OTS: Enforcement Actions 

Taken for 

Bank Secrecy Act Violations 

 OIG-03-095 September 23, 2003 

Office of Inspector General

******* 

The Department of the Treasury 

Contents 

Audit Report.................................................................................................. 3 

 Results in Brief............................................................................................. 4 

 Background ................................................................................................. 6 

Findings and Recommendations ..................................................................... 7 

Greater Use of Forceful and Timely Enforcement Sanctions Warranted 

 for BSA Violations............................................................................... 7 

 Recommendations.................................................................................. 11 

Enforcement Actions Not Always Taken Timely or Thorough 

 for Substantive BSA Violations ........................................................... 13 

 Recommendation ................................................................................... 16 

BSA Examination Data Errors with OTS’ Thrift Information Management

 System ..............................................................................................16 

 Recommendations................................................................................... 19 

Appendices

 Appendix 1: Objectives, Scope, and Methodology ...................................... 21 

 Appendix 2: Substantive BSA Violations Found at the 21 Sampled Thrifts......24 

 Appendix 3: Management Comments........................................................ 25 

 Appendix 4: Major Contributors To This Report.......................................... 28 

 Appendix 5: Report Distribution................................................................ 29 

Abbreviations

 

 BSA Bank Secrecy Act 

 CTR Currency Transaction Report 

 EDS Examination Data System 

 FinCEN Financial Crimes Enforcement Network 

 FFIEC Federal Financial Institutions Examination Council 

 OIG Office of Inspector General 

 SAR Suspicious Activity Report 

 TIMS Thrift Information Management System 

 ROE Report of Examination 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 1 

OIG Audit 

Report

The Department of the Treasury 

Office of Inspector General 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 3 

 September 23, 2003

 James E. Gilleran 

 Director

 Office of Thrift Supervision 

This report presents the results of the Office of Inspector General’s 

(OIG) review of the Office of Thrift Supervision’s (OTS) use of 

enforcement actions taken against thrifts with substantive 

violations of the Bank Secrecy Act (BSA). According to OTS 

supervisory records, as of October 2002, 321 (or 33%) of the 986 

supervised thrifts had a record of some type of BSA violation that 

had been identified during an OTS examination. Of the 321, 

examiners found 180 (56%) thrifts had substantive BSA violations. 

For those 180 thrifts with substantive BSA deficiencies, OTS 

issued enforcement actions against 11 thrifts. 

The objectives of this audit were to determine if: 1) OTS took 

timely and sufficient supervisory enforcement actions against 

thrifts with substantive BSA violations; 2) enforcement actions, 

when taken, adequately addressed all substantive BSA violations 

identified by examiners; and 3) OTS’ systems to track and monitor 

BSA examination results were accurate and reliable. As indicated, 

the audit focused only on thrifts with substantive BSA violations 

identified during an examination as reflected in either the Report of 

Examination (ROE) or the underlying examination workpapers. We 

did not attempt to gauge the adequacy of the underlying BSA 

examinations, which is the focus of another OIG audit. 

We conducted fieldwork at three of the four OTS regions and 

reviewed a sample of 128 thrifts totaling 256 BSA examinations 

completed from January 2000 through October 2002. We 

expanded the audit period for some of the sampled thrifts when it 

was necessary to identify any recurring BSA violations. A detailed 

discussion of the audit objectives, scope, and methodology is 

provided in Appendix 1. 
Results in Brief

According to OTS’ Thrift Information Management System (TIMS), 

examiners found substantive BSA violations at 180 (or 18%) of the 

986 thrifts examined during the audited period. Of the 180 thrifts 

with substantive violations (e.g., lacking a BSA policy or systems 

to ensure compliance), OTS had issued written enforcement 

actions against 11 thrifts. 

From the remaining 169 thrifts with substantive violations and 

without a written enforcement action in place, we sampled 68 

thrifts for detailed review. In all 68 cases, we found OTS relied on 

moral suasion and thrift management assurances to comply with 

the BSA. In 47 (69%) of the 68 cases, thrift management took

corrective actions to resolve the substantive BSA violations. 

However, thrift management was not responsive and did not 

correct its BSA violations for the remaining 21 (31%) thrifts. We

believe that the ROEs and underlying examination workpapers 

supported OTS taking more forceful and timely enforcement 

actions against the 21 thrifts. 

