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October 1, 2020–March 31, 2021

Semiannual Report to Congress

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Message From the Inspector General

Since our previous semiannual report to Congress, we have seen tremendous reason for hope with the approval and ongoing administration of several safe and effective vaccines for COVID-19. Still, the virus continues to claim hundreds of American lives every day, and thousands more are suffering economic effects from the pandemic.

We continue to actively monitor the Board of Governors of the Federal Reserve System's pandemic-related lending programs, including the design, operation, governance, and oversight of the programs; associated data collection and reporting; and the effect of the programs on the Board's supervision and regulation activities. In addition, our Office of Investigations is investigating numerous cases of pandemic-related fraud associated with loans worth tens of millions of dollars, including cases in which borrowers fraudulently applied for loans through pandemic response programs. Our work in this area sends a clear message that law enforcement is watching and will bring to justice those who seek to profit at the expense of those in need.

I also continue to serve on the Pandemic Response Accountability Committee (PRAC), which coordinates inspector general (IG) community oversight of the federal government's COVID-19 pandemic response efforts. The PRAC Financial Sector Workgroup recently organized a series of virtual listening panels with experts from the financial services sector—including the banking industry, borrower organizations, and housing experts—to obtain feedback and observations on the federal government's pandemic response programs from those with first-hand, on-the-ground experience. In January, along with the IG for the Federal Deposit Insurance Corporation, I moderated a listening panel focused on experiences from a cross-section of large, community, and minority-owned banks. The perspectives and observations of these stakeholders have been shared with PRAC member IGs, and a video of the panel is available on the PRAC website.

As vaccines become available, many people are eager to regain a sense of normalcy. But while we all look forward to reconnecting with our families, friends, and communities, it's not enough to aim for a return to normal. Over the past year, against the backdrop of a pandemic that has disproportionately affected Black, American Indian, Hispanic, and other minority Americans, our country has witnessed a surge of protests against long-standing systemic discrimination and racial injustice as well as an alarming rise in hate crimes and hostility against people of Asian and Pacific Islander descent.

Discrimination and racial injustice should have no place in our country or in our workplaces. Moreover, ensuring there are a wide range of perspectives in the workplace makes organizations more effective. In our recent report on the Bureau of Consumer Financial Protection's hiring practices, we find that the Bureau's overall workforce diversity increased from fiscal year 2014 to fiscal year 2019, and we identify six practices and supporting actions—many of which the Bureau is already following—for cultivating a diverse workforce.

Internally, we have also taken steps to support diversity within our organization. For example, our Diversity, Equity, and Inclusion Committee has hosted several listening events, hired a contractor to perform a cultural assessment, and distributed and discussed books about diversity and allyship. Diversity and inclusion is one of our core values and is at the center of our culture. I am committed to ensuring that our workplace is safe and inclusive for all our employees and that our workforce reflects the same diversity that makes our country vibrant and strong.

As we move forward, our workplaces themselves may also end up looking different than before. The Board is planning and managing major renovations of all four buildings it owns, and its long-term space planning strategy envisions the majority of employees working on a centralized Board campus. We examined the Board's management of its renovation projects in a report issued in this reporting period, and we also identified ensuring that physical infrastructure effectively meets mission needs as a major management challenge for the Board in 2021.

We continue to be concerned about information security. We again identified information security as a major management challenge for both the Board and the Bureau for 2021, and we are evaluating the Board's adoption of cloud computing systems. In addition, in January, our deputy inspector general participated as a panelist in a virtual cybersecurity roundtable hosted by minority members of the House Financial Services Committee.

We have also welcomed new leadership to both of the agencies we oversee. Dave Uejio was named acting director of the Bureau, and Christopher J. Waller took office as a member of the Board. We've met with Acting Director Uejio and Governor Waller, and we look forward to continuing to work with leadership at the Board and the Bureau as we provide independent oversight to improve their programs and operations and to prevent and detect fraud, waste, and abuse.

