skip to main navigation skip to secondary navigation skip to content
Board of Governors of the Federal Reserve System
skip to content

Office of Inspector General

Federal Reserve Board of Governors

Semiannual Report to Congress, April 1, 2009--September 30, 2009

Table of Contents


Seal of the Board of Governors of the Federal Reserve System BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.  20551
OFFICE OF INSPECTOR GENERAL
October 29, 2009
 

The Honorable Ben S. Bernanke
Chairman
Board of Governors of the Federal Reserve System
Washington, DC 20551

Dear Chairman Bernanke:

We are pleased to present our Semiannual Report to Congress, which summarizes the activities of our office for the reporting period April 1 through September 30, 2009. The Inspector General Act of 1978, as amended, requires that you transmit this report to the appropriate committees of Congress within thirty days of receipt, together with a separate management report and any comments you wish to make.

Sincerely,

/signed/

Elizabeth A. Coleman
Inspector General

Enclosure


Highlights

During this semiannual reporting period, we focused our work on (1) reviews of eleven failed state banks that are members of the Federal Reserve System, (2) the Board of Governors of the Federal Reserve System's role in processing applications for Troubled Asset Relief Program (TARP) funding, and (3) the Board-authorized lending facilities and special programs intended to stabilize the financial system during the financial crisis. We also increased our participation in multiagency task forces. Highlights of our work follow:
  • Review of Failed Banks. From December 1, 2008, through September 30, 2009, eleven state member banks failed, resulting in an estimated loss of about $2.3 billion to the Deposit Insurance Fund. To date, we have completed reviews of three failed banks, and work continues on the other eight. In general, our reviews reflect an emerging theme: earlier and more forceful supervisory action is warranted when problems first emerge in banks with high concentrations of construction and land development loans (see "Inspections and Evaluations").

     

  • Processing of Capital Purchase Program (CPP) Applications under the TARP. The Board supported the U.S. Department of the Treasury's response to the financial crisis by processing CPP applications from Board-regulated financial institutions. We initiated our audit in coordination with the Inspector General of the Federal Deposit Insurance Corporation, the Special Inspector General for TARP, and the Government Accountability Office. Our report contains two recommendations designed to enhance controls as the CPP application phase draws down and the Board's efforts shift to reviewing institutions' requests to repay CPP funds (see "Audits and Attestations").

     

  • Review of Lending Facilities and Special Programs. To stabilize the financial system during the crisis, the Board initiated a number of emergency lending facilities and special programs pursuant to its authority under section 13(3) of the Federal Reserve Act. We are reviewing the status of these lending facilities and special programs to identify risk areas that warrant further review (see "Review of the Federal Reserve's Lending Facilities and Special Programs").

     

  • Participation in Task Forces. Our special agents increased their interagency participation in the nationwide Mortgage Fraud Task Force and the multiagency Term Asset-Backed Securities Loan Facility (TALF) Task Force.

As events in the financial regulatory environment continue to unfold, we remain committed to appropriately balancing our statutory and risk-focused work to promote integrity, economy, efficiency, and effectiveness in Board programs and operations, and to strengthen accountability to the Congress and the public.

Back to Table of Contents


Overview of the OIG's Strategic Plan, 2008 - 2011

OIG Strategic Plan 2008-2011

Back to Table of Contents


Introduction

Consistent with the Inspector General Act of 1978 (IG Act), as amended, 5 U.S.C. app. 3, the mission of the Office of Inspector General (OIG) of the Board of Governors of the Federal Reserve System (Board) is to
  • conduct and supervise independent and objective audits, investigations, and other reviews of the Board's programs and operations;

  • promote economy, efficiency, and effectiveness within the Board;

  • help prevent and detect fraud, waste, and mismanagement in the Board's programs and operations;

  • review existing and proposed legislation and regulations and make recommendations regarding possible improvements to the Board's programs and operations; and

  • keep the Chairman and Congress fully and currently informed of problems relating to the administration of the Board's programs and operations.

Congress has also mandated additional responsibilities that influence where the OIG directs its resources. For example, section 38(k) of the Federal Deposit Insurance (FDI) Act, as amended, 12 U.S.C. 1831o(k), requires the Board's OIG to review failed financial institutions supervised by the Board that result in a material loss to the Deposit Insurance Fund (DIF) and to produce, within six months, a report that includes possible suggestions for improvement in the Board's banking supervision practices. In the information technology arena, the Federal Information Security Management Act of 2002 (FISMA), Title III of Public Law No. 107-347, provides a comprehensive framework for ensuring the effectiveness of information security controls over resources that support federal operations and assets. Consistent with FISMA's requirements, we perform an annual independent evaluation of the Board's information security program and practices, which includes evaluating the effectiveness of security controls and techniques for selected information systems. The USA PATRIOT Act of 2001, Public Law No. 107-56, grants the Board certain federal law enforcement authorities. Our office serves as the external oversight function for the Board's law enforcement program and operations. In addition, we oversee the annual financial statement audits of the Board and the Federal Financial Institutions Examination Council (FFIEC).

Back to Table of Contents


Organization Chart

Office of Inspector General

OIG Organization Chart

 


 

OIG Staffing

 

Auditors (including Information Technology)
27
Investigators
7
Attorneys
4
Administrative
4
Information Systems Analysts
3

Total Authorized Positions

45

Back to Table of Contents


Audits and Attestations

The Audits and Attestations program assesses certain aspects of the economy, efficiency, and effectiveness of the Board's programs and operations. For example, the office of Audits and Attestations conducts audits of (1) the presentation and accuracy of the Board's financial statements and financial performance reports; (2) the effectiveness of processes and internal controls over the Board's programs and activities; (3) the adequacy of controls and security measures governing the Board's financial and management information systems and the safeguarding of the Board's assets and sensitive information; and (4) compliance with applicable laws and regulations related to the Board's financial, administrative, and program operations. As mandated by the IG Act, OIG audits and attestations are performed in accordance with the Government Auditing Standards established by the Comptroller General. The information below summarizes OIG work completed during the reporting period, including our follow-up activities and ongoing work that will continue into the next semiannual reporting period.

Audit of the Board's Processing of Applications for the CPP under the TARP 

The Emergency Economic Stabilization Act of 2008, Public Law No. 110-343, authorized the TARP. Under the TARP's CPP, the U.S. Department of the Treasury (Treasury) is authorized to fund qualified financial institutions with up to $250 billion of capital through the purchase of preferred shares or senior securities of the qualifying institutions. In general, financial institutions request participation in the CPP by submitting an application to the appropriate federal banking agency, which reviews the application and makes a recommendation to Treasury on whether a CPP request should be approved or denied.

During this reporting period, we completed an audit of the Board's processing of applications for the CPP. In addition to obtaining an overview of the Board's CPP implementation, our audit objective was to assess the Board's process and controls for reviewing CPP applications from Board-supervised financial institutions seeking to participate in the CPP. To accomplish our objective, we analyzed guidance provided by Treasury and procedures developed by the Board, assessed and compiled summary information on Board-supervised institutions that applied for CPP funds, interviewed Board and Federal Reserve Bank staff, and tested a sample of applications processed by the Board to determine compliance with Treasury and Board procedures. We also reviewed confidential examination reports and other supervisory data for these financial institutions.

