FEDERAL HOUSING FINANCE BOARD

Photo is provided by Adams Homes of Northwest Florida 

OFFICE OF INSPECTOR GENERAL

SEMIANNUAL REPORT 

FOR THE PERIOD

 October 1, 2007 – March 31, 2008 
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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

OFFICE OF INSPECTOR GENERAL 

 

 

 

SEMIANNUAL REPORT 

FOR THE PERIOD 

October 1, 2007 – March 31, 2008 

EDWARD KELLEY 

INSPECTOR GENERAL

 

 

 
_______________________________________________________________________________ 

March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

 

 

 

 

TABLE OF CONTENTS 

 Executive Summary........................................................................................ 1 

 Background on the FHLBank System, the Finance Board, 

 And the Office of Inspector General...................................................................... 3 

 Audit Activity.................................................................................................... 5 

 Investigative Activity.......................................................................................... 6 

 Summary of “Section 5” Reporting Requirements.................................................... 7 

 Table A – Listing of Completed Audits, Surveys, Limited 

 Reviews, and Evaluations..................................................................... 9 

 Table B – Summary of Investigations................................................................. 10 

 Table C – IG Reports with Questioned/Unsupported Costs... .................................. 11 

 Table D – IG Reports Recommending That Funds Be Put to Better Use..................... 12 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

EXECUTIVE SUMMARY 

 The mission of the Office of Inspector General (OIG) at the Federal Housing Finance Board (Finance 

Board) is to support the agency’s overall mission and goals established by the President, Congress, and the 

Finance Board, while helping to protect the agency from fraud, waste, and abuse. Consistent with OIG’s 

strategic plan for the period, April 1, 2004 to March 31, 2009, and in accordance with the Inspector General 

Act of 1978, as amended (IG Act), we continue to rely on audits, investigations, and formal and informal 

technical assistance to accomplish our mission. OIG’s strategic plan and annual audit plan are designed to 

support the Finance Board’s strategic plan. In that regard, we examined agency efforts to hire and retain 

qualified examiners. We continued to address agency administrative policies and procedures related to 

financial reporting, privacy, and information technology security. We remained an active member in the 

federal Inspectors General community to facilitate our statutory mandate to participate in government-wide 

efforts to prevent fraud, waste, and abuse and to remain current on matters affecting the IG community as 

well as the Finance Board. We continued to rely heavily on contracting and assistance from other members 

of the Inspector General community for resources to accomplish required audits and investigations. 

 During this reporting period, we underwent a peer review of our audit function and received an unqualified 

opinion from the Federal Election Commission Office of Inspector General. We conducted audits and audit 

recommendation follow-up of agency program and administrative functions. These audits were conducted in 

accordance with generally accepted government auditing standards issued by the Government Accountability 

Office. Six audits were in process at the beginning of the reporting period and no audits were initiated during 

the period. By the end of this reporting period, OIG had completed three audits: 1) an audit of the Finance 

Board’s Fiscal Year 2007 Financial Statements, 2) a limited review of the Finance Board’s implementation of 

OMB Circular A-123, and 3) an audit of the Finance Board’s Continuity of Operations Plan. Three audits 

remained in process at the end of the reporting period. They are: 1) an audit of the thoroughness of 

examinations, 2) an audit of the Disposition of IT equipment, and 3) an audit of the Finance Board’s Merit Pay 

Increase Process. 

 Our investigative activity was performed in accordance with Quality Standards for Investigations issued by 

the President’s Council on Integrity and Efficiency (PCIE) and the Executive Council on Integrity and 

Efficiency (ECIE). Investigative matters continue to be appropriately coordinated with officials in the 

Department of Justice, the Federal Bureau of Investigation, and other law enforcement entities. We 

continued to focus on resolving investigative matters expeditiously and identifying control weaknesses that 

may contribute to possible fraud or abuse. We had one investigative matter in process at the beginning of 

the reporting period. During the reporting period, we received one allegation. Both allegations remained in 

process at the end of the period. 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

