Year 2000 Computing Crisis:

Office of Thrift Supervision's Efforts to Ensure Thrift Systems Are Year 2000 Compliant

T-AIMD-98-102: Published: Mar 18, 1998. Publicly Released: Mar 18, 1998.

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Pursuant to a congressional request, GAO discussed the progress being made by the Office of Thrift Supervision (OTS) in ensuring that the more than 1,200 thrifts it oversees have adequately mitigated the risks associated with the year 2000 date change.

GAO noted that: (1) the year 2000 problem poses a serious dilemma for thrifts due to their heavy reliance on information systems; (2) regulators have a monumental task in making sure that financial institutions have adequate guidance in preparing for the year 2000 and in providing a level of assurance that such guidance is being followed; (3) further, regulators will likely face some tough decisions on the readiness of individual institutions as the millennium approaches; (4) GAO found that OTS is taking the problem very seriously and is devoting considerable effort and resources to ensure the thrifts it oversees mitigate the year 2000 risks; (5) despite aggressive efforts, OTS still faces significant challenges in providing a high level of assurance that individual thrifts will be ready; (6) in fact, the problems GAO found at OTS are generally the same as those found at the other regulators reviewed; (7) OTS was late in addressing the problem and consequently, is behind the year 2000 schedule recommended by both GAO and the Office of Management and Budget; (8) in addition, key guidance--being developed under the auspices of the Federal Financial Institutions Examination Council (FFIEC)--needed by thrifts and other financial institutions to complete their own preparations is also late which, in turn, could potentially hurt individual institutions' abilities to address year 2000 issues; (9) OTS needs to better assess whether it has an adequate level of technical resources to evaluate the industry's year 2000 efforts; (10) these problems hinder the regulators' ability to develop more positive assurance that institutions will be ready for the century date change; (11) consequently, the challenge for them at this point is how can they use their resources from here to the millennium to ensure that thrifts, banks, and credit unions mitigate year 2000 risks; (12) OTS has done much to mitigate the risk to its mission-critical internal systems and has already renovated, tested, and implemented 13 of its 15 mission-critical systems; (13) however, it has not yet completed contingency plans necessary to ensure business continuity in case system renovations or replacements are not completed in time or do not work as intended; (14) compounding this problem is the fact that OTS has not developed a comprehensive year 2000 conversion program plan providing a clear understanding of the interrelationships and dependencies among the automated systems that support, for example, its supervisory functions, office equipment, and facilities; and (15) such a plan provides added assurance that all systems are assessed.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: To help prepare for the continuity of core business processes, OTS completed development of contingency plans for its 15 mission-critical systems. OTS also developed a Business Recovery Plan that addresses continuity of core business processes, business dependencies, the impact of potential year-2000-induced business disruptions, contingency plan triggers, and business recovery resources. During March and April 1999, OTS conducted a review of its contingency plans to ensure that they contained current information.

    Recommendation: With regard to OTS' internal systems, the Director of OTS should instruct the agency to develop contingency plans for each of OTS' mission-critical systems and core business processes.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

  2. Status: Closed - Implemented

    Comments: OTS and the FFIEC developed FFIEC's Phase II work program for year 2000 examinations (i.e., year 2000 tactical plan). Prior to engaging in its Phase II examinations, OTS assessed the adequacy of its resources to evaluate the year 2000 efforts of thrifts, servicers, and vendors. OTS completed its Phase II examinations by the March 1999 milestone established by the FFIEC.

    Recommendation: Because OTS and other regulators will have more complete information on the status of institutions, servicers, and vendors by mid-1998, OTS should work with the other FFIEC members to develop a tactical plan that details the results of its assessments and provides a more explicit road map of the actions it intends to take based on those results. This should include an assessment of the adequacy of OTS' technical resources to evaluate the year 2000 efforts of the thrifts and the servicers and vendors that service them.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

  3. Status: Closed - Implemented

    Comments: In April 1998, OTS and the FFIEC issued testing guidance ("Testing for Year 2000 Readiness") and in May 1998, issued contingency planning guidance ("Contingency Planning in Connection with Year 2000 Readiness"). Since then, OTS and FFIEC have issued 7 additional pieces of guidance on year 2000 subjects including data entry software, customer awareness, fiduciary services, customer communications, and business resumption contingency planning.

    Recommendation: OTS should work with the other FFIEC members to develop in an expeditious manner, more explicit instructions to thrifts for carrying out the latter stages of the year 2000 process--renovation, validation, and implementation--which are the critical steps to ensuring year 2000 compliance.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

  4. Status: Closed - Implemented

    Comments: On March 17, 1998, OTS and the other FFIEC members issued guidance to institutions on mitigating the risks associated with corporate customers and reliance on vendors. In addition, OTS and the other FFIEC members issued contingency planning guidance on May 13, 1998.

    Recommendation: OTS should work with other FFIEC members to complete their guidance to institutions on mitigating the risks associated with corporate customers and reliance on vendors. Further, OTS should work with the other FFIEC members to complete the contingency planning guidance by its April 1998 deadline.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

  5. Status: Closed - Implemented

    Comments: During the fourth quarter of 1998, OTS finalized its year 2000 program plan, which addresses IT, non-IT, thrift oversight, and telecommunications.

    Recommendation: With regard to OTS' internal systems, the Director of OTS should instruct the agency to develop a comprehensive year 2000 program plan.

    Agency Affected: Department of the Treasury: Office of Thrift Supervision

 

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