[ NOTE:This report has been physically divided into two sections in order to maintain download performance ]
Section II of OIG Semiannual Report
Link to Section I of the OIG Semiannual Report
Table of Contents
A bit of perspective on the year 2001 is helpful to understand the results we are reporting in this performance report.
The year 2001 was a challenging time for the Office of Inspector General (OIG). After a long period of relative organizational stability, 2001 was marked by great flux, with the retirement of the head of the Office of Audits, the largest component of the OIG; a period of interim leadership of that office; and ultimately, the permanent appointment of a new leadership team for the office. As part of those changes, the Evaluations group was merged into the Office of Audits. The OIG also established a new Office of Policy Analysis and Congressional Relations, which assumed some of the responsibilities formerly carried out by the Evaluations group. Along with the new leadership in the Office of Audits and the Office of Policy Analysis and Congressional Relations came new organizational and process changes designed to more effectively achieve the OIG's mission.
Several other key events impacting the OIG's work occurred during 2001. In July the OIG was faced with responding to a congressional request to review the failure of Superior Bank, FSB, one of the costliest of all recent failures of FDIC-insured institutions. The OIG was also required, under the Government Information Security Reform Act, to conduct the most comprehensive review to date of the Corporation's information technology control environment and to deliver the results to the Office of Management and Budget through the FDIC Chairman in September. Additionally, the events of September 11, 2001 had a profound impact on all OIG staff and called into action OIG investigative resources to assist in New York and at the Pentagon in the aftermath of the terrorist activities in those locations. For all of these significant priorities and other work as well, the staff of the OIG rose to the occasion and produced impressive results.
While we are proud of these accomplishments and pleased to have either met or substantially met 74 percent of our goals for 2001, we are not satisfied. We are continuing efforts to become a better organization and improve performance.
We should note that the OIG's Office of Investigations has achieved enhanced client ratings and increased performance, as evidenced in this 2001 performance report. These were achieved in part due to a major reorganization in 1999. Likewise, we are now beginning to feel the positive impact of Office of Audit's reorganization of mid-2001 and are committed to take steps to achieve increased audit performance.
The future holds continued challenges for our office and others in the FDIC as we all undergo downsizing while addressing new and continuing risks to the banking industry. I am confident, however, that we will continue to successfully carry out the OIG mission and that our performance will provide valuable assistance to the Corporation in its efforts to insure deposits, regulate financial institutions, and minimize the number and cost of institution failures
The Office of Inspector General develops its own independent strategic plan and annual performance plan. These plans were designed to establish goals to measure performance consistent with the principles of the Government Performance and Results Act (Results Act). This report presents our performance against our 2001 Annual Performance Plan focusing on the most meaningful annual measures related to achieving our strategic goals and objectives.Relationship to FDIC's Annual Program Performance Report
The FDIC is issuing its 2001 Program Performance Report to the Congress during the second quarter of 2002, presenting its performance against 21 annual goals. The Corporation's annual goals address its mission to "Contribute to the stability and public confidence in the nation's financial system" in four strategic result areas: (1) Insured depositors are protected from loss without recourse to taxpayer funding, (2) Insured depository institutions are safe and sound, (3) Consumers' rights are protected and FDIC-supervised insured depository institutions invest in their communities, and (4) Recovery to creditors of receiverships is achieved.
We believe that accomplishing the OIG's strategic and annual goals and objectives contributes to the Corporation's achievement of its mission and goals and objectives.
The requirement for an annual performance report under the Results Act applies to the agency as a whole rather than to the OIG as a separate component. However, because of the unique mission and independent nature of Inspectors General under the Inspector General Act, we have prepared separate strategic and annual plans and reports, rather than integrating OIG goals and results into the Corporation's plans and reports. The FDIC's 2001 Program Performance Report references this Annual Performance Report.Relationship to OIG Semiannual Report to the Congress
Annual performance reports of OIGs prepared under the Results Act differ from semiannual reports of OIGs prepared under the Inspector General Act. The two reports differ with respect to the time periods covered (12 months vs. 6 months) and the specific reporting requirements. However, because both types of reports present OIG accomplishments to the Congress, we have included the Annual Performance Report for calendar year 2001 as a separate but integral component of this Semiannual Report to the Congress, which covers the period of October 1, 2001 to March 31, 2002.OIG to Change Reporting Cycle to September 30 Fiscal Year
To date, the FDIC OIG has conducted its performance planning and reporting cycle under the Results Act on a calendar year basis, consistent with the Corporation's budget and accounting cycle. However, the OIG receives a separate appropriation based on the government-wide fiscal year ending September 30. We have made a decision to change our Results Act performance planning and reporting cycle to the fiscal year ending September 30. This cycle will also be consistent with the semiannual reporting periods required under the Inspector General Act. To accommodate our conversion from reporting on a calendar year basis to reporting on a September 30 fiscal year basis, we will use a 9-month transition period (January 1 to September 30, 2002) for our next performance reporting cycle. A new strategic plan and an updated annual performance plan with new goals and measures will be developed to be effective for fiscal year 2003, which begins on October 1, 2002.
