oversight

Closure of OIG Review of FHFA's Supervision of an Enterprise's Remediation of Matters Requiring Attention

Published by the Federal Housing Finance Agency, Office of Inspector General on 2017-06-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                      REDACTED



             Federal Housing Finance Agency
                 Office of Inspector General




        Closure of OIG Review of
        FHFA’s Supervision of an
       Enterprise’s Remediation of
       Matters Requiring Attention




Evaluation Survey Report • ESR-2017-005 • June 12, 2017
                                                   June 12, 2017


TO:                 Nina A. Nichols, Deputy Director, Division of Enterprise Regulation


FROM:               Angela Choy, Assistant Inspector General for Evaluations


SUBJECT:            Closure of OIG Review of FHFA’s Supervision of an Enterprise’s Remediation of
                    Matters Requiring Attention Pertaining to its


Summary

As the federal regulator of Fannie Mae and Freddie Mac (collectively, the Enterprises) and of
the Federal Home Loan Bank System, the Federal Housing Finance Agency (FHFA or the
Agency) is tasked by statute with ensuring that these entities operate safely and soundly so
that they serve as a reliable source of liquidity and funding for housing finance and
community investment. Within FHFA, the Division of Enterprise Regulation (DER) is
responsible for supervising the Enterprises. In July 2015, the Office of Inspector General
(OIG) announced that it was commencing an audit to review DER’s supervision of an
Enterprise’s remediation of four Matters Requiring Attention (MRAs) 1 pertaining to
                                                          .2

                       OIG initiated this review after reviewing DER records indicating the
four MRAs continued to be “open” more than three and a half years after their issuance. This
memorandum closes our review.

Facts

In December 2011, DER issued four MRAs to the subject Enterprise pertaining to




1
  Under Advisory Bulletin 2012-01, Categories of Examination Findings, which was in effect at the time that
DER issued the four MRAs, “MRAs are the most serious supervisory matters” and “require prompt
remediation by the regulated entity and timely follow-up by FHFA.”
2
    The audit was subsequently transferred to OIG’s Office of Evaluations.

                                      OIG • ESR-2017-005 • June 12, 2017
                                                           1
            . The following month, the Enterprise submitted remediation plans to DER with
remediation deadlines varying between June 2012 and June 2013. FHFA informed the
Enterprise that the Agency had no objection to the remediation plans. In June and December
2012, the Enterprise submitted closure packages to DER and asserted that management had
fully addressed the MRAs. DER examiners concluded in March 2013 that the Enterprise had
remediated the MRAs. In June 2013, the then-DER examiner-in-charge sent the Enterprise a
non-objection letter, informing the Enterprise that DER had no objections to the MRA closure
packages; however, the examiner-in-charge did not close the MRAs at that time.

DER changed its practice for assessing remediation and closing MRAs. In April 2013, a
month after examiners concluded that the MRAs had been sufficiently remediated, DER
issued an operating procedures bulletin that called for an Enterprise’s internal audit function,
or other independent third party, to validate that management’s MRA remediation was
complete and consistent with the remediation plan. Under the new operating procedure, DER
examiners would assess the Enterprise’s remediation activities through ongoing monitoring,
including reviewing Internal Audit’s validation work. Once the examiner-in-charge
determines that an MRA has been satisfactorily addressed, DER would communicate this
determination in writing to the Enterprise and the MRA’s status on DER’s MRA tracking
report would be changed to “closed.”

According to DER documents, the Enterprise’s Internal Audit completed validation of the
four MRAs by January 2015, and during the 2014 and 2015 examination cycles, DER
examiners performed ongoing monitoring work related to             . In December 2015, a
DER examiner determined that the Enterprise had completed the actions required to address
the MRAs, based on management’s remediation and Internal Audit’s validation of those
actions. DER issued a “remediation letter” to the Enterprise on January 29, 2016, informing
the Enterprise that FHFA considers the MRAs to be satisfactorily addressed, and DER closed
the MRAs.

Conclusion

Although DER examiners concluded in March 2013 that management had remediated these
MRAs, DER records we accessed continued to identify ongoing monitoring work related to
the MRAs in its supervisory plan more than two years later. Given DER’s conclusion that the
MRAs were satisfactorily remediated and are now closed, we determined that an evaluation of
DER’s supervision of the Enterprise’s remediation of these MRAs is not warranted and are
closing this review.

Objective, Scope, and Methodology

The objective of this review was to assess FHFA’s supervision of the Enterprise’s remediation
of four MRAs related to the Enterprise’s                               . To achieve this
objective, we reviewed DER materials dating from September 2011 through January 2016,


                               OIG • ESR-2017-005 • June 12, 2017
                                                 2
including DER guidance on MRA remediation, DER supervisory plans, and examination
workpapers related to the four MRAs.

This review was conducted under the authority of the Inspector General Act in accordance
with the Quality Standards for Inspection and Evaluation (January 2012), which was
promulgated by the Council of the Inspectors General on Integrity and Efficiency. These
standards require OIG to plan and perform an evaluation that obtains evidence sufficient to
provide a reasonable basis to support its conclusions. OIG believes that this review meets
these standards.

A draft of this memorandum was sent to FHFA.

We appreciate the cooperation of FHFA and the assistance of all those who contributed to the
preparation of this report. It has been distributed to Congress, the Office of Management and
Budget, and others and will be posted on OIG’s website, www.fhfaoig.gov.



cc: The Honorable Melvin L. Watt, FHFA Director




                              OIG • ESR-2017-005 • June 12, 2017
                                                3
Additional Information and Copies

For additional copies of this report:

   •   Call: 202-730-0880
   •   Fax: 202-318-0239
   •   Visit: www.fhfaoig.gov


To report potential fraud, waste, abuse, mismanagement, or any other kind of criminal or
noncriminal misconduct relative to FHFA’s programs or operations:

   •   Call: 1-800-793-7724
   •   Fax: 202-318-0358
   •   Visit: www.fhfaoig.gov/ReportFraud
   •   Write:
                FHFA Office of Inspector General
                Attn: Office of Investigations – Hotline
                400 Seventh Street SW
                Washington, DC 20219




                                OIG • ESR-2017-005 • June 12, 2017
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