We believe the absence of more forceful enforcement actions did 

little if anything to prevent the 21 thrifts from continuing to violate 

the BSA and or from taking an inordinate number of years before 

substantively addressing the BSA violations. In some cases, BSA 

compliance actually worsened from the time the BSA violations 

were first identified. As of October 2002, all 21 thrifts still had 

not fully addressed the BSA violations even though, in some cases, 

OTS had first identified the substantive violations as long as six 

years ago. 

We also reviewed in detail 9 of the 11 cases where OTS issued 

written enforcement actions in response to substantive BSA 

violations. We found in 5 instances enforcement documents were 

either not taken timely or did not address all the substantive 

violations found by examiners. BSA violations continued for years 

or BSA compliance worsened. For two of the five cases, 

enforcement actions were not effective in correcting the thrifts’ 

BSA violations as of the end of our fieldwork in May 2003. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 4 
Lastly, we found material data inaccuracies with the BSA records 

of thrifts in the TIMS. From a sample of 182 examination records 

in TIMS, we found nearly half contained an error when compared 

to the underlying ROE. These data discrepancies included 

omissions and or inaccuracies. Consequently, we believe that 

using aggregated TIMS data to gauge thrift industry compliance 

with BSA is largely unreliable. This condition could adversely 

impact supervisory decisions and BSA program initiatives to the 

extent OTS senior managers or regional supervisors use TIMS to

monitor the thrift industry’s BSA compliance, as well as plan, 

monitor, or review individual BSA examination results. Of equal 

importance is using TIMS data to report on the industry’s BSA 

compliance to external parties such as the Financial Crimes 

Enforcement Network (FinCEN). 

The report includes several recommendations aimed at enhancing 

the enforcement process over thrifts found to be in substantive 

noncompliance with the BSA. These include (1) providing 

clarifying guidance to supervisory staff on when to initiate a 

written (both informal and formal) enforcement action for 

substantive BSA violations, (2) enhancing management controls to 

better ensure that OTS’ enforcement documents are complete and 

timely, (3) enhancing controls over the process of entering BSA

information into the management information system, and (4) 

advising external users of TIMS BSA data of the potential data 

inaccuracies until OTS is able to fully assess the reliability of the 

existing TIMS BSA data. 

OTS concurred with our recommendations. If properly 

implemented, we believe that OTS’ planned corrective management 

actions are responsive to the reported conditions and weaknesses. 

In their response to the draft report, OTS also noted several factual 

items that OTS felt mitigated some of the risks and reported 

weaknesses, as well as actions that had been initiated prior to the 

completion of this audit. The full text of OTS’ response to the 

report is included in Appendix 3. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 5 
Background

In 1970, Congress enacted the Bank Secrecy Act (BSA) to prevent 

financial institutions from being used as intermediaries for the 

transfer or deposit of money derived from criminal activity. Over 

the years, the BSA has been amended several times to strengthen 

its anti-money laundering provisions. The most recent changes

arose in October 2001 with the passage of the USA PATRIOT Act. 

The Act currently contains expanded provisions to prevent, detect, 

and prosecute terrorism and international money laundering by

requiring financial institutions to take certain actions such as 

establishing an anti-money laundering program. 

 

OTS conducted 1,261 compliance examinations from January 

2000 to October 2002. Assessing BSA compliance is one of over 

30 areas that could be covered during a compliance examination. 

Other compliance areas, to name a few, include Equal Credit 

Opportunity Act, Truth in Lending Act, and Community

Reinvestment Act. After each compliance examination, OTS 

examiners assign an overall compliance rating, but there are no 

individual component ratings for each of the areas covered. The 

interval between compliance examinations ranges from 6 to 36 

months depending on the thrift’s prior compliance performance as 

reflected by its ratings. Generally, those thrifts with unsatisfactory 

compliance ratings are examined more frequently. 

12 CFR §563.177 requires thrifts to establish and maintain a 

program to monitor compliance with the BSA. During an 

examination, OTS focuses on whether thrifts have (1) sufficient 

internal controls to ensure compliance with the BSA, (2) 

independent testing of compliance, (3) individuals to coordinate 

and monitor the program, and (4) BSA training for appropriate 

personnel. OTS examiners also assess whether the program 

includes adequate record-keeping procedures for several required 

BSA report filings such as the Currency Transaction Report (CTR) 

and Suspicious Activity Report (SAR). Thrifts are also required to 

maintain documentation in support of the required reports for 

possible use in criminal, tax and regulatory proceedings. 

