oversight

Update on FHFA's Implementation of its Housing Finance Examiner Commission Program

Published by the Federal Housing Finance Agency, Office of Inspector General on 2017-03-22.

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

         Federal Housing Finance Agency  
             Office of Inspector General 




Update on FHFA’s Implementation
 of its Housing Finance Examiner
        Commission Program




Special Report  COM-2017-003  March 22, 2017
                  Executive Summary 
                  The Federal Housing Finance Agency (FHFA/Agency) has safety and soundness
                  oversight responsibility for the housing government-sponsored enterprises (GSEs):
                  Fannie Mae and Freddie Mac (the Enterprises), and the Federal Home Loan Banks
                  (FHLBanks). FHFA’s oversight responsibilities are critical because, among other
                  things, the Enterprises own or guarantee $5 trillion in mortgage assets. Should
COM‐2017‐003      either or both Enterprises sustain losses that exceed their decreasing capital
                  reserves, the Department of the Treasury, and hence taxpayers, will be responsible
March 22, 2017    for their losses.

                  Since 2011, FHFA has publicly acknowledged the need for a commissioned
                  examiner program to provide classroom and on-the-job training (OJT) to
                  examiners to further their development of technical competencies and practical
                  examination experience. According to FHFA, commissioned examiners have the
                  skills and technical knowledge necessary to lead the examination of a major risk
                  area at an entity supervised by FHFA. In an evaluation issued in September 2011
                  reporting on the Agency’s examination capacity, FHFA’s Office of Inspector
                  General (OIG) found that only about one-third of FHFA’s examiners—roughly
                  40—were commissioned, in that they received commissions from other federal or
                  state regulators prior to their employment with the Agency. At that time, FHFA
                  acknowledged that its relative lack of commissioned examiners impeded the
                  efficiency and effectiveness of its supervision program.

                  In June 2013, FHFA established its Housing Finance Examiner (HFE) commission
                  program, consisting of OJT and course requirements and a final examination.
                  When it rolled out the HFE commission program, FHFA advised its employees,
                  in an internal communication, that it would take approximately four years to
                  complete.

                  Roughly two years later, we assessed FHFA’s administration of the HFE program
                  from August 2013 to March 2015. We found that the HFE program was not on
                  track to produce commissioned examiners within the four-year projected
                  completion period because many enrollees were not completing their OJT and
                  course requirements. We also identified a number of other shortcomings with
                  FHFA’s implementation of the HFE program. We recommended that the Agency
                  determine the causes of these weaknesses and develop and implement a strategy to
                  ensure the HFE program fulfills its objectives.

                  FHFA agreed with our recommendation and committed to implementing five
                  corrective actions to resolve the problems we identified. In December 2015,
                  FHFA submitted documentation to OIG indicating that it had completed the
                  implementation of the five corrective actions. We conducted this review to assess
                  the status of FHFA’s implementation of its corrective actions. We found that
                  FHFA implemented four of the five corrective actions. While considerable
                  progress has been made to implement the fifth corrective action, more remains to
                  be done to ensure that FHFA’s HFE program gets on track to produce
                  commissioned examiners. In addition, FHFA has not completed development of a
                  final examination for the HFE program, which precludes any enrollee from
                  earning an HFE commission through completion of the program.

COM‐2017‐003      We will hold open our 2015 recommendation pending action on FHFA’s part to
                  implement the fifth corrective action as it committed to do, complete the HFE
March 22, 2017    examination, and otherwise take steps to demonstrate that the HFE program can
                  produce, and is producing, commissioned examiners.

                  This report was prepared by Karen E. Berry, Senior Investigative Counsel, with
                  assistance from Wesley M. Phillips, Senior Policy Advisor, and Patrice Wilson,
                  Senior Investigative Evaluator. We appreciate the cooperation we received from
                  FHFA in completing this report.

