FMS' Monitoring of Lockbox Bank Operations: Internal Control Weaknesses Identified and Actions Taken

FMS developed and implemented an Incident Tracking System to track problems identified at the lock box banks, such as those reported by agencies. The system is designed to document reported problems and to track the actions taken by the Financial Services Division (FSD) and the bank to resolve these problems. Beginning in August 2000, the Incident Reports are submitted monthly to FSD management for review. Management is monitoring progress to ensure that problems are corrected timely and that adequate corrective action is taken to prevent similar problems from occurring in the future.

FMS's Financial Services Division (FSD) developed detailed procedures for ensuring adequate collateral coverage for lockbox deposit accounts maintained by commercial lockbox banks. These procedures include, among others, steps for periodic reassessments of the amount of collateral pledged by the bank. FMS also designated officials responsible for verifying on a monthly basis that sufficient collateral is on hand at the Federal Reserve to cover deposits held overnight by the banks. GAO reviewed the June 2002 Security Account Collateral Monitoring Recap Report, provided by the Federal Reserve to FMS, and verified that there was sufficient collateral to cover each day's total and that the Federal Reserve would reject deposits if the bank was unable to fully collateralize the deposit. FMS reviews these Recap reports for discrepancies each month as evidenced by four sign-offs, including two Directors.