Financial Audit:

Other Matters Identified During GAO's 1996 Financial Statement Audits

AIMD-97-142R: Published: Aug 1, 1997. Publicly Released: Aug 1, 1997.

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Robert W. Gramling
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Pursuant to a legislative requirement, GAO provided information on the Federal Deposit Insurance Corporation (FDIC) accounting policies and procedures and internal control matters identified during GAO's audits of the 1996 financial statements, focusing on: (1) the need to improve controls related to asset valuation, receipt processing, check disbursement procedures, disbursement documentation, and payroll records; and (2) the impact of using cash-based accounting to record securitization reserve interest.

GAO noted that: (1) as part of its Asset Loss Review project, FDIC implemented the Standard Asset Valuation Estimation (SAVE) methodology in 1996 to estimate the recovery values for failed institution assets in liquidation; (2) however, FDIC preparers did not always use all relevant file information for estimating the recovery values of individual assets; (3) GAO found numerous errors in the valuation of certain complex assets, such as subsidiary equity and subsidiary loan assets; (4) FDIC's primary and secondary review procedures were not adequate to detect these errors; (5) for its summer 1997 valuation round, FDIC has developed and implemented improved review requirements; (6) FDIC is also planning to establish a team with the specialized knowledge required to value complex assets; (7) receipts were not properly controlled at six field offices; (8) in December 1996, the FDIC Field Finance Center (FFC) directed field offices to not hold monetary items, but rather to immediately forward them to FFC; (9) because FDIC did not have procedures in place to identify and explain check number gaps, controls were not in place during 1996 to account for all checks or to ensure that funds were safeguarded against unauthorized use; (10) although these amounts were immaterial in 1996, material misstatements could occur in the future if check gap control procedures are not in place; (12) the accounts payable supervisor and the accounting manager in the FFC granted clerks in the accounts payable unit the authority to approve disbursements within the Accounts Payable System (APS); (13) FFC management informed GAO that the clerks are no longer authorizing transactions and their supervisory capability within APS has been deleted; (14) FDIC could not locate time and attendance related reports for five of the payroll transactions GAO tested as part of its 1996 audits; (15) FDIC recently issued internal communication to all divisions and offices reiterating record retention requirements; (16) during 1996, FDIC recorded the interest income on the FSLIC Resolution Fund's securitization reserve, established to cover future estimated losses on securitization transactions, on a cash basis of accounting; and (17) because some of the reserve funds are invested in securities with maturities up to 6 months, an accrual basis of accounting would more fairly state securitization reserve fund interest income in accordance with generally accepted accounting principles.

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