Overall, we found that the Board's limited internal procedures were consistent with Treasury's guidance for reviewing applications and making recommendations for funding. In addition, we found that the Board's recommendations for approval to Treasury generally reflected compliance with Treasury's guidance and the Board's internal procedures. Our testing identified some compliance deficiencies, such as incomplete documentation of the analyses of the institutions' capital, asset quality, earnings, and liquidity; missing quality assurance certifications by Reserve Bank senior officials; and a lack of documentation on analyses of institutions' ongoing viability. However, due to compensating controls at the Board, we did not identify any instances where these deficiencies led to the approval of financial institutions that did not meet eligibility criteria or that otherwise should not have been approved.

We found that the Board received limited guidance from Treasury in the early stages of the CPP program regarding the analysis that should be performed to determine the viability of the financial institutions. As the Board reviewed applications under the limited guidance, Board officials raised issues to Treasury officials that resulted in additional Treasury guidance. The Board sent email messages to the Reserve Banks outlining procedures for processing the applications and additional analysis to be performed in reviewing the applications.

Although not required by Treasury, we believe that formal, detailed, and documented procedures would have provided the Board and the Reserve Banks additional assurance of consistently and completely analyzing CPP applications. As the CPP application phase draws down and the Board's efforts become more focused on reviewing the CPP-funded institutions' requests to repay the funds (called redemptions), we recommended that the Board implement a complete, formal, and documented set of procedures to guide the analysis of redemption requests.

We also found that, while the Board had established tracking systems to document outside contacts regarding the CPP program and the Board's responses, CPP-related communications between Reserve Banks and financial institutions had not been documented and tracked. While we did not identify any improper communications, we recommended that, going forward, the Board develop a system to track relevant communications between Reserve Banks and financial institutions regarding CPP and redemption requests. The Acting Director of Banking Supervision and Regulation agreed with our findings and stated that corrective actions are being taken.

Security Control Review of the Electronic Security System

During this reporting period, we completed a FISMA security control review of the Electronic Security System (ESS). ESS is listed as a major application on the Board's FISMA application inventory for the Management Division. ESS consists of two applications: C Cure and NiceVision. These applications augment the Board's physical security and provide one uniform system for badge issuance, video monitoring, and video recording. Our objective was to evaluate the adequacy of selected security controls for protecting ESS from unauthorized access, modification, destruction, or disclosure. To accomplish this objective, we used a control assessment review program based on the security controls defined in National Institute of Standards and Technology Special Publication 800-53, Recommended Security Controls for Federal Information Systems.

Overall, ESS generally met control objectives for ten of the seventeen control families that we evaluated, and no deficiencies came to our attention regarding the design or implementation of the controls for these families. For those control families where control objectives were not met, we identified the aspect of the control that was deficient or where improvements could be made, and we highlighted the recommended action. Our report contained eight recommendations, and the Director of the Management Division generally agreed with them and indicated that corrective action either had been taken or was underway.

Management and Accountability of Mobile Computing Devices

During this reporting period, we completed an audit of the Board's processes for managing and accounting for mobile computing devices. The Board manages a large amount of sensitive data, most of which is created electronically and stored on increasingly smaller devices, such as laptops, Blackberrys, and Universal  Serial Bus (USB) flash drives. The portability of these devices increases their risk of loss or theft and the potential for a compromise of sensitive information. We began this audit as a follow-on to previous audit work related to the Board's management of fixed assets, as well as in response to interest by the Board and across the government in reducing the risk, loss, or theft of mobile devices and the potential for a compromise of sensitive information stored on the devices. Our objective was to evaluate controls over the processes for securing, receiving, tracking, and disposing of selected mobile computing devices. Specifically, we selected laptops, BlackBerrys, and USB flash drives for review.

To accomplish our objective, we identified and examined policies, procedures, and guidance governing the management and accountability of the Board's mobile computing devices. We performed tests to determine whether laptops and USB flash drives were encrypted and to ensure that devices were properly sanitized and disposed of. We interviewed representatives from selected Board divisions to discuss their internal property management and inventory tracking processes for mobile devices. In addition, we benchmarked the Board's mobile devices policies and practices against three Reserve Banks and one other financial regulatory agency.

Overall, we found that the Board's controls for securing, receiving, tracking, and disposing of laptops, BlackBerrys, and USB flash drives were generally adequate. During our audit, the information technology (IT) division implemented a number of improvements, which included updating the Information Classification and Handling Guide and the Hard Disk Encryption policy. Furthermore, the IT division issued the Media Sanitization and Disposal policy. Because of the proactive changes made by the IT division, we did not issue any formal recommendations. However, we identified process and control enhancements for laptops and USB flash drives that could provide additional safeguards. We issued a management letter that included three suggestions for enhancing (1) policies and procedures for encrypting laptops and USB flash drives, (2) segregation of duties for the custody and record-keeping of mobile devices, and (3) confirmation of sanitization and disposal of laptop hard drives.

FISMA Follow-up Reviews 

FISMA requires the OIG to evaluate the effectiveness of security controls and techniques for selected information systems. Since the passage of FISMA, we have reviewed controls over Board systems on an ongoing basis. During this period, we followed up on open recommendations from seven prior security control reviews. These seven reviews contained a total of sixty one recommendations to improve information security. We previously had closed three of these recommendations, and, based on our follow-up work, we determined that sufficient action had been taken to close an additional fifty-four recommendations. Four recommendations remain open, and we will continue to monitor management action concerning these items.

Ongoing Audit Work

Audit of the Board's and the FFIEC's Financial Statements for the Year Ending December 31, 2009

We contract for an independent public accounting firm to audit the financial statements of the Board and the FFIEC annually. (The Board performs the accounting function for the FFIEC.) The accounting firm, currently Deloitte & Touche LLP, performs the audits to obtain reasonable assurance that the financial statements are free of material misstatement. The audits include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The audits also include an assessment of the accounting principles used and significant estimates made by management, as well as an evaluation of the overall financial statement presentation.

To determine the auditing procedures necessary to express an opinion on the financial statements, the auditors will review the Board's and the FFIEC's internal controls over financial reporting. This year, the auditors will also express an opinion on the effectiveness of the Board's internal controls over financial reporting based on the Government Auditing Standards and the Public Company Accounting Oversight Board standards. As part of obtaining reasonable assurance that the financial statements are free of material misstatement, the auditors also will perform tests of the Board's and the FFIEC's compliance with certain provisions of laws and regulations, since noncompliance with these provisions could have a direct and material effect on the determination of the financial statement amounts. The OIG oversees the activities of the contractor to ensure compliance with generally accepted government auditing standards. The report will be issued in the next reporting period.

Audit of the Board's Information Security Program

During this period, we began an audit of the Board's information security program and practices. This audit was initiated pursuant to FISMA, which requires that each OIG covered by the statute conduct an annual independent evaluation of the agency's information security program and practices. Our specific audit objectives, based on FISMA's requirements, are to evaluate the effectiveness of security controls and techniques for selected information systems and to evaluate the Board's compliance with FISMA and related information security policies, procedures, standards, and guidelines. The Office of Management and Budget has changed the reporting deadline for OIG FISMA evaluations from September 2009 to November 2009. We expect to complete this project and issue our final report in the next reporting period.

