Financial Audit:

Federal Deposit Insurance Corporation's 1995 and 1994 Financial Statements

AIMD-96-89: Published: Jul 15, 1996. Publicly Released: Jul 15, 1996.

Additional Materials:

Contact:

Robert W. Gramling
(202) 512-9406
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

GAO audited the financial statements of the Bank Insurance Fund, the Savings Association Insurance Fund, and the Federal Savings and Loan Insurance Corporation Resolution Fund for the years ended December 31, 1995 and 1994. GAO also highlighted the condition of the banking and thrift industries and the Federal Deposit Insurance Corporation's (FDIC) progress in addressing previously identified internal control weaknesses.

GAO found that: (1) the financial statements were reliable in all material respects and presented fairly the funds' financial position and results of operations and cash flows for the years ended December 31, 1995 and 1994; (2) FDIC internal controls provided reasonable assurance that fund assets were safeguarded from unauthorized use, transactions were executed in accordance with management authority, and transactions were properly recorded, processed, and summarized in accordance with generally accepted accounting principles; (3) FDIC internal controls were effective in ensuring compliance with selected laws and regulations; (4) during 1995, the financial condition of FDIC-insured institutions continued to improve and a significant premium rate differential developed which could affect the thrift industry's ability to finance interest obligations and future deposit insurance rates; and (5) FDIC has begun to resolve material internal control weaknesses found in its asset valuation process, time and attendance reporting procedures, and electronic data processing controls.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: During 1996, FDIC implemented a new asset valuation methodology that provides specific guidance for valuation methods based on asset characteristics. The new methodology also provides guidance for disposition strategies and specific assumptions for the related liquidation expenses. FDIC uses the guidance in the methodology plus individual asset file documentation to arrive at individual asset recovery estimates. During GAO's 1996 audit, it found that FDIC's implementation of the new methodology addressed previously reported weaknesses. FDIC has improved its asset valuation process, thus improving the information used for recording key estimates in the financial statements of the Bank Insurance Fund and the FSLIC Resolution Fund. FDIC's actions should improve the quality of the estimates used in its financial reporting.

    Recommendation: To address weaknesses identified in this year's audits in the area of estimating recoveries for failed institution assets, the Chairman, FDIC, should direct heads of the Division of Depositor and Asset Services and Division of Finance to ensure that field office personnel maintain complete and current documentation in asset files to provide a basis for assumptions used to derive asset recovery estimates and that the assumptions used are appropriately documented.

    Agency Affected: Federal Deposit Insurance Corporation

  2. Status: Closed - Implemented

    Comments: During 1996, FDIC implemented a new asset valuation methodology that addressed many past methodological weaknesses GAO had reported. However, during the 1996 audit, GAO continued to note quality control and implementation problems in FDIC's estimation process. During the 1996 audit, GAO continued to emphasize to FDIC the risk presented by these weaknesses. As a result, FDIC implemented improved procedures which required that reviewers compare estimated recoveries for individual assets to source documents and review the logic and analysis used to arrive at the estimates. During the 1997 audit, GAO noted significantly fewer errors in its review of estimated recoveries for individual assets. As a result of the improvements, GAO concluded that FDIC's review procedures provided adequate assurance that the resulting estimates for individual assets were reasonable.

    Recommendation: To address weaknesses identified in this year's audits in the area of estimating recoveries for failed institution assets, the Chairman, FDIC, should direct heads of the Division of Depositor and Asset Services and Division of Finance to ensure that supervisory reviews of asset recovery estimates are performed thoroughly and include a review of asset file documentation to identify and correct inaccurate or unsupported estimates.

    Agency Affected: Federal Deposit Insurance Corporation

  3. Status: Closed - Implemented

    Comments: During 1996, FDIC implemented specific procedures to update asset recovery estimates from the asset valuation date through the date of the financial statements. During GAO's 1996 audit, it found that FDIC's new procedures adequately addressed previously reported weaknesses. FDIC is now updating its estimated asset recovery values through the date of the financial statements, thus improving the information used for recording key estimates in the financial statements of the Bank Insurance Fund and the FSLIC Resolution Fund. FDIC's actions should improve the quality of the estimates used in its financial reporting.

    Recommendation: To address weaknesses identified in this year's audits in the area of estimating recoveries for failed institution assets, the Chairman, FDIC, should direct heads of the Division of Depositor and Asset Services and Division of Finance to establish and enforce procedures to ensure that recovery estimates are updated for information made available between the valuation date and the year-end financial statement reporting date.

    Agency Affected: Federal Deposit Insurance Corporation

 

Explore the full database of GAO's Open Recommendations »

Sep 20, 2016

Sep 6, 2016

Aug 19, 2016

Aug 12, 2016

Jul 29, 2016

Jul 28, 2016

Jul 13, 2016

Jul 11, 2016

Jun 13, 2016

Looking for more? Browse all our products here