal study to identify diversity-related issues in the OIG and to\nprohibited activity affecting the develop an action plan addressing the issues.\nFDIC or its programs by FDIC \xe2\x97\x8f Initiated planning for the first OIG-wide conference in the fall of 1999.\nemployees, contractors, vendors, or\nother individuals or entities. The \xe2\x97\x8f Initiated a quality assurance review of the Office of Investigations.\noffice maintains close and\ncontinuous working relationships \xe2\x97\x8f Issued Annual Audit Plan for 1999.\nwith the U.S. Department of\nJustice, the Federal Bureau of \xe2\x97\x8f Continued participation in inter-agency Government Performance Results Act\nInvestigation, the U.S. Secret Interest Groups sponsored by PCIE and U.S. OPM to share ideas and best practices\nService, other Offices of Inspectors on Results Act implementation.\nGeneral, and state and local law\nenforcement agencies. \xe2\x97\x8f Submitted FY2000 budget request to the House Subcommittee on VA, HUD, and\n Independent Agencies, Committee on Appropriations.\nThe Counsel to the Inspector\nGeneral provides independent legal\n \xe2\x97\x8f Implemented OIGNet Intranet web site to keep OIG staff informed about internal\nservices for the OIG that OIG events, issues, and concerns.\nencompass every facet of OIG \xe2\x97\x8f Participated with three other IG offices (Department of the Treasury, Board of\noperations. Key activities include Governors of the Federal Reserve System, and National Credit Union\nconducting legal research and Administration) on inter-agency task force reviewing the FFIEC\xe2\x80\x99s Training Program.\nwriting opinions; preparing\nsubpoenas; providing supportive \xe2\x97\x8f Published OIG informational brochure entitled FDIC-Office of Inspector General, Get\nadvice and counsel on audit, to Know Us! that provides an overview of OIG functions, goals, and philosophy.\ninvestigative, and management-\nrelated topics; reviewing proposed \xe2\x97\x8f Developed presentational materials entitled \xe2\x80\x9cBuilding Communication Throughout\nlegislation and regulations affecting the Audit Process\xe2\x80\x9d to share with corporate auditees.\nthe FDIC; conducting litigation; and\nprocessing requests and related \xe2\x97\x8f Initiated study to determine whether opportunities exist for improving the value of\nappeals under the Freedom of training to the OIG.\nInformation Act and the Privacy Act.\n\nThe Office of Management and this office manages the OIG Hotline the internal coordination and\nPolicy manages essential OIG and coordinates the OIG\xe2\x80\x99s external oversight of internal\nbusiness activities such as budget comments on draft corporation control activities under the Chief\nand financial management, contract policies and procedures. Financial Officers Act and the\nadministration, human resource Federal Managers Financial\nmanagement, employee The Office of Quality Assurance Integrity Act, and coordinating the\ndevelopment and training, and Oversight is responsible for OIG\xe2\x80\x99s strategic and annual\ninformation systems development, maintaining quality assurance performance planning processes\nthe OIG\xe2\x80\x99s computer network, and programs for OIG activities, under the Government\nthe coordination of office-wide performing external quality Performance and Results Act.\npolicy development. In addition, assurance reviews of other OIGs,\n\n\n\n\n 42\n\x0c \\\n GSA Peer Review Team Issues Results of\n Quality Control Review of OIG Office of Audits\n\n\n The Inspector General\xe2\x80\x99s Office of the U.S. General\n Services Administration completed its quality control\n peer review of our Office of Audits\xe2\x80\x99 operations. The\n objective of the review was to determine whether our\n Office of Audits\xe2\x80\x99 internal quality control system was\n operating effectively to provide reasonable assurance\n that established policies, procedures, and applicable\n auditing standards were being followed in its audit\n work. The peer review