Security Control Review of the Board's Lotus Notes and Lotus Domino Infrastructure

During this period, we began a security control review of the Board's Lotus Notes and Lotus Domino infrastructure. Lotus Notes and Lotus Domino are used to provide the Board's email, calendar, and database functions. We selected the Lotus Notes and Lotus Domino infrastructure because it is a component of the IT general support system that supports the Board's email and application development infrastructure. Our objectives are to evaluate (1) the effectiveness of selected security controls and techniques for protecting the Lotus Notes and Lotus Domino infrastructure from unauthorized access, modification, or destruction, and (2) compliance with the Board's information security program. We expect to complete this project and issue our final report in the next reporting period.

Review of the Federal Reserve's Lending Facilities and Special Programs

During this period, we continued our review of the Federal Reserve's lending facilities and special programs. In response to the financial crisis, the Board has initiated a number of lending facilities and special programs to restore liquidity in the economy and preserve financial and economic stability. Many of these lending facilities and special programs have been established pursuant to the Board's authority under section 13(3) of the Federal Reserve Act to authorize Federal Reserve Banks, in unusual and exigent circumstances, to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations from other banking institutions. Through these facilities and programs, the Federal Reserve has provided loans to entities such as depository institutions, bank holding companies, commercial paper issuers, and securities dealers. In addition, the Federal Reserve has provided assistance to large financial services companies, such as American International Group. These facilities and programs have added significantly to the Federal Reserve's balance sheet. The objectives of this review are to (1) obtain information on the various Federal Reserve lending facilities and special programs, such as the terms and conditions of each facility, current loans outstanding, and fees and interest paid by borrowers, and (2) to identify risk areas that warrant additional review.

We have divided this review into two phases: Phase I includes a review of the six lending facilities to support overall market liquidity, and Phase II includes a review of lending in support of specific institutions. During this reporting period, we completed fieldwork for Phase I. In the next reporting period, we anticipate discussing our results with management and issuing our final report on Phase I, as well as beginning fieldwork on Phase II.

Audit of the Board's Transportation Subsidy Program

During this period, we completed the fieldwork and began drafting our report for this audit. The audit objective is to evaluate whether the Board's program controls (1) ensure compliance with applicable laws and regulations and management's authorization and (2) prevent unauthorized or fraudulent activities. We anticipate issuing our final report in the next reporting period.

Recommendation Follow-up

As part of our ongoing commitment to streamlining recommendation follow-up, we are implementing an interactive system to document and collaboratively assess the Board's progress in responding to OIG recommendations. During this reporting period, we continued to work with individual Board program offices to implement this system.

Back to Table of Contents


Inspections and Evaluations

The Inspections and Evaluations program encompasses OIG inspections, program evaluations, enterprise risk management activities, process design and life-cycle evaluations, and legislatively-mandated material loss reviews of failed financial institutions that the Board supervises. Inspections are generally narrowly focused on a particular issue or topic and provide time-critical analysis that cuts across functions and organizations. In contrast, evaluations are generally focused on a specific program or function and make extensive use of statistical and quantitative analytical techniques. Evaluations can also encompass other non-audit, preventive activities, such as review of system development life-cycle projects and participation on task forces and workgroups. OIG inspections and evaluations are performed according to the Quality Standards for Inspections issued by the Council of Inspectors General on Integrity and Efficiency (CIGIE).

Material Loss Reviews

Section 38(k) of the FDI Act requires that the Inspector General (IG) of the appropriate federal banking agency review the agency's supervision of a failed institution when the projected loss to the DIF is material. A loss is material when it exceeds the greater of $25 million or 2 percent of the failed institution's total assets. The IG's review of the agency's supervision of the failed institution must include the agency's implementation of prompt corrective action and

  • ascertain why the institution's problems resulted in a loss to the DIF and
  • make recommendations for preventing any such loss in the future.

 

During the reporting period, we issued reports on our reviews of three failed state member banks that exceeded the materiality threshold. The results of these reviews are discussed below.

Material Loss Reviews Completed during the Reporting Period

 

State Member Bank Location Federal Reserve District Asset size (in millions) Projected Loss (in millions) Closure Date FDIC OIG Notification Datea1
First Georgia Community Bank Jackson, GA Atlanta $229.0 $72.2 12/05/2008 12/31/2008
County Bank Merced, CA San Francisco $1,692.0 $135.8 02/06/2009 03/09/2009
Riverside Bank of the Gulf Coast Cape Coral, FL Atlanta $536.7 $201.5 02/13/2009 03/09/2009

Material Loss Review of First Georgia Community Bank

First Georgia Community Bank (First Georgia) was supervised by the Federal Reserve Bank of Atlanta (FRB Atlanta), under delegated authority from the Board, and by the Georgia Department of Banking and Finance (State). The State closed First Georgia in December 2008, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. The FDIC estimated that the bank's failure would result in a $72.2 million loss to the DIF, or 31.5 percent of the bank's $229 million in total assets.

First Georgia failed because its Board of Directors and management did not adequately control the risks associated with its (1) high concentration of acquisition, development, and construction loans made to home builders and developers and (2) reliance on non-core funding, particularly brokered deposits. Weakening demand for housing in the local real estate market led to significant loan losses that eroded the bank's capital. The bank's deteriorating capital position triggered regulatory restrictions on renewing brokered deposits, which significantly impeded liquidity and ultimately led to First Georgia's insolvency.

Our review of FRB Atlanta's supervision of First Georgia found that an asset concentration in speculative acquisition, development, and construction loans contributed to the bank's failure. In our view, the significant and growing risk associated with this sizable concentration in speculative construction loans, coupled with deficiencies in credit administration and risk management identified by FRB Atlanta, warranted a more forceful supervisory response during the Reserve Bank's 2006 safety and soundness examination. While it was not possible to determine the degree to which a stronger regulatory response in 2006 would have altered First Georgia's subsequent decline, we concluded that an earlier decrease in the speculative construction loan portfolio could have reduced the loss to the DIF.

We believe the lesson learned from the First Georgia failure was that a forceful supervisory response is warranted, even in the presence of strong financial performance, when community banks with weaknesses in risk management, credit administration, and loan underwriting accumulate a high concentration in a risky asset class.

During the course of our review, we found that FRB Atlanta did not fully comply with supervisory guidance that addressed disagreements with CAMELS ratings assigned by State regulators 1. FRB Atlanta disagreed with the CAMELS composite upgrade assigned after a 2007 examination conducted by the State. FRB Atlanta discussed its disagreement with the State and informed the bank's Board of Directors that the institution would continue to be monitored as though it had not been upgraded. Nevertheless, FRB Atlanta did not follow supervisory guidance that required Reserve Banks to formally assign and record a separate CAMELS rating. Our report contained a recommendation designed to address this issue.

The Director of the Division of Banking Supervision and Regulation agreed with our recommendation and said that he planned to send a reminder to ensure that Reserve Banks follow supervisory guidance pertaining to formally assigning and recording a separate CAMELS composite rating when the Reserve Bank disagrees with a rating assigned by a state supervisory agency.

