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: October 1, 2008--March 31, 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
April 30, 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 October 1, 2008, through March 31, 2009. The Inspector General Act 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


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 Board 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 Act (FDIA), 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, and to produce, within six months of the loss, 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 information 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. In addition, 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.

OFFICE OF INSPECTOR GENERAL
March 31, 2009

 Figure of Organization Chart of Office of Inspector General, March 31, 2009.  At the top level of the chart is Elizabeth A. Coleman, Inspector General.  On the next level of the chart are the four Assistant Inspectors General and their respective duties:  Assistant IG for Legal Services, Laurence A. Froehlich; Assistant IG for Audits and Attestations, Andrew Patchan Jr.; Assistant IG for Inspections and Evaluations, Anthony J. Castaldo; and Assistant IG for Investigations, Harvey Witherspoon.  On the next level are the Senior Program Manager for Communications and QA, Vacant, and Senior Investigative Advisor, Donna Harrison.  On the next level are other senior OIG officials: Senior Counsel, Jacqueline Becker; Project Manager, Cynthia Grey; Project Manager, Peter Sheridan; Project Manager, Kimberly Whitten. At the final level of the chart is the OIG Staff.


OIG Staffing

Auditors
17
Information Technology Auditors
6
Investigators
5
Attorneys
3
Administrative
3
Information Systems Analysts
3

Total Authorized Positions

37

Back to Table of Contents


Goals and Objectives

The OIG Strategic Plan establishes a results-oriented, risk-focused vision for our office, and describes the six fundamental values-independence, integrity, excellence, professionalism, empowerment, and commitment to the public interest-that shape our decisions and day-to-day operations. As indicated in the overview on page 4, we continually focus on achieving three primary goals:
  1. conducting our statutorily-mandated requirements;

  2. broadening our coverage of the Board’s mission areas to enhance efficiency, limit risk, and detect and prevent fraud, waste, and abuse; and

  3. enhancing the efficiency and effectiveness of the OIG's operations and communications.

OIG Strategic Plan 2008-2011

Back to Table of Contents


Audits and Attestations

The Audits and Attestations program assesses certain aspects of the economy, efficiency, and overall effectiveness of the Board's programs and operations. Specifically, the office of Audits and Attestations conducts audits of (1) the presentation and accuracy of the Board's financial statements, budget data, and financial performance reports; (2) the effectiveness of process 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) the degree of 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 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 Financial Statements for the Year Ended December 31, 2008, and Audit of the Federal Financial Institutions Examination Council's Financial Statements for the Year Ended December 31, 2008

Each year, the OIG contracts for an independent public accounting firm to audit the financial statements of the Board and the Federal Financial Institutions Examination Council (FFIEC); the Board provides the accounting function for the FFIEC. Deloitte & Touche LLP, our current contracted auditors, planned and performed the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The audits included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The audits also included an assessment of the accounting principles used and significant estimates made by management, as well as an evaluation of the overall financial statement presentation.

In the auditors' opinion, the Board's and the FFIEC's financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of each entity as of December 31, 2008, in conformity with accounting principles generally accepted in the United States. The audits included consideration of internal control over financial reporting, for the purpose of determining audit procedures for expressing an opinion on the financial statements and not to provide assurance on the internal control over financial reporting, and thus would not necessarily disclose all matters that might be material weaknesses. The auditors noted no matters involving internal control over financial reporting that they considered material weaknesses.

As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, the auditors also performed tests of the Board's and FFIEC's compliance with certain laws, regulations, contracts, and grants, since noncompliance with these provisions could have a direct and material effect on the determination of the financial statement amounts. The results of the auditors' tests disclosed no instances of noncompliance that would be required to be reported under Government Auditing Standards.

Security Control Review of the Audit Logging Provided by the Information Technology General Support System

Consistent with FISMA, we completed a security control review of the audit logging controls provided by the General Support System supported by the Division of Information Technology (IT GSS). Our audit objectives were to evaluate the adequacy of the audit logging provided by the IT GSS and to ensure that the Board identified, at the infrastructure level, important events which are required to be audited as significant and relevant to the security of its information systems. Our objectives were based on the methodology set forth in the Audit and Accountability family of security controls identified in the National Institute of Standards and Technology Special Publication 800-53, Recommended Security Controls for Federal Information Systems.