team identified and assessed\n the following significant elements of the OIG\xe2\x80\x99s internal\n quality control system: (1) written policies and\n procedures, (2) staff qualifications, (3) supervision, and\n (4) the quality assurance review program. The GSA\n team concluded that the system of quality control used\n by our office was designed in accordance with\n standards established by the President\xe2\x80\x99s Council on\n Integrity and Efficiency and provided the OIG with\n reasonable assurance that it was in conformance with\n professional standards in the conduct of its audits. As\n a result, the team made no recommendations. We are\n proud of the results of this review and are committed\n to continuing to provide quality audit work to the\n Corporation.\n\n\n\n\nTo promote a better understanding of the mission and\nrole of the Office of Inspector General at the FDIC, we\ndeveloped and disseminated an informational brochure\nthat we are sharing with members of the Congress\nand others with whom we conduct our daily work. For\na copy of the brochure, contact us at the address\nlisted on the inside back cover of this report.\n\n\n\n\n 43\n\x0cResults\n\n\n\n Figure 1\n Reports Issued and Investigations Closed\n 200\n 180\n Legend\n 160\n \xe2\x97\x8f Oct 96\xe2\x80\x93Mar 97\n 140\n \xe2\x97\x8f Apr 97\xe2\x80\x93Sep 97\n 120\n \xe2\x97\x8f Oct 97\xe2\x80\x93Mar 98\n 100\n \xe2\x97\x8f Apr 98\xe2\x80\x93Sep 98\n 80\n \xe2\x97\x8f Oct 98\xe2\x80\x93Mar 99\n 60\n 40\n 20\n 0\n Audits and Evaluations Investigations\n Figure 2\n\n\n\n\n Questioned Costs/Funds Put to Better Use\n ($ millions) 30 Legend\n 25 \xe2\x97\x8f Oct 96\xe2\x80\x93Mar 97\n 20 \xe2\x97\x8f Apr 97\xe2\x80\x93Sep 97\n 15 \xe2\x97\x8f Oct 97\xe2\x80\x93Mar 98\n 10 \xe2\x97\x8f Apr 98\xe2\x80\x93Sep 98\n\n\n\n\n Figure 3\n 5 \xe2\x97\x8f Oct 98\xe2\x80\x93Mar 99\n 0\n Audits and Evaluations\n\n\n\n Fines, Restitution, and Monetary Recoveries Resulting from OIG Investigations\n ($ millions) 30\n\n\n 25\n\n Legend 20\n \xe2\x97\x8f Oct 96\xe2\x80\x93Mar 97\n \xe2\x97\x8f Apr 97\xe2\x80\x93Sep 97 15\n \xe2\x97\x8f Oct 97\xe2\x80\x93Mar 98\n \xe2\x97\x8f Apr 98\xe2\x80\x93Sep 98 10\n \xe2\x97\x8f Oct 98\xe2\x80\x93Mar 99\n 5\n\n 0\n\n\n\n\n 44\n\x0c Table 2\n Nonmonetary Recommendations\n\n\n\n\n October 1, 1998 \xe2\x80\x93\n March 31. 1999\n April 1997\xe2\x80\x93September 1997 110\n October 1997\xe2\x80\x93March 1998 52\n April 1998\xe2\x80\x93September 1998 77\n October 1998\xe2\x80\x93March 1999 133\n\n\n\n Table 3\n OIG Review of Legislation and Regulations\n\n\n\n The OIG reviewed the following regulations and formal\nHighlights from Report on Statements of Policy, which are published in the\n1998 OIG Performance Goals Federal Register.\n\n Deposit Insurance Joint Accounts and \xe2\x80\x9cPayable-on-\n The OIG issued an internal report on March 23, 1999, citing Regulations Death\xe2\x80\x9d Accounts\n achievements under its 1998 Performance Plan. The 1998 Part 328 Advertisement of Membership\n plan contained the following goals: Final Rule Revising the Leverage and Risk-Based\n Capital Rules to Eliminate Certain\n \xe2\x80\xa2 The OIG will develop quality and timely products that Interagency Differences\n add value to the Corporation\xe2\x80\x99s operations. Part 326 Know Your Customer\n \xe2\x80\xa2 The OIG will sustain lines of communication between Part 326 Activities and Investments of Insured\n OIG staff and the client to support positive working State Banks\n relationships. Statement of Policy Tax Allocation in a Holding Company\n \xe2\x80\xa2 The OIG will foster a work environment that supports, Structure\n challenges, and respects its employees.\n \xe2\x80\xa2 The OIG will maintain a streamlined, dynamic\n operation that maximizes the ability of OIG staff to\n perform their work.\n \xe2\x80\xa2 The OIG will pursue opportunities to expand its\n contribution to the FDIC and the Inspector General\n community.\n\n These 5 goals included 54 targets to measure progress.