Material Loss Review of County Bank

County Bank (County) was supervised by the Federal Reserve Bank of San Francisco (FRB San Francisco), under delegated authority from the Board, and by the California Department of Financial Institutions (State). The State closed County in February 2009, and the FDIC was named receiver. On March 9, 2009, the FDIC OIG notified our office that County's failure would result in an estimated loss to the DIF of $135.8 million, or 8 percent of the bank's $1.692 billion in total assets.

County failed because (1) a precipitous decline in the local real estate market caused significant losses concentrated in the construction and land development (CLD) loan component of the bank's commercial real estate portfolio and (2) the Board of Directors and management failed to mitigate the bank's credit risk exposure in the face of these sharply deteriorating real estate market conditions. The State closed County after loan losses mounted, earnings and capital were impaired, liquidity was strained, and efforts to raise capital or find a buyer or merger partner failed.

Although County had historically been rated a fundamentally sound financial institution, its decline was swift. The bank failed eighteen months after a 2007 State examination assigned County a satisfactory rating, yet cited the first signs of asset quality deterioration and other problems. During the 2007 examination, State examiners cited credit administration deficiencies that included CLD loans being renewed or extended without principal pay-down and weaknesses in construction loan credit file documentation. FRB San Francisco was concerned about the declining local real estate market and the deficiencies cited during the 2007 State examination. In response, FRB San Francisco met with County management in July 2007 to stress the importance of taking action to keep ahead of emerging market conditions and also accelerated County's examination interval.

We believe that the magnitude and significance of County's asset quality deterioration and credit administration deficiencies that emerged in the summer of 2007 warranted a more direct and forceful supervisory response by FRB San Francisco. However, in light of the rapid deterioration in County's local real estate market, it was not possible to assess whether a more direct and forceful response by FRB San Francisco would have affected County's subsequent decline or the ensuing failure's cost to the DIF.

We believe that County's failure offered a lesson learned that could be applied in supervising community banks with similar characteristics and circumstances. County's rapid decline and failure indicated that community banks with a concentration in CLD loans can be highly vulnerable to changes in the real estate market that they serve. Accordingly, an early, direct, and forceful supervisory response that compels management to take immediate action to mitigate emerging risks is necessary for banks with CLD concentrations.

During the course of our review, we also found that FRB San Francisco did not follow Board procedures that required sending a brokered deposit restriction letter to County when the bank's capital position fell below well capitalized, as defined by the prompt corrective action provisions of the FDI Act. Our report contained a recommendation to address this issue.

The Acting Director of the Division of Banking Supervision and Regulation concurred with our conclusions, lesson learned, and recommendation. In response to our recommendation, the Acting Director said that she would remind Reserve Banks to provide timely written notification of brokered deposit restrictions to financial institutions that are deemed less than well capitalized.

Material Loss Review of Riverside Bank of the Gulf Coast

Riverside Bank of the Gulf Coast (Riverside-Gulf Coast) was supervised by FRB Atlanta, under delegated authority from the Board, and by the Florida Office of Financial Regulation (State). The State closed Riverside-Gulf Coast on February 13, 2009, and the FDIC was named receiver. On March 9, 2009, the FDIC OIG notified our office that the failure of Riverside-Gulf Coast would result in an estimated loss to the DIF of $201.5 million, or 37.5 percent of the bank's $536.7 million in total assets.

Riverside-Gulf Coast failed because the bank did not adequately control the risks resulting from its (1) growth strategy to establish a residential real estate loan portfolio and (2) reliance on selling mortgages in the secondary market. The aggressive growth resulted in a commercial real estate concentration in the bank's local service area that included a sizable number of residential construction loans to speculative investors. By 2007, the economic downturn caused credit tightening in the secondary markets, thereby hampering, and eventually eliminating, Riverside-Gulf Coast's ability to sell mortgages. In addition, the unprecedented drop in southwest Florida's real estate market decreased the underlying collateral value of the bank's real estate loan portfolio. These factors required Riverside-Gulf Coast to increase its allowance for loan losses, which negatively affected earnings, resulting in insufficient capital to absorb losses, ultimately leading to the bank's insolvency.

With respect to Riverside-Gulf Coast's supervision, we believe that the circumstances FRB Atlanta encountered during a 2007 visitation signaled a sudden and total transformation of Riverside-Gulf Coast's longstanding business model. Specifically, FRB Atlanta noted a significant decline in the local residential housing market and observed that new appraisals indicated that the value of certain collateral, particularly developed lots ready for construction, declined by as much as 70 percent. In addition, examiners observed that Riverside-Gulf Coast could no longer sell mortgages in the secondary market and, therefore, would be required to hold and service these loans.

In our opinion, the magnitude and significance of changes observed during the 2007 visitation warranted more immediate supervisory attention, such as (1) conducting an asset quality target examination, (2) requiring the bank to prepare a new capital plan, or (3) further accelerating the full-scope examination that was conducted in March 2008. However, in light of the rapid deterioration in Riverside-Gulf Coast's local real estate market, it was not possible to determine the degree to which more immediate supervisory action would have affected the bank's subsequent decline or the failure's cost to the DIF.

We believe the lesson learned from Riverside-Gulf Coast's failure was that the secondary market may not always be a reliable option, especially for banks facing sharp deterioration in their local real estate market.

The Acting Director of the Division of Banking Supervision and Regulation agreed with our conclusion, concurred with the lesson learned, and noted that reliance on the secondary market to purchase mortgages “is not without its own risk.”

Review of the Federal Reserve's Consolidated Supervision of Bank and Financial Holding Companies

During the reporting period, we completed a data gathering effort that focused on the Federal Reserve's consolidated supervision of bank holding companies and financial holding companies. During the course of our work, we gathered data on risk management and supervisory issues facing holding companies, such as capital planning and capital adequacy, firm-wide risk identification, residential lending, counterparty credit risk, and commercial real estate concentrations. The results of this review will be used to determine the timing and best approach for future work in this area.

Ongoing Inspection and Evaluation Work

Material Loss Reviews

From December 1, 2008, through September 30, 2009, 11 of the approximately 850 state banks that are members of the Federal Reserve System have failed, resulting in an estimated loss of roughly $2.3 billion to the DIF. As shown in the chart below, eight of these failures (just over 70 percent) have occurred during the current semiannual reporting period, and our reviews are ongoing.

State Member Banks that Failed during the Reporting Period

 

State Member Bank Location Federal Reserve District Asset size (in millions) Projected Loss (in millions) Closure Date FDIC OIG Notification Dateb1
Michigan Heritage Bank Farmington Hills, MI Chicago $160.9 $68.3 04/24/2009 06/22/2009
Community Bank of West Georgia Villa Rica, GA Atlanta $200.0 $85.1 06/26/2009 07/28/2009
Neighborhood Community Bank Newnan, GA Atlanta $210.4 $66.6 06/26/2009 07/28/2009
BankFirst Sioux Falls, SD Minneapolis $246.1 $90.0 07/17/2009 08/19/2009
Community First Bank Prineville, OR San Francisco $199.8 $44.4 08/07/2009 09/15/2009
Community Bank of Nevada Las Vegas, NV San Francisco $1,500.0 $766.5 08/14/2009 09/15/2009
CapitalSouth Bank Birmingham, AL Atlanta $588.5 $146.0 08/21/2009 09/15/2009
Irwin Union B&T Columbus, IN Chicago $2,700.0 $621.5 09/18/2009 Pending

1. Material Loss Review of Michigan Heritage Bank

On April 24, 2009, Michigan Heritage Bank, Farmington Hills, Michigan, which had three branch offices, was closed by the Michigan Office of Financial and Insurance Regulation. As of December 31, 2008, Michigan Heritage had total assets of approximately $160.9 million and total deposits of $151.7 million. On June 22, 2009, the FDIC OIG notified our office that the FDIC had estimated a $68.3 million loss to the DIF, which exceeded the statutory threshold requiring us to conduct a material loss review.

