The Division of Supervision and Consumer Protection (DSC) appreciates the opportunity to respond to the Office of Inspector General (OIG) draft report entitled Effectiveness of Supervisory Corrective Actions. We are gratified that you found that DSC properly monitored and later terminated supervisory corrective actions in accordance with established operating procedures. Further, we agree that the results of your audit show DSC’s procedures for terminating supervisory corrective actions are adequate. We have reviewed your noted exceptions and studied your three recommendations for enhancement to existing policies and procedures.

DSC has taken the following actions to address your three recommendations:

• In September 2005 DSC, jointly with the Legal Division, held an Enforcement Actions and Applications Seminar. Current issues were addressed, including emphasis on timely creation of FIAT records, along with emphasis on data integrity.
• We are revising the DSC Formal and Informal Action Procedures (FIAP) manual. The updated manual and guidance will be complete and issued prior to the end of the first quarter of 2006.
• DSC conducts internal testing and evaluations of our internal processes related to formal and informal actions, including the accurate and timely reporting in Formal and Informal Actions Tracking (FIAT) system. Two Regional Reviews have been conducted thus far in 2005 with one more to be completed before year end. The internal review scope will continue to focus on this area with results reported to senior DSC management. As a result, by year-end 2005 fully half of the Regional Offices will have been tested in addition to the other half that was tested in 2004.

We offer the following detailed comments regarding each of your recommendations.

OIG Recommendation: (1) Require case managers to enter all supervisory actions, including those issued by state banking agencies, into ViSION on or before the action’s effective date.

DSC Response: While we agree that actions in which the FDIC is a party should be entered into FIAT prior to the action’s effective date, such may not be possible for actions taken independently by the State Authority (SA). Often DSC does not receive an action taken independently by the SA until after the action has been signed and issued; therefore, in those instances, creation of the FIAT record would not occur until after the effective date of the action. We consider this to be an acceptable practice given the few occurrences in which notice is received after the effective date.

Instructions in the revised FIAP manual provide guidance for when an action should be entered into FIAT. A FIAT record is to be created for an FDIC-initiated formal or informal action when the RO Reviewer receives a recommendation memorandum or draft action, if the action is initiated by a Field Examiner during an examination; or when the RO Reviewer drafts the action, if the action is initiated by the RO Reviewer after receiving a Report of Examination. Furthermore, for actions initiated by the SA where the FDIC joins the action, the FIAT record is to be created when the Regional Director (RD) (or designee) decides to join the action. As such, in these instances, the FIAT record should be created prior to the effective date of the action.

Both the current and revised FIAP manuals require the creation of the FIAT record for informal actions taken independently by the SA when the RD (or designee) receives the signed action. Going forward, DSC’s Washington Office (WO) monitoring activities and DSC’s internal review program will include enhanced coverage of these issues.

OIG Recommendation: (2) Reinforce DSC’s implementation of the Data Stewardship Program and other applicable guidance related to ensuring the accuracy and reliability of FIAT data in ViSION.

DSC Response: DSC agrees with the recommendation to reinforce our emphasis on assuring the accuracy and reliability of FIAT data in ViSION. We will continue to evaluate the effectiveness of our data stewardship. Both the current and revised FIAP manuals contain directions and references relating to the use and maintenance of the FIAT system. Additionally, our internal review program will include coverage of these issues.

OIG Recommendation: (3) Include instructions in the revised FIAP Manual for creating a FIAT record for formal state actions that the FDIC has not joined.

DSC Response: We concur with this recommendation. Instructions in the revised FIAP Manual require the creation of a FIAT record for formal actions taken independently by the State Authority when the RD (or designee) receives a signed action.