\n Of the 54, 23 were output-based (i.e., had a quantitative or\n specific measure) and 31 were not quantitative but\n involved initiating or maintaining a function or activity. In\n 1998, 18 of the 23 output targets were achieved. All 31\n non-quantitative targets had activity reported to maintain\n existing functions or initiate functions.\n\n The OIG will continue to monitor progress and report\n results of achieving the goals set forth in its 1999\n Performance Plan.\n\n\n\n\n 45\n\x0c Reader\xe2\x80\x99s Guide to IG Act The next step in the process is for\n Reporting Terms FDIC management to make a\n decision about the questioned\n What Happens When Auditors costs. The IG Act describes a\n Identify Monetary Benefits \xe2\x80\x9cmanagement decision\xe2\x80\x9d as the\n Our experience has found that the final decision issued by manage-\n reporting terminology outlined in ment after evaluation of the\n the Inspector General Act of 1978, finding(s) and recommendation(s)\n as amended, often confuses included in an audit report,\n people. To lessen such confusion including actions deemed to be\n and Requirements\n\n and place these terms in proper necessary. In the case of\n context, we present the following questioned costs, this manage-\n Reporting Terms\n\n\n discussion: ment decision must specifically\n address the questioned costs by\n The Inspector General (IG) Act either disallowing or not\n defines the terminology and disallowing these costs. A\n establishes the reporting \xe2\x80\x9cdisallowed cost,\xe2\x80\x9d according to\n requirements for the identification the IG Act, is a questioned cost\n and disposition of questioned costs that management, in a manage-\n in audit reports. To understand ment decision, has sustained or\n how this process works, it is agreed should not be charged to\n helpful to know the key terms and the government.\n how they relate to each other.\n Once management has disallowed\n The first step in the process is a cost and, in effect, sustained the\n when the audit report identifying auditor\xe2\x80\x99s questioned costs, the last\n t\n questioned costs is issued to step in the process takes place\n FDIC management. Auditors which culminates in the \xe2\x80\x9cfinal\n question costs because of an action.\xe2\x80\x9d As defined in the IG Act,\n alleged violation of a provision of a final action is the completion of all\n law, regulation, contract, grant, actions that management has\n cooperative agreement, or other determined, via the management\n\n\n\n\nWhat Happens When Auditors\nIdentify Monetary Benefits?\n\n agreement or document governing decision process, are necessary to\n the expenditure of funds. In resolve the findings and\n addition, a questioned cost may be recommendations included in an\n a finding in which, at the time of audit report. In the case of\n the audit, a cost is not supported disallowed costs, management will\n by adequate documentation; or, a typically evaluate factors beyond\n finding that the expenditure of the conditions in the audit report,\n funds for the intended purpose is such as qualitative judgements of\n unnecessary or unreasonable. value received or the cost to\n litigate, and decide whether it is in\n the Corporation\xe2\x80\x99s best interest to\n pursue recovery of the disallowed\n t\n It is important to note that the OIG does not always\n expect 100 percent recovery of all costs questioned.