2. Material Loss Review of Community Bank of West Georgia

On June 26, 2009, Community Bank of West Georgia, Villa Rica, Georgia, was closed by the Georgia Department of Banking and Finance. As of May 15, 2009, Community Bank of West Georgia had total assets of $200 million and total deposits of $182.5 million. On July 28, 2009, the FDIC OIG notified our office that the FDIC had estimated an $85.1 million loss to the DIF, which exceeded the statutory threshold requiring us to conduct a material loss review.

3. Material Loss Review of Neighborhood Community Bank

On June 26, 2009, Neighborhood Community Bank, Newnan, Georgia, which had four branch offices, was closed by the Georgia Department of Banking and Finance. As of March 31, 2009, Neighborhood Community Bank had total assets of $210.4 million and total deposits of approximately $191.3 million. On July 28, 2009, the FDIC OIG notified our office that the FDIC had estimated a $66.6 million loss to the DIF, which exceeded the statutory threshold requiring us to conduct a material loss review.

4. Material Loss Review of BankFirst

On July 17, 2009, BankFirst, Sioux Falls, South Dakota, which had two branch offices, was closed by the South Dakota Division of Banking. As of April 30, 2009, BankFirst had total assets of $246.1 million and total deposits of approximately $254 million. On August 19, 2009, the FDIC OIG notified our office that the FDIC had estimated a $90 million loss to the DIF, which exceeded the statutory threshold requiring us to conduct a material loss review.

5. Material Loss Review of Community First Bank

On August 7, 2009, Community First Bank, Prineville, Oregon, which had eight branch offices, was closed by the Oregon Division of Finance and Corporate Securities. As of July 5, 2009, Community First Bank had total assets of $199.8 million and total deposits of approximately $182 million. On September 15, 2009, the FDIC OIG notified our office that the FDIC had estimated a $44.4 million loss to the DIF, which exceeded the statutory threshold requiring us to conduct a material loss review.

6. Material Loss Review of Community Bank of Nevada

On August 14, 2009, Community Bank of Nevada, Las Vegas, Nevada, which had twelve branch offices, was closed by the State Commissioner, by order of the Nevada Financial Institutions Division. As of June 30, 2009, Community Bank of Nevada had total assets of $1.5 billion and total deposits of about $1.38 billion. On September 15, 2009, the FDIC OIG notified our office that the FDIC had estimated a $766.5 million loss to the DIF, which exceeded the statutory threshold requiring us to conduct a material loss review.

7. Material Loss Review of CapitalSouth Bank

On August 21, 2009, CapitalSouth Bank, Birmingham, Alabama, which had ten branch offices, was closed by the Alabama State Banking Department. As of June 30, 2009, CapitalSouth Bank had total assets of $588.5 million and total deposits of approximately $546 million. On September 15, 2009, the FDIC OIG notified our office that the FDIC had estimated a $146 million loss to the DIF, which exceeded the statutory threshold requiring us to conduct a material loss review.

8. Material Loss Review of Irwin Union Bank and Trust Company

On September 18, 2009, Irwin Union Bank and Trust Company, Columbus, Indiana, was closed by the Indiana Department of Financial Institutions. As of August 31, 2009, Irwin Union Bank and Trust Company had total assets of $2.7 billion and total deposits of approximately $2.1 billion. The FDIC has preliminarily estimated that the failure will result in a $621.5 million loss to the DIF, which exceeds the statutory threshold requiring us to conduct a material loss review.

Back to Table of Contents


Investigations

The Investigations program conducts criminal, civil, and administrative investigations in support of the Board's programs and operations. To effectively carry out their mission, OIG special agents must possess a thorough knowledge of current federal criminal statutes and the rules of criminal procedure, as well as other rules, regulations, and court decisions governing the conduct of criminal, civil, and administrative investigations. Additionally, OIG special agents have authority to exercise specific law enforcement powers through a blanket deputation agreement with the U.S. Marshals Service of the Department of Justice. OIG investigations are conducted in compliance with the CIGIE's Quality Standards for Investigations.

Ongoing Investigative Activities

Our ongoing criminal investigative activities involve leading or participating in a number of multi-agency investigations. OIG special agents conduct investigations of alleged criminal or otherwise prohibited activities that have an actual or potential significant impact on the Board and its programs and operations. These investigations involve alleged bank fraud, terrorist financing, money laundering, and mortgage fraud. In addition, OIG special agents continue to address allegations of criminal wrongdoing on the part of Board employees, as well as violations of the Board's standards of conduct. During the reporting period, we opened thirteen new cases and closed one case. We had twenty-two cases under investigation at the end of the reporting period. Due to their sensitivity, we cannot provide details regarding these investigations; we only report on significant activities referred for prosecutorial or administrative action. Below is a table summarizing our investigative statistics for the reporting period.

Summary Statistics on Investigations for the Period April 1, 2009, through September 30, 2009

 

Investigative Actions Number
Investigative Caseload  
    Investigations Open at End of Previous Reporting Period 10
    Investigations Opened during Reporting Period 13
    Investigations Closed during Reporting Period 1
    Total Investigations Open at End of Reporting Period 22
 
Investigative Results for Reporting Period  
    Referred to Prosecutor 1
    Joint Investigations 12
    Referred for Audit 0
    Referred for Administrative Action 1
    Oral and/or Written Reprimands 0
    Terminations of Employment 0
    Arrests 0
    Suspensions 0
    Debarments 0
    Indictments 0
    Convictions 0
    Monetary Recoveries $0
    Civil Actions (Fines and Restitution) $0
    Criminal Fines (Fines and Restitution) $0

Hotline Operations 

In the wake of the economic crisis, the OIG received an unprecedented 687 complaints from hotline calls, correspondence, email, and facsimile communications from Federal Reserve System employees and members of the public. At the end of this section is a table summarizing our hotline activity statistics for the reporting period. All complaints received were evaluated to determine whether further inquiry was warranted. Most hotline contacts were from consumers with complaints or questions about the practices of financial institutions, financial institution regulators, and government officials. Other hotline contacts were from individuals seeking advice about programs and operations of the Board, Federal Reserve Banks, other OIGs, or other financial regulatory agencies. These inquiries were referred to the appropriate Board offices, Reserve Banks, and other federal or state agencies.

The OIG continued to receive a significant number of fictitious instrument fraud complaints. Fictitious instrument fraud schemes are those in which promoters use fictitious financial instruments, such as fraudulent checks, to obtain an improper financial benefit. Examples of these schemes include the highly publicized Nigerian email scams and instances where fraudulent instruments are claimed to be issued, endorsed, or authorized by the Federal Reserve System.