The following table summarizes our collective performance against the annual performance goals for 2001. The table reflects whether the goals were Met, Substantially Met, or Not Met.
Link to text version ot above table
The table above indicates that we met or substantially met 74 percent of our goals for 2001. Performance cannot be evaluated based solely on a statistical summary of measures, given that all measures are not equal in weight and the quality of the measures is still evolving. A summary discussion of our performance and areas needing improvement is presented in the next section, Performance Overview.
A quantitative goal was considered "substantially met" if actual performance came within 10 percent of the target level of performance.
A detail listing showing goal accomplishment for each of the annual performance goals for 2001 is provided beginning on page 80. If the 2001 goal had a "like" or similar goal in 2000, the detail listing also shows goal accomplishment for 2000.
For the previous reporting period (2000), we had an 83 percent level of achievement of goals either met or substantially met (see table on page 83). However, our performance statistics for 2001 are not directly comparable to prior years' performance results due to several factors, including:
As indicated in the statistical summary in the previous section, overall we met 25 of 34 goals (74 percent). Presented below is a brief overview of our performance for each of the three strategic goal areas. A more detailed discussion of goal accomplishment is presented in the next section.
Strategic Goal Area: Audit, Evaluations, and Investigations Add Value
The OIG's 2001 strategic objectives address five components of audit, evaluation, and investigative value (client satisfaction, quality, impact, productivity, and timeliness). While we met or substantially met 17 of 24 goals in these five areas, an assessment of our performance, as compared to the two previous years, indicates a continuing need to increase productivity, timeliness, and client satisfaction. Our Office of Audits and Office of Investigations are committed to doing so.
We met 12 of 19 goals related to productivity, timeliness, and client satisfaction; however, we did not meet 7 of these goals. Concerns with performance in these areas can be explained in part by factors discussed in the Inspector General Foreword related to OIG organizational and operational process transitions and workload priorities (Superior Bank failure and the Government Information Security Reform Act review) occurring during 2001. Full implementation of organizational and process changes should have a positive impact on productivity and timeliness. Steps to improve communication with management have already been initiated, which should address issues underlying client satisfaction results.
We have performed reasonably well against our existing measures and goals related to the quality and impact of our work, meeting or substantially meeting all five goals. However, determining appropriate measures and goals continues to be a challenge. We are currently in the process of updating our strategic and annual goals and measures. This process will give consideration to the new Chairman's priorities discussed at the FDIC Executive Leadership Conference in February 2002 and should result in improved measures.
Strategic Goal Area: Professional Advice
We have successfully met our two performance goals related to providing professional advice on vulnerabilities and emerging issues. We have participated in a number of joint initiatives with FDIC management related to bank supervision, information technology and security, and financial statement reporting. We believe these initiatives have served to improve corporate operations.
Strategic Goal Area: Communications
We met or substantially met six of eight goals related to semiannual reporting, referring hotline complaints, responding to Freedom of Information Act and Privacy Act requests, and establishing new client baseline data. We did not meet goals in two areas as discussed below.
Audits, Evaluations, and Investigations Add Value
Overall, we met or substantially met 17 of our 24 performance goals related to adding value to the Corporation. These value-added goals encompass the five strategic objective areas of client satisfaction, quality, impact/results, productivity, and timeliness.
Client Satisfaction - Meeting Clients Needs and Expectations
We met or substantially met 7 of our 11 client satisfaction goals for 2001 related to a general client survey and project-by-project surveys.
General Client Survey Overall Goals- We met six of the nine general client survey goals to increase client satisfaction ratings for our core mission activities by 10 percent above the level achieved for 2000, up to a sustaining level of 80 percent of the maximum score possible (see table below.)