Audit logging is the recording and reviewing of system, application, and user activities. The IT GSS maintains audit log records that include the date and time of selected events, type of event, user identity, and the outcome (success or failure) of the event. These logs are used for monitoring any suspicious or unusual activities, investigating security incidents, identifying system anomalies, troubleshooting, and for diagnostic purposes. We selected the IT GSS for review because it provides the audit logging for the Board's infrastructure components, including network devices, operating systems, and databases. The IT GSS infrastructure components provide network and general computing capabilities for the Board user community, including platforms for hosting applications; enforcing security policies and authentication into the Board's network; and providing the infrastructures for web-enabled applications, databases, and e-mail.

Overall, our restricted audit found that the IT GSS components had audit logging enabled, and that events were recorded, reviewed, and archived. However, for those control families where control objectives were not met, we identified the deficient aspect of the control, suggested where improvements can be made, and highlighted the recommended action. The Director of IT generally agreed with our recommendations and indicated that corrective action has either been taken or is under way to enhance the specific controls highlighted in the report. We will follow-up on the implementation of the recommendations as part of our future audit activities related to the Board's continuing implementation of FISMA.

Audit of BlackBerry and Cell Phone Internal Controls

During the current reporting period, we completed an audit of the Board's compliance with its revised inventory control procedures to strengthen the controls for managing and accounting for BlackBerrys and cell phones throughout the Board. Specifically, we evaluated the controls over the receiving, tracking, securing, and disposing of BlackBerrys and cell phones.

Overall, we found that the IT division has established various controls for BlackBerrys and cell phones, and that the majority of these controls were working effectively. We did not identify any significant discrepancies. Our testing did, however, identify opportunities to improve the existing controls used to manage and account for the devices. Specifically, we found that (1) all transactions in the Secure Inventory Closet (SIC) are not manually recorded in the SIC transaction log, (2) the log is not periodically reconciled to the monthly “Badge Access” log that electronically records all entries into the closet, and (3) that a surveillance camera positioned outside the SIC does not capture the device-related activities occurring within the SIC. We also found control weaknesses in the segregation of duties, and made additional recommendations concerning the need for improved communications between IT management and the divisions regarding the timely return of devices that are no longer in use. Our report contains three recommendations designed to address these issues, which we believe will help reduce the risk of loss, theft, or unauthorized use of devices.

We provided a copy of our report to the Director of IT for review and comment. The director concurred with our assessment that opportunities exist to further strengthen several controls, and agreed or partially agreed with each of our three recommendations.

Smithsonian Institution OIG Peer Review

During the current reporting period, the OIG issued the final report of our external peer review of the Smithsonian Institution (SI) OIG. Our review covered the system of quality control for the audit function of the SI OIG in effect for the fourteen-month period that ended May 31, 2008. Generally Accepted Government Auditing Standards (GAGAS) require that government audit organizations undergo periodic external peer reviews at least once every three years in order to determine whether the audit organization's internal quality control system is adequate as designed and complied with, and to provide reasonable assurance that applicable auditing standards, policies, and procedures have been met. A system of quality control covers an OIG's organizational structure, and the policies adopted and procedures established to provide it with reasonable assurance of conforming with GAGAS. Our review was conducted in conformity with standards and guidelines established by the President's Council on Integrity and Efficiency (PCIE) and the Executive Council on Integrity and Efficiency (ECIE) [now the Council of Inspectors General on Integrity and Efficiency (CIGIE), pursuant to the Inspector General Reform Act of 2008].