                  This report has been distributed to Congress, the Office of Management and
                  Budget, and others and will be posted on our website, www.fhfaoig.gov.




                  Richard Parker
                  Deputy Inspector General
TABLE OF CONTENTS ................................................................  
EXECUTIVE SUMMARY .............................................................................................................2 

ABBREVIATIONS .........................................................................................................................5 

BACKGROUND .............................................................................................................................6 
      Findings and Recommendation from OIG’s 2011 Evaluation Report on FHFA’s
      Lack of an Examiner Commission Program .............................................................................6 
      FHFA’s Roll-Out of the HFE Program in 2013 .......................................................................6 
      OIG’s July 2015 Compliance Review: HFE Program Was Not on Track to Produce
      Commissioned Examiners Within a Four-Year Time Frame ...................................................8 
      Five Corrective Actions Proposed by FHFA to Address Our Recommendation .....................9 

OIG’S ASSESSMENT OF FHFA’S IMPLEMENTATION OF ITS FIVE PROPOSED
CORRECTIVE ACTIONS ..............................................................................................................9 
      FHFA Fully Implemented Four of Its Five Proposed Corrective Actions .............................10 
      Despite Considerable Progress, FHFA Has Not Fully Implemented the Fifth
      Corrective Action....................................................................................................................11 
             Implementation of ICP Requirement for HFE Enrollees................................................11 
             Implementation of Commitment to Incorporate HFE Requirements into Annual
             Employee Performance Reviews ....................................................................................12 
      Since August 2013, No Final Examination Has Been Developed for the HFE
      Program...................................................................................................................................13 

CONCLUSION ..............................................................................................................................13 

OBJECTIVE, SCOPE, AND METHODOLOGY .........................................................................15 

ADDITIONAL INFORMATION AND COPIES .........................................................................18 




 
                                           OIG    COM-2017-003    March 22, 2017                                                              4 
ABBREVIATIONS ....................................................................... 

DBR                    Division of Federal Home Loan Bank Regulation

DER                    Division of Enterprise Regulation

EDB                    Examiner Development Branch

Enterprises            Fannie Mae and Freddie Mac

FHFA or Agency         Federal Housing Finance Agency

FHLBanks               Federal Home Loan Banks

GSE                    Government-Sponsored Enterprise

HFE                    Housing Finance Examiner

ICP                    Individual Commission Plan

OIG                    Federal Housing Finance Agency Office of Inspector General

OJT                    On-The-Job Training

 




 
                          OIG    COM-2017-003    March 22, 2017                   5 
BACKGROUND ..........................................................................  

Findings and Recommendation from OIG’s 2011 Evaluation Report on FHFA’s Lack of 
an Examiner Commission Program 

In a September 2011 evaluation report on the
Agency’s capacity to examine the GSEs, we found                                        Commission Program:  A structured 
that only about one-third of FHFA’s examiners were                                     curriculum of classroom instruction 
commissioned, and the Agency lacked a commission                                       and on‐the‐job training that 
                                                                                       provides examiners with technical 
program.1 At that time, FHFA’s examination staff
                                                                                       competencies and practical 
included roughly 40 examiners who had received                                         examination experience.  A 
commissions previously from other federal or state                                     commissioning program helps 
financial regulators.                                                                  standardize examination processes 
                                                                                       and ensure the efficiency and 
Agency officials reported to us that the efficiency                                    effectiveness of examinations. 
and effectiveness of the Agency’s examination
program was impeded by an insufficient number of commissioned examiners. They advised
that FHFA was in the early stages of developing an examiner commission program, patterned
after programs at other federal financial regulators. We recommended that FHFA
management “[m]onitor the development and implementation of the examiner accreditation
[commission] program and take needed actions to address any shortfalls[.]”2

FHFA agreed with our recommendation and, in October 2012, we closed it based on the
Agency’s progress in developing its commission program.

