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April 1, 2016–September 30, 2016

Semiannual Report to Congress

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Message From the Inspector General

During this reporting period, I reached my five-year anniversary as the Inspector General for the Board of Governors of the Federal Reserve System (Board) and the Consumer Financial Protection Bureau (CFPB). I am proud of our many audit, evaluation, and investigation accomplishments these last five years, and as I reflect back and look forward, I see engagement as the cornerstone of our success. We have established a field presence for the first time to engage directly with our regional stakeholders. Through discussion, formal audit and investigative work, and continuous risk assessment, we continue to focus on issues critical to the Board and the CFPB. We reorganized our office and built up a talented and highly skilled staff to help them face rising challenges. We have also developed a new strategic plan that explicitly makes engagement a driver for our work.

This reporting period, we continued to engage with our colleagues in the Inspector General community and to focus our resources on areas of critical concern, including the effectiveness of our agencies' information security controls. In separately describing the management challenges facing the Board and the CFPB, we noted that they face a shared threat to their information technology infrastructure, as evidenced throughout the government by breaches of sensitive data and increasing reports of information security incidents. To help overcome these challenges, we have audited several information security areas at the Board and the CFPB, as required by the Federal Information Security Modernization Act of 2014. Overall, we found that the agencies have implemented security controls for their information systems, but we identified risks that they agreed to mitigate and steps that need to be taken to mature their respective information security programs.

Our Office of Investigations has also targeted its efforts on areas that will yield the best results. Our investigators have been doing more joint work with the Board's law enforcement group, and we have had more case referrals from the Board, including investigations into the early release of sensitive information. Over the past six months, we have received 424 hotline complaints; opened 21 investigations; and seen our work result in two indictments, seven convictions, and $37,475,750 in criminal fines, restitution, and forfeiture. Through our field offices, we expect to strengthen connections with the Board's and the CFPB's enforcement groups, which will widen our reach and deepen the understanding of our investigative jurisdiction.

As our investigative results demonstrate, working with our stakeholders is a top priority across the Office of Inspector General (OIG). This spring, we launched a data-driven outreach program to strengthen relationships with the Board and the CFPB, the Reserve Banks, the OIG community, Congress, and others. Since then, we have hosted or participated in more than 100 outreach engagements. By learning from our partners and educating them about our mission, we are delivering better results through audits, evaluations, and investigations. For example, outreach to Reserve Bank General Auditors has enhanced coordination about potential risks and oversight issues throughout the System, and meetings with congressional stakeholders have helped us improve our work products. We have also focused on public outreach by making reports and other content on our website more engaging and increasing our social media audience more than sixfold, which led to a person submitting a complaint via Twitter that was subsequently resolved.

Looking forward to the next five years, I trust that Board and CFPB leadership, Congress, the public, and our other stakeholders will continue to acknowledge the value the OIG provides and, as a result, increasingly request our assistance in addressing important issues. My thanks go to the Board and to the CFPB for their continued support and to the OIG staff members for their dedication to our mission, vision, and values, and for their exemplary work during this reporting period.

Sincerely,
/signed/
Mark Bialek
Inspector General
October 31, 2016

Highlights

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.

Management Challenges for the Board and the CFPB. We issued our memorandums on the major management challenges facing the Board and the CFPB. These challenges identify the areas that, if not addressed, are most likely to hamper the Board's and the CFPB's accomplishment of their strategic objectives. We listed seven major management challenges for the Board and four major management challenges for the CFPB.

Audits, Evaluations, and Inspections

The Board's Release of Economic Information Provided Under Embargo. We identified opportunities for the Board (1) to adhere more strictly to controls that already exist in policies, procedures, and agreements with participating news organizations to protect information provided to news organizations under embargo and (2) to establish new controls to more effectively safeguard embargoed economic information. We also identified risks to providing information under embargo through the Board's embargo application.

The CFPB's Government Travel Card Program. We found that although the CFPB had implemented several controls over its government travel card program, some controls were not designed or operating effectively (1) to prevent or identify unauthorized use of the government travel cards and (2) to provide reasonable assurance that cards are closed out in a timely manner upon employees' separation.

The CFPB's Coordination on Consumer Financial Education. We found that the interagency coordination process steps followed by the offices in the Division of Consumer Education and Engagement that target students, older Americans, servicemembers, and traditionally underserved individuals align with interagency coordination best practices. Further, these offices have processes in place to help mitigate risks related to interagency coordination that were identified by other federal agencies that provide consumer financial education.

The Board's Active Directory. Overall, we found that the Board is effectively administering and protecting the Active Directory infrastructure. However, we found that the Board can strengthen Active Directory controls in the areas of risk management, continuous monitoring, user group management, contractor account management, and system documentation. In addition, we identified a risk for management's continued attention related to transport layer security.

Investigations

Former Federal Reserve Bank of San Francisco Examiner Sentenced. A former Federal Reserve Bank examiner was sentenced to time served, one year of supervised release, 200 hours of community service, and a $4,000 fine for four counts of making false statements within the jurisdiction of two different federal agencies—the Board and the Federal Deposit Insurance Corporation (FDIC).

Former Employee at the Federal Reserve Bank of Chicago Sentenced. A Senior Supervision Analyst at the Federal Reserve Bank of Chicago was sentenced to six months' home confinement, two years' probation, and a $20,000 fine after admitting to stealing sensitive and confidential documents from the Reserve Bank.

Former President and Chief Executive Officer of Farmers Exchange Bank Charged in Superseding Indictment. A former President and Chief Executive Officer of Farmers Exchange Bank received one additional count of theft, embezzlement, or misapplication by a bank employee and 12 counts of money laundering. This superseding indictment follows a 25-count indictment that was returned by a federal grand jury on July 12, 2016.