ONGOING AUDIT WORK

Audit of the Board's Processing of Capital Purchase Program Applications

The Emergency Economic Stabilization Act of 2008, Public Law No. 110-343, authorized the Troubled Assets Relief Program (TARP). The Act provides the Secretary of the Treasury with broad flexibilities to buy up to $700 billion in troubled assets, and provides specific roles and responsibilities for the Board. Treasury has taken a number of steps under this broad legislation to stabilize lending and enable consumers and businesses to have access to credit. Treasury's first TARP action was to purchase up to $250 billion of preferred stock on standardized terms through a program known as the Capital Purchase Program (CPP). In general, financial institutions request participation in the CPP by submitting an application to the appropriate federal banking agency, which reviews the application prior to Treasury's decision on whether a CPP request should be approved or denied. During this period, we began an audit to assess the Board's process and controls for reviewing CPP applications from Board-supervised financial institutions. We expect to complete this audit and issue our final report in the next reporting period.

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

During this reporting period, our office began a review of the Federal Reserve's lending facilities and special programs. In response to the financial crisis, the Board has initiated various 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 depository institutions, bank holding companies, commercial paper issuers, securities dealers, and limited liability companies. In addition, the Federal Reserve has provided assistance to large financial services companies such as American International Group and Bear Stearns. These facilities and programs have added significantly to the Federal Reserve's balance sheet. The objectives of this review are to obtain information on the various Federal Reserve lending facilities and special programs, and identify risk areas for further audit. As risk areas are identified, we may perform more detailed work or initiate separate review(s) as appropriate.

Security Control Review of the Electronic Security System

During this period, we completed a security control review of the Electronic Security System (ESS) and issued a draft report to Board management for their review and comment. ESS is listed as a major application on the Board's FISMA inventory for the Management Division. ESS augments the Board's physical security by providing one uniform system for access 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. We expect to issue our final report in the next reporting period.

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

During this period, we began a security control review of the Board's Lotus Notes/Domino infrastructure. We selected the Lotus Notes/Domino infrastructure because it is a component of the IT GSS that supports the Board's e-mail and application development infrastructure. Our objectives are to evaluate the effectiveness of selected security controls and techniques for protecting the Lotus Notes/Domino infrastructure from unauthorized access, modification, or destruction; and to ensure compliance with the Board's information security program. We expect to finish our control testing and present our results to management in the next reporting period.

Management and Accountability of 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 mobile devices increases the risk of loss or theft and the potential for compromise of sensitive information stored on these devices. We began this audit as a follow-on to previous audit work related to the Board's management of fixed assets. Our audit objective is to evaluate controls over the processes for securing, receiving, tracking, and disposing of selected mobile computing devices. We are focusing our audit work on controls related to laptops, BlackBerrys, and USB flash drives. During this reporting period, we completed our field work and analyzed recent Board policies and practices. We expect to complete this project and issue our final report in the next reporting period.

Audit of the Board's Transportation Subsidy Program

While our audit is continuing, we issued an internal audit memorandum to management with our preliminary observations in response to management's plans to revise its transportation subsidy policy. The objective of our audit is to assess the extent to which the Board's program controls (1) ensure compliance with applicable laws and regulations and management's authorization, and (2) prevent unauthorized or fraudulent activities. During this period, we have completed testing of the key process controls, and anticipate discussing our results with management and issuing our final report in the next reporting period.

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 system development life-cycle projects and participation on task forces and workgroups. OIG inspections and evaluations are performed according to Quality Standards for Inspections issued by the PCIE and ECIE [now the CIGIE].

Report on the Inspection of the Board's Law Enforcement Unit

During this period, we completed an inspection of the Board's Law Enforcement Unit (LEU). The USA PATRIOT Act of 2001, Public Law No. 107-56, granted the Board certain federal law enforcement authorities. The Board's implementing regulations, the Uniform Regulations for Federal Reserve Law Enforcement Officers, S-2609 (June 18, 2002), designated the Board's OIG to perform the external oversight function (EOF) for this program. The OIG conducted an inspection of the program to fulfill our EOF responsibility for reviewing and evaluating the Board's law enforcement programs and operations.

The objective of our inspection was to (1) assess LEU's compliance with Board and LEU internal policies and procedures, and (2) test selected operational controls. To accomplish our objectives, we performed a comprehensive inventory of all LEU weapons and ammunition; reviewed personnel records and the results of sixteen background investigations for LEU management and staff; verified that recently hired Law Enforcement Officers obtained required qualifications; and assessed the process for testing and certifying canines and their handlers. We also reviewed controls over the LEU's credentials and badges; access to the National Crime Information Center/Washington Area Law Enforcement System; arrest incident reports; and the drug testing program administered by the Board's Health Unit. In addition, we tested the functionality of surveillance cameras and physical controls over entry into the Martin, Eccles, and New York Avenue buildings, as well as Board-leased space on K Street.