 We continued to maintain positive working liaisons with: 1) Finance Board officials, in efforts to identify 

and correct management problems and to clarify OIG’s mission, authorities and responsibilities; 2) Congress, 

in order to keep them appropriately informed; 3) external auditors, to facilitate timely and accurate reporting 

on Finance Board operations; and 4) the Inspector General community, to stay apprised of evolving issues 

that affect the Finance Board. Specifically, OIG continued to monitor and provide informal input, as 

appropriate, into management efforts to enhance the agency’s human resources function, bill payment 

procedures, payroll function, and information technology security function. We also continued to coordinate 

with other financial regulatory agencies and the Government Accountability Office on audits and reviews 

impacting the Finance Board. In addition, OIG participated in activities involving the entire Inspector General 

community. As part of our affiliation with the ECIE, we continued to coordinate peer reviews of ECIE 

members’ audit operations – a mechanism for assuring quality audits by Inspector Generals - and began 

hosting the monthly meetings of the ECIE. We also began serving on the PCIE/ECIE audit committee and 

responded to various inquiries involving the activities of the Inspector General community. 

 

 

 

 Edward Kelley 

 Inspector General 

 

 

 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

BACKGROUND ON THE FHLBANK SYSTEM, THE FINANCE BOARD, 

AND THE OFFICE OF INSPECTOR GENERAL

 The Federal Home Loan Bank System (FHLBank System) was created in 1932 to promote home 

ownership and a strong home finance industry. Its network of 12 district Federal Home Loan Banks 

(FHLBanks) provides lending, deposit, and other services to member institutions. Originally, the FHLBank 

System’s membership was limited to thrift institutions, whose membership was mandatory. Since the 

FHLBank System’s inception, membership has grown to include savings and loans, savings banks, 

cooperative banks, and a small number of insurance companies. As of August 1989, membership was 

opened to commercial banks and credit unions that meet a commitment to housing finance, as defined in law. 

As of May 13, 2000, membership for all financial institutions in the system became voluntary. 

 The 12 FHLBanks borrow funds in the nation’s credit markets to lend to the FHLBank System member 

institutions, which totaled 8075 as of December 31, 2007. These institutions, in turn, use the funds for home 

mortgages, to meet savings withdrawal needs, and for other authorized purposes. As of December 31, 2007, 

the FHLBanks had outstanding loans (Advances) to member institutions totaling $867 billion for these 

purposes. Also, through December 31, 2007 the Affordable Housing Program (AHP) of the Federal Home 

Loan Bank System has provided approximately $3.2 billion to help house some of America’s neediest 

families. As of December 31, 2007, more than 622,000 housing units were approved. Under the competitive 

application program, the AHP funded almost 555,000 units of which 70% were for very-low income 

households. 

 Concurrent with the Affordable Housing Program, the Federal Home Loan Bank System has increased its 

efforts in overall community development through its Community Investment Cash Advance (CICA) Programs 

including the Community Investment Program (CIP). From 1990 through 2007, the CIP has provided more 

than $39 billion in advances for housing, and CICA and CIP together have provided $13.7 billion in advances 

and grants for economic development projects benefiting targeted communities and households. 

 The Federal Housing Finance Board (Finance Board), with a fiscal year 2008 budget of approximately 

$38.7 million and 149 employees, is the regulator of the FHLBank System. It is an independent agency 

established by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The Finance 

Board’s function is to ensure that FHLBanks: 1) operate in a safe and sound manner; 2) carry out their 

housing finance mission; and 3) remain adequately capitalized and able to raise funds in the capital markets. 

The Finance Board receives its operating funds from assessments levied against the 12 FHLBanks. 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

 The Finance Board has only indirect involvement – through the 12 FHLBanks – with the FHLBank 

System’s member institutions. Unlike its predecessor, the Federal Home Loan Bank Board, the Finance 

Board neither monitors nor examines any of the individual members of the FHLBank System. Federal bank 

regulatory agencies such as the Office of Thrift Supervision, Office of the Comptroller of the Currency, 

Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, and state 

banking and insurance supervisors, etc. monitor, examine, and regulate individual member institutions. The 

Finance Board is only responsible for annually examining the 12 FHLBanks and the Office of Finance. 