FHFA’s Roll‐Out of the HFE Program in 2013 

FHFA completed development of the HFE program in 2013 and opened enrollment to Agency
employees in August of that year. In its 2013 Performance and Accountability Report, FHFA
explained that its award of an HFE commission “will indicate whether an examiner is
qualified to lead the examination of a major risk area at Fannie Mae, Freddie Mac, and the
Federal Home Loan Banks [and] . . . ensure an examiner has the skills and technical




                                                            
1
 OIG, Evaluation of Whether FHFA Has Sufficient Capacity to Examine the GSEs (EVL-2011-005) (Sept. 23,
2011).
2
    Id. at 28.


 
                                                         OIG    COM-2017-003    March 22, 2017                              6 
knowledge necessary to evaluate the condition and practices of the entities that FHFA
supervises.”3

When FHFA established the HFE program in June 2013, it announced that any of its
employees with commissions from other financial regulators would also receive an HFE
commission. In our 2015 compliance review, based on information provided to us by FHFA,
we reported that through the end of 2014 FHFA had awarded HFE commissions to 65
examiners previously commissioned by other financial regulators.4 FHFA has now revised
that number downward and reports that it awarded 59 HFE commissions through year end
2014 and has not issued any5 HFE commissions since then. FHFA currently has 45
employees with HFE commissions as compared with roughly 40 commissioned examiners in
2011.6

For those employees who did not have a commission from another regulator, FHFA
announced in 2013 that the HFE program was “an approximately four-year commitment” and
that the time frame “may be shortened for participants with prior classroom training and
work experience.”

As originally designed in 2013, the HFE program consisted of:

          A total of 16 intra-divisional and cross-divisional OJT assignments during which
           candidates take part in examinations of the Enterprises and the FHLBanks;

          Twelve internal courses on FHFA’s examination practices, credit risk, market risk,
           model risk, operational risk, governance risk, capital, and earnings, among others;

          Four external courses offered by the Global Association of Risk Professionals and the
           Mortgage Bankers Association, with associated tests; and

          A final examination, involving a mock “board” presentation of examination findings.



3
    FHFA, 2013 Performance and Accountability Report, Planning for the Future, at 33 (Dec. 16, 2013).
4
 OIG, OIG’s Compliance Review of FHFA’s Implementation of Its Housing Finance Examiner Commission
Program (COM-2015-001) (July 29, 2015).
5
  FHFA explained the discrepancy involving the issuance of 6 HFE commissions as follows: (1) 5 employees
submitted documents demonstrating that they had received prior commissions but left FHFA in 2014 before
FHFA issued HFE commissions to them. The other employee was erroneously identified to OIG in 2015 as
having qualified for an HFE commission.
6
 Of the 59 FHFA employees issued HFE commissions since 2013 on the basis of these individuals having
commissions from other federal or state agencies, 45 are currently employed by FHFA and 14 are no longer
employed by the Agency.



                                    OIG    COM-2017-003    March 22, 2017                                7 
FHFA determined that participation in the HFE program would be voluntary for examiners
hired prior to July 17, 2013, and mandatory for examiners hired after that date. The program
requirements are the same for mandatory and voluntary enrollees.

FHFA has vested responsibility for administering the HFE program across the Agency with
the Examiner Development Branch (EDB).

OIG’s July 2015 Compliance Review:  HFE Program Was Not on Track to Produce 
Commissioned Examiners Within a Four‐Year Time Frame 

In February 2015, we initiated a compliance review to assess FHFA’s implementation of the
HFE program. In our July 2015 report, which covered the period August 2013 through March
2015, we found that the HFE program was not on track to produce commissioned examiners
who could lead major risk sections of GSE examinations within the projected four-year time
frame. The most significant problem we identified was that many HFE enrollees were not
participating in required OJT or completing required courses.