Overall, our restricted report found that the LEU generally complied with the Board and LEU internal policies, procedures, and controls that were reviewed during our inspection. We made two recommendations to enhance the LEU's internal control environment by disposing of obsolete ammunition, and establishing standard forms for custody transfers involving weapons or ammunition to be destroyed.

FOLLOW-UP

Follow-up on the Inspection of the Protective Services Unit

Our September 2007 inspection, entitled Report on the Inspection of the Board's Protective Services Unit, contained three recommendations to enhance the Protective Services Unit's (PSU) internal controls and operations. To fulfill our recommendations, PSU made a variety of policy and procedural enhancements to strengthen their internal control environment, and transferred unused weapons to another law enforcement agency for destruction. The actions taken were sufficient to close all three recommendations.

ONGOING INSPECTIONS AND EVALUATIONS

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

We have begun a review of the Federal Reserve's consolidated supervision of bank holding companies and financial holding companies. The initial steps of our inquiry are focused on gathering data and conducting interviews related to supervisory actions that address risk management 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. We will also address supervisory challenges that have emerged as a result of the current financial crisis, and review the Board's plans for supervising large financial firms that are in the process of becoming bank holding companies.

Material Loss Reviews and Monitoring Troubled Banks

Section 38(k) of the FDIA 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 Deposit Insurance Fund (DIF) is material. A loss is considered material, as defined in the FDIA, when it exceeds the greater of $25 million or two percent of the failed institution's total assets. In addition, the IG is required to report on the results of the material loss review (MLR) within six months of the loss, including possible suggestions for improvement in the agency's banking supervision practices.

The Federal Reserve is the primary supervisor for state member banks (SMB), and our office must review any failed SMB when the estimated loss exceeds the materiality threshold. During the reporting period, three SMBs failed, all met the material loss threshold, and we will issue separate reports on each failure within the six-month deadline prescribed by the FDIA. We continue to monitor the condition of troubled SMBs, and coordinate with the other federal financial regulatory IGs. The following summarizes our three ongoing MLRs:

First Georgia Community Bank Material Loss Review

On December 5, 2008, First Georgia Community Bank, Jackson, Georgia, which had four branches serving the southern suburbs of Atlanta, was closed by the Georgia Department of Banking and Finance. Prior to its failure, the bank had total assets of $237.5 million and total deposits of $197.4 million. We are conducting a material loss review because the Federal Deposit Insurance Corporation (FDIC) has estimated a $72.2 million loss to the DIF.

County Bank Material Loss Review

On February 6, 2009, County Bank, Merced, California, which had thirty-nine branches primarily serving central California, was closed by the California Department of Financial Institutions. Prior to its failure, the bank had total assets of approximately $1.7 billion and total deposits of $1.3 billion. We are conducting a material loss review because the FDIC has estimated that County Bank's failure will result in a $135 million loss to the DIF.

Riverside Bank of the Gulf Coast Material Loss Review

On February 13, 2009, Riverside Bank of the Gulf Coast, Cape Coral, Florida, which had nine offices serving the coastal communities of southwest Florida, was closed by the Florida Office of Financial Regulation. Prior to its failure, the bank had total assets of approximately $539 million and total deposits of $424 million. We are conducting a material loss review, because the FDIC has estimated a $201.5 million loss to the DIF.

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 Quality Standards for Investigations issued by the PCIE and ECIE [now CIGIE].

The following are highlights of investigative activity over the last six months.

ONGOING INVESTIGATIVE ACTIVITIES

The current economic crisis continues to shape the environment in which the Board and other financial regulatory agencies operate. As the Federal Reserve implements new tools to strengthen market stability and improve the strength of financial institutions, the nature and complexity of our investigative activities continues to evolve as we detect and investigate fraud in the Board's programs and operations.

