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The economic disruptions caused by the COVID-19 pandemic resulted in an abrupt shock to financial markets and affected many credit channels that households, businesses, and state and local governments rely on. In response, the Board of Governors of the Federal Reserve System took steps to support the flow of credit to these sectors by establishing emergency lending programs that made liquidity available to ensure market stability and provide lending support to various sectors of the economy.
In addition, the Consumer Financial Protection Bureau has continued to play a vital role throughout the pandemic by enforcing federal consumer protection laws and protecting consumers from abuse.
As the Board and the CFPB's independent inspector general, we provide robust oversight of their pandemic response efforts through continuous monitoring, audits, evaluations, and criminal investigations, as well as coordination with our oversight and law enforcement partners.
The following describes our ongoing and planned work. See the Work Plan for full details.
Monitoring of the Federal Reserve's Lending Programs
In response to the economic effects of the COVID-19 pandemic, the Federal Reserve created new lending programs to provide loans to employers, certain businesses, and communities across the country to support the U.S. economy. Specifically, the following programs have been created: the Main Street Lending Program, the Paycheck Protection Program Liquidity Facility, the Municipal Liquidity Facility, the Primary Market Corporate Credit Facility, and the Secondary Market Corporate Credit Facility. We initiated an active monitoring effort of these programs to gain an understanding of the operational, governance, reputational, and financial matters associated with them. Through this monitoring effort, we will refine our focus on the programs and identify areas for future audits or evaluations.
Evaluation of the Federal Reserve System's Loan Purchase Processes for Its Main Street Lending Program (MSLP)
In response to the COVID-19 pandemic, the Board established the MSLP—composed of five different lending facilities—to facilitate lending to small and medium-sized for-profit and nonprofit organizations. Through the MSLP, the Federal Reserve Bank of Boston purchased 1,830 loans amounting to approximately $17.5 billion from lenders; the majority of these loans were purchased during the last 2 months of the program. We plan to assess the design and operating effectiveness of the System's processes for loan purchases.
Evaluation of the Federal Reserve System's Loan Administration Processes for Its Main Street Lending Program (MSLP)
In response to the COVID-19 pandemic, the Board established the MSLP—composed of five different lending facilities—to facilitate lending to small and medium-sized for-profit and nonprofit organizations. Through the MSLP, the Federal Reserve Bank of Boston is responsible for administering the loans, including assessing overall credit risk and identifying substandard loans. We plan to assess the MSLP's processes for loan administration, including the design and operating effectiveness of internal controls.
Evaluation of the Federal Reserve System's Vendor Selection and Management Processes Related to the Federal Reserve Bank of New York's (FRB New York) Emergency Lending Programs
As part of its emergency lending program, FRB New York operated six emergency lending facilities, five of which were supported by multiple vendor contracts. FRB New York awarded some of its emergency lending program–related contracts noncompetitively because of the exigent circumstances, and other contracts pose potential conflict-of-interest risks to the System. FRB New York's reliance on vendors highlights the importance of its monitoring of vendor performance. We plan to assess the Board's and FRB New York's processes related to vendor selection and management for FRB New York's emergency lending programs.
Audit of the CFPB's Consumer Response Operations
Pursuant to the Dodd-Frank Act, the CFPB's Office of Consumer Response collects, monitors, and responds to consumer complaints on financial services and products. The CFPB uses these consumer complaints to help inform the agency's supervision activities, enforce federal consumer financial laws, and write rules and regulations. With an increase in consumer complaints as a result of the COVID-19 pandemic and a recent organizational shift to the newly created Division of Consumer Education and External Affairs, Consumer Response faces an operational risk with respect to the timeliness with which it can respond to consumer complaints. We plan to assess the CFPB's effectiveness and timeliness in responding to consumer complaints.
Evaluation of the Paycheck Protection Program Lending Facility’s (PPPLF) Credit Extension and Fraud Deterrence Efforts
In response to the COVID-19 pandemic, the Board established the PPPLF to extend credit to financial institutions that originate loans through the U.S. Small Business Administration’s (SBA) guaranteed Paycheck Protection Program (PPP), taking the PPP loans as collateral. The PPPLF, managed by the Federal Reserve Bank of Minneapolis and operated out of the 12 Reserve Banks, distributed billions of dollars to eligible lenders. Nonbank financial institutions received more than half of those funds, and there has been a confirmed instance of fraud in which the lender earned more than $70 million in fees. We will assess the effectiveness of internal controls to (1) determine lender eligibility and extend credit and (2) detect, deter, and mitigate PPP lender fraud. We also plan to assess the extent to which the System coordinates with the SBA on PPP fraud detection, deterrence, and mitigation efforts.
Major Management Challenges