When a thrift is in violation of the BSA, OTS may take various 

enforcement actions to effect corrective action and or sanction the 

thrift. These enforcement actions range from informal actions such 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 6 
as a Director’s Resolution and Supervisory Directive to formal 

actions such as a Cease and Desist Order (C&D) and Civil Money 

Penalties (CMPs). FinCEN also levies CMPs against depository 

institutions (banks, credit unions and thrifts) as well as money 

service businesses and casinos for failing to file CTRs and SARs1

. 

There are no guidelines linking a specific enforcement action to

certain types or levels of BSA violations. Instead, OTS exercises 

judgments taking into account various circumstances and 

considerations. The effectiveness of an informal enforcement 

action depends in part on the commitment and ability of thrift 

management to correct identified deficiencies. The consequence of 

failing to fully comply with an informal enforcement action is that 

OTS, in nearly all instances can recommend the use of one or more 

formal actions. The advantage of issuing a more formal action is 

that OTS can set specific timeframes for when the thrift needs to 

be in full compliance. If violations are egregious enough, OTS can 

assess CMPs against either the thrift or its employees. 

Findings and Recommendations

Finding 1 Greater Use of Forceful and Timely Enforcement 

Sanctions Warranted for BSA Violations

Prior to and during the audited period, OTS used the Thrift 

Information Management System (TIMS) to track the number of 

specific BSA violations found during an examination. According to 

TIMS, examiners identified 2,315 BSA violations at 321 of the 986 

regulated thrifts as of October 2002. The 2,315 violations 

included both minor technical and substantive BSA violations. At 

the start of the audit, we discussed and reached agreement with 

OTS officials as to the types of BSA violations that constituted a 

technical versus a substantive violation. Accordingly, technical 

violations cited in this report refer to violations that were not policy 

or programmatic problems such as minor errors and omissions in 

filling out CTRs and SARs. Whereas the failure to develop and 

implement a BSA program with the basic BSA minimum 

requirements and the non-filing of CTRs and SARs were deemed to 

be substantive violations. 

 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 7 

1 From January 2000 to May 2003, FinCEN issued 13 CMPs totaling $24.6 million, with 1 CMP totaling 

$700,000 levied on an OTS-regulated thrift. 
From TIMS, we identified 180 thrifts with at least one substantive 

BSA violation as of October 2002. OTS issued enforcement 

actions to specifically correct the BSA problems at 11 thrifts. 

From the remaining 169 thrifts without any written enforcement 

action, we sampled 68 thrifts to determine the type and 

effectiveness of the supervisory response. In all 68 cases, we 

found OTS relied on moral suasion and thrift management 

assurances to comply with the BSA. 

For 47 (69%) of the 68 sampled thrifts, we believe OTS’ 

supervisory response was appropriate taking into account the

nature of the BSA violations, the thrift’s BSA program, and or the 

thrift-management’s responsiveness to the examiner’s findings as 

reflected in the ROE and underlying workpapers. The supervisory 

responses were also generally effective in getting thrift 

management to either correct or make substantive progress in 

correcting the BSA problems. 

Stronger Actions Warranted for 21 Thrifts 

Twenty-one (31%) of the 68 sampled thrifts were not responsive 

to OTS’ supervisory concerns and continued to violate substantive 

aspects of BSA. The 21 thrifts ranged in asset size from $20 

million to $205 million. As previously noted, we focused only on 

the 21 thrifts’ substantive BSA violations. The following table 

summarizes these violations, and in all 21 cases, thrifts had 

violations in multiple areas. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 8 
Table 1 

Types of Substantive BSA Violations Committed by 21 Thrifts 

Substantive BSA Violations2 Number of 

Thrifts 

1. Absence of a written and adequate BSA program 16 

2. Absence of internal controls to assure compliance 

with BSA 

9 

3. Failure to conduct independent testing to assure 

compliance with BSA 

20 

4. Lack of a designated individual responsible for 

coordination of compliance with BSA 

7 

5. Failure to train personnel for BSA compliance 17 

6. Failure to file Currency Transaction Reports 

(CTRs) 