 

 As of April 1, 2008 approximately 80 percent of the Finance Board’s staff resources are dedicated, in 

whole or in part, to: 1) examining the safety and soundness of the 12 FHLBanks and the Office of Finance; 2) 

reviewing and evaluating the work of each FHLBank’s internal audit staff; 3) monitoring FHLBank System 

compliance with laws, regulations, policies, and procedures; 4) assessing the FHLBank System’s financial 

condition; 5) modeling and analyzing the implementation of financial policies; 6) maintaining and promulgating 

membership policies; 7) monitoring the election and appointment of FHLBank Directors; 8) collecting 

information on individual FHLBank policies and marketing activities; and 9) monitoring and reviewing 

FHLBank and members’ compliance with requirements of the Affordable Housing Program and the 

Community Investment Program. 

 The Office of Inspector General (OIG) is responsible for the conduct of audits and investigations at the 

Finance Board in accordance with generally accepted government auditing standards and investigative 

standards. OIG may also conduct audit or investigative activities at the 12 FHLBanks and other related 

entities when: 1) requested to do so by the Chairman; 2) necessary to obtain information on the Finance 

Board’s administration of its program; and 3) aimed at detecting fraud or inefficiency in the administration or 

operation of Finance Board programs. 

 

 

 

 

 

 

 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

AUDIT ACTIVITY 

 

 On April 19, 2004, OIG issued its Strategic Plan for the period April 1, 2004 to March 31, 2009. OIG’s 

annual audit plan for the period April 1, 2007 to March 31, 2008, is included as an Exhibit to the five-year 

strategic plan. Both can be viewed at OIG’s website http://www.fhfb.gov/Default.aspx?Page=100. During the 

semiannual reporting period October 1, 2007 through March 31, 2008, OIG completed three audits (Table A,

on page 9). At the conclusion of this period, OIG also had three audits in process. OIG continued to 

coordinate with the Government Accountability Office and the Inspector General community on audits that 

impact the Finance Board. In this regard, the Inspector General was appointed to serve on the IG 

community’s Audit Committee and continued to coordinate audit peer reviews that each ECIE IG’s office is 

required by statute to undergo every three years. Specifically, OIG’s audit activities at the Finance Board 

included: 

COMPLETED 

A limited scope review of the Finance Board’s compliance with OMB Circular A-123, 

An audit of the Finance Board’s financial statements for fiscal year 2007, and 

An audit of the Finance Board’s Continuity of Operations Plan. 

WORK-IN-PROCESS 

An audit of the thoroughness of examinations, 

An audit of the Finance Board’s disposition of IT equipment, and 

An audit of the Finance Board’s Merit Pay Increase Process. 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

INVESTIGATIVE ACTIVITY 

 

 During this reporting period OIG continued to operate in full compliance with the PCIE/ECIE Quality 

Standards for Investigations. The number of investigative matters processed by the Office of Inspector 

General during this reporting period remained low. We had one investigative matter in process at the 

beginning of the reporting period and received one allegation during the period. Both matters remained 

under preliminary review at the end of the reporting period. 

 

Table B, on page 10, contains a numerical summary of investigations, allegations, preliminary inquires, 

and referrals. 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

SUMMARY OF “SECTION 5” REPORTING REQUIREMENTS 

 

1. Significant problems, abuses, deficiencies disclosed by management and IG’s 

 recommended corrective actions. [5a(1) and (2)] 

 

None 

2. Previously reported significant recommendations with incomplete corrective actions 

 [5a(3)] 

None 

3. Prosecution, convictions, and referrals [5a(4)] 

 None. 

4. Reports on failure to provide information or assistance [5a(5)] 

 None. 

5. List of issued audit reports [5a(6)] 

 See attached Table A, on page 9. 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

6. Summary of significant reports [5a(7)] 

 We completed an audit of the Finance Board’s Continuity of Operations Plan 

(COOP). While we identified a number of areas where the agency’s COOP 

 was not in compliance with Federal guidelines, the agency has taken 

 appropriate corrective actions. 

7. Statistical table – audits with questioned/unsupported costs [5a(8)] 

 See attached Table C, on page 11. 

8. Statistical table – audits recommending that funds 

be put to better use [5a(9)] 

 See attached Table D, on page 12. 

9. Summary of prior-period audits with no current management [5a(10)] 

 decisions 

None. 

10. Reasons for revisions of significant management decisions [5a(11)] 

 None. 

