- About Us
- Information Technology
- Contact Us
Report Fraud, Waste, or Abuse
April 1, 2020–September 30, 2020
Semiannual Report to Congress
Since our previous semiannual report to Congress, the COVID-19 pandemic has become part of our daily lives. Well over 200,000 Americans have died, and countless more face economic hardships and uncertainty while navigating work or unemployment, school, health concerns, caregiving responsibilities, and more—often while also struggling with isolation and the unpredictability of what lies ahead.
Safeguarding inspector general independence and impartiality is now, more so than ever, imperative to ensuring that the programs and operations of the establishments covered by the Inspector General Act of 1978, as amended, are operating efficiently and effectively and are free of fraud, waste, and abuse. The extraordinary response efforts undertaken by the government during the pandemic require effective and independent oversight for the American taxpayer. In support of this mission, I continue to serve on the Pandemic Response Accountability Committee, which is responsible for coordinating inspector general community–wide oversight of the government's COVID-19 pandemic response efforts.
Our independent oversight of the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection is vital, and we remain committed to our mission during these challenging times. During the past 6 months, our office has been actively monitoring the measures taken by the Board through the authorization of a variety of lending facilities, such as those related to the Main Street Lending Program, established under unusual and exigent circumstances to support the nation's economy. Our monitoring effort has focused on topics such as the design, operation, governance, and oversight of the lending programs, as well as the effect of the programs on the Board's supervision and regulation activities. We recently announced our first audit of the Board's pandemic-related lending programs, which will examine the data aggregation, validation, and reporting processes for the Board's lending programs related to the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. We are also in the planning stages of an audit of the Board's oversight of the Federal Reserve Banks' vendor selection and management processes related to the Board's CARES Act lending programs, and we expect to announce additional pandemic-related reviews soon. Additionally, as part of the pandemic oversight law enforcement community, our investigations have already resulted in five indictments for a combined attempted fraud of $46 million, and we expect to see more such cases in the coming months. As part of our Bureau-related pandemic oversight, we are planning to conduct an audit of the Bureau's Office of Consumer Response, which collects, monitors, and responds to consumer complaints on financial services and products. This office is experiencing an organizational shift and has seen an increase in consumer complaints as a result of the COVID-19 pandemic. We plan to assess the Bureau's effectiveness and timeliness in responding to these complaints.
In addition to pandemic-related oversight, we issued reports on the Bureau's budget and funding processes and periodic monitoring of supervised institutions. We reviewed the Bureau's budget and funding processes in response to a congressional request and in consideration of the fact that the Bureau receives its funding primarily through transfers from the Board, rather than through the federal appropriations process. We assessed the design and implementation of the controls over the Bureau's budget processes as well as its compliance with applicable laws and regulations. In our periodic monitoring evaluation, we assessed the Bureau's approach to monitoring supervised institutions for consistency with the Bureau's strategic plan and internal policies and procedures. The Bureau monitors supervised institutions to maintain reasonably current information on their activities and to assess whether changes in risks to consumers or markets warrant changes in the Bureau's planned supervisory activities. Other reports we issued during the reporting period covered the Bureau's travel and purchase card programs, contractor compliance, and personnel security program.
We also issued a Board evaluation report concerning the effectiveness of the Board's and the Reserve Banks' cybersecurity supervision approach for Large Institution Supervision Coordinating Committee firms. Continuing our efforts to ensure information security, we issued three memorandum reports discussing the results of the testing we conducted as part of our annual Federal Information Security Modernization Act of 2014 reviews of the effectiveness of the Board's and the Bureau's information security programs.
During this reporting period, we saw results in several high-profile investigations related to the programs and operations of the Board. The former president, the chief credit officer, and the executive vice president of First NBC Bank were indicted for an alleged fraud scheme totaling hundreds of millions of dollars and involving at least seven coconspirators; the former president of Whitaker Bank in Kentucky pleaded guilty to embezzling or misapplying more than $50,000 of the bank's funds; the former chief executive officer of Crown Bank in Minnesota pleaded guilty to wire fraud and filing a false income tax return; and the former vice president of loan operations for SmartBank in Tennessee was sentenced to prison and over $500,000 in restitution in a plea agreement after being charged with embezzlement and filing a false tax return. We also resolved 568 hotline complaints and closed 7 investigations, and our work resulted in 21 persons referred for criminal prosecution.
Finally, in addition to the uncertainty and financial hardships caused by the COVID-19 pandemic, we have seen widespread concern in our country over the past several months regarding systemic discrimination and racial injustice and have witnessed a surge of protests condemning this injustice. How we promote inclusion and equity has been an ongoing topic of conversation and action within the OIG. We know that the wide-ranging experiences and perspectives that each staff member has brought to our organization are essential to our ability to produce thorough, insightful, and comprehensive products and services for our stakeholders. I look forward to continuing our efforts in this area as we endeavor to ensure that we have a workplace that is inclusive and a workforce that is diverse and engaged.