During this reporting period, our ongoing criminal investigative activities involved leading or participating in a number of multi-agency investigations. These investigations concerned allegations of bank fraud, terrorist financing, money laundering, and mortgage fraud. In addition, OIG special agents continue to address allegations of wrongdoing related to the Board's programs and operations, as well as violations of the Board's standards of conduct. Due to the sensitivity of these investigations, we report only on completed investigations referred for prosecutorial or administrative action.

In addition to our ongoing work, we participated in two new multi-agency task forces designed to address issues unique to the current economic crisis. These task forces are highlighted below:

Term Asset-Backed Securities Loan Facility (TALF) Task Force

The Special Inspector General for the Troubled Asset Relief Program (SIGTARP), in coordination with our office, formed a broad, multi-agency task force designed to deter, detect, and investigate instances of fraud in the TALF program.

The TALF is a Federal Reserve program in which the Federal Reserve Bank of New York (FRBNY) will make loans that are secured by collateral. TALF loans are intended to make credit available to consumers and small businesses on more favorable terms by facilitating the issuance of asset-backed securities and improving the market conditions for asset-backed securities more generally. As the TALF is currently structured, FRBNY will loan up to $200 billion secured by asset-backed securities that are backed by credit-card loans, auto financing, student loans, and Small Business Administration loans. In the event of default, the TALF is supported by credit protection of up to $20 billion in TARP funds. As part of the United States Treasury's Financial Stability Plan, the TALF may be expanded, both to extend the program to other asset classes and to increase lending to $1 trillion, supported by credit protection of up to $100 billion of TARP funds.

The TALF Task Force was formed to detect and prevent fraud and abuse in the TALF. In addition to SIGTARP and the Board's OIG, the TALF Task Force includes the Federal Bureau of Investigation (FBI), the Financial Crimes Enforcement Network (FinCEN), U.S. Immigration and Customs Enforcement (ICE), the Internal Revenue Service, Criminal Investigation (IRS-Cl), the Securities and Exchange Commission (SEC), and the U.S. Postal Inspection Service (USPIS). Representatives from each agency are participating in regular briefings about the TALF program, collectively identifying areas of fraud vulnerability, and training agents and analysts with respect to the complex issues surrounding the program.

Mortgage Fraud Task Force

The OIG is participating in a nationwide effort by the FBI and the United States Attorney's Office to investigate and prosecute mortgage-related crime. Joint state and federal task forces have been established in many states considered hotspots for such crimes. Most recently, OIG special agents attended a meeting of the Florida Mortgage Fraud Task Force in Ft. Meyers, Florida, to discuss the efforts of law enforcement to prosecute mortgage fraud cases in Florida. In addition to state and local agencies, other federal agencies participating in the mortgage fraud task forces include the U.S. Secret Service, USPIS, the IRS-CI, ICE, the Federal Deposit Insurance Corporation OIG, and the Department of Housing and Urban Development OIG.

Summary Statistics on Investigations for the Period October 1, 2008, through March 31, 2009

Investigative Actions Number
Investigative Caseload  
    Investigations Opened during Reporting Period 2
    Investigations Open at End of Previous Period 8
    Investigations Closed during Reporting Period 0
    Total Investigations Active at End of Reporting Period 10
 
Investigative Results for this Period  
    Referred to Prosecutor 3
    Joint Investigations 4
    Referred for Audit 0
    Referred for Administrative Action 0
    Oral and/or Written Reprimand 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 & Restitution $0

Hotline Operations

During the course of the economic crisis and the federal bailout, the OIG received an unprecedented 485 complaints from hotline calls, correspondence, e-mail, facsimile communications, information requests from Federal Reserve System employees, and members of the public. 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 contacts 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 promise very high profits based on fraudulent instruments that they claim are issued, endorsed, or authorized by the Federal Reserve System or a well-known financial institution. Examples of these schemes are the highly publicized Nigerian e-mail scams and other similarly fraudulent activities.

