DATE:	July 26, 2005
MEMORANDUM TO:	Russell A. Rau
	Assistant Inspector General for Audits
FROM:	Michael J. Zamorski
	Director
SUBJECT:	Draft Report Entitled, "Maximum Efficiency, Risk-focused, Institution Targeted (MERIT) Eligibility Process" (Assignment Number 2005-007)

The Division of Supervision and Consumer Protection (DSC) appreciates the opportunity to respond to this Draft Report prepared by the FDIC’s Office of Inspector General (OIG). We have reviewed the results of this audit, and we are gratified with your conclusion that DSC’S eligibility criteria and screening processes are adequate for risk-scoping examinations for our lowest-risk institutions under MERIT guidelines. Further, your testing confirmed that “examiners adequately applied the FDIC’s MERIT eligibility criteria and screening process performed during pre-examination planning to provide reasonable assurance that only low-risk institutions qualified for a MERIT examination.”

The Draft Report concludes with two recommendations for enhancement to existing guidance. The recommendations are listed below with DSC’s responses and planned actions.

OIG Recommendation:

1. Update MERIT guidance on how to prepare Pre-examination planning (PEP) memoranda to include instructions for incorporating MERIT eligibility decisions.

FDIC Response:

DSC concurs with this recommendation. We will provide clarification to examiners indicating that the PEP memoranda should include a discussion as to the reason for inclusion of the institution to be examined under the MERIT guidelines. This clarification, via written memorandum, will be completed by March 31, 2006.

OIG Recommendation:

2. Clarify what constitutes “regular examination procedures” in the PEP memorandum.

FDIC Response:

DSC concurs with the intent of this recommendation, and offers the following alternative suggestion. We note that there are two references to examination procedures in the PEP memorandum—standard and regular. In the narrative section of the PEP memorandum instruction it refers to “standard examination procedures,” which are defined in the footnote as the preparation of the Core Examination Documentation (ED) Analysis or similar procedures. However, in the PEP memorandum example under Preliminary Risk Assessment it refers to “regular examination procedures.” DSC agrees to amend the PEP memorandum example to “standard examination procedures”, thus providing more clarity and more consistency throughout the document through the use of well-defined terminology. This action will be completed by March 31, 2006.

	Search | Accessibility | Privacy | Information Quality | Contact Us | Site Map | Home