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Report Fraud, Waste, or Abuse
April 1, 2013–September 30, 2013
Consistent with our responsibilities under the Inspector General Act of 1978, as amended (IG Act), the Office of Inspector General (OIG) continued to promote the integrity, economy, efficiency, and effectiveness of the programs and operations of the Board of Governors of the Federal Reserve System (Board) and the Consumer Financial Protection Bureau (CFPB). The following are highlights of our work during this semiannual reporting period.
Our most significant case is highlighted below.
Sentencing for Former Senior Executives and a Favored Borrower of the Bank of the Commonwealth. On May 24, 2013, after a 10-week trial, a former vice president and chief lending officer of the Bank of the Commonwealth, another former vice president, and a favored borrower who was a commercial real estate developer were convicted by a federal jury in the Eastern District of Virginia. They were found guilty of masking nonperforming assets at the Bank of the Commonwealth, a state member bank, for their own personal benefit and to the detriment of the bank. This long-running scheme contributed to the failure of the bank in 2011, costing the Federal Deposit Insurance Corporation (FDIC) an estimated $333 million. On September 16, 2013, the former vice president and chief lending officer was sentenced to 17 years in prison for conspiracy to commit bank fraud, false entries in bank records, misapplication of bank funds, and false statement to a financial institution. The court further ordered the former vice president and chief lending officer to pay $331.9 million in restitution to the FDIC and to forfeit $61.6 million in proceeds from the offense. On September 18, 2013, the commercial real estate developer was sentenced to 50 months in prison for conspiracy to commit bank fraud, bank fraud, false statements to a financial institution, and aiding and abetting misapplication of bank funds. Further, the court ordered the commercial real estate developer to pay nearly $5 million in restitution to the FDIC and to forfeit $11.1 million in proceeds from the offense. On September 30, 2013, the other former vice president was sentenced to 8 years in prison for conspiracy to commit bank fraud, false entries in bank records, misapplication of bank funds, and false statement to a financial institution. The court further ordered the former vice president to pay $2.4 million in restitution to the FDIC and to forfeit $4.1 million in proceeds from the offense.
Below are some of the highlights.
The Board's Handling of the Federal Open Market Committee Meeting Minutes. We evaluated the Board's processes for distributing the approved Federal Open Market Committee (FOMC) minutes to Board staff prior to their public release and the Board's management controls to prevent the early distribution of those minutes. The Board's Chairman asked us to initiate this audit after an official in the Board's Congressional Liaison Office e-mailed the FOMC meeting minutes to an e-mail distribution list on April 9, 2013, one day earlier than the scheduled release date. As a result, the Board issued the FOMC minutes at 9:00 a.m. on April 10, 2013, rather than the scheduled 2:00 p.m. release time. We found that certain Board offices were lacking relevant policies and procedures, that access to the FOMC minutes was not sufficiently restricted, and that certain staff did not adhere to the Board's Program for Security of FOMC Information. We made four recommendations designed to strengthen the Board's controls over the handling of the FOMC minutes. Management concurred with the recommendations and has initiated steps to implement them.
Implementing a Board-Wide Process for Maintaining and Monitoring Administrative Internal Control. We found that the Board's processes for maintaining and monitoring administrative internal control-internal control over the effectiveness and efficiency of operations and compliance with laws and regulations-can be enhanced. Although the Board is not subject to the Federal Managers' Financial Integrity Act of 1982 (FMFIA), the Board decided to voluntarily comply with its spirit and intent shortly after its enactment. We believe that an agency-wide process that maintains, monitors, and reports on administrative internal control can assist the Board in effectively and efficiently achieving its mission, goals, and objectives, as well as address the organizational challenges outlined in the Board's 2012-2015 strategic framework. We recommended that the Board develop and implement an agency-wide policy and process to more closely follow the spirit and intent of FMFIA and develop an associated training program. Management concurred with the recommendation's intent.
Ensuring the Integrity of the CFPB's Government Travel Card Program. We conducted an audit to determine the effectiveness of the CFPB's internal controls for its government travel card (GTC) program. We found that internal controls for the CFPB's GTC program should be strengthened to ensure program integrity. While controls over the GTC issuance process were designed and operating effectively, controls are not designed or operating effectively to (1) prevent and detect fraudulent or unauthorized use of GTCs and (2) provide reasonable assurance that cards are properly monitored and closed out. We made 14 recommendations designed to assist the CFPB in strengthening its internal controls over the GTC program. Management concurred with our recommendations and is planning to take actions to implement them.
Strengthening Compliance with the CFPB's Purchase Card Policies and Procedures. We conducted an audit to assess whether the controls for the CFPB's purchase card program were adequate to (1) ensure that purchase card use is appropriate and in compliance with applicable laws, regulations, and the CFPB's policies and procedures and (2) prevent and detect improper or fraudulent use of purchase cards. We found that internal controls for the CFPB's purchase card program are adequate and operating effectively. We noted, however, several instances of noncompliance with applicable policies and procedures. We made two recommendations designed to ensure that purchase cardholders and agency program coordinators exercise appropriate internal controls to ensure the integrity of the purchase card program. Management concurred with our recommendations and has initiated steps to implement them.
Preparing for and Responding to Emergency Events at the Board. We conducted an evaluation of the Board's policies and procedures for responding to unexpected emergency events and to assess communications protocols for processing and disseminating information to Board staff during such emergencies. We found that drills and exercises to prepare for emergencies did not fully incorporate all components of the Occupant Emergency Plan. In addition, we found that the floor warden program had challenges with respect to recruiting and retaining volunteers and that floor wardens are not completing annual training. Finally, we found that the Board does not have the ability to send public address announcements to employees working in leased office space because the buildings lack such a system. We made seven recommendations to improve the Board's emergency preparedness. Management generally concurred with our recommendations.