11. OIG disagreement with management decisions [5a(12)] 

 None. 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

 TABLE A 

LISTING OF COMPLETED AUDITS, SURVEYS, LIMITED REVIEWS, 

AND EVALUATIONS

REPORT NUMBER DATE COMPLETED TITLE OF REPORT

 

 

 07-A-04-OM/OGC November 30, 2007 Audit of the Finance Board’s 

 Continuity of Operations Plan 

 07-A-05-OM October 30, 2007 Limited Review of the Finance 

 Board’s Compliance with OMB 

 Circular A-123 

 07-A-06-OM November 15, 2007 Audit of the Finance Board’s 

 Financial Statements for Fiscal 

 Year 2007 

 

 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

 TABLE B 

SUMMARY OF INVESTIGATIONS 

 

BEGINNING CASES NUMBERS 

Cases Pending at the Beginning of Period: 

At the Finance Board.................................................................................... 1 

At the Department of Justice.......................................................................... 0 

At other agencies........................................................................................ 0 

NEW CASES RECEIVED 

Allegations Received During Current Period...................................................... 1 

STATUS OF CASES (as of March 31, 2008) 

Resulted in: 

Allegations Pend. Completion of Prelim. Invest/Audit............................................ 2 

Preliminary Investigation Completed- (Cases Closed).......................................... 0 

Cases Pending Completion of Full Investigation................................................. 0 

Full Investigation Completed- (Cases Closed).................................................... 0 

Cases Scheduled for Audit/Ltd. Rev. – (Cases Closed)......................................... 0 

Cases Pending Decision by Finance Board management..................................... 0 

Cases Pending Decision by Dept. of Justice...................................................... 0 

Cases Pending Decision by Other Agencies...................................................... 0 

Cases Referred to the Finance Board Management- (Cases Closed)....................... 0 

Referred to Other Agencies- (Cases Closed)..................................................... 0 

DISPOSITION 

Civil........................................................................................................... 0 

Criminal..................................................................................................... 0 

Administrative Sanctions............................................................................... 0 

Corrective Action Taken................................................................................ 0 

Other (Pending/Referrals, etc.)....................................................................... 0 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

 TABLE C 

INSPECTOR GENERAL REPORTS 

WITH QUESTIONED/UNSUPPORTED COSTS 

 DOLLAR VALUE

 NUMBER QUESTIONED UNSUPPORTED 

 OF REPORTS COSTS COSTS

a. For which no management 

 decision has been made by 

 the commencement of the 

 reporting period........................... 0 0 0 

 

b. Which were issued during the 

 reporting period........................... 0 0 0 

 Subtotals (a+b)............................ 0 0 0 

c. For which a management decision 

 was made during the reporting 

 period......................................... 0 0 0 

(i) dollar value of disallowed costs.. 0 0 0 

(ii) dollar value of costs not 

 disallowed................................ 0 0 0 

d. For which no management decision 

 has been made by the end of the 

 reporting period............................ 0 0 0 

e. Report for which no management 

 decision was made within six 

 months of issuance.......................... 0 0 0 

Note: Boldface type entries reflect actual statutory language. 

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March 31, 2008 SEMIANNUAL REPORT TO CONGRESS 

 TABLE D 

INSPECTOR GENERAL REPORTS 

RECOMMENDING THAT FUNDS BE PUT TO BETTER USE 

 

 NUMBER DOLLAR 

 OF REPORTS VALUE

a. For which no management decision 

 has been made by the commencement 

 of the reporting period.......................................... 0 0 

b. Which were issued during the reporting period...... 0 0 

 Subtotals (a+b).................................................. 0 0 

c. For which a management decision was made 

 during the reporting period................................... 0 0 

 (i) dollar value of recommendations that was 

 agreed to by management.............................. 0 0 

 - based upon proposed management action.... 0 0 

 - based upon proposed legislation action........ 0 0 

 (ii) dollar value of recommendations that were 

 not agreed to by management........................ 0 0 

d. For which no management decision has been made 

 by the end of the reporting period.......................... 0 0 

e. Reports for which no management decision was made 

 within six months of issuance................................... 0 0 

Note: Boldface entries reflect actual statutory language. 

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