In addition, we have observed an increase in the number of computer-related crimes targeting or otherwise involving the Federal Reserve System. The OIG has received an increase in the number of complaints regarding phishing schemes or fraudulent emails involving solicitations directed at consumers by individuals identifying themselves as representing the Federal Reserve, in order to bolster the legitimacy of the proposed financial transactions. These solicitations promise consumers access to large sums of money after the consumers send sensitive personal or financial information. The Federal Reserve is advising consumers that it does not endorse these solicitations or have any involvement in them.

Summary Statistics on Hotline Activities for the Period April 1, 2009, through September 30, 2009

Hotline Complaints Number
 
Complaints Pending from Previous Reporting Period 8
Complaints Received during Reporting Period 687
Total Complaints for Reporting Period 695
   
Complaints Resolved during Reporting Period 640
Complaints Pending 55

Back to Table of Contents


Legal Services

The Legal Services staff provides comprehensive legal advice, research, counseling, analysis, and representation in support of OIG audits; investigations; inspections; evaluations; and other professional, management, and administrative functions. This work provides the legal basis for the conclusions, findings, and recommendations contained within OIG reports. Moreover, Legal Services keeps the IG and the OIG staff aware of recent legal developments that may affect the activities of the OIG and the Board.

In accordance with section 4(a)(2) of the IG Act, the legal staff conducts an independent review of newly enacted and proposed legislation and regulations to determine their potential effect on the economy and efficiency of or the prevention and detection of fraud and abuse in the Board's programs and operations. During this reporting period, Legal Services reviewed thirty-nine legislative and three regulatory items.

The following table illustrates selected highlights of the OIG's review of existing and proposed legislation during the current reporting period.

Highlights of the OIG's Review of Existing and Proposed Legislation for the Period April 1, 2009, through September 30, 2009

Board, Banking, and TARP Legislation
Legislation Reviewed Purpose/Highlights
Credit Card Accountability Responsibility and Disclosure Act of 2009, or the "Credit CARD Act of 2009" (H.R. 627) Amends the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan.
Financial Product Safety Commission Act of 2009 (H.R. 1705) Creates a Financial Product Safety Commission to provide consumers with stronger protections and better information in connection with consumer financial products and to give providers of consumer financial products more regulatory certainty.
Consumer Financial Protection Agency Act of 2009 (H.R. 3126) Establishes the Consumer Financial Protection Agency.
Helping Families Save Their Homes Act of 2009 (S. 896) Prevents mortgage foreclosures, enhances mortgage credit availability, and expands the Comptroller General's authority to audit the Federal Reserve for actions authorized under section 13(3) of the Federal Reserve Act, when such actions relate to a single and specific partnership or corporation.
Federal Reserve Credit Facility Review Act of 2009 (H.R. 2424 and S. 1457) Authorizes the Comptroller General to review any credit facility established by the Board or a Federal Reserve Bank during the current financial crisis.
Reasonable Prudence in Regulation Act (H.R. 2266) Delays for one year the date for compliance with regulations prescribed by the Secretary of the Treasury and the Board that relate to prohibitions on funding of unlawful internet gambling.
Federal Municipal Bond Marketing Support and Securitization Act of 2009 (H.R. 1669) Authorizes the Board to establish a credit facility under sections 10B and 13(3) of the Federal Reserve Act for the purchase of municipal securities by Federal Reserve Banks, member banks, or other persons
Municipal Market Liquidity Enhancement Act of 2009 (H.R. 2551) Amends the Federal Reserve Act to permit the Board to authorize "in unusual and exigent circumstances" any Federal Reserve Bank to make advances to a special purpose vehicle or a designated corporate entity for the purpose of purchasing certain municipal securities.
To amend the Federal Reserve Act to authorize Federal Reserve Banks to examine the methodologies used by nationally recognized statistical rating organizations in analyzing and rating asset backed securities and structured finance products (H.R. 3128) Amends the Federal Reserve Act to permit Federal Reserve Banks to examine methodologies used by credit rating agencies that are designated as "nationally recognized statistical rating organizations" to analyze and rate asset backed securities and structured finance products.
Promoting Mortgage Responsibility Act (H.R. 2794) Amends the Truth in Lending Act to prohibit prepayment penalties under the terms of any consumer credit transactions secured by an owner-occupied principal dwelling of the consumer.
Liberty Bill Act (H.R. 2854) Requires the Secretary of the Treasury to redesign $1 Federal Reserve notes to incorporate the preamble to the Constitution of the United States, a list describing the Articles of Confederation, and a list describing the Amendments to the Constitution, on the reverse side of such notes.
TARP Repayments and Termination Act of 2009 (H.R. 2745) Amends the Emergency Economic Stabilization Act of 2008 to provide repayment procedures for certain assistance received under the TARP.
SIGTARP Small Business Awareness Act of 2009 (H.R. 3179) Amends the Emergency Economic Stabilization Act of 2008 to require the Special IG for TARP to include the effect of the TARP on small businesses in the oversight, audits, and reports provided by the Special Inspector General's office.
Stop Tarp Asset Recycling Act of 2009, or the "STAR Act of 2009" (S. 1243) Requires repayments of obligations and proceeds from the sale of assets under the TARP to be repaid directly into the Treasury for reduction of the public debt.
Auto Stock for Every Taxpayer Act (S. 1198) Limits the disbursement of additional funds under the TARP to certain automobile manufacturers, imposes fiduciary duties on the Secretary of the Treasury with respect to shareholders of such automobile manufacturers, and requires the issuance of shares of common stock to eligible taxpayers, which represent the common stock holdings of the U.S. Government in such automobile manufacturers.
Improved Oversight by Financial Inspectors General Act of 2009 (H.R. 3330) Amends the FDI Act to require that the IGs of the several federal banking agencies and the National Credit Union Administration Board provide more effective review of losses in the DIF.
Data Breach Notification Act (S. 139) Requires federal agencies and persons engaged in interstate commerce who are in possession of data containing sensitive personally identifiable information, to disclose any breach of such information.
Government Charge Card Abuse Prevention Act of 2009 (S. 942) Requires executive agencies to establish and maintain policies and procedures to prevent fraud and abuse in the use of government purchase cards, travel cards, and travel cards paid by central accounts; executive agency IGs have various audit and reporting requirements.
Fraud Enforcement and Recovery Act of 2009, or "FERA" (S. 386) Improves enforcement of laws prohibiting mortgage fraud, securities and commodities fraud, financial institution fraud, and other frauds related to federal assistance and relief programs, for the recovery of funds lost to these frauds.
Sound Management of America's Resources and Technologies for Energy Act of 2009, or "SMART Energy Act" (H.R. 807) Amends, in part, the Commodity Exchange Act to add an IG, and makes the IG of the Commodity Futures Trading Commission an "establishment" IG.