\n\n 46\n\x0ccosts. The Corporation is\nresponsible for reporting the\ndisposition of the disallowed costs,\nthe amounts recovered, and Index of Reporting Requirements\namounts not recovered. Inspector General Act of 1978, as amended\n\nExcept for a few key differences,\nthe process for reports with Reporting Requirement Page\nrecommendations that funds be\nput to better use is generally the \xe2\x97\x8f Section 4(a)(2) Review of legislation and regulations 45\nsame as the process for reports\nwith questioned costs. The audit \xe2\x97\x8f Section 5(a)(1) Significant problems, abuses, and deficiencies 8 - 29\nreport recommends an action that\nwill result in funds to be used \xe2\x97\x8f Section 5(a)(2) Recommendations with respect to significant problems,\nmore efficiently rather than abuses, and deficiencies 8 - 29\nidentifying amounts that may need\nto be eventually recovered. \xe2\x97\x8fSection 5(a)(3) Recommendations described in previous semiannual\nConsequently, the management reports on which corrective action has not been\ndecisions and final actions address completed 48 - 50\nthe implementation of the\nrecommended actions and not the \xe2\x97\x8f Section 5(a)(4) Matters referred to prosecutive authorities 31\ndisallowance or recovery of\ncosts.the implementation of the \xe2\x97\x8f Section 5(a)(5) and Summary of instances where requested information\nrecommended actions and not the and 6(b)(2) was refused 56\ndisallowance or recovery of costs.\n \xe2\x97\x8f Section 5(a)(6) Listing of audit reports 51- 53\n\n \xe2\x97\x8f Section 5(a)(7) Summary of particularly significant reports 8 - 29\n\n \xe2\x97\x8f Section 5(a)(8) Statistical table showing the total number of audit\n reports and the total dollar value of questioned\n costs 54\n\n \xe2\x97\x8f Section 5(a)(9) Statistical table showing the total number of audit\n reports and the total dollar value of recommendations\n that funds be put to better use 55\n\n \xe2\x97\x8f Section 5(a)(10) Audit recommendations more than 6 months old for\n which no management decision has been made 56\n\n \xe2\x97\x8f Section 5(a)(11) Significant revised management decisions during the\n current reporting period 56\n\n \xe2\x97\x8f Section 5(a)(12) Significant management decisions with which the OIG\n disagreed 56\n\n\n\n\n 47\n\x0c categorized the status of these\n recommendations as follows:\n\n Management Action in Process\n Inspector General Act of 1978, as amended\n\n\n\n\n (12 recommendations from\n 5 reports)\n Statistical Information Required by the\n\n\n\n\n Management is in the process of\n implementing the corrective action\n Table I.1 plan, which may include modifi-\nAppendix I\n\n\n\n\n Significant Recommendations cations to policies, procedures,\n from Previous Semiannual Reports systems or controls; issues\n on Which Corrective Actions involving monetary collection; and\n Have Not Been Completed settlement negotiations in process.\n\n This table shows the corrective Litigation\n actions management has agreed to (21 recommendations from\n 4 reports)\n implement but has not completed,\n Each case has been filed and is\n along with associated monetary considered \xe2\x80\x9cin litigation.\xe2\x80\x9d The\n amounts. In some cases, these Legal Division will be the final\n corrective actions are different from determinant for all items so\n the initial recommendations made categorized.\n\n\n\n\n in the audit reports. However, the\n OIG has agreed that the planned\n actions meet the intent of the initial\n recommendations. The information\n in this table is based on information\n supplied by FDIC\xe2\x80\x99s Office of Internal\n Control Management (OICM).\n These 33 recommendations from\n 9 reports involve monetary amounts\n of over $15.3 million. OICM has\n\n\n\n\n 48\n\x0c Table I.1\nSignificant Recommendations from Previous Semiannual Reports\non Which Corrective Actions Have Not Been Completed\n\n\n\n\nReport Number, Significant Brief Summary of Planned\nTitle Recommendation Corrective Actions and\nand Date Number Associated Monetary Amounts\n\nManagement Action In Process\n\n96-103 1 Periodically compare initial Division of Resolutions least cost\nFollow-up Audit: Cost Estimate estimates with current Division of Finance records of actual\nProcess for Bank Resolutions liquidation activity and evaluate instances where wide variances,\nSeptember 13, 1996 exist for the purpose of identifying recurring causes of the variances\n that should be considered in future least cost determinations.\n\nNot Numbered 1 Implement policies and procedures that require cases submitted to the\nLeasing and Renovation Activities Board of Directors be standardized.