I am deeply thankful to and inspired by the OIG staff, who have shown incredible resourcefulness and resilience throughout the pandemic as we continue to pursue our important oversight mission.
October 30, 2020
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 Bureau's Periodic Monitoring Program
The Bureau can improve its supervisory monitoring program by expanding the number of nondepository institutions it will monitor, better tailoring the resources dedicated to monitoring based on risk, and hiring additional examiners. In addition, the Division of Supervision, Enforcement and Fair Lending (SEFL) can improve its efforts to conduct and document periodic monitoring activities.
The Board's Suitability and Personnel Screening Process
The results of our data analytics testing showed that the Board's suitability and personnel screening processes are operating effectively and in accordance with the agency's policies. We conducted this testing as part of our 2020 audit of the Board's information security program.
The Bureau's Budget and Funding Processes
The Bureau designed and implemented controls over its budget and funding request processes and the Board designed and implemented controls over the funds transfer process. In addition, the Bureau generally complied with legal requirements to produce certain budget- and funding-related information and report it to certain stakeholders.
The Bureau's Legal Enclave
A device that controls access to the environment housing the Bureau's Legal Enclave has a significant weakness, resulting in several security vulnerabilities. In addition, the Bureau had not appropriately tested contingency planning activities for the device. Further, technologies in the Legal Enclave have several security misconfigurations and security weaknesses, which increase the risk of unauthorized data access and system misuse.
The Bureau's Personnel Security Program
The Bureau's Personnel Security Office (PSO) does not have measurable objectives to evaluate its performance related to reducing its adjudication backlog, nor does it have a plan with measurable objectives to manage the background investigation process going forward. In addition, the PSO does not have processes to reconcile its personnel security data. Because the Bureau needs time to address recent internal and external reviews of the program, we suspended our full evaluation after alerting the Bureau of our findings.
The Board's Approach to the Cybersecurity Supervision of Large Institution Supervision Coordinating Committee Firms
The Board's approach to cybersecurity supervision of Large Institution Supervision Coordinating Committee (LISCC) firms continues to evolve and can be enhanced by clarifying roles and responsibilities, better defining how cybersecurity supervisory activities inform relevant ratings, enhancing its approach to cybersecurity training, and improving its guidance and training for reporting cybersecurity events.
Three First NBC Executives and One Individual Indicted, Three Others Pleaded Guilty, in Fraud Against Failed $5 Billion Bank
The former president, chief credit officer, and executive vice president of First NBC Bank—the $5 billion bank that failed in April 2017—were indicted for an alleged fraud scheme totaling hundreds of millions of dollars and involving at least seven coconspirators. Three of those coconspirators pleaded guilty in recent months to fraud conspiracy charges and face up to 5–30 years in prison, another was indicted along with the executives, and the remaining three pleaded guilty to fraud conspiracy charges in 2018 and 2019.
Five Individuals Charged in Paycheck Protection Program Fraud Cases Attempting $46 Million in Forgivable Loans
In four separate cases, five individuals were charged for allegedly filing fraudulent applications seeking a combined $46 million in forgivable loans guaranteed by the U.S. Small Business Administration (SBA) through the Coronavirus Aid, Relief, and Economic Security (CARES) Act Paycheck Protection Program (PPP). The individuals sought loans for companies they owned or worked for by falsifying application information, such as payroll expenses and tax information. To date, the government has recovered about $4 million of the $7.5 million the defendants received.
Former Whitaker Bank President Pleaded Guilty to Embezzlement
The former president of Whitaker Bank in Kentucky pleaded guilty to embezzling or misapplying more than $50,000 of the bank’s funds. He was also charged by way of information, waiving his right to indictment by a federal grand jury.
Former Crown Bank Executive Pleaded Guilty to Bank Fraud
The former chief executive officer (CEO) of Crown Bank in Minnesota pleaded guilty to one count of wire fraud and one count of filing a false income tax return. From 2012 to 2017, he made false entries to conduct transactions for his own benefit without notifying the bank’s board of directors and without properly notifying the appropriate state and federal regulatory agencies. He also filed false tax returns failing to disclose his embezzled earnings, resulting in a tax loss of about $285,200.
Former SmartBank Vice President Sentenced for Embezzlement Scheme
The former vice president of loan operations for SmartBank, a state member bank, was sentenced to 15 months in prison, 4 years’ supervised release, and $516,630 in restitution in a plea agreement after being charged with one count of embezzlement and one count of filing a false tax return. From about 2013 to 2018, she manipulated SmartBank’s general ledger to fund the issuance of 60 cashier’s checks totaling nearly $360,000 for her own benefit and failed to report the embezzled funds as income on her tax returns.