2 

7. Failure to file Suspicious Activity Reports (SARs) 1 

Source: OTS ROEs and TIMS 

The 21 thrifts did not meet the minimum requirements set forth by 

the BSA regulations. OTS examiners found that the first 5 

violations were recurring in at least two consecutive examinations 

(i.e., 12 to 18 months later). Fourteen of the 21 thrifts showed a 

pattern of having repetitive BSA violations for at least three 

consecutive examinations; two thrifts had the same BSA policy 

problem in four consecutive examinations (6 years); five thrifts had 

four or more BSA violations in at least two examinations. 

However, the 3 instances of failure to file CTRs and SARs were not 

recurring violations. OTS examiners found them in an earlier 

examination and verified that they were corrected by the next 

examination. For further details on the 21 thrifts, see Appendix 2. 

We believe stronger enforcement actions were warranted in the 21 

cases given the substantive nature of the BSA violations, the

repetitive nature of the violations and deficiencies, and the 

prolonged history of non-compliance with the most fundamental 

BSA requirements. In discussing these cases with the responsible 

supervisory officials, two primary reasons were cited for not taking 

enforcement actions: 

 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 9 

2 The substantive nature of the first five BSA violations are reaffirmed in that they are also the basic 

anti-money laundering program requirements for financial institutions under §352 of the USA PATRIOT 

Act. 
• Thrifts’ overall compliance (i.e., other than BSA) performances 

were adequate, and thrift management could be entrusted to 

correct the deficiencies, and 

• Some of the smaller thrifts had limited resources and thus 

would have more difficulty in complying with the minimum BSA 

requirements, particularly the BSA requirement on independent 

testing. 

We also identified two practices, which were likely contributing 

factors for OTS not using more forceful enforcement actions. 

Enforcement actions were seldom taken unless a thrift’s overall 

compliance rating3

 was poor (i.e., 4 or 5). We noted that when

OTS took enforcement actions, the thrifts’ compliance rating was 

either a ‘4’ or ‘5 ‘ as reflected in 10 of the 11 cases. Of the 21 

thrifts with substantive BSA violations, their overall compliance 

rating was ‘3’ or better. Indeed, these thrifts tended to be in 

better compliance with many or all of the other areas covered 

during a compliance examination. OTS supervisory officials also 

noted that BSA violations alone were not enough to lower the 

rating below a ‘3’. Our observed relationship between a thrift’s 

overall compliance rating and whether OTS used a written 

enforcement action for substantive violations may be coincidental. 

Nevertheless, it should be noted that OTS Regulatory Section 150, 

RB 18-1B provides for issuing an enforcement action regardless of 

the ratings as long as OTS believes significant and ongoing 

problems exist. 

Another observed contributing factor for not taking enforcement 

actions for substantive BSA violations involved OTS not ensuring 

that all violations found during an examination were incorporated 

into the ROE. We found in 14 of the 21 cases where substantive 

BSA violations were omitted from the final ROE. These omissions 

included BSA violations and deficiencies such as the lack of 

internal controls, independent testing and a weak BSA policy. 

These BSA violations and deficiencies were clearly documented in 

the underlying examination workpapers but omitted from the ROEs. 

OTS supervisory officials were not aware of the omissions and 

could not provide an explanation as to how or why the omissions 

 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 10 

3

 OTS’ compliance examinations encompass many areas of laws and regulations, including BSA, Community 

Reinvestment Act, Fair Lending, etc. Performance is rated on a scale of ‘1’ to ‘5’ with ‘5’ being the worst. 
occurred. We believe these omissions should have been identified 

under normal supervisory review. By omitting these BSA violations 

from the ROE, OTS managers, who reviewed the ROEs to assess 

the need for enforcement actions, were not fully aware of the 

severity, breadth, or nature of the thrift’s BSA violations. 

Consequently, the need for a more forceful enforcement action 

may not have been as apparent. Moreover, the need for corrective 

action and the severity of the BSA violations may not have been

brought to thrift management’s attention. 