\nMarch 18, 1998\n 2 Include in the Division of Administration\xe2\x80\x99s cases to the Board of\n Directors significant changes to the standard lease provisions.\n\n 3 Develop a procedure to ensure Chief Operating Officer pre-approval of\n planned leases exceeding the 5-year core staffing projections.\n\n 4 Develop guidance for completing the lease extension cost comparison.\n\n 5 Revise the current standard lease document to include a \xe2\x80\x9cReduction in\n Services\xe2\x80\x9d clause.\n\n 6 Include a provision in the Leasing Policy Manual that requires the\n tenant and landlord to sign and date lease amendments at the time\n the lease amendment is executed.\n\n98-052 2 Perform an alternative and cost/benefit analysis to determine which\nImplementation of Electronic alternative offers the most beneficial method for providing FDIC's\nSignatures to Support the electronic signature requirements that comply with the National\nElectronic Travel Voucher Institute of Standards and Technology.\nPayment System (ETVPS) and\nOther Planned Applications\nJune 30, 1998\n\n98-072 2 Develop enforceable sanctions for noncompliance.\nLegal Division's Fee Bill Review and\nApproval Process 4 Strengthen administrative procedures for maintaining copies of files\nJuly 13, 1998 documenting Legal Services Agreements, amendments, services\n requiring advanced approval, and other pertinent documents.\n\n 5 Periodically and randomly require law firms to submit copies of time\n sheets to support fees billed.\n\n98-080 1 Update the Acquisition Policy Manual to require that the\nDIRM Operating Expenses Division of Administration's Acquisition Services Branch employees\nSeptember 15, 1998 ensure that future purchase requisitions for on-line services are\n reviewed and authorized by the Library Services Unit.\n\n 43\n 49\n\x0c Table I.1\nSignificant Recommendations from Previous Semiannual Reports\non Which Corrective Actions Have Not Been Completed\n\n\n\n\nReport Number, Significant Brief Summary of Planned\nTitle Recommendation Corrective Actions and\nand Date Number Associated Monetary Amounts\n\nLitigation\n\n95-032 5 Recover $5,259,285 from the association for noncompliance with\nLocal America Bank, F.S.B., the tax benefits provisions of the assistance agreement.\nAssistance Agreement\nMarch 24, 1995\n\n96-014 1, 4-16 Recover $4,526,389 of assistance paid to Superior Bank.\nSuperior Bank, F.S.B. Assistance\nAgreement, Case Number C-389c\nFebruary 16, 1996\n\n97-080 8 Disallow the improperly paid late fees and special assessments\nFDIC Property Tax Reassessments totaling $4,385,089 and initiate action to prevent future payments\nand Refunds, Western Service Center of such amounts.\nJuly 17, 1997\n\n98-026 2, 3, 4, 6 Recover $1,220,470 of assistance paid to Superior Bank.\nAssistance Agreement Audit of\nSuperior Bank, Case Number, 11 Compute the effect of understated Special Reserve Account for\nC-389c Payments in Lieu of Taxes and remit any amounts due to the FDIC.\nMarch 9, 1998\n\n\n\n\n 50\n\x0c Table I.2\nAudit Reports Issued by Subject Area\n\n\n\n\n Questioned Costs\nAudit Report Number Funds Put to\nand Date Title Total Unsupported Better Use\n\nSupervision and Consumer Affairs\n\n98-086 Implementation of the Risk-Focused\n11-5-98 Examination Process\n\n98-089 DOS Coordination of Examinations\n11-19-98 with State Banking Authorities in the\n Kansas City Region\n\n99-005 Material Loss Review \xe2\x80\x93 The Failure of\n1-22-99 BestBank, Boulder, Colorado\n\n99-013 DCA Policy for Determining Examination\n3-15-99 Frequency, Scope, and Priority\n\nAward, Administration, and Oversight of Contracts and Agreements\n\n98-084 The Application Support Company $295,621 $68\n10-30-98\n\n99-001 AEW\xe2\x80\x99s Performance Under Contract $150,000\n1-8-99 Number 700-92-0016-003\n\n99-002 Supplemental Special Servicing Fees $24,223\n1-8-99 Billed for Securitizations 1992-M3,\n 1992-C5, 1994-C2, 1992-C1, & 1992-M2\n\nA99-003 Shelter Cove Property Management Contracts $74,633 $53,510\n1-11-99\n\n99-006 Legal Fees Paid to Comey, Boyd & Luskin $11,272\n1-25-99\n\n99-007 Legal Fees Paid by FDIC & RTC to $87,632 $73,966\n1-20-99 Lowe & Associates\n\n99-008 Wendover Funding\xe2\x80\x99s Loan-Servicing Contracts\n1-25-99\n\n99-009 FDIC\xe2\x80\x99s Food Services Contract\n2-5-99 with Aramark Services, Inc.