FEDERAL HOUSING FINANCE BOARD

OFFICE OF INSPECTOR GENERAL

SEMIANNUAL REPORT 

FOR THE PERIOD

 October 1, 2006 – March 31, 2007 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

OFFICE OF INSPECTOR GENERAL 

 

 

 

SEMIANNUAL REPORT 

FOR THE PERIOD 

October 1, 2006 – March 31, 2007 

EDWARD KELLEY 

INSPECTOR GENERAL

 

 

 

 
_______________________________________________________________________________ 

March 31, 2007 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, 2007 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 Inspector 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. 

 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. Four audits were in process at the beginning of the reporting period and 

two audits were initiated during the period. By the end of this reporting period, OIG had completed the 

following four audits: 1) an audit of the Finance Board’s Fiscal Year 2006 Financial Statements, 2) a limited 

review of the Finance Board’s implementation of OMB Circular A-123, 3) an audit of the effectiveness of the 

recruitment, selection, and retention of OS staff, and 4) a peer review of the National Credit Union 

Administration’s Office of Inspector General. Two audits remained in process at the end of the reporting period. 

They are: 1) an audit of the Disposition of IT equipment, and 2) 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. During the reporting period, we received three allegations. After 

preliminary reviews, two of the allegations were closed and the third was referred for audit. Consequently, no 

allegation remained in process at the end of the period. 

1 

 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 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

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 

 

 

 

2 

BACKGROUND ON THE FHLBANK SYSTEM, THE FINANCE BOARD, 

AND THE OFFICE OF INSPECTOR GENERAL
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

 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 8,125 as of December 31, 2006. These institutions, in turn, use the funds for home 

mortgages, to meet savings withdrawal needs, and for other authorized purposes. As of December 31, 2006, 

the FHLBanks had outstanding loans (Advances) to member institutions totaling $641.6 billion for these 

purposes. Also, through December 31, 2006 the Affordable Housing Program (AHP) of the Federal Home 

Loan Bank System has provided approximately $2.9 billion to help house some of America’s neediest 

families. As of December 31, 2006, more than 575,000 housing units were approved. Under the competitive 

application program, the AHP funded almost 518,000 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 2006, the CIP has provided more 

than $37 billion in advances for housing, and CICA and CIP together have provided $11.4 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 2007 budget of approximately 

$35.9 million and 143.5 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. 

3 

 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. The Office of 

Thrift Supervision, a separate federal government agency, monitors, examines, and regulates individual 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

member institutions. The Finance Board is only responsible for annually examining the 12 FHLBanks and the 

Office of Finance. 

 As of April 1, 2007 approximately 85 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. 

 

 

 

 

 

4 

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://intranet.the Finance 

Board.gov/FBOffices/oig.htm. During the semiannual reporting period October 1, 2006 through March 31, 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

2007, OIG completed four audits (Table A, on page 9). At the conclusion of this period, OIG also had two 

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. 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 2006, 

An audit of the effectiveness of the recruitment, selection, and retention of OS staff, and 

A peer review of the National Credit Union Administration’s Office of Inspector General’s audit function. 

WORK-IN-PROCESS 

 

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

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

5 

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 constant. We had no investigative matters in process at the 

beginning of the reporting period but did receive three allegations during the period. Two of the allegations 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

were closed after the preliminary investigation stage. The third matter was referred to another Finance Board 

office for disposition. 

 

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

referrals. 

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SUMMARY OF “SECTION 5” REPORTING REQUIREMENTS 

 

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

 recommended corrective actions. [5a(1) and (2)] 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

 The maintenance of a highly skilled examination staff is central to the Finance Board’s 

mission to regulate the 12 Federal Home Loan Banks and the Office of Finance. OIG 

completed an audit of agency efforts to recruit, select, and retain qualified examination 

staff. OIG found that the Finance Board lacked a formal strategic plan that: 

 1) identified the number of examination staff needed to accomplish the Finance Board’s 

mission, 2) explained how the staffing requirement will be met, and 3) explained how 

the Finance Board will maintain the required staffing level. In response to OIG’s 

recommendation, a strategic plan addressing the staffing needs has been completed. 

2. Previously reported significant recommendations with incomplete corrective actions 

 [5a(3)] 

OIG completed an audit of the Finance Board’s compliance with the Federal 

Information Security Management Act and identified a continued security problem with 

the Chief Information Officer’s (CIO) reliance on a contractor to perform the inherently 

governmental duties required of the Finance Board’s Information Security Officer 

(ISO). During the last semiannual reporting period, the CIO agreed to consider 

alternatives to the use of a contractor to perform the ISO duties. However, as of the 

issuance of this report, no timeframe has been set to correct this serious security risk. 

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

 See number 1 above. 

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

 See attached Table C, on page 11. 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

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)] 

 See number 2 above. 

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 TABLE A 

LISTING OF COMPLETED AUDITS, SURVEYS, LIMITED REVIEWS, 

AND EVALUATIONS

REPORT NUMBER DATE COMPLETED TITLE OF REPORT

 

 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

 06-R-05-OM October 16, 2006 Limited Review of 

 the Finance Board’s 

 Implementation of Office of 

 Management and 

 Budget Circular A-123 

 

 06-A-06-OM October 24, 2006 Audit of Federal 

 Housing Finance 

 Board’s Financial 

 Statements 

 07-A-01-OS/OM January 31, 2007 Audit of Effectiveness 

 Of Recruitment 

 Selection, and 

 Retention of OS Staff 

 07-A-02-NCUA February 8, 2007 Peer Review of the 

 National Credit Union 

 Administration’s Office of 

 Inspector General 

 

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 TABLE B 

SUMMARY OF INVESTIGATIONS 

 

BEGINNING CASES NUMBERS 

Cases Pending at the Beginning of Period: 

At the Finance Board.................................................................................... 0 

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

At other agencies........................................................................................ 0 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

NEW CASES RECEIVED 

Allegations Received During Current Period...................................................... 3 

STATUS OF CASES (as of March 31, 2006) 

Resulted in: 

Allegations Pend. Completion of Prelim. Invest/Audit............................................ 0 

Preliminary Investigation Completed- (Cases Closed).......................................... 2 

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

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

Cases Scheduled for Audit/Ltd. Rev. – (Cases Closed)......................................... 1 

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 

10 

 TABLE C 

INSPECTOR GENERAL REPORTS 

WITH QUESTIONED/UNSUPPORTED COSTS 

 DOLLAR VALUE

 NUMBER QUESTIONED UNSUPPORTED 

 OF REPORTS COSTS COSTS

a. For which no management 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

 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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 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 
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March 31, 2007 SEMIANNUAL REPORT TO CONGRESS 

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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