We established new baseline data last year enabling us to measure client survey results for 2001 for each of our three business line functions - audits, evaluations, and investigations - at three levels: senior headquarters executives (as was reported for prior surveys); 2nd tier headquarters and field executives and managers; and a combined rating. Thus, for this year, we have nine overall general client survey goals (compared to three last year), creating a disproportionate number of goals in this area. We will reevaluate appropriate goals for future performance reporting to address this issue and bring our goals into balance.
Senior Executives Ratings: We met one of our three goals to increase client satisfaction ratings by FDIC's most senior executives for our core mission activities by 10 percent above the level achieved for 2000. As shown in the following graph, the Evaluation function met its goal and showed a significant (17 percent) increase and was graded as an A/A-. Investigations had a slight (3 percent) increase and received a grade of B/B+. The Audit function had a slight (7 percent) decrease from the previous year and received a C+. The decline may have been due to changed audit and evaluation processes and plans that management did not fully understand.
2nd Tier Executives and Managers Ratings: We met two of our three goals to increase client satisfaction ratings by the FDIC's 2nd tier executives and managers for our core mission activities by 10 percent above the level achieved for 2000. As shown in the following graph, Investigations met its goal and had a significant (86 percent) increase and received a grade of B/B+. The Audit function also met its goal and showed a significant (22 percent) increase and was graded as a C. The Evaluation function had a decrease (18 percent) from the previous year and received a B-/C+. It should be noted that the methodology for obtaining client survey results from 2nd tier executives and managers was changed from focus group interviews for 2000 to electronic email surveys for 2001. Therefore, survey results and ratings for the 2 years may not be fully comparable.
Combined Ratings: For each of the core mission areas, we combined the percentage increase or decrease in ratings for senior executives and 2nd tier executives and managers to determine a net percentage change. Based on the net percentage change, we met all three of the goals to increase client satisfaction ratings for our core mission activities by 10 percent above the level achieved for 2000, up to a sustaining level of 80 percent of the maximum score possible.
Comments from the client survey report, specific to each of our three core mission areas, are summarized below.
Action plans are being developed to address client concerns.
General Client Survey - Office of Investigations Knowledge: The goal to increase the number of FDIC executives having knowledge or understanding of the Office of Investigations was not met. Results of the 2001 general client survey indicated that only 5 of the 15 (33 percent) executives interviewed reported they had sufficient knowledge to evaluate the investigation function. Of the ten who declined to provide an evaluation, five did make comments on their views of the Office of Investigations, which were mostly positive. In 2000, 10 of 14 (71 percent) interviewees reported sufficient knowledge of investigations. Significantly, 11 of the 15 senior executives interviewed during the 2001 survey also participated in the senior executives' interviews last year. As the survey report noted, there was no ready explanation for the sharp drop in reported understanding of the investigation function.
Project-by-Project Survey Goal - Our goal to achieve an average client satisfaction rating for audit and evaluation reports of 80 percent or greater of the maximum score possible on project-by-project client surveys was substantially met. Ratings averaged 87 percent for audit reports and 76 percent for evaluation reports issued during the year.
Quality - Complying with Professional Standards
We met or substantially met both of our quality goals. The Office of Audits goal to have no material weaknesses disclosed from internal and external quality assurance reviews and to resolve any significant matters identified by the reviews was met. The Office of Investigations goal to conduct internal operational reviews every 12 months in its regional offices and resolve significant matters was substantially met.
Impact/Results - Products Achieve Significant Impact or Results
We met or substantially met all three of our impact/results goals. As shown in the following graphs, two impact goals were met, one related to audit and evaluation reports, and the other to investigation results. In the first graph, "impact" reports are audit and evaluation reports that either (1) result in management's agreement to implement actions to achieve monetary benefits and improved programs or procedures or (2) provide FDIC management with relevant, timely information needed for decision-making. In the second graph, significant results are either reports to management, criminal convictions, civil actions, administrative actions, or a combination of these.
A quantitative goal was considered "substantially met" if actual performance came within 10 percent of the target level of performance.
A third impact goal related to establishing an Electronic Crimes Team, initiating investigations into unauthorized intrusions into the FDIC's computer networks, and conducting computer forensic examinations was substantially met.
The following factors present challenges in fully measuring the impact of audit, evaluation, and investigative work: accurately measuring cost savings from work; quantifying the impact of various OIG proactive prevention activities, including the value of improved internal controls resulting from OIG work; and measuring the deterrent value of OIG investigative work.