\n\n\n\n\n 51\n\x0c Table I.2\nAudit Reports Issued by Subject Area\n\n\n\n\n Questioned Costs\nAudit Report Number Funds Put to\nand Date Title Total Unsupported Better Use\n\n99-012 Legal Fees Paid by RTC to $61,110 $44,407\n2-11-99 Salem, Saxon & Nielsen\n\n99-014 Legal Fees Paid by RTC to Brobeck, $93,289 $19,313\n3-12-99 Phleger & Harrison\n\n99-015 Legal Fees Paid by FDIC to Brobeck, $40,340 $4,884\n3-12-99 Phleger & Harrison\n\nAsset Servicing and Liquidation\n\n99-010 Ocwen Federal Bank's Servicing of $477,573 $461,591\n2-12-99 RTC Mortgage Trust, 1994-S2\n\n99-019 RTC Mortgage Trust 1995 NP3-3 $9,660\n3-26-99\n\n98-083 Securitization Credit Enhancement $385,727\n10-2-98 Reserve Fund 1992-CHF\n\n98-090 Credit Enhancement Reserve Fund for $230,219 $6,707\n11-24-98 Securitization Transaction 1993-03\n\n99-004 Payment Retention Funds Established\n1-12-99 by the Resolution Trust Corporation\n for Securitized Transactions Serviced by\n Lomas Mortgage USA\n\n99-018 Securitization Credit Enhancement $68,105\n3-31-99 Reserve Fund 1992-6\n\nFinancial and Management Information Systems\n\n98-085 Call Processing System\n10-26-98\n\nD98-087 Information Systems Security - Dallas\n10-22-98\n\n99-011 Time and Attendance Processing System\n2-17-99 Development Project II\n\n99-016 Cryptographic Infrastructure Design\n3-19-99\n\n99-020 Follow-on Audit of FDIC\xe2\x80\x99s General\n3-31-99 Examination System Development Project\n\n\n\n 52\n\x0c Table I.2\nAudit Reports Issued by Subject Area\n\n\n\n\n Questioned Costs\nAudit Report Number Funds Put to\nand Date Title Total Unsupported Better Use\n\nCorporate Activities and Administration\n\n98-088 Processing of Adverse Personnel Actions\n10-30-98\n\n99-017 Semiannual Report of FDIC Board Members\xe2\x80\x99\n3-18-99 Travel Voucher Reviews \xe2\x80\x93 September 1998 through\n February 1999\n\nTotals for the Period $1,859,404 $664,446 $150,000\n\n\n\n\n 53\n\x0c Table I.3\nAudit Reports Issued with Questioned Costs\n\n\n\n\n Questioned Costs\n Number of\n Reports Total Unsupported\n\n\n\nA. For which no management decision has been\n made by the commencement of the reporting period. 1 $116,577a 0\n\nB. Which were issued during the reporting period. 13 $1,859,404 $664,446\n\nSubtotals of A and B 14 $1,975,981 $664,446\n\nC. For which a management decision was made\n during the reporting period. 14 $1,975,981 $664,446\n\n (i) dollar value of disallowed costs. 14 $1,891,201b, c $568,082\n\n (ii) dollar value of costs not disallowed. 4d $110,919 $96,364\n\nD. For which no management decision has been\n made by the end of the reporting period. 0 0 0\n\n Reports for which no management decision was made\n within 6 months of issuance. 0 0 0\na On report A98-082, a management decision was not reached during the previous reporting period because a legal opinion was being\n sought for recommendations 1 and 3. During this reporting period, management decided to disallow the question costs pertaining to\n those recommendations totaling $116,577.\nb On report A98-082, management made a revised management decision during this reporting period on recommendation 2. Management\n decided to disallow the $26,139 that it had allowed during the previous reporting period.\nc On report 99-018, a loan servicer reviewed an OIG finding for $68,105 in incorrect interest charges for one securitization transaction and\n did not dispute the finding. The loan servicer agreed to reimburse the FDIC a total of $304,558. Of this amount, $167,631 related to the\n securitization 1992-06 (covered by this audit) and $136,927 related to securitization 1992-09. Management chose to disallow $68,105.