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Board Report: 2014-AE-B-006 March 28, 2014

The Board's Law Enforcement Unit Could Benefit From Enhanced Oversight and Controls to Ensure Compliance With Applicable Regulations and Policies

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Finding 1: The IOC Does Not Perform Inspections and Evaluations on a Routine Basis

We found that the Board’s IOC did not perform detailed inspections and evaluations of the LEU’s operations on a routine basis. The Board’s Uniform Regulations for Federal Reserve Law Enforcement Officers requires the IOC to inspect and evaluate operations and report the results to the EOF. The IOC is responsible for ensuring that the LEU has a system of management controls and is maintaining the appropriate administrative records to document compliance with these regulations. The IOC did not perform inspections and evaluations because the committee believed that its oversight duplicated the OIG’s activities and placed an additional burden on the LEU. However, the Uniform Regulations for Federal Reserve Law Enforcement Officers calls for the OIG, as the EOF, to review law enforcement programs and operations, which would include activities performed by the IOC. Without regular internal inspections and evaluations performed by the IOC, the Board cannot be assured that the LEU is operating in compliance with applicable laws as well as the Board’s law enforcement policies and procedures.

IOC Inspections and Evaluations Have Not Been Performed Since 2004

During the period of our review, the Board’s IOC did not perform inspections of the LEU or meet regularly to schedule inspections. The IOC last inspected the LEU, in 2004. The Uniform Regulations for Federal Reserve Law Enforcement Officers does not specify a frequency for performing inspections and evaluations of the Board’s LEU nor provide guidance on which areas should be inspected.

We reviewed IOC meeting minutes to determine the committee’s schedule for inspections and evaluations. The IOC acknowledged that previous inspections of the LEU were performed by the OIG as recently as 2009. Based on the audit work done by the OIG, the IOC decided not to conduct its own inspections of the LEU in 2009. According to the IOC chairman, he consulted with the OIG about the timing and scope of the OIG inspections and about the IOC’s reliance on those inspections. During its December 2010 committee meeting, the Board’s IOC considered whether to yield its oversight responsibilities to the OIG to avoid duplication of effort and to reduce the burden on the LEU. Based partly on the OIG’s experience in performing inspections and evaluations, the IOC decided to consider the results of the OIG’s inspections and evaluations before scheduling its next inspection. We did not find written evidence that the OIG was notified of the IOC’s decision to rely on the OIG inspections or that the OIG concurred with this policy decision.

The IOC resolved to revisit the reliance on OIG inspections and discuss the scheduling of future inspections and evaluations during a meeting scheduled for the first quarter of 2011. That meeting did not occur, and the committee has not convened since December 2010. According to the IOC chairman, the committee did not meet because a quorum of committee members could not be met due to member retirements and resignations. Further, the IOC chairman stated that the committee is coordinating with the Management Division to develop a process for selecting IOC members, and once that process is complete and replacement members are selected, committee meetings will resume.

We found that RBOPS’s 2003 memorandum to Federal Reserve Bank IOCs required those IOCs to perform inspections at least once every 24 months and identified specific areas to be inspected.We consider this RBOPS guidance to be a standard practice throughout the Federal Reserve System.


We recommend that the Chief Operating Officer

  1. Ensure that effective and consistent oversight of the Board’s LEU is maintained by establishing a policy that documents
    1. an expected frequency for IOC meetings.
    2. the scope and frequency of IOC inspections and evaluations.
    3. specific roles and responsibilities for the IOC members.
  2. Ensure that IOC inspections and evaluations of the Board’s LEU are performed biennially at a minimum and that results are reported to the EOF.

Management’s Response

In its response, the Board concurred with the recommendations pertaining to the LEU’s oversight provided by the IOC and described changes that have taken place since we concluded our fieldwork. Effective August 30, 2013, the by-laws relating to the administration of the IOC were amended to establish a formal procedure for the appointment of members to the committee. The Chief Operating Officer is now responsible for appointing the Chair of the IOC, and the Directors of the Management, Legal, Board Members, and RBOPS divisions are responsible for designating their representative member on the IOC. The Board stated that steps have already been taken to have the IOC meet regularly and ensure consistent oversight of the LEU.

The Board also stated in its response that the IOC had reviewed the OIG’s inspections of the LEU performed in 2006 and 2009 and, based on the scope of that work, did not conduct its own inspections. The recently re-formed IOC has met informally to discuss, among other things, procedures for inspections of the LEU by the committee, and it will consider the matters contained in our recommendations at upcoming meetings. Management’s full response is included as appendix B.

OIG Comment

In our opinion, the actions described by the Board are responsive to our recommendations. We also note that the revised by-laws provided by the Management Division require that the IOC Chair establish a meeting schedule for the committee. Regarding recommendation 2, we acknowledge that the Board’s IOC does not have a required frequency for inspections and evaluations. Nonetheless, since the Board and Reserve Banks are to adhere to the Uniform Regulations for Federal Reserve Law Enforcement Officers, as well as policies and procedures developed to address the specific needs of each Federal Reserve System facility and its personnel, we believe that following a standard frequency for all Federal Reserve law enforcement IOC reviews would help ensure that the Board’s LEU continues to maintain a system of management controls. We plan to follow up on actions taken by the Chief Operating Officer and the IOC to ensure that our recommendations are fully addressed.