In addition, we have observed an increase in the number of computer-related crimes targeting the Federal Reserve System. The OIG is receiving an increasing number of phishing scheme or fraudulent e-mail complaints involving solicitations directed at consumers by individuals identifying themselves as either representing the Federal Reserve, or as one of its employees, in order to bolster the legitimacy of the proposed financial transaction. These solicitations promise consumers access to large sums of money after the consumer discloses sensitive personal or financial information. The Federal Reserve is advising consumers that it does not endorse these solicitations nor does it have any involvement in them.

Our summary statistics of the hotline results are provided in the following table:

Summary Statistics on Hotline Results for the Period of October 1, 2008, through March 31, 2009

Hotline Complaints Number
 
Complaints pending from the previous reporting period 6
Complaints received during this reporting period 485
Total complaints for the Reporting Period 491
   
Complaints resolved during this period 483
Complaints pending 8

Back to Table of Contents


Legal Services

The Legal Services program 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 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, October 1, 2008, through March 31, 2009

Board, Banking, and Consumer Protection Legislation
Legislation Reviewed Purpose/Highlights
Federal Reserve Transparency Act of 2009 (H.R. 1207) Amends title 31, United States Code, to reform the manner in which the Board and the Federal Reserve Banks are audited by the Comptroller General.
Transparency in the Creation of Wealth Act of 2008 (H.R. 7260) Requires the Board to produce ten reports and statistical compilations to increase the quality and accessibility of research by the Board on the effects of monetary policy on the distribution of wealth.
Mortgage Origination Commission Act of 2008 (S. 3581) Establishes the federal "Mortgage Origination Commission,” which includes a member of the Board of Governors, and amends the Board's responsibilities under the Truth in Lending Act and the Bank Holding Company Act of 1956.
Empowering States' Right to Protect Consumers Act of 2009 (S. 255) Amends the Truth in Lending Act to empower the States to set the maximum annual percentage rates applicable to consumer credit transactions.
Part-Time Reemployment of Annuitants Act of 2009 (S. 629) Amends the Civil Service Retirement System and the Federal Employee Retirement System to facilitate the part-time reemployment of annuitants.
Plain Writing Act of 2009 (S. 574) Establishes a requirement that all government documents issued to the public must be written clearly and in a concise, well-organized manner.
Community Choice in Real Estate Act (H.R. 111) Amends the Bank Holding Company Act of 1956 to prohibit financial holding companies from engaging in real estate brokerage or management activities.
Reducing Information Control Designations Act (H.R. 1323) Requires the Archivist of the United States to promulgate regulations regarding the use of information control designations.
Federal Reserve Board Abolition Act (H.R. 833) Abolishes the Board and the Reserve Banks, and repeals the Federal Reserve Act.
Federal Reserve Sunshine Act (H.R. 1348) Requires the Board to publish the details of all financial assistance it has provided since March 24, 2008.

Highlights of the OIG's Review of Existing and Proposed Legislation, October 1, 2008, through March 31, 2009

Troubled Asset Relief Program (TARP), Recovery Act, and Financial Regulatory Reform Legislation
Legislation Reviewed Purpose/Highlights
Emergency Economic Stabilization Act of 2008 (EESA) (H.R. 1424) Authorizes the federal government to purchase and insure certain troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, referred to as the Troubled Asset Relief Program (TARP).
American Recovery and Reinvestment Act of 2009 (H.R. 1) Makes supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency, and assistance to the unemployed; restricts the future hiring of H-1B visa employees by recipients of TARP funding and assistance provided under section 13(3) of the Federal Reserve Act (FRA).
Troubled Asset Relief Program Transparency Reporting Act (H.R. 1095) Prohibits any recipient of TARP funding or assistance provided under section 13(3) of the FRA from using such funds for lobbying or political contributions, and to require quarterly reports by the recipients on how such funds are used.
To require institutions receiving certain assistance from the Troubled Asset Relief Program or the Federal Reserve to have employee bonus payment plans approved in advance of the payments being made (H.R. 1652) Provides that the Chairman of the Board of Governors must require any institution that receives assistance under section 13(3) of the FRA to only make employee bonus payments that have been approved by the Secretary of the Treasury.
Family Foreclosure Rescue Corporation Act of 2009 (H.R. 472) Establishes the Family Foreclosure Rescue Corporation to purchase and insure home mortgage loans, and grants the Board various consultation and oversight responsibilities related to the Corporation.
TARP Reform and Accountability Act of 2009 (H.R. 384) Reforms the TARP to ensure accountability, and increases the size and authority of the Financial Stability Oversight Board, for which the Chairman of the Federal Reserve Board serves as the Chair.
Financial Market Investigation, Oversight, and Reform Act of 2008 (S. 3652) Provides for financial market investigation, oversight, and reform by creating a bipartisan private sector Commission, a bipartisan Joint Congressional Committee, and a Special Inspector General for Financial Markets Oversight.
Financial Regulation Reform Act of 2008 (S. 3691) Amends the Commodity Exchange Act to require reporting and recordkeeping for positions involving credit-default swaps, to grant the Board authority over investment bank holding companies, and to establish a national commission on financial regulation reform.