\n The total disallowed costs include only the $68,105.\nd The four reports included on the line for costs not disallowed are also included in the line for costs disallowed, since management did\n not agree with some of the questioned costs.\n\n\n\n\n 54\n\x0c Table I.4\nAudit Reports Issued with Recommendations\nfor Better Use of Funds\n\n\n\n\n Number of\n Reports Dollar Value\n\n\n\nA. For which no management decision has been made by the\n commencement of the reporting period. 0 0\n\nB. Which were issued during the reporting period. 1 $150,000\n\nSubtotals of A and B 1 $150,000\n\nC. For which a management decision was made during\n the reporting period. 1 $150,000\n\n (i) dollar value of recommendations that were agreed to 1 $150,000\n by management\n\n - based on proposed management action. 1 $150,000\n\n - based on proposed legislative action. 0 0\n\n (ii) dollar value of recommendations that were not\n agreed to by management. 0 0\n\nD. For which no management decision has been made by the end of the 0 0\n reporting period.\n\n Reports for which no management decision was made 0 0\n within 6 months of issuance.\n\n\n\n\n 55\n\x0cTable I.5\nStatus of OIG Recommendations Without Management Decisions\n\nDuring this reporting period, there were no recommendations without management decisions.\n\n\n\n\nTable I.6\nSignificant Revised Management Decisions\n\nDuring this reporting period, there were no significant revised management decisions.\n\n\n\n\nTable I.7\nSignificant Management Decisions with Which the OIG Disagreed\n\nThere was a partial disagreement with one of our recommendations in the BestBank report, and we believe this disagreement to be\nsignificant. We recommended that the director of DOS develop and implement a policy where examiners take prompt action to address\nallegations of potential wrongdoing, including referring such allegations to the regional director, regional counsel, and, in certain circum-\nstances, the OIG. DOS management agreed to revise or supplement existing guidance in section 9.2 of the DOS Manual of Examination\nPolicies to address handling of allegations of potential wrongdoing, including requiring regional office referrals when examiners receive such\nallegations. However, DOS management does not agree with that portion of our recommendation concerning referring allegations to the\nOIG. DOS believes that if there is a regulatory problem, DOS and the Legal Division can handle it; if it is a criminal problem, the Federal\nBureau of Investigation is set up to handle that. Further, DOS\xe2\x80\x99s view is that investigations of alleged wrongdoing by open banks or in open\nbanks, in most instances, is a program responsibility of DOS, not the OIG.\n\nThe OIG has the responsibility, pursuant to the Inspector General Act Amendments of 1988, to carry out a comprehensive nationwide\nprogram for the prevention, detection, and investigation of criminal or otherwise prohibited activities affecting the programs and operations\nof the FDIC. In the case of BestBank, the allegation suggested possible criminal obstruction of the conduct of an FDIC examination, which\nwe believe should be investigated by the FDIC OIG.\n\nTable I.8\nInstances Where Information Was Refused\n\nDuring this reporting period, there were no instances where information was refused.\n\n\n\n\n 56\n\x0cReports Issued by the Office of Congressional Relations\nand Evaluations\n\n\n\n\n Report\n Number Title Date\n\n\n\n EVAL-98-003 The Division of Resolutions and Receiverships'\n Reporting of Receivership Termination Activity\n in FDIC Quarterly Performance Reports November 23, 1998\n\n EVAL-98-004 Analysis of the Legal Division's Caseload December 14, 1998\n\n EVAL-99-001 Federal Deposit Insurance Corporation's\n Processing of Freedom of Information\n Appendix II\n\n\n\n\n Act Requests February 26, 1999\n\n EVAL-99-002 Management and Buyout of the\n River Ridge Branch Lease March 26, 1999\n\n EVAL-99-003 Division of Supervision