Of the 66 program enrollees, only 1 had submitted records to EDB reflecting completion of
any of the 16 required OJT assignments during 2014 and early 2015.7 We found that FHFA
had suspended the HFE program’s cross-divisional OJT requirement through the second
quarter of 2015 because of resource constraints and Agency officials reported to us that FHFA
was considering alternative approaches to cross-divisional OJT.8

We also found that the internal control procedures put into place to ensure that course credits
were properly awarded and OJT requirements were waived, based on prior experience, were
not regularly followed. As a result, we concluded that FHFA lacked reasonable assurance
that the waivers it granted satisfied its established criteria.

To address these shortcomings, we recommended that FHFA determine the root causes and
develop and implement a strategy to ensure the HFE program met its objective of producing
commissioned examiners, qualified to lead major risk sections of GSE examinations, within a
four-year time frame.




                                                            
7
 FHFA records also indicated that over 20% of the enrollees had completed no more than one of the required
16 courses.
8
  As originally implemented, the cross-divisional OJT requirement necessitated that DBR and DER enrollees
relinquish their assigned examination duties for up to 12 consecutive weeks; many were unable to do so.

 
                                                         OIG    COM-2017-003    March 22, 2017             8 
Five Corrective Actions Proposed by FHFA to Address Our Recommendation 

On July 22, 2015, FHFA agreed with our recommendation and proposed to take five
corrective actions. Its five proposed corrective actions were:

             EDB would periodically communicate to HFE program enrollees and their managers
              the enrollees’ progress in completing program requirements;

             EDB would periodically notify senior Agency executives (within the Division of
              Federal Home Loan Bank Regulation (DBR) and the Division of Enterprise
              Regulation (DER)) of enrollees’ progress in completing program requirements;

             EDB would review previously authorized waivers to ensure that they were issued in
              compliance with the HFE program’s internal control standards;

             DBR and DER would review the cross-divisional OJT requirement to determine
              whether it should be continued; and

             Each HFE enrollee would be required to submit to EDB an approved Individual
              Commission Plan (ICP) with a timetable for completion of the remaining HFE
              program requirements, and the annual employee performance review process would
              include, for HFE enrollees, HFE requirements, such as filing an ICP and making
              progress against it.9

In December 2015, FHFA submitted documentation to OIG indicating that it had completed
the implementation of the five corrective actions.10


OIG’S ASSESSMENT OF FHFA’S IMPLEMENTATION OF ITS 
FIVE PROPOSED CORRECTIVE ACTIONS 

We subsequently initiated this review to determine whether to close the recommendation. To
do so, we reviewed EDB procedures, HFE enrollee information and data, and the ICPs and
associated documentation for a random, non-statistical sample of ten HFE enrollees. We also


                                                            
9
 FHFA’s annual employee performance review process is formally known as the “Performance Management
Policy.”
10
   At that time, FHFA had established procedures by which it proposed to implement its five corrective
actions. However, as explained in the next section of this report, FHFA did not implement all of these
procedures until 2016. We tested FHFA’s implementation of them in 2016.

 
                                                         OIG    COM-2017-003    March 22, 2017         9 
interviewed EDB’s manager and members of the EDB staff, as well as officials from DBR
and DER.

We found that FHFA implemented four of its five corrective actions but had not fully
implemented both parts of the fifth corrective action. Separately, we learned that no final
examination for the HFE program had been developed since August 2013, when the HFE
program was rolled out. As a result, no enrollees in the HFE program have been able to earn
their commissions, even when they have completed their OJT and course requirements.

FHFA Fully Implemented Four of Its Five Proposed Corrective Actions  

As summarized below and described in more detail in the Objectives, Scope, and
Methodology section of this report, we found that FHFA has implemented the following four
corrective actions:

       Corrective Action Commitment: EDB will periodically communicate to HFE
        program enrollees and their managers the enrollees’ progress in completing program
        requirements.

               Action Taken: EDB sent transcripts to all HFE enrollees and their managers
               on February 18, 2016, which showed the enrollees’ remaining requirements as
               of that date.