Highlights of the OIG's Review of Existing and Proposed Legislation, October 1, 2008, through March 31, 2009

Inspector General and Law Enforcement Legislation
Legislation Reviewed Purpose/Highlights
Federal Agency Performance Review and Efficiency Act (H.R. 478) Amends the Inspector General Act of 1978 to require annual reviews by Inspectors General of the operations, efficiency, and effectiveness of the federal programs administered by the Inspector General's establishment or designated federal entity.
Improved Financial and Commodity Markets Oversight and Accountability Act (H.R. 885) Amends the Inspector General Act of 1978 so that Inspectors General of certain designated federal entities are appointed pursuant to section 3 of the Act.
Fraud Enforcement and Recovery Act of 2009, or "FERA” (S. 386) Provides additional funding and amends Title 18 of the United States Code and the False Claims Act to improve the enforcement of mortgage fraud, securities fraud, financial institution fraud, and other frauds related to federal assistance and relief programs.
Supplemental Anti-Fraud Enforcement for our Market Act, or "SAFE Markets Act” (S. 331) Increases the number of federal law enforcement officials investigating and prosecuting financial fraud by authorizing additional positions and appropriations.
Special Inspector General for the Troubled Asset Relief Program Act of 2009 (S. 383 and H.R. 1341) Amends the Emergency Economic Stabilization Act of 2008 to provide the Special Inspector General with additional authorities and responsibilities.
Special Inspector General for the Troubled Asset Relief Program Act of 2008 (S. 3716 and H.R. 7333) Amends the Emergency Economic Stabilization Act of 2008 to provide the Special Inspector General with additional personnel, audit, and investigation authorities.
Troubled Asset Relief Program Inspector General Improvement Act (S. 18) Amends the Emergency Economic Stabilization Act of 2008 to improve the authority of the Special Inspector General charged with overseeing the Troubled Asset Relief Program.
United Nations Transparency, Accountability, and Reform Act of 2009 (H.R. 557) Establishes a statutory Inspector General within the United Nations system, called the "Office of the United States Inspector General for Contributions to the United Nations System.”
Judicial Transparency and Ethics Enhancement Act of 2009 (H.R. 486) Establishes a statutory Inspector General for the judicial branch, appointed by the Chief Justice of the United States for a renewable four-year term.

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 coordination 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. The IG also submitted testimony for the record to the House Subcommittee on Government Management, Organization, and Procurement, Committee on Oversight and Government Reform, concerning the subcommittee’s hearing entitled, "The Roles and Responsibilities of Inspectors General within the Financial Regulatory Agencies."

Financial Regulatory OIG Coordination

To foster collaboration and 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 Department of the Treasury, the National Credit Union Administration, the Securities and Exchange Commission, the Farm Credit Administration, the Commodity Futures Trading Commission, and the Federal Housing Finance Agency. In addition, the Assistant IG for Audits and Attestations and the Assistant IG for Inspections and Evaluations also meet with their financial regulatory agency OIG counterparts to discuss and coordinate issues of interest, including bank failure MLR best practices, annual plans, and ongoing projects.