We believe the lack of forceful enforcement actions contributed to 

the 21 thrifts’ continued BSA violations, the inordinate number of 

years before any substantive progress in addressing the BSA 

violations, and or a worsening BSA compliance record. Indeed, as 

of October 2002, all 21 thrifts still had not fully addressed the BSA 

violations from the time examiners originally identified the 

violations. 

We found for 12 of the 21 thrifts BSA problems actually got 

worse, with examiners identifying additional substantive BSA 

problems in subsequent examinations. For these 12 thrifts, OTS 

examiners found an additional 16 substantive violations in later 

examinations, such as the lack of independent testing and 

inadequate training. For one thrift, problems existed as far back as 

1998 and remained uncorrected in the next examination. 

Recommendations

The OTS Director needs to: 

1. Assess whether added clarification or guidance is needed for 

examiners over the following areas: 

a. When to initiate stronger supervisory action when

substantive BSA violations are found independent of the 

overall compliance rating. 

b. Timeframes for expecting corrective action to avoid the 

observed thrift practices of repeatedly violating the BSA, 

a deteriorating record of BSA compliance, and or the 

inordinate number of years before meaningful progress is 

made towards addressing BSA violations. 

c. Whether a thrift’s resource constraints resulting in 

noncompliance with substantive aspects of BSA should 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 11 
be used as an offsetting consideration for not pursuing 

enforcement actions. 

Management Response and OIG Comments

OTS concurred and will issue supplemental examiner guidance

in the first calendar quarter of 2004. If properly implemented, 

we believe that OTS’ planned management corrective action 

adequately addresses the recommendation and reported 

condition. 

2. Institute enhanced supervisory review over the examination 

process to better ensure that substantive BSA violations 

identified in an examination are incorporated into the ROE as 

currently provided in OTS Regulation (Compliance Handbook 

Section 125). Consideration should also be given to 

incorporating this aspect of the compliance examination on 

future quality assurance reviews. 

Management Response and OIG Comments

OTS concurred and will implement enhanced regional reviews 

over the examination process to ensure that substantive BSA 

violations are incorporated into the ROE. OTS also plans to 

ensure that BSA violations are appropriately followed up prior to 

the subsequent examination cycle. If properly implemented, we 

believe that OTS’ planned management corrective actions 

adequately address the recommendation and reported condition. 

In its response to the draft report, OTS also cited two observations 

to add perspective to the OIG findings. One area indicated that the 

number of thrifts with substantive BSA violations impacted only 6 

percent of the thrift industry and that the frequency of substantive 

CTR and SAR filing deficiencies was de minimis. The 6 percent 

figure is an OTS extrapolation, and OTS did not provide us with

any of the supporting calculations or underlying assumptions. 

Nevertheless, as a point of clarification, we note on page 4 of the 

report that OTS records showed 18 percent (180) of the 986 

supervised thrifts had substantive BSA violations for the audited 

period of January 2000 to October 2002. Furthermore, we had no

basis for assessing the implied lack of severity of the number of 

thrifts failing to substantively meet the CTR and SAR filing 

requirements. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 12 
OTS also noted that all of the 21 thrifts cited in the report with 

substantive BSA violations were all smaller than $250 million in 

assets. Although OTS was not excusing BSA violations based on 

thrift size, OTS indicated that the OIG report demonstrated their 

application of risk-based supervision over thrifts that displayed 

minimal operational exposure to money laundering or terrorist 

financing activity. 

On page 8 of the report, we cite the range of asset size for the 21 

thrifts only as added information. The OIG did not intend to 

suggest, as OTS may have interpreted, that asset size was an 

indicator of risk for either money laundering or terrorist financing. 

In fact, the OIG would caution against the notion that such risks 

are proportionate to asset size. Rather than asset size, the OIG 

believes the risk of money laundering and terrorist financing are 

influenced or mitigated by thrifts business activities and the 

controls underlying the BSA regulatory requirements as noted in

the report. Also as reported, the 21 thrifts not only had 

substantive BSA violations but subsequent examinations revealed 

uncorrected violations or an increasing number of violations. 

Further, it was these examiner findings that formed the basis for 

believing that more timely and forceful enforcement actions had 

been warranted in addressing the substantive BSA violations. 

