Federal Deposit Insurance Corporation:

Human Capital and Risk Assessment Programs Appear Sound, but Evaluations of Their Effectiveness Should Be Improved

GAO-07-255: Published: Feb 15, 2007. Publicly Released: Feb 15, 2007.

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The Federal Deposit Insurance Reform Conforming Amendments Act of 2005 requires GAO to report on the effectiveness of Federal Deposit Insurance Corporation's (FDIC) organizational structure and internal controls. GAO reviewed (1) mechanisms the board of directors uses to oversee the agency, (2) FDIC's human capital strategies and how its training initiatives are evaluated, and (3) FDIC's process for monitoring and assessing risks to the banking industry and the deposit insurance fund, including its oversight and evaluation. To answer these objectives, GAO analyzed FDIC documents, reviewed recommended practices and GAO guidance, conducted interviews with FDIC officials and board members, and conducted site visits to FDIC regional and field offices in three states.

FDIC's five-member board of directors is responsible for managing FDIC. Information and communication channels have been established to provide board members with information on the agency's operations and to help them oversee the agency. The board also has four standing committees for key oversight functions. For example, the audit committee primarily oversees the agency's implementation of FDIC Inspector General audit recommendations. Finally, because the board cannot oversee all day-to-day operations, the board delegates certain responsibilities to senior management. FDIC has procedures for issuing and revising its delegations of authority, which help ensure that the delegations are appropriate for its current structure and banking environment. FDIC has reviewed specific delegations on occasion at the request of a board member, management, and more recently in response to an Inspector General report's recommendation. Management of human capital is critical at FDIC because the agency's workload can shift dramatically depending on the financial condition of the banking industry. FDIC uses an integrated approach, where senior executives come together with division managers, to develop human capital initiatives, and the agency has undertaken activities to strengthen its human capital framework. FDIC created the Corporate Employee Program to develop new employees and provide training in multiple disciplines so they are better prepared to serve the needs of the agency, particularly when the banking environment changes. Some FDIC employees thought the program had merit, but they expressed concerns about whether certain aspects of the program could slow down the development of expertise in certain areas. FDIC, through its Corporate University, evaluates its training programs, and officials are developing a scorecard that includes certain output measures showing progress of key training initiatives towards its goals. Officials told us that they would like to have outcome measures showing the effectiveness of their key training initiatives but have faced challenges developing them. However, outcome measures could help address employee concerns and ensure that the Corporate Employee Program achieves the agency's goals. FDIC has an extensive system for assessing and monitoring external risks. FDIC's system includes supervision of individual financial institutions and analysis of trends affecting the health of financial institutions. FDIC has also developed contingency plans for handling the greatest dangers to the deposit insurance fund--particularly the failure(s) of large institutions. In addition to risk assessment, a key internal control is monitoring risk assessment activities on an ongoing basis. FDIC has evaluated several of its risk activities, but most of the evaluations we reviewed were not conducted regularly or comprehensively. For example, some simulations of its plans for handling large bank failures were either out of date or inconsistent with FDIC's guidance. Developing policies and procedures and clearly defining how it will monitor and evaluate its risk activities could assist FDIC in addressing or preventing weaknesses in its evaluations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In 2007, Corporate University began tracking two new results-oriented performance measures and reporting the results of these measures on its intranet Web site: (1) percent of internal certificate holders who are able to successfully perform when called on to apply skills on the job, and (2) percent of participants who, on follow-up evaluations, are successfully applying skills gained from training. These actions should assist FDIC in measuring the contribution that key human capital initiatives make toward achieving its mission and human capital goals, and determining whether to modify or eliminate ineffective training programs.

    Recommendation: To ensure that it can measure the contribution that key human capital initiatives make toward achieving agency goals, FDIC should take steps to identify meaningful, outcome-based performance measures to include in its training and development scorecard and communicate available performance results to all FDIC employees.

    Agency Affected: Federal Deposit Insurance Corporation

  2. Status: Closed - Implemented

    Comments: In July 2007, FDIC's Risk Analysis Center Operating Committee provided results of its review of FDIC's risk assessment activities and evaluation procedures, and began to implement a number of improvements to its risk assessment and evaluation activities. FDIC has developed semi-annual risk assessment scorecards for its Regional Risk Committee and National Risk Committee members, and for its Risk Analysis Center to formally evaluate its risk assessment efforts, as well as an annual survey for the committee members to assess how effective the committees have been in achieving their stated missions. FDIC has also developed a system for regularly monitoring its offsite monitoring activities, which consists of two types of reviews that they have recommended an annual review of the accuracy of its statistical models and systems, and annual rotating reviews of the logical and conceptual soundness of its major offsite monitoring tools. Further, FDIC has created a visual depiction of its risk assessment framework to describe the various risk activities the agency undertakes and their associated outputs.

    Recommendation: To strengthen the oversight of its risk assessment activities, FDIC should develop policies and procedures clearly defining how it will systematically evaluate and monitor its risk assessment activities and ensure that required evaluations are conducted in a comprehensive and routine fashion.

    Agency Affected: Federal Deposit Insurance Corporation


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