TARP Oversight and Law Enforcement Coordination

Most recently, we joined with other financial regulatory OIGs to participate in the "TARP IG Council" to facilitate effective communication and coordination among those entities whose oversight responsibilities relate to or affect the TARP. In addition, the Board’s OIG has coordinated with SIGTARP in forming the TALF Task Force. Representatives from each task force agency are participating in regular briefings about the TALF program, collectively identifying areas of fraud vulnerability, training agents and analysts with respect to the complex issues surrounding the program, and serving as points of contact within each agency for leads relating to the TALF and any resulting cases that are generated.

Council of Inspectors General on Integrity and Efficiency

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 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 Board's Core Response Group, the Management Advisory Group, the Board's Information Security Committee, and the Board's Continuity of Operations Working Group. Externally, OIG Legal Staff are members of the Council of Counsels to the Inspector General (CCIG). They are also active members of the CCIG web site development team. 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.

Public Website Enhancements

The OIG IT team, in coordination with the Board's public web team, is finalizing a redesign of the OIG public website. The new website will offer an improved interface that provides comprehensive information about the OIG's mission and values; key information about the different program areas of the OIG; access to reports and other information completed by the OIG, including an option to receive notification of newly-issued OIG reports through Really Simple Syndication (RSS) feeds; and updated Hotline information. We anticipate rolling-out our new website early in the next reporting period.

Back to Table of Contents


Appendix 1--Audit Reports Issued with Questioned Costs for the Period October 1, 2008, through March 31, 2009

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
    (i) 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 October 1, 2008, through March 31, 2009

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
    (i) 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 Outstanding Recommendations

    Recommendations Status of Recommendations1
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 1 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 3 1 09/07 3 1
Audit of the Board’s Information Security Program 10/05 2 2 0 09/08 1 1
Audit of the Board’s Payroll Process 12/06 7 7 0 03/08 1 6
Audit of the Board’s Compliance with OvertimeRequirements of the Fair Labor Standards Act 03/07 2 2 0 03/08 1 1
Inspection of the Board’s Protective Services Unit 09/07 3 3 0 03/09 3 0
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

Back to Table of Contents


Appendix 4-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 reports
5(a)(7) Summary of significant reports
5(a)(8) 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
CCIG Council of Counsels to the Inspector General
CIGIE Council of Inspectors General on Integrity and Efficiency
CPP Capital Purchase Program
DIF Deposit Insurance Fund
ECIE Executive Council on Integrity and Efficiency
EOF External Oversight Function
ESS Electronic Security System
FBI Federal Bureau of Investigation
FDIA Federal Deposit Insurance Act
FDIC Federal Deposit Insurance Corporation
FFIEC Federal Financial Institutions Examination Council
FinCEN Financial Crimes Enforcement Network
FISMA Federal Information Security Management Act of 2002
FRA Federal Reserve Act
FRBNY Federal Reserve Bank of New York
GAGAS Generally Accepted Government Auditing Standards
GSS General Support System
ICE U.S. Immigration and Customs Enforcement
IG Inspector General
IG Act Inspector General Act of 1978
IRS-CI Internal Revenue Service, Criminal Investigation
IT Division of Information Technology
IT GSS General Support System, supported by the Division of Information Technology
LEU Law Enforcement Unit
MLR Material Loss Review
OIG Office of Inspector General
PCIE President’s Council on Integrity and Efficiency
PSU Protective Services Unit
SEC Securities and Exchange Commission
SI Smithsonian Institution
SIC Secure Inventory Closet
SIGTARP Special Inspector General for the Troubled Asset Relief Program
SMB State Member Bank
TALF Term Asset-Backed Securities Loan Facility
TARP Troubled Assets Relief Program
USB Universal Serial Bus
USPIS U.S. Postal Inspection Service

 

Back to Table of Contents


 Hotline

Inspector General Hotline
1-202-452-6400
1-800-827-3340

Report: Fraud, Waste or Mismanagement
Information is confidential
Caller can remain anonymous

You may also write the:
Office of Inspector General
HOTLINE
Mail Stop 300
Board of Governors of the Federal Reserve System
Washington, DC 20551


Footnote

1A 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 it to the appropriate oversight committee or administrator for a final decision.  Return to text

 
Last update: August 2, 2013