Finding 2 Enforcement Actions Not Always Taken Timely or 

Thorough for Substantive BSA Violations

From January 1999 through October 2002, OTS issued written 

enforcement actions against 11 thrifts found to have substantive 

BSA violations. We reviewed 9 of the 11 cases that were 

supervised at one of the three OTS regions we visited. To assess 

the timeliness and thoroughness of the enforcement actions, we 

reviewed the ROEs and underlying workpapers, and also 

interviewed supervisory personnel familiar with the cases. The 9 

thrifts ranged in asset size from $25 million to $2.6 billion, and 

were geographically dispersed throughout the country. 

We found that 4 of 9 enforcement actions were issued timely

when the BSA violations had been identified, sufficiently addressed 

all the identified BSA violations, and were generally effective in 

getting the thrifts to comply with the BSA requirements. In 3 of 

the 4 cases, the thrifts subsequently corrected the BSA 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 13 
deficiencies, as reflected in subsequent ROEs and corresponding 

workpapers. However, for the remaining thrift, we were unable to 

fully assess the effectiveness of the enforcement action because 

OTS had not yet conducted a compliance examination subsequent 

to the enforcement action. 

We found the other 5 of 9 enforcement actions were not thorough 

or timely, as described below: 

• One enforcement action did not specifically include all the BSA 

violations identified during the examination. The BSA violations 

dealing with deficient BSA policies and independent testing had 

been omitted from the ROE. As a result, OTS enforcement 

officials who developed and crafted the enforcement action had 

not been aware of the omissions and did not require the thrift to

specifically correct those BSA violations. Officials could not 

explain the reporting omissions. 

• Two actions entailed using Formal Enforcement Action Waivers 

because there had been outstanding enforcement actions at the 

time. Although a waiver is considered an enforcement action it

is basically a memorandum refraining from initiating additional 

action. However, for these two cases, the Waivers only made 

reference to the outstanding enforcement actions, which only 

covered previously identified BSA violations. As a result, the 

Waivers did not cover directly or by reference any of the 

subsequent BSA violations dealing with BSA policies and 

procedures, independent testing, internal controls, and SAR and 

CTR reporting. 

• The form of another enforcement action was not sufficiently 

forceful in light of the nature of the BSA violations. In February

2000, examiners found the thrift had several BSA deficiencies 

and also suspected some structuring transaction schemes. 

Structuring occurs when a person engages in multiple cash 

transactions divided into amounts low enough to avoid the filing 

of a CTR or other BSA reporting or recordkeeping requirement. 

In response, OTS obtained managerial assurances for corrective 

actions through a Board Resolution, but without specific 

timeframes for achieving compliance. By the following 

examination the thrift had not made sufficient progress and had 

not fully implemented its BSA policies, continued to file SARs 

incorrectly, and also allowed non-customers to place wire 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 14 
transfers without adequate verification. Indeed, the continued 

BSA violations prompted OTS to issue a more forceful 

enforcement action, a Supervisory Directive, in March 2003, 

three years after the initial identification of substantive BSA 

violations. 

• Lastly, 1 of the 5 enforcement actions was not issued timely. 

This action was not taken until five years after examiners had 

first identified substantive BSA violations. As the following 

table shows, OTS examiners found repeated and growing BSA 

violations over three succeeding examination cycles covering 5 

years. 

Table 2 

Five Years of Continued BSA Violations 

Year of 

Exam 

Exam 

Rating 

BSA Problems Noted in ROE OTS Enforcement Response 

1996 2 1. BSA Policy Weaknesses

2. Internal Control Weaknesses 

3. Inadequate Training

4. CTR Problems 

Obtained management 

assurances to correct 

violations, but issued no written 

enforcement document 

1998 3 1. BSA Policy Weaknesses

2. Internal Control Weaknesses 

3. Inadequate Training 

4. CTR Problems 

Again obtained management 

assurances to correct 

violations, but issued no written 

enforcement document 

1999 3 1. BSA Policy Weaknesses

2. Internal Control Weaknesses 

3. Inadequate Training 

Again obtained management 

assurances to correct 

violations, but issued no written 

enforcement document 

2001 4 1. BSA Policy Weaknesses

2. Internal Control Weaknesses 

3. CTR Problems 

4. Not Filing SARS 

Supervisory Agreement Issued 

Source: OIG Analysis of OTS ROEs and Workpapers 

In addition to not being thorough or timely, enforcement actions 

were also not effective in 2 of the 5 cases. These two thrifts 

continued to violate the BSA violations and neither thrift had fully 

complied with the BSA by the end of our audit fieldwork in May 

2003. Aside from the continued violations, the 2 thrifts likely 

exposed the financial system to a greater risk of money laundering 

than thrifts complying with the BSA. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 15 
Recommendation