       Corrective Action Commitment: EDB will periodically notify senior Agency
        executives of enrollees’ progress in completing program requirements.

               Action Taken: On February 29, 2016, EDB distributed to DBR’s and
               DER’s senior executives summary tables showing the progress to date and
               requirements remaining for the HFE enrollees in their respective divisions.

       Corrective Action Commitment: EDB will review previously authorized waivers to
        ensure their compliance with the HFE program’s internal control standards.

               Action Taken: EDB verified that all HFE program waivers authorized prior to
               June 30, 2015, complied with the Agency’s internal controls with a few non-
               material exceptions.

       Corrective Action Commitment: DBR and DER will review the cross-divisional OJT
        requirement to determine whether it should be continued.

               Action Taken: DBR and DER narrowed the scope of the cross-divisional OJT
               requirement and authorized enrollees to complete that requirement in staged
               intervals, rather than in continuous 6- to 12-week periods.
 
                             OIG    COM-2017-003    March 22, 2017                          10 
Despite Considerable Progress, FHFA Has Not Fully Implemented the Fifth Corrective 
Action 

       Implementation of ICP Requirement for HFE Enrollees 

Employing a two-part corrective action, FHFA sought to address the finding in our 2015
compliance review that HFE enrollees were not making progress in completing the HFE
program. The first part of the corrective action requires HFE enrollees, in coordination with
their supervisors, to establish a plan to complete specific HFE program requirements during
the calendar year.

On February 18, 2016, EDB sent all then-current HFE program enrollees instructions to
prepare an ICP and a corresponding ICP template form.11 The instructions directed each
enrollee to develop a timetable to complete his or her remaining HFE requirements within the
next four years and to document that timetable, with milestones for completion of specific
requirements, on the ICP template. Enrollees were asked to submit completed ICPs, approved
by their supervisors, to EDB within 90 days, or no later than May 18, 2016. According to
EDB data, 50 of the 58 enrollees (86%) submitted completed ICPs.

We reviewed a random, non-statistical sample of 10 of these 50 ICPs and found that all
reflected written approval by the enrollees’ managers and all contained a timetable for
completion of outstanding OJT and course requirements within four years. For each of these
10 enrollees, we compared his or her progress in satisfying HFE program requirements during
2016 (as reflected in EDB documentation) against the timetable set forth in the ICP and
determined that the progress proposed in the ICP was largely met.12

Eight of the 58 (14%) did not submit their ICPs during 2016. In June and October 2016,
FHFA officials sent follow-up emails attempting without success to obtain the outstanding
ICPs.13 Of these 8, 6 were from DER, 1 was from DBR, and 1 was from the Division of
Housing Mission and Goals. We reviewed the progress of each of these 8 enrollees in
                                                            
11
  EDB sent the instructions and ICP template to the 68 FHFA employees then enrolled in the HFE program.
Of those 68 enrollees, 1 had already completed all of the HFE program requirements, 1 subsequently left the
Agency, and 8 later withdrew from the HFE program.
12
  Eight of the 10 enrollees in our sample met the total number of HFE program requirements scheduled for
completion during 2016 in the ICPs. One enrollee completed nearly 80% of HFE program requirements
scheduled for completion during 2016; another enrollee completed approximately 43%.
13
   In June 2016, EDB sent an email to 7 of the 8 enrollees who failed to submit ICPs. EDB did not send the
email to the eighth enrollee because it was still trying to determine how many waivers the enrollee would be
granted. In October 2016, a senior DER official sent another email requesting ICPs from 4 of the 8 enrollees.
The official did not send the email to 3 enrollees due to an oversight, and FHFA maintains that it was still
trying to determine the appropriate number of waivers for the eighth enrollee.


