Management Report:

Opportunities for Improvements in FDIC's Internal Controls and Accounting Procedures

GAO-05-553R: Published: Jun 10, 2005. Publicly Released: Jun 10, 2005.

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In February 2005, we issued our opinions on the calendar year 2004 financial statements of the Bank Insurance Fund (BIF), the Savings Association Insurance Fund (SAIF), and the FSLIC Resolution Fund (FRF). We also issued our opinion on the effectiveness of the Federal Deposit Insurance Corporation's (FDIC) internal controls as of December 31, 2004, and our evaluation of FDIC's compliance with significant provisions of selected laws and regulations for the three funds for the year ended December 31, 2004. The purpose of this report is to discuss issues identified during our audits of the 2004 financial statements regarding accounting procedures and internal controls that could be improved, and to recommend improvements to address these issues. Although these issues were not material in relation to the financial statements, we believe they warrant management's attention.

During 2004, we identified several internal control issues that affected FDIC's accounting for the funds it administers. Although the amounts would not have been material to the financial statements taken as a whole, these issues would have resulted in reporting errors had they not been detected by our audit and corrected by FDIC. Specifically, we found that FDIC made errors in calculations supporting its allowance for losses on receivables from thrift resolutions. These errors would have led to misstatements in SAIF's and FRF's financial statements. Further, FDIC did not have effective compensating controls in place to ensure the accuracy of pay computations related to the National Finance Center's (NFC) Thrift Savings Plan (TSP). Other payroll expenses could have been misstated in the funds' financial statements. Finally, FDIC did not detect billing errors made by a contractor, resulting in overpayments to the contractor. The lack of effective invoice review procedures increases the risk of overcharges for goods and services and that they may not be detected and recovered.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: FDIC should issue a formal notice to all individuals who perform primary and secondary reviews of asset valuations reminding them of their responsibility to ensure that assets are valued in accordance with the Standard Asset Valuation Estimation methodology.

    Agency Affected: Federal Deposit Insurance Corporation

    Status: Closed - Implemented

    Comments: In response to our recommendation, FDIC issued a a formal notice to primary and secondary reviewers.

    Recommendation: In light of the errors we found in FDIC employees' TSP accounts and continued serious internal controls deficiencies cited over NFC's payroll processing functions, FDIC should review its existing compensating controls over NFC-processed payroll information to determine whether additional controls, such as periodically verifying NFC's mathematical calculations related to FDIC's payroll data at the individual employee level, are needed to ensure that other NFC mathematical calculations related to FDIC's payroll data are correct.

    Agency Affected: Federal Deposit Insurance Corporation

    Status: Closed - Implemented

    Comments: FDIC agreed with our recommendation and has reviewed its existing compensating control over NFC-processed payroll information and determined that additional controls are not warranted.

    Recommendation: FDIC should issue a formal notice to all individuals who review and approve invoices reminding them of their responsibility to compare each invoice to the terms of the contract prior to approving the invoice for payment.

    Agency Affected: Federal Deposit Insurance Corporation

    Status: Closed - Implemented

    Comments: FDIC agreed with our recommendation and issued a memorandum on May 10, 2005, reminding oversight managers of their critical responsibility for reviewing and approving contractor invoices.

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