Our semiannual reports to the Congress present results that have had a significant positive impact on the operations of the FDIC. Results presented include a discussion of major issues facing the Corporation and significant audit, evaluation, investigation, and other OIG activities. The semiannual reports present various measures specified in the Inspector General Act including questioned costs and funds put to better use; fines, restitution, and monetary recoveries resulting from OIG investigations; and nonmonetary recommendations.Productivity - Managing Resources to Maximize Productivity
As shown in the following graphs, we met or substantially met two of our three productivity goals. Audit reports and memoranda issued (41) were substantially (46 percent) below the target of 76. Evaluation reports, memoranda, or letters issued (13) were above the goal of 12. The goal of 68 investigative cases closed was substantially met1 by closing 65 cases (96 percent of the goal).
A quantitative goal was considered "substantially met" if actual performance came within 10 percent of the target level of performance.
The OIG's reorganization of the audit and evaluation functions and implementation of new processes may have had an impact on the issuance of audit and evaluation reports. However, once changes are completely implemented, productivity should improve. Additionally, departures from planned schedules for audits were necessary to address issues and carry out projects brought about by significant congressional requests resulting from the failure and closing of Superior Bank, Hinsdale, Illinois. Of the factors impacting the number of investigative cases closed, the most significant was case complexity.Timeliness - Issuing reports in a timely manner
We met three of our five timeliness goals. The left graph shows two goals. The right graph shows one goal for investigations that includes two aspects of timeliness in issuance of investigation reports.
OIG Professional Advice Assists Corporation
We met both of our performance goals in this strategic goal area. One goal relates to our Office of Audits' involvement in conducting assessments or participating in task forces relating to emerging issues, new systems, or other Corporation matters. The second goal relates to reviewing proposed legislation, regulations, and corporate policies.
Emerging Issues and Task Forces
OIG activities in 2001 related to emerging issues and task forces include the following:
Reviewing Corporate Policies and Legislative and Regulatory Proposals
As shown in the graph below, we met the goal related to reviewing and analyzing proposed corporate policies and legislative and regulatory proposals.
Communicating Effectively With the Chairman, the Congress, and Other Stakeholders
As discussed below, we met six of the eight goals in this strategicgoal area.
Ensuring Clients are Informed of OIG Role, Mission, Activities, Issues, and Deficiencies
Client Satisfaction (Senior Executives) - The goal to increase the satisfaction of the senior executives with OIG communication efforts above the 2000 rating was not met. As shown in the first graph below, the communication rating decreased from 2.69 for 2000 to 2.19 for 2001, that is, a reduction from B- to C/C+ if stated in letter grades. This marked the first year communication scores had decreased after two consecutive years of increases. (Note: For comparison purposes, ratings for 1998 and 1999 were recomputed using the 2000 and 2001 grade numerical equivalent values published with the surveys.) Client survey results suggest the need for OIG executives to have more direct contact and spend more time cultivating relationships with the top FDIC managers than they have during the past year. Survey results depicted in the second graph below showed that the level of understanding of the OIG's mission, role, and functions by the senior executives was generally high; however, this was not a performance goal.
Client Satisfaction (Second-Tier Executives and Managers) - The goal to establish a baseline of FDIC management (below the senior executive level) satisfaction with OIG communications efforts and set future targets was met.
Providing Information to Clients - The goal related to providing information to and interacting with the Congress and corporate officials was met. The Semiannual Report to the Congress for the period ending March 31, 2001, which included the OIG 2000 Performance Report, and the Semiannual Report to the Congress for the period ending September 30, 2001, were issued in accordance with all statutory requirements. Also, an analysis and assessment of the Corporation's top 10 performance measures was provided to Congressman Dan Burton, Chairman of the House Committee on Government Reform.
Access to Reports - Our goal to provide OIG semiannual reports, audit reports, evaluation reports, and press releases to the FDIC Information Center and the OIG Webmaster in accordance with policy was met.
Responding to Congressional, Employee, and Public Inquiries and Requests
Hotline Complaints and Freedom of Information Act and Privacy Act (FOIA/PA) Requests - As shown in the first graph below, the OIG's goal to refer hotline complaints within an average of 15 working days of receipt was met. In meeting this goal, the first graph shows the 2001 "actual" average number of days (8), appropriately, as less than the target (15). As shown in the second graph, the goal to respond to 90 percent of FOIA/PA requests within 15 working days of receipt was also met.
