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October 1, 2016–March 31, 2017

Semiannual Report to Congress

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Full Report:

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Message From the Inspector General

For this semiannual period, given new statutory requirements under the Inspector General Empowerment Act of 2016, we are widening the window into our work by summarizing more investigative results and reports with unimplemented recommendations (appendix B and appendix C, respectively). This increased transparency aligns with our dedication to being the trusted oversight agency of the Board of Governors of the Federal Reserve System (Board) and the Consumer Financial Protection Bureau (CFPB). To be trusted means, in part, showing a clear connection between our work and our mission, vision, and values.

This reporting period, we reviewed financial controls related to the Board's financial statements and the CFPB's purchase and travel card programs, as well as information security controls at the Board and the CFPB. We also recommended actions both agencies could take to improve their processes and culture. How can the Board encourage its staff to share divergent views so it can make more-informed decisions related to financial institution supervision in light of multiple perspectives? How can the CFPB mitigate the risk of conflicts of interest with its vendors, or enhance its administration of advisory committees? What can the Board do to maximize the effectiveness of its monitoring of emerging risks at large financial institutions? These questions cut to the heart of the effectiveness of our agencies' operations, and our answers, with actionable recommendations for improvement, shed light on how operations can improve, for the agencies themselves, and for the public, Congress, and other stakeholders.

This report also describes closed investigations we previously did not make public that involved allegations of misconduct by senior government employees. In addition, our investigators continue to get results for our agencies: Over the past 6 months, we have received 331 Hotline complaints; opened 17 investigations; and seen our work result in 6 persons referred to the U.S. Department of Justice for criminal prosecution; 5 indictments; $8,009,552 in criminal fines, restitution, and special assessments; and $638,000,000 in civil judgments.

We also unveiled our new strategic plan and are committed to looking inward and being transparent about our major goals:

  1. Make a Difference: Deliver results that promote agency excellence.
  2. Cultivate Great Teams: Promote a diverse, skilled, and engaged workforce and foster an inclusive, collaborative environment.
  3. Build Bridges: Optimize external stakeholder engagement.
  4. Work Better: Advance organizational effectiveness and model a culture of continuous improvement.

We believe that our strategic plan encourages our agencies and other stakeholders to hold us accountable as an organization, and it gives us a benchmark by which to hold ourselves accountable as well.

Finally, I thank the OIG staff, who deserve congratulations for the great work they do every day and whose dedication to promoting economy, efficiency, and effectiveness and to rooting out fraud, waste, and abuse is second to none.

Sincerely,
/signed/
Mark Bialek
Inspector General
April 28, 2017

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.

Audits, Evaluations, and Inspections

Willingness to Share Divergent Views About Large Financial Institution Supervision Activities. Employees' willingness to share views varies by Federal Reserve Bank and among supervision teams at the same Reserve Bank. Leadership and management approaches play a major role in influencing employees' comfort level in sharing views.

The CFPB's Contract Award Controls and Processes. The CFPB generally complies with contract award laws, regulations, and agency policies and procedures, but some reviews and approvals were overlooked or not documented as required, and other controls and processes can be improved.

The CFPB's Controls for Identifying and Avoiding Conflicts of Interest Related to Vendor Activities. The CFPB can strengthen its controls for identifying and avoiding potential conflicts of interest associated with using vendors to support fair lending compliance and enforcement analysis. The agency should also evaluate whether to perform more fair lending enforcement analysis internally.

The Board's Use of Continuous Monitoring as a Supervisory Tool. Although the Board and the Reserve Banks have multiple documents that address the expectations for certain aspects of continuous monitoring, the Board has not issued guidance that harmonizes these expectations across its supervisory portfolios and the Reserve Banks.

The Board's Information Security Program. The Board has taken several steps to mature its information security program to ensure that it is consistent with Federal Information Security Modernization Act of 2014 (FISMA) requirements. However, the Board's information security program needs several improvements in the areas of risk management, identity and access management, security and privacy training, and incident response.

The CFPB's Information Security Program. The CFPB has taken several steps to mature its information security program to ensure that it is consistent with FISMA requirements. However, the CFPB's information security program needs several improvements in the areas of risk management, identity and access management, and contingency planning.

Investigations

Multiple Former Pierce Commercial Bank Officials Indicted for Conspiracy and Bank Fraud. Four former Pierce Commercial Bank officials were indicted in the Western District of Washington in Tacoma for conspiracy to make false statements on loan applications and to commit bank fraud. Along with three other branch employees, the individuals knowingly made false statements overvaluing property on home loan applications. The fraudulent scheme contributed to the failure of the bank, which caused the Deposit Insurance Fund (DIF) about $24.8 million in losses.

Former Employee at the Federal Reserve Board Pleads Guilty to Unlawful Conversion of Government Property. A Communications Analyst pleaded guilty to unlawful conversion of government property, was sentenced to 12 months’ probation, and was fined $5,000 for installing unauthorized software on a Board server to connect to a Bitcoin network in order to earn bitcoins.