3. The OTS Director needs to better ensure that enforcement 

documents taken against thrifts for substantive BSA violations 

are thorough and timely. To that end, the OTS Director needs 

to: 

a. Assess the adequacy of existing supervisory reviews to 

ensure that all BSA violations identified during an 

examination are carried forward into the ROE, and when 

applicable incorporated into the enforcement document. 

b. Ensure that Enforcement Action Waivers include BSA 

violations identified subsequent to previously issued 

enforcement actions. 

c. Include coverage of the aforementioned weaknesses as a 

part of any planned quality assurance reviews. 

Management Response and OIG Comments

OTS concurred and will supplement existing guidance as to 

when substantive BSA violations should be identified in the

ROE, ensure that enforcement actions waivers address BSA 

violations identified subsequent to previously issued 

enforcement actions, and include the above items in future 

quality assurance reviews. OTS plans to have these corrective 

actions implemented in the first quarter of 2004 and included in

periodic quality assurance reviews thereafter. If properly 

implemented, we believe that OTS’ planned management 

corrective actions adequately address the recommendations and 

reported conditions. 

Finding 3 BSA Examination Data Errors with OTS’ Thrift 

Information Management System 

During and prior to the audited period, OTS used the Thrift 

Information Management System (TIMS) to monitor the results of 

all examinations, including BSA. In the course of our fieldwork, we 

identified significant TIMS data errors related to the results of BSA 

examinations. We believe these data inaccuracies could impair 

OTS supervisory and senior officials’ ability to effectively monitor 

thrift industry BSA compliance and examination results. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 16 
Furthermore, OTS is at risk of providing erroneous information to 

external parties such as FinCEN. 

At the completion of our fieldwork, OTS informed us that TIMS 

was being replaced with a new data base system referred to as the 

revised Examination Data System III (EDS III) and that certain 

system enhancements and less detailed BSA information would be 

captured under the revised EDS III. While these system changes 

should reduce some of the data inaccuracies, EDS III will likely 

experience similar data accuracies unless data entry controls are 

enhanced. 

TIMS provides an automated means for OTS senior managers in

headquarters and in the regions to quickly aggregate information to 

assess overall thrift industry compliance with the BSA. Although 

regional senior officials have access to similar BSA examination 

data by contacting examination staff directly, TIMS provides a 

quicker and automated means to monitor BSA examination results 

in the normal course of supervisory oversight. During the early

phase of our audit, we noticed data discrepancies with the 

information recorded in TIMS. Because of the observed data 

discrepancies, we expanded our original fieldwork to assess the 

general reliability of TIMS BSA data. 

We sampled 182 compliance examinations conducted from January 

1996 to October 2002. We then compared the TIMS BSA 

information to the ROEs. Our tests included checking for both 

accuracy and completeness. The following table shows the results 

of our data comparisons. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 17 
Table 3 

TIMS BSA Examination Records with Data Errors 

(1) 

Total Exams 

Reviewed. 

(2) 

TIMS 

Examination 

Records Where 

BSA Violations 

Were Omitted 

(3) 

TMS 

Examination 

Records Where 

BSA Violations 

Were 

Overstated

(4) 

TIMS 

Examination 

Records with 

Erroneous 

Recorded BSA 

Violations

(5) 

Total 

Examinations 

Records with 

an Error

(6) 

Overall Error 

Rate 

(Col 5/ Col 1)

182 34 38 24 83* 46%

Source: OIG Analysis from Review of OTS ROEs and Workpapers 

*Due to examinations with multiple errors, columns 2-4 do not sum to 83. 

As Table 3 shows, nearly 50 percent of the examinations tested 

contained some type of data error as reflected in TIMS. The types 

of errors were mixed. Although not reflected in the table, the 83 

examinations had a total of 133 data errors, involving only 

substantive BSA violations. While all three types of errors 

adversely affected the general usefulness of TIMS, of note was

that 34 (or 19%) of 182 examinations had omitted substantive 

BSA violations found during an examination. As a result, these 

omissions could lead TIMS users to erroneous conclusions as to the 

thrift industry’s general compliance with major requirements of the 

BSA. 