 
                                                         OIG    COM-2017-003    March 22, 2017                11 
meeting the HFE program requirements in 2016, based on the records maintained by EDB,
and found that only 1 enrollee made considerable progress.14 For the remaining 7 enrollees,
progress was minimal. Of these 7, 1 is a supervisory examiner enrolled on a mandatory basis
since 2014 who had not completed a single OJT or course requirements as of December 2016.

       Implementation of Commitment to Incorporate HFE Requirements into Annual 
       Employee Performance Reviews 

The second part of FHFA’s fifth proposed corrective action was to include HFE requirements,
such as filing ICPs and progressing according to their schedules, in enrollees’ annual
performance reviews. The EDB Manager explained to us that EDB envisioned this
assessment as FHFA’s primary mechanism to ensure timely completion of HFE program
requirements. During the calendar year, EDB procedure is to notify DBR and DER managers
of HFE requirements satisfied by enrollees under their supervision to enable those managers
to track progress of enrollees against their ICP timetables.

For 2016, we found that EDB provided DBR and DER with updates on the progress made by
their enrolled employees in completion of HFE requirements against their ICPs. However,
DBR’s Deputy Director reported to us that DBR had not established guidance for its
managers on incorporating an assessment of enrollee progress in meeting HFE requirements
into the 2016 annual performance review process. For the 16 DBR enrollees in the HFE
program, such an assessment was not regularly included in DBR’s 2016 annual performance
reviews. He also advised that DBR had not used the annual performance review process to
establish consequences for any of its 16 enrollees who had not satisfied HFE requirements for
2016, as planned in their ICPs. During 2016, 39 enrollees in the HFE program were from
DER, of which 21 (54%) were enrolled voluntarily and 18 (46%) were mandatory enrollees.15
DER instructed its managers to include HFE requirements in enrollees’ annual performance
reviews for its 18 employees enrolled in HFE on a mandatory basis and permitted managers to
determine whether to include such assessments for its 21 employees enrolled on a voluntary
basis.16

Notwithstanding the terms of the second element of FHFA’s fifth corrective action, neither
DBR nor DER incorporated those terms into 2016 annual performance reviews for all
enrollees. DBR did not use the 2016 annual performance review process to establish
consequences for any of its 16 enrollees who had not satisfied HFE requirements for 2016,
and DER only required the process to be used for its 18 mandatory enrollees, even though
                                                            
14
     The one enrollee who made considerable progress completed 7 of the 32 HFE program requirements.
15
     Four of these 21 voluntary enrollees from DER failed to submit ICPs during 2016.
16
   DER officials represented to us that DER included HFE requirements in all but one of the performance
reviews for its employees who were enrolled in the program on a mandatory basis in 2016.

 
                                                         OIG    COM-2017-003    March 22, 2017          12 
FHFA made no distinction between mandatory and voluntary enrollees. Based on this
analysis, we found that FHFA did not fully implement this second element of the fifth
corrective action.

Since August 2013, No Final Examination Has Been Developed for the HFE Program 

While FHFA rolled out its HFE program in 2013, we reported in our 2015 compliance review
report that EDB had not developed a final examination for the HFE program as of July 2015.
According to EDB officials at that time, EDB had been working with the Office of Personnel
Management to develop the final examination and a “pilot” of that examination was planned
during December 2015.

EDB failed to meet that target date. During our field work, the EDB manager reported to us
that EDB had continued to work with OPM to develop a final HFE examination and planned
to “pilot” the examination by the end of the first quarter of 2017. According to these officials,
the planned “pilot” will involve administering the HFE final examination to FHFA employees
not enrolled in the HFE program. Assuming that EDB meets this revised milestone to “pilot”
the HFE final examination, an administration date for HFE enrollees to take the final
examination will be set at a future date.

Our review of EDB documentation found that three enrollees have satisfied the HFE course
and OJT requirements and are eligible to take the final examination. One of these three
enrollees completed these requirements by March 2015 and has waited for two years for a
final examination to be developed and administered. Five other enrollees have completed all
but one or two of the HFE requirements.