Case Manager\n Program - Views of Those Who Are\n Implementing It March 31, 1999\n\n\n\n\n 57\n\x0c OIG Completion of RTC Contractor Reviews\n\n\n\n\n Before the Resolution Trust\n Corporation (RTC) sunset, the OIG\nAppendix III\n\n\n\n\n agreed to assume responsibility for\n Statistical Information Related to\n\n\n\n\n completing the reviews of RTC\n contractors initiated or planned by\n an RTC management oversight\n unit. OIG work included resolution\n of more than 1,000 recommen-\n dations in the backlog of\n unresolved reports transitioned to\n the FDIC on January 1, 1996, and\n 340 recommendations from reports\n generated by OIG Office of Quality\n Assurance and Oversight. The\n tables below present information\n related to these OIG activities as of\n March 31, 1999.\n\n\n\n\n This information is not included\n with audit statistics in appendix I of\n this report because this work was\n initiated by RTC management,\n using agreed-upon procedures with\n independent public accountants, to\n meet management\xe2\x80\x99s need for\n contractor oversight and contract\n closeout.\n\n\n\n\n 58\n\x0c Table III.1\nStatus of Management Actions on Recommendations Contained\nin RTC Contractor Expiration Review Reports Issued Since\nJanuary 1, 1996\n\n\n\n\n Questioned Costs\n Number of Disallowed\n Recommendations ($ in millions)\n\n\n\nTotal Management Actions Required 340 $11.44\nManagement Actions Completed:\n\nA. Prior to This Reporting Period 332 $8.58\n\nB. This Reporting Period 0 $0.00\nSubtotals of A and B 332 $8.58\n\nManagement Actions Remaining to Be Completed\nas of March 31, 1999 8 $2.86\n\n\n\n\n Table III.2\nStatus of Management Actions on Recommendations\nContained in RTC Contractor Expiration Review Reports Issued\nBefore January 1, 1996a\n\n\n\n Questioned Costs Other Disallowed\n Number of Disallowed Costs\n Recommendations ($ in millions) ($ in millions)\n\n\n\nTotal Management Actions Required 1,545 b $85.98 b $27.30\nManagement Actions Completed\nas of March 31, 1999 1,539 102.93 $13.14\nManagement Actions Remaining to Be\nCompleted as of March 31, 1999 6 $1.52 c $0.00\n\n\n\na Statistics provided by and derived from FDIC Office of Internal Control Management.\nb Total Management Actions Required as initially established pursuant to a joint OIG/management action plan. Management has\n identified retroactive adjustments not reflected in the total. We show those adjustments as Management Actions Completed.\nc The $1.52 million in disallowed costs is considered in litigation. The Legal Division will be the final determinant for all items so\n categorized.\n\n\n\n\n 59\n\x0cIN MEMORIUM\nMs. Bonnie Tucker\n\n\n\n\n The OIG family was deeply Publishing Company in Tulsa,\n saddened by the loss of Oklahoma. Bonnie earned a\n Ms. Bonnie M. Tucker who Bachelor of Science degree in\n passed away April 11, 1999. Business Administration from\n Bonnie\xe2\x80\x99s commitment, profes- the University of Tulsa.\n sionalism, and friendliness were\n an inspiration to all of us. Bonnie is survived by her sons\n David Tucker of Memphis,\n Bonnie joined the OIG staff in Tennessee; Daryl Tucker and\n 1989 and worked with the wife, Tina, of Ochelata,\n Office of Audits. She worked Oklahoma; Kevin Tucker and\n on various types of audits that wife, Patricia, of Sachse, Texas;\n recently included the FDIC daughter Susan Vaughn and\n Financial Statement Audit; a husband, Darren, of Collinsville,\n material loss review; and audits Oklahoma; sister Dr. Betty Horn\n of contractor performance, of North Haven, Connecticut;\n information systems, and brothers Robert Beazer of\n personnel action processing. Nashville, Tennessee; and John\n Prior to her service at the FDIC, Gammon of Oakland, California;\n Bonnie served as an auditor eight grandchildren; one niece;\n with the Defense Contract Audit and three nephews. Bonnie\xe2\x80\x99s\n Agency and as a staff pleasant demeanor and positive\n accountant for PennWell outlook will be missed.\n\n\n\n\n 60\n\x0c\x0c\x0c"