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Board Report: 2014-FMIC-B-014 September 30, 2014

Opportunities Exist to Enhance the Onsite Reviews of the Reserve Banks’ Wholesale Financial Services

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Appendix A: Scope and Methodology

Our overall objective for this audit was to assess the extent and effectiveness of RBOPS’s oversight of the Reserve Banks’ wholesale financial services. Specifically, we reviewed how RBOPS assesses wholesale financial services against the standards defined in the PSR policy to determine whether the systems incorporate (1) an appropriate risk-management framework and (2) the international principles and recommendations in their policies and procedures.

We used the guidelines in the Standards for Internal Control in the Federal Government, issued by the Comptroller General of the United States, as well as COSO’s Internal Control—Integrated Framework, to assess RBOPS’s oversight.

To accomplish our overall objective, we reviewed the PSR policy; applicable sections of the Federal Reserve Act; Title VIII of the Dodd-Frank Act, the Payment, Clearing, and Settlement Supervision Act of 2010; WPO’s standard operating procedures; the Federal Reserve Administration Manual; and relevant Federal Reserve Bank Financial Services operating circulars.

We evaluated RBOPS’s documentation, including Reserve Bank review observation bullets, final reports, and review documentation; training program information; and risk-based planning process information. We interviewed relevant RBOPS staff members within the FMI Oversight, Oversight Program Management, and Information Technology groups and wholesale financial services’ officials and General Auditors at the responsible Federal Reserve Banks.

The scope of our audit included RBOPS’s onsite reviews of wholesale financial services for the calendar years 2011 and 2012. We selected these years, and reviewed all associated documentation, because RBOPS changed its oversight approach for wholesale financial services from its triennial geographical approach to an annual functional approach in 2012.

We conducted our audit fieldwork from May 2013 to November 2013. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our finding and conclusions based on our audit objective.