Back to Table of Contents


Communications and Coordination

While the OIG's primary mission is to enhance efficiency of Board programs and operations, we also coordinate externally and work internally to achieve our goals and objectives. Externally, we regularly coordinate with and provide information to Congress and congressional staff. We are also active members of the broader IG professional community, and we promote collaboration on shared concerns. Internally, we consistently strive to enhance and maximize efficiency and transparency in our infrastructure and day-to-day operations. Within the Board and the Federal Reserve System, we continue to provide information about the OIG's roles and responsibilities and participate, in an advisory capacity, on various Board work groups. Highlights of our activities follow.

Congressional Coordination and Testimony

During the past six-month period, in light of the current economic crisis, the OIG has been communicating and coordinating actively with various congressional committees on issues of mutual interest. We provided fourteen responses to congressional members and staff. Also, the IG testified before the House Subcommittee on Oversight and Investigations, Committee on Financial Services, concerning the subcommittee's hearing entitled, "The Role of Inspectors General: Minimizing and Mitigating Waste, Fraud and Abuse."

Financial Regulatory Coordination

To foster cooperation on issues of mutual interest, including issues related to the current financial crisis, the Board's IG meets regularly with the IGs from other federal financial regulatory agencies: the FDIC, the Treasury, the National Credit Union Administration, the Securities and Exchange Commission, the Farm Credit Administration, the Commodity Futures Trading Commission, the Pension Benefit Guarantee Corporation, the Export-Import Bank, and the Federal Housing Finance Agency. We also coordinate with the Government Accountability Office. In addition, the Assistant IG for Audits and Attestations and the Assistant IG for Inspections and Evaluations meet with their financial regulatory agency OIG counterparts to discuss various topics, including bank failure material loss review best practices, annual plans, and ongoing projects.

TARP Oversight and Law Enforcement Coordination

Our office participates with other financial regulatory OIGs on the TARP IG Council to facilitate effective cooperation among those entities whose oversight responsibilities relate to or affect the TARP.

We also coordinate with the Special IG for TARP and other law enforcement agencies that are members of the TALF Task Force. Representatives from each task force agency identify areas of fraud vulnerability and provide training to agents and analysts with respect to the complex issues surrounding the program. Our office also serves as a point of contact within the task force for leads relating to the TALF and any resulting cases that are generated.

CIGIE

The Board's IG serves as a member of the CIGIE. Collectively, the members of the CIGIE help improve government programs and operations. The CIGIE provides a forum to discuss government-wide issues and shared concerns. The Board's IG also serves as a member of the CIGIE Legislation Committee, which is the central point of information regarding legislative initiatives and congressional activities that may affect the community.

Committee, Workgroup, and Program Participation

The IG continues to serve on various Board committees and work groups, such as the Senior Management Council. In addition, OIG staff members participate in a variety of Board working groups, including the Space Planning Executive Group, Leading and Managing People Working Group, the Information Technology Advisory Group, the Core Response Group, the Management Advisory Group, the Information Security Committee, and the Continuity of Operations Working Group. Externally, the OIG legal staff is a member of the Council of Counsels to the Inspector General. In addition, the Assistant IG for Audits and Attestations serves as co-chair of the IT Committee of the Federal Audit Executive Council and works with audit staff throughout the IG community on common IT audit issues.

OIG IT

During this reporting period, the OIG made substantial progress in upgrading and enhancing its IT infrastructure. The OIG operates multifaceted systems comprising general support systems and critical applications. The OIG relies on these systems to support all facets of its operations. Consistent with our IT strategy, we completed an upgrade to our backup tape equipment to provide a more reliable, responsive contingency and support system, and we upgraded our client firewall software to enhance security. The OIG also updated and strengthened its Continuity of Operations Plan regarding the OIG emergency team and guidance for continuing critical OIG functions during emergency events.

In addition, the OIG recently completed the annual security review of its IT infrastructure, as required by FISMA and the Board's Information Security Program. An independent contractor used criteria provided by the Board's Information Security Officer's compliance unit to conduct the review. The review did not identify any deficiencies in the OIG's IT infrastructure. The OIG also coordinated with the Board's public web team to complete implementation of the OIG's new public website, which may be accessed at: http://www.federalreserve.gov/oig/.

Back to Table of Contents


Appendix 1

Audit Reports Issued with Questioned Costs for the Period April 1, 2009, through September 30, 20091
    Dollar Value
Reports Number Questioned Costs Unsupported
For which no management decision had been made by the commencement of the reporting period 0 $0 $0
That were issued during the reporting period 0 $0 $0
For which a management decision was made during the reporting period 0 $0 $0
    (i) dollar value of disallowed costs 0 $0 $0
    (ii) dollar value of costs not disallowed 0 $0 $0
For which no management decision had been made by the end of the reporting period 0 $0 $0
For which no management decision was made within six months of issuance 0 $0 $0

Back to Table of Contents


Appendix 2

Audit Reports Issued with Recommendations that Funds Be Put to Better Use for the Period April 1, 2009, through September 30, 20091
Reports Number Dollar Value
For which no management decision had been made by the commencement of the reporting period 0 $0
That were issued during the reporting period 0 $0
For which a management decision was made during the reporting period 0 $0
    (i) dollar value of recommendations that were agreed to by management 0 $0
    (ii) dollar value of recommendations that were not agreed to by management 0 $0
For which no management decision had been made by the end of the reporting period 0 $0
For which no management decision was made within six months of issuance 0 $0

Back to Table of Contents


Appendix 3

OIG Reports with Open Recommendations1

 

 

 

  Recommendations Status of Recommendations2
Projects Currently Being Tracked Issue Date No. Mgmt. Agrees Mgmt. Disagrees Follow-up Completion Date Closed Open
 
Audit of Retirement Plan Administration 07/03 4 3 13 03/08 3 1
Evaluation of Service Credit Computations 08/05 3 3 0 03/07 1 2
Audit of the Supervision and Regulation Function's Efforts to Implement Requirements of the Federal Information Security Management Act 09/05 4 4 0 09/09 4 0
Audit of the Board's Information Security Program 10/05 2 2 0 09/08 1 1
Security Control Review of the Central Document and Text Repository System (Non-public Report) 10/06 16 16 0 09/09 14 2
Audit of the Board's Payroll Process 12/06 7 7 0 03/08 1 6
Security Control Review of the Internet Electronic Submission System (Non-public Report) 02/07 13 13 0 09/09 12 1
Audit of Configuration Settings (Non-public Report) 03/07 2 2 0 09/09 2 0
Audit of the Board's Compliance with Overtime Requirements of the Fair Labor Standards Act 03/07 2 2 0 03/08 1 1
Security Control Review of the Federal Reserve Integrated Records Management Architecture (Non-public Report) 01/08 7 7 0 09/09 6 1
Security Control Review of the EGov Systems (Non-public Report) 01/08 8 8 0 09/09 8 0
Review of Selected Common Information Security Controls (Non-public Report) 03/08 6 6 0 - - 6
Security Control Review of the Currency Ordering System (Non-public Report) 06/08 11 11 0 09/09 11 0
Security Control Review of the FISMA Assets Maintained by FRB Boston (Non-public Report) 09/08 11 11 0 - - 11
Evaluation of Data Flows for Board Employee Data Received by OEB and its Contractors (Non-public Report) 09/08 2 2 0 - - 2
Audit of the Board's Information Security Program 09/08 2 2 0 - - 2
Control Review of the Board's Currency Expenditures and Assessments 09/08 6 6 0 - - 6
Audit of Blackberry and Cell Phone Internal Controls 03/09 3 3 0 - - 3
Inspection of the Board's Law Enforcement Unit (Non-public Report) 03/09 2 2 0 - - 2
Security Control Review of the Audit Logging Provided by the Information Technology General Support System (Non-public Report) 03/09 4 4 0 - - 4
Security Control Review of the Electronic Security System (Non-public Report) 06/09 8 8 0 - - 8
Material Loss Review of First Georgia Community Bank 06/09 1 1 0 - - 1
Material Loss Review of County Bank 09/09 1 1 0 - - 1
Audit of the Board's Processing of Applications for the Capital Purchase Program under the Troubled Asset Relief Program 09/09 2 2 0 - - 2