Chairman and Congressional Requests - As shown in the graph below, the OIG did not meet its goal to timely acknowledge and track the resolution of requests from the Chairman's Office or from the Congress. During 2001, a tracking system was in place which showed that 50 percent (7 of 14) of Chairman's Office or congressional requests were acknowledged within 10 days of receipt. However, it should be noted that the mean (average) time for acknowledging requests or sending final responses in lieu of acknowledgements was 13 days.
Working with PCIE and Other Government Agencies to Address Crosscutting Issues
We met our goal to actively participate in the activities of the President's Council on Integrity and Efficiency (PCIE) and other government activities relevant to the OIG and FDIC. The FDIC Inspector General continues to serve as PCIE Vice Chair and, in this capacity, provides leadership on a wide variety of interagency activities. Significant OIG activities in achieving this goal in 2001 include:
In addition to the strategic goals, the OIG has adopted an operating principle that commits the OIG to the effective management of resources related to staffing; information technology; professional standards and internal controls; communications; legal advice; and administrative services.
Resource management goals relate to internal activities such as implementing the OIG's diversity action plan, completing internal quality assurance reviews; conducting risk assessments and internal control reviews; developing information systems and providing computer services to OIG staff; and providing legal advice and other administrative and support services.
A number of accomplishments and activities were involved in pursuing the OIG's resource management goals in 2001. Some of these are highlighted below:
Text representation of graphic (2000 Annual Performance Goals)
Reporting Terms and Requiremnts
Reader's Guide to Inspector General Act Reporting Terms
What Happens When Auditors Identify Monetary Benefits?
Our experience has found that the reporting terminology outlined in the Inspector General Act of 1978, as amended, often confuses people. To lessen such confusion and place these terms in proper context, we present the following discussion:
The Inspector General Act defines the terminology and establishes the reporting requirements for the identification and disposition of questioned costs in audit reports. To understand how this process works, it is helpful to know the key terms and how they relate to each other.
The first step in the process is when the audit report identifying questioned costs is issued to FDIC management. Auditors question costs because of an alleged violation of a provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds. In addition, a questioned cost may be a finding in which, at the time of the audit, a cost is not supported by adequate documentation; or, a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable.
The next step in the process is for FDIC management to make a decision about the questioned costs. The Inspector General Act describes a "management decision" as the final decision issued by management after evaluation of the finding(s) and recommendation(s) included in an audit report, including actions deemed to be necessary. In the case of questioned costs, this management decision must specifically address the questioned costs by either disallowing or not disallowing these costs. A "disallowed cost," according to the Inspector General Act, is a questioned cost that management, in a management decision, has sustained or agreed should not be charged to the government.
Once management has disallowed a cost and, in effect, sustained the auditor's questioned costs, the last step in the process takes place which culminates in the "final action." As defined in the Inspector General Act, final action is the completion of all actions that management has determined, via the management decision process, are necessary to resolve the findings and recommendations included in an audit report. In the case of disallowed costs, management will typically evaluate factors beyond the conditions in the audit report, such as qualitative judgements of value received or the cost to litigate, and decide whether it is in the Corporation's best interest to pursue recovery of the disallowed costs. The Corporation is responsible for reporting the disposition of the disallowed costs, the amounts recovered, and amounts not recovered.
Except for a few key differences, the process for reports with recommendations that funds be put to better use is generally the same as the process for reports with questioned costs. The audit report recommends an action that will result in funds to be used more efficiently rather than identifying amounts that may need to be eventually recovered. Consequently, the management decisions and final actions address the implementation of the recommended actions and not the disallowance or recovery of costs.
It is important to note that the OIG does not always expect 100 percent recovery of all costs questioned.
Appendix 1: Statistical Information Required by the Inspector General Act of 1978, as amended
This table shows the corrective actions management has agreed to implement but has not completed, along with associated monetary amounts. In some cases, these corrective actions are different from the initial recommendations made in the audit reports. However, the OIG has agreed that the planned actions meet the intent of the initial recommendations. The information in this table is based on information supplied by the FDIC's Office of Internal Control Management (OICM). These 26 recommendations from 5 reports involve monetary amounts of over $11 million. OICM has categorized the status of these recommendations as follows:Management Action in Process: (6 recommendations from 2 reports, $0)
Management is in the process of implementing the corrective action plan, which may include modifications to policies, procedures, systems or controls; issues involving monetary collection; and settlement negotiations in process.Litigation: (20 recommendations from 3 reports, $11 million)
Each case has been filed and is considered "in litigation." The Legal Division will be the final determinant for all items so categorized.
Table I.1 Audit Reports Issued by Subject Area