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

FDIC developed a business logic requirements document that identifies terms, components, and assumptions that impact the estimation of the shared loss liability. This change by FDIC will help reviewing officials ensure that shared loss estimates (that represent a significant portion of the overall Deposit Insurance Fund's allowance for loss) is verifiable and accurately calculated.

To make the process more automated and less prone to error, FDIC's Division of Finance (DOF) changed its process for generating the Loan Loss Reserve (LLR) templates used to perform the overall allowance for loss calculation. FDIC implemented the use of a software program to upload files and automatically run programmed mathematical calculations, which helps to ensure the consistency and accuracy of the estimates produced by the LLR templates. We tested the effectiveness of the program and found it to be producing a reliable overall allowance for loss estimate. FDIC developed a WebFocus-based loan loss reserve template which automatically runs the programmed mathematical calculations for all failed banks independent of manual spreadsheet-based calculations. FDIC's additional automated procedure should help assure accuracy in the underlying data and its calculation of its allowance for losses for receivables from bank failures.

To eliminate the issues identified with the Standard Asset Valuation Estimation (SAVE) methodology, FDIC developed an alternative strategy for valuing In House Other Assets (IHOA). The new methodology does not involve using the sometimes complex calculations required by SAVE. The new methodology uses historical sales to estimate the value of current assets. As a result, FDIC addressed the weaknesses we identified in the calculations needed under the SAVE methodology.

FDIC agreed with our recommendation and stated that it would (1) provide job aids for users to explain general ledger account selection, (2) review and revise expense account definitions to consolidate or enhance clarity, and (3) enhance existing training for the voucher approver community. In February 2012, FDIC posted to their intranet the job aid that provides a list of commonly used general ledger expense accounts with abbreviated descriptions and examples for reference. An updated version was posted in July 2012. In January and February 2012, FDIC implemented the training related to selecting the correct NFE expense account, and made improvements to the coding on contracting templates. It also developed guidance for property management companies regarding the coding of expenses. FDIC's actions to address our recommendation should provide for better accuracy in recording expenses to the proper accounts. Specifically, The Job Aid facilitates the selection of the proper General Ledger expense account and the material covered in the training sessions should assist the approvers and oversight managers in selecting the correct expense accounts. Additionally, the improvements made to the coding on contracting templates should provide for better accuracy and consistency in recording expenses to the proper accounts.

FDIC documented its analysis of deferred revenue recognition in 2011, recognizing Deposit Insurance Fund (DIF) revenue of $2.6 billion for fees related to debt guarantees that had expired. In recognizing this revenue FDIC transferred funds from restricted systemic risk cash and investments to the DIF's cash and investments accounts.

FDIC staff completed revisions to the Accounting Operations Branch procedures regarding the preparation and review of depreciation expenses and fringe benefits and leave allocations. The revisions include detailed steps that allow staff and reviewers to perform their general ledger closing responsibilities completely and effectively.