Back to Table of Contents


Appendix 4

Audit, Inspection, and Evaluation Reports Issued

Title Type of report
Management and Accountability of Mobile Computing Devices1 Audit
The Board's Processing of Applications for the Capital Purchase Program under the Troubled Asset Relief Program Audit
Material Loss Review of Riverside Bank of the Gulf Coast Evaluation
Material Loss Review of County Bank Evaluation
Material Loss Review of First Georgia Community Bank Evaluation
Security Control Review of the Electronic Security System (Non-public Report) Audit

Total Number of Audit Reports: 3
Total Number of Inspection and Evaluation Reports: 3

Back to Table of Contents


Appendix 5

Cross-References to the Inspector General Act

Indexed below are the reporting requirements prescribed by the Inspector General Act of 1978, as amended, for the reporting period.

Section Source
4(a)(2) Review of legislation and regulations
5(a)(1) Significant problems, abuses, and deficiencies
5(a)(2) Recommendations with respect to significant problems
5(a)(3) Significant recommendations described in previous Semiannual Reports on which corrective action has not been completed
5(a)(4) Matters referred to prosecutorial authorities
5(a)(5)/6(b)(2) Summary of instances where information was refused
5(a)(6) List of audit, inspection, and evaluation reports
5(a)(7) Summary of particularly significant reports
5(a)(8) Statistical Table—Questioned Costs
5(a)(9) Statistical Table-Recommendations that Funds Be Put to Better Use
5(a)(10) Summary of audit reports issued before the commencement of the reporting period for which no management decision has been made
5(a)(11) Significant revised management decisions made during the reporting period
5(a)(12) Significant management decisions with which the Inspector General is in disagreement

Back to Table of Contents


Table of Acronyms and Abbreviations

Board Board of Governors of the Federal Reserve System
CIGIE Council of Inspectors General on Integrity and Efficiency
CLD Construction and Land Development
County County Bank
CPP Capital Purchase Program
DIF Deposit Insurance Fund
ESS Electronic Security System
FDI Act Federal Deposit Insurance Act
FDIC Federal Deposit Insurance Corporation
FFIEC Federal Financial Institutions Examination Council
First Georgia First Georgia Community Bank
FISMA Federal Information Security Management Act of 2002
FRB Atlanta Federal Reserve Bank of Atlanta
FRB San Francisco Federal Reserve Bank of San Francisco
IG Inspector General
IG Act Inspector General Act of 1978, as amended
IT Information Technology
OIG Office of Inspector General
Riverside-Gulf Coast Riverside Bank of the Gulf Coast
Special IG for TARP Special Inspector General for the Troubled Asset Relief Program
TALF Term Asset-Backed Securities Loan Facility
TARP Troubled Asset Relief Program
Treasury U.S. Department of the Treasury
USB Universal Serial Bus
Board Board of Governors of the Federal Reserve System
CIGIE Council of Inspectors General on Integrity and Efficiency
CLD Construction and Land Development
County County Bank
CPP Capital Purchase Program
DIF Deposit Insurance Fund
ESS Electronic Security System
FDI Act Federal Deposit Insurance Act
FDIC Federal Deposit Insurance Corporation
FFIEC Federal Financial Institutions Examination Council
First Georgia First Georgia Community Bank
FISMA Federal Information Security Management Act of 2002
FRB Atlanta Federal Reserve Bank of Atlanta
FRB San Francisco Federal Reserve Bank of San Francisco
IG Inspector General
IG Act Inspector General Act of 1978, as amended
IT Information Technology
OIG Office of Inspector General
Riverside-Gulf Coast Riverside Bank of the Gulf Coast
Special IG for TARP Special Inspector General for the Troubled Asset Relief Program
TALF Term Asset-Backed Securities Loan Facility
TARP Troubled Asset Relief Program
Treasury U.S. Department of the Treasury
USB Universal Serial Bus

Back to Table of Contents


Footnote

a1. Date that the Board OIG received notification from the Federal Deposit Insurance Corporation (FDIC) OIG that the projected loss to the DIF would be material (that is, greater than $25 million or 2 percent of the institution's total assets). The Board OIG is required to complete its material loss review of such banks within six months of this notification date.  Return to text

b1. Date that the Board OIG received notification from the FDIC OIG that the projected loss to the DIF would be material (that is, greater than $25 million or 2 percent of the institution's total assets). The Board OIG is required to complete its material loss review of such banks within six months of this notification date.  Return to text

1. The CAMELS acronym represents the six major components that are assessed during a bank examination: Capital adequacy, Asset quality, Management practices, Earnings performance, Liquidity position, and Sensitivity to market risk. Each component and overall composite score is assigned a rating of 1 through 5, with 1 having the least regulatory concern and 5 having the greatest concern.   Return to text

Appendix 1 - 1. Because the Federal Reserve is primarily a regulatory and policymaking agency, our recommendations typically focus on program effectiveness and efficiency, as well as strengthening internal controls. As such, the monetary benefit associated with their implementation is often not readily quantifiable.   Return to text

Appendix 2 - 1. Because the Federal Reserve is primarily a regulatory and policymaking agency, our recommendations typically focus on program effectiveness and efficiency, as well as strengthening internal controls. As such, the monetary benefit associated with their implementation is often not readily quantifiable.   Return to text

Appendix 3 - 1. To enhance transparency, we are now including summary totals on the number of recommendations from non-public reports, including the results of applicable follow-up work. These non-public reports typically contain sensitive information regarding security or information technology matters. A high level summary of these reports appears in the relevant semiannual report.   Return to text

Appendix 3 - 2. A recommendation is closed if (1) the corrective action has been taken; (2) the recommendation is no longer applicable; or (3) the appropriate oversight committee or administrator has determined, after reviewing the position of the OIG and division management, that no further action by the Board is warranted. A recommendation is open if (1) division management agrees with the recommendation and is in the process of taking corrective action, or (2) division management disagrees with the recommendation and we have referred or are referring it to the appropriate oversight committee or administrator for a final decision.  Return to text

Appendix 3 - 3. The Management Division has provided us with an update on corrective actions taken on this recommendation, as well as recommendations associated with several other reports, and we are in the process of evaluating the sufficiency of those actions to close the recommendations.   Return to text

Appendix 4 - 1. This report was signed October 1, 2009, but the audit fieldwork was completed and the results were discussed with management prior to completion of the reporting period; therefore, it is being included in this reporting period.   Return to text

 
Last update: August 2, 2013