CONCLUSION ............................................................................  

FHFA asked us to close the recommendation in our July 2015 compliance review on the HFE
program because it fully implemented the five corrective actions it proposed to take. We
found that FHFA implemented four of the five corrective actions. While considerable
progress has been made to implement the fifth corrective action, more remains to be done to
ensure that FHFA’s HFE program gets on track to produce commissioned examiners. In
addition, FHFA has not completed development of a final examination for the HFE program,
which precludes any enrollee from earning an HFE commission through completion of the
program.

We will hold open our 2015 recommendation pending action on FHFA’s part to implement
the fifth corrective action as it committed to do, complete the HFE examination, and


 
                              OIG    COM-2017-003    March 22, 2017                               13 
otherwise take steps to demonstrate that the HFE program can produce, and is producing,
commissioned examiners.




 
                            OIG    COM-2017-003    March 22, 2017                       14 
OBJECTIVE, SCOPE, AND METHODOLOGY .................................  

Our overall objective for this report was to determine whether FHFA implemented the five
corrective actions as articulated in its July 22, 2015, management response to the compliance
review report. Those corrective actions are as follows:

    1. To assist program participants in tracking progress toward their HFE commission
       curriculum and OJT requirements, DER will enhance existing recordkeeping and
       communication mechanisms so that EDB periodically communicates to participating
       examiners and their managers EDB’s record of the remaining program requirements
       for each examiner;

    2. To promote timely, documented progress toward participant completion of program
       requirements, DBR and DER will enhance program planning practices so that:

           a. Each examiner enrolled in the program will submit for manager review an ICP
              for fulfillment of remaining curriculum and OJT program requirements, with
              consideration given to any waivers granted;

           b. Managers will be responsible for review and approval of ICPs;

           c. Each ICP will include a target program completion date within a reasonable
              time, with consideration of examination objectives and priorities;

           d. The ICP will be promptly (i.e., within 90 days) documented by the participant
              and his or her manager, and communicated to an EDB point of contact; and

           e. Managers will incorporate HFE commission requirements into performance
              management discussions.

    3. To better enable effective senior executive oversight of program participants’
       progress, EDB will, by December 15, 2015, establish information reporting processes
       to ensure that senior executives in DBR and DER receive periodic updates going
       forward on the progress of the HFE commission program participants in DBR and
       DER;

    4. To address potential inconsistencies in waiver granting and documentation, EDB will,
       by October 8, 2015, confirm that all waiver documentation provided through June 30,
       2015, has been reviewed to determine whether documentation is complete. EDB will
       determine by December 15, 2015, whether clarifications should be made to waiver
       guidance for program participants, managers, second-line supervisors, and EDB;

 
                             OIG    COM-2017-003    March 22, 2017                            15 
       5. The ongoing importance to the HFE commission program of cross-divisional OJT
          remains under consideration by DBR and DER. By November 5, 2015, the Deputy
          Directors of DBR and DER will make a determination on whether and how to
          continue the requirement for cross-divisional OJT (subject to Agency review). The
          determination will be based on a written recommendation by an advisory group of
          senior DBR and DER staff.

In general, we addressed our objective by reviewing HFE policies, procedures, and program
data. We also interviewed the EDB program manager, EDB staff, the Deputy Director of
DBR, and DER officials.

We also selected a random, but non-statistical, sample of 10 of the 50 enrollees17 (or 20%) in
the HFE program as of early 2016 who had submitted ICPs to EDB in 2016.18 We requested
that FHFA provide documentation for these 10 enrollees, such as their transcripts and related
documentation and their ICPs. We reviewed this documentation and other materials to assess
FHFA’s compliance with the five corrective actions as described in more detail below.

For the first corrective action, EDB stated that it sent HFE transcripts to all enrollees and their
managers on February 18, 2016. For our 10 enrollee sample, we reviewed EDB emails and
the transcripts as well as associated documentation. Our analysis verified EDB’s assertion.

