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Semiannual Report to Congress
Since our last semiannual report to Congress in October 2017, both agencies that we oversee have come under new leadership. After serving as a Governor since 2012, Jerome Powell took office as the Chairman of the Board of Governors of the Federal Reserve System (Board) in February 2018. Mick Mulvaney became the Acting Director of the Consumer Financial Protection Bureau (CFPB) in November 2017. We've met several times with Chairman Powell and Acting Director Mulvaney to brief them on our past, ongoing, and planned work and to discuss their priorities and any concerns they may have with their programs and operations. We look forward to continuing to work with both leaders to provide independent oversight of their respective agencies in order to improve their programs and operations and to prevent and detect fraud, waste, and abuse.
During the past 6 months, we issued seven reports related to the Board's programs. These reports cover a broad range of topics, including the Board's governance structure, information technology, building infrastructure, procurement, and human capital. We issued five reports on the CFPB's operations—four focused on information technology and related security efforts, and one on the CFPB's process for offboarding employees and contractors.
Also of note, we released our first OIG Insights paper. OIG Insights papers are designed to describe lessons learned from our audit and evaluation work that have applicability beyond the program reviewed and the agencies we oversee. In this paper, we address the root causes for employees' reticence to share their views with leaders. We also describe steps leaders can take to address these causes and to monitor progress.
In addition, we provided the agencies' new leadership with independent investigative oversight. Our Office of Investigations pursued bank fraud, particularly by senior bank executives, and other cases involving the supervision programs of both agencies, as well as cases related to the agencies' internal operations. Specifically, we handled 412 new hotline complaints and closed 15 investigations. Our work resulted in 3 persons referred for criminal prosecution; an indictment; a conviction of a former bank executive and a guilty plea from another; and over $46 million in civil actions, criminal fines, restitution, special assessments, and forfeitures. Through our investigative work, we continue to send a clear message that those who commit wrongdoing against the Board or the CFPB will be brought to justice. We also demonstrated our ongoing commitment to strengthening relationships with our law enforcement partners by hosting conferences that drew attendees from dozens of federal, state, and local law enforcement agencies.
The work of an Office of Inspector General demands that we be independent, fact based, and trustworthy. Every day, I am inspired by my staff's devotion to these principles and grateful for the high-quality work they produce.
April 30, 2018
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 (Board) and the Consumer Financial Protection Bureau (CFPB). The following are highlights of our work during this semiannual reporting period.
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, information technology services centralization, configuration management, and information security continuous monitoring.
Leadership and Management Best Practices on Encouraging Divergent Views
We issued our first OIG Insights paper, based on an evaluation we conducted regarding employees' willingness to share their views about large financial institution supervision activities. We identified widely applicable best practices that leaders can follow to increase employees' willingness to share their views. These best practices include soliciting viewpoints regularly, modeling a willingness to challenge up the chain of command, recognizing employees who speak up, explaining the rationale for decisions, and acknowledging their own mistakes.
The Board's Organizational Governance System
The Board's core organizational governance structure aligns with benchmark institutions and selected governance principles, as does its public disclosure of governance documents. Nonetheless, the Board can strengthen its governance system to enable it to more effectively and efficiently achieve its objectives.
The Failure of Allied Bank
The Board can improve supervisory processes by clarifying when Federal Reserve Banks should report suspicious activity detected during bank examination activities to law enforcement officials and enhance communication between the Board's Legal Division and the Reserve Banks following requests for an enforcement action.
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 enterprise risk management, configuration monitoring, multifactor authentication, security awareness and training, and incident response and contingency planning.
The CFPB's Offboarding Processes and Data
The CFPB has offboarding controls related to conflicts of interest for executive employees' postemployment restrictions; however, the CFPB has opportunities to strengthen controls related to other components of the employee offboarding process.
Former President and Chief Executive Officer of Farmers Exchange Bank Sentenced
The former President and Chief Executive Officer of Farmers Exchange Bank in Wisconsin was sentenced to 24 months' imprisonment for bank fraud; false entries, reports, and transactions; and false statements. The defendant was also fined $20,000 and ordered to pay $338,000 in restitution to the bank holding company shareholders. Finally, the defendant was prohibited from further participation in the banking industry by the Board and the Federal Deposit Insurance Corporation (FDIC).
Former Chief Executive Officer and President Pleaded Guilty to Conspiracy to Commit Bank Fraud and Obstruction of Examination
A former Chief Executive Officer and President at Coastal Bank and Trust, based in North Carolina, pleaded guilty to conspiracy to commit bank fraud and obstruction of examination. The defendant schemed to defraud the bank by engineering fraudulent loan transactions to straw borrowers for his own benefit or for that of his coconspirators. The defendant attempted to conceal his scheme by withholding relevant information from the bank's board of directors and from Federal Reserve Bank examiners.
Wilmington Trust Corporation Entered Into Settlement Agreement
In a settlement, Delaware's Wilmington Trust Corporation agreed to transfer $44 million to the United States. Wilmington Trust agreed to the settlement in lieu of prosecution for criminal false statements and false entries in banking records related to its past-due loans.