Finally, I'd like to thank my staff for their extraordinary efforts over the past year. The pandemic has required staff not only to take on new oversight responsibilities, but also to learn new technology and adapt to working remotely, often while balancing competing caregiving responsibilities. I am incredibly proud of the dedication, flexibility, and tremendous professionalism my staff have shown. I also want to specifically recognize our special agents, who have continued to work in the field despite increased personal risk. The significant personal contributions my staff have made to ensure that we continue to accomplish our mission through these challenging times are truly a testament to their talent, dedication, and unwavering commitment.

Sincerely,
/signed/
Mark Bialek
Inspector General
April 30, 2021


Highlights

We continued to promote the integrity, economy, efficiency, and effectiveness of the programs and operations of the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection. The following are highlights, in chronological order, of our work during this semiannual reporting period.

The Board's Information Security Program
The Board's information security program continues to operate effectively at a level-4 (managed and measurable) maturity. The Board has opportunities to mature its information security program in Federal Information Security Modernization Act of 2014 (FISMA) domains across all five Cybersecurity Framework security functions—identify, protect, detect, respond, and recover—to ensure that its program remains effective.

The Board Economics Divisions' Planning Processes for Economic Analysis
The Board's four economics divisions—the Divisions of Research and Statistics, Monetary Affairs, International Finance, and Financial Stability—can enhance some of their planning processes for their economic analysis activities.

The Board's Management of Renovation Projects
The Board can improve its planning and management of ongoing renovation projects; these improvements can inform the planning and management of future large, complex, multidivision initiatives.

The Bureau's Information Security Program
The Bureau's information security program continues to operate effectively at a level-4 (managed and measurable) maturity. The Bureau has opportunities to mature its information security program in FISMA domains across all five Cybersecurity Framework security functions—identify, protect, detect, respond, and recover—to ensure that its program remains effective.

The Bureau's Hiring Practices and Workforce Diversity
The Bureau can strengthen its hiring processes and reduce risks associated with certain of its hiring practices. The agency's racial and ethnic diversity increased as a percentage of its overall workforce from fiscal year 2014 to fiscal year 2019.

Former Executive of First NBC Bank Indicted for Bank Fraud and False Statements
A former senior vice president of First NBC Bank—the $5 billion New Orleans–based bank that failed in April 2017—was named in a superseding indictment for their role in an alleged fraud scheme totaling hundreds of millions of dollars and involving at least seven coconspirators. The defendant joins three other former First NBC Bank executives and a borrower named in the original indictment. The five defendants could face, for each of the dozens of charged counts, up to 30 years in prison, a fine of $1 million or the greater of twice the gain to a defendant or twice the loss to any victim, and up to 5 years' supervised release.

Former Bank Chief Executive Officer Sentenced to Prison for Falsifying Bank Records and Misappropriating More Than $1.6 Million
The former chief executive officer (CEO) of Border State Bank in Greenbush, Minnesota, was sentenced to 18 months in prison for making a false entry in bank records. The former CEO issued three unauthorized Standby Letters of Credit worth $1.6 million to facilitate the purchase and delivery of diamonds and gold from Africa, but did not report the letters to bank personnel, who would have logged them into the bank's general ledger where they could be tracked by regulators.

Former Whitaker Bank President Sentenced for Embezzlement
The former president of Whitaker Bank, a state member bank in Kentucky, was sentenced to 1 year and 1 day in prison after pleading guilty to embezzling or misapplying more than $50,000 of the bank's funds. The former president admitted to stealing property from a foreclosed country club and seeking reimbursement from the bank for personal expenses.

Business Owners Indicted for $7 Million Paycheck Protection Program Fraud
Two siblings were indicted and charged in New York with wire fraud conspiracy, bank fraud conspiracy, bank fraud, and engaging in monetary transactions with criminally derived property for their alleged participation in a scheme to file fraudulent Paycheck Protection Program (PPP) loan applications seeking nearly $7 million. They made numerous false and misleading statements about their companies' respective business operations and payroll expenses. To date, the government has seized over $400,000 of the more than $600,000 that the defendants obtained.