For the second corrective action, EDB notified all enrollees on February 18, 2016, that their
approved ICPs were due by May 18, 2016. We reviewed EDB data, which indicated that 8
enrollees did not comply with the requirement during 2016. We also reviewed the ICPs for
our 10-person sample, as well as associated documentation. This analysis verified that the
ICPs associated with our sample were submitted by the due date, that the ICPs reflected plans
for completing the remaining program requirements for each enrollee, and that the enrollees’
supervisors had approved the ICPs. We also discussed with the Deputy Director of DBR and
DER officials whether the divisions incorporate HFE requirements into their annual employee
performance review process and we reviewed associated DER documentation on this subject.
                                                            
17
   On February 18, 2016, EDB sent HFE program transcripts to 68 enrollees who were identified as being in
the program. However, 1 of these enrollees had already completed all of the program’s OJT and training
requirements, 8 subsequently withdrew from the program, and 1 left the Agency (and, as noted, 8 failed to
submit ICPs). Thus, we selected our sample from the remaining population of 50 enrollees who were required
to submit, and did submit, to EDB an ICP reflecting a timeline pursuant to which they intended to complete
their remaining program requirements.
18
   The population of 50 candidates in the HFE program is statistically small. A statistical sample would
require almost all 50 records to be selected for testing. Therefore, we employed a random, but non-statistical
sample of 20% of the population (10 records). Although our test results cannot be projected to the population,
the randomness of the sampling permitted us to collect unbiased, evidentiary material by which to assess the
controls over the population. The 20% sample of the population exceeds the generally accepted level for
testing small populations (see American Institute of Certified Public Accountants, Audit Sampling
Considerations of Circular A-133 Compliance Audits (2009)).

 
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Our review indicates that DBR and DER do not fully comply with this corrective action
component as discussed in the body of this report.

For the third corrective action, FHFA stated that on February 29, 2016, EDB staff distributed
to DBR and DER executives summary tables reflecting the progress and remaining
requirements of enrollees in their respective divisions. We reviewed this information and
determined that EDB complied with this requirement and completed the corrective action.

For the fourth corrective action, EDB stated that it had reviewed all waivers granted prior to
June 30, 2015, to ensure such waivers complied with established internal controls. For the 10
enrollees in our sample, we reviewed EDB’s HFE tracking spreadsheet dated March 6, 2015,
to identify the waivers those enrollees had been granted. We then reviewed the waiver
documentation provided by EDB to determine whether: a waiver form was present for each
waiver granted, the documents were complete, and all required approval signatures were
present.

In 2 of 10 cases, the enrollees had not been granted any waivers. For the remaining 8
enrollees, EDB generally provided documentation reflecting complete waiver forms and
appropriate approvals for the waivers granted to the enrollees. Specifically, for 2 enrollees,
we identified that documentation for three OJT requirements was incomplete: approval
signatures pertaining to two OJT requirements were missing and a waiver form for a third
OJT requirement was missing altogether. We concluded that the missing documentation was
not material to the overall finding that EDB reviewed existing waivers as it committed to do
and completed the corrective action.

For the fifth corrective action, FHFA asserted that DBR and DER staff met in late 2015
to prepare a written recommendation on whether and how to continue the cross-divisional
OJT requirement. Subsequently, the Deputy Directors of DBR and DER accepted a
recommendation to continue the cross-divisional OJT requirement with a revised focus. We
reviewed applicable memoranda and meeting minutes and verified this to be the case.

FHFA provided technical comments on a draft of this report which were incorporated as
appropriate.

We conducted our review during the period October 2016 to January 2017 under the authority
of the Inspector General Act and in accordance with the Quality Standards for Inspection and
Evaluation (January 2012), which were promulgated by the Council for the Inspectors
General on Integrity and Efficiency.




 
                             OIG    COM-2017-003    March 22, 2017                             17 
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




 
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