Management Report:

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

GAO-08-863R: Published: Jul 11, 2008. Publicly Released: Jul 11, 2008.

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In February 2008, we issued our opinions on the calendar year 2007 financial statements of the Deposit Insurance Fund (DIF) and the FSLIC Resolution Fund (FRF). We also issued our opinion on the effectiveness of the Federal Deposit Insurance Corporation's (FDIC) internal control over financial reporting (including safeguarding assets) and compliance as of December 31, 2007, and our evaluation of FDIC's compliance with provisions of selected laws and regulations for the two funds for the year ended December 31, 2007. The purpose of this report is to present issues identified during our audits of the 2007 financial statements regarding certain internal controls and accounting procedures and to recommend actions to address these issues. Although these issues were not material in relation to the financial statements, we believe that they warrant management's attention. We are making five recommendations for strengthening FDIC's internal controls and accounting procedures. We conducted our audits in accordance with U.S. generally accepted government auditing standards.

During our audits of the 2007 financial statements, we identified internal control issues that affected FDIC's accounting for the funds it administers. Although we do not consider them to be material weaknesses or significant deficiencies, we believe that they warrant management's attention and action. Specifically, we found the following: FDIC did not properly account for checks received in its Dallas mailroom. FDIC also lacked adequate procedures and controls to safeguard transported checks for deposit, increasing the risk of theft, loss, or misappropriation of these assets. FDIC's process for approving payment transactions in its accounting system did not always timely prevent or detect errors in recording these transactions, increasing the risk that operating expenses may be incorrectly classified and presented in DIF's financial statements. At the end of our discussion of each of these issues in the following sections, we make recommendations for strengthening FDIC's internal controls or accounting procedures. These recommendations are intended to bring FDIC into conformance with Standards for Internal Control in the Federal Government, which federal agencies are required to follow, and minimize the risk of future misstatements in the DIF and FRF financial statements. In its comments, FDIC agreed with our recommendations and described actions it has taken or plans to take to address the control weaknesses described in this report. At the end of our discussion of each of the issues in this report, we have summarized FDIC's related comments and our evaluation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In FY 2007, the GAO recommended that until such time as FDIC implements a remote electronic deposit process, require Cashiers Unit staff to verify the identity of the courier, obtain a receipt for the checks, and ensure that the courier is bonded. In January 2010, FDIC implemented a remote electronic deposit system, thus eliminating the need for a courier service and the risks associated with using a courier.

    Recommendation: To improve accounting and safeguards for receipts in the Dallas field office mailroom and cashier operations, the Federal Deposit Insurance Corporation should, until such time as FDIC implements a remote electronic deposit process, require Cashiers Unit staff to verify the identity of the courier, obtain a receipt for the checks, and ensure that the courier is bonded.

    Agency Affected: Federal Deposit Insurance Corporation

  2. Status: Closed - Implemented

    Comments: In 2007, GAO recommended the FDIC establish procedures to require remote electronic deposits related to its receivership operations to better safeguard receipts. In response to GAO's recommendation, in January 2010, FDIC implemented a remote electronic deposit system, thus eliminating the need for a courier service and the risks associated with using a courier to transport receipts to a financial institution for deposit.

    Recommendation: To improve accounting and safeguards for receipts in the Dallas field office mailroom and cashier operations, the Federal Deposit Insurance Corporation should establish procedures to require remote electronic deposits and thus eliminate the need for a courier service and the risks associated with using a courier.

    Agency Affected: Federal Deposit Insurance Corporation

  3. Status: Closed - Implemented

    Comments: In 2007, GAO recommended the FDIC review the Mail Center Standard Operating Procedures Manual and make necessary revisions to reflect current procedures and controls over mailroom check processing, including Storing checks in a floor mounted safe. In response, FDIC updated the Mail Center Standard Operating Procedures Manual on March 31, 2009, including procedures that required the mailroom staff to store checks in a floor mounted safe.

    Recommendation: To improve accounting and safeguards for receipts in the Dallas field office mailroom and cashier operations, the Federal Deposit Insurance Corporation should review the Mail Center Standard Operating Procedures Manual and make necessary revisions to reflect current procedures and controls over mailroom check processing.

    Agency Affected: Federal Deposit Insurance Corporation

  4. Status: Closed - Implemented

    Comments: In 2007, GAO recommended the FDIC ensure that mailroom contractor staff follow procedures for entering information from checks received into an electronic spreadsheet and perform necessary reconciliations. In response, FDIC instituted additional controls which provide reasonable assurance that the mailroom staff enter all checks into the electronic spreadsheet and that the spreadsheet is initialed by the employee, verified by another, and dated. An email confirmation received from the Cashiers Unit, along with a copy of the check log, is filed daily, and the email confirmation is visually reconciled with the daily electronic spreadsheet. FDIC's actions should reduce errors and improve the safeguarding of checks in the mailroom.

    Recommendation: To improve accounting and safeguards for receipts in the Dallas field office mailroom and cashier operations, the Federal Deposit Insurance Corporation should ensure that mailroom contractor staff follow procedures for entering information from checks received into an electronic spreadsheet and perform necessary reconciliations.

    Agency Affected: Federal Deposit Insurance Corporation

  5. Status: Closed - Implemented

    Comments: In 2007, GAO recommended that FDIC issue a written notice to all staff involved with recording, processing, and reviewing IPAC transactions, reminding them of their responsibility to accurately record and properly review these transactions. In June 2008, in response to GAO's recommendation, FDIC issued a written notice to the disbursement staff and the oversight managers, reminding them of their responsibility to accurately record and properly review transactions. FDIC's actions should reduce the risk of errors in the processing and recording of IPAC transactions.

    Recommendation: To minimize the risk of charging expenses to the wrong account, the Federal Deposit Insurance Corporation should issue written notification to all individuals involved with processing IPAC transactions reminding them of their responsibility to properly review and accurately record these transactions.

    Agency Affected: Federal Deposit Insurance Corporation

 

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