The main reason for these TIMS data errors was that examiners did 

not have guidance as to how to record certain BSA violations for 

TIMS. As a result, filling out the data entry forms was left to 

individual interpretations resulting in inconsistent and incomplete 

reporting of certain BSA violations. This type of error typically 

occurred when examiners had to distinguish in TIMS if the BSA 

violation(s) was a policy or procedural (implementation) problem. 

For example, if a thrift’s BSA policy lacked a specific section on 

independent testing, some examiners would only cite a violation 

associated with the overall BSA policy requirement, while others 

would only record the lack of independent testing, while still other 

examiners might record both types of violations. Again, these 

inconsistencies could be attributed to the lack of guidance as to 

how certain BSA violations were to be recorded in TIMS. 

The lack of guidance resulted in examiners submitting erroneous 

BSA data entry forms to clerks, who, in turn, entered inaccurate 

and incomplete BSA data into TIMS. This process lacked 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 18 
supervisory oversight to ensure that examiners accurately 

completed the data entry forms, and there was also an absence of 

internal controls to prevent such erroneous information from being 

entered into TIMS. Similarly, there were no internal controls to 

detect these data errors after the data entry process. 

Recommendations

The OTS Director needs to: 

4. Provide guidance to its examiners regarding the submission of 

BSA violations into the system. 

Management Response and OIG Comments 

OTS concurred and will provide guidance to examiners regarding 

the submission of BSA violations into the appropriate OTS 

database. The guidance will be issued and implemented in the 

first calendar quarter of 2004. If properly implemented, we 

believe that OTS’ planned management corrective action 

adequately addresses the recommendation and reported 

condition. 

5. Implement supervisory oversight controls to ensure that BSA 

data reported in TIMS accurately reflect the BSA violations in 

the examinations. Such enhancements to supervisory oversight 

should ensure that OTS has adequate controls to monitor the

accuracy of TIMS and the newly implemented Examination Data

System. 

Management Response and OIG Comments 

OTS concurred and will implement appropriate controls to 

ensure the accuracy of BSA violation data contained in the 

appropriate database. These controls will be issued and 

implemented in the first calendar quarter of 2004. If properly 

implemented, we believe that OTS’ planned management 

corrective action adequately addresses the recommendation and 

reported condition. 

6. To the extent TIMS data is being used for external reporting 

purposes and or updating EDS III, ascertain the extent of the 

BSA errors and apprise external users of any data reliability 

limitations. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 19 
Management Response and OIG Comments 

OTS concurred and will apprise any recipient of reliability 

limitations to the extent that TIMS data is being used for 

external reporting purposes. This information will be conveyed 

in the first calendar quarter of 2004. If properly implemented, 

we believe that OTS’ planned management corrective action 

adequately addresses the recommendation and reported 

condition. 

In response to the draft report, OTS also cited an observation to 

add perspective to the OIG finding. Specifically, OTS indicated 

that they were aware of the database quality concerns and 

instituted a new system and methodology for recording BSA 

violation data. They stated that this new system continues to be 

refined and provides better quality and more useful supervisory 

information than contained in the TIMS data system. 

As cited on page 17 of this report, we had acknowledged OTS’ 

ongoing and plans to replace TIMS with the new Examination Data 

System III (EDS III). We also noted that while the system changes 

should reduce some of the data inaccuracies, EDS III would likely 

experience similar data accuracies unless data entry controls are 

enhanced. Accordingly, the recommendations under Finding 3 

were made with the new system in mind. 

******* 

We would like to extend our appreciation to OTS for its 

cooperation and courtesies extended to our audit staff during the 

audit. If you have any questions, please contact me at 

(415) 977-8810 ext. 222 or Garrett W. Gee, Audit Manager, at 

(415) 977-8810 ext. 227. Major contributors to the report are

listed in Appendix 4. 

Benny W. Lee /S/ 

Director, Western Field Audit Office 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 20 
Appendix 1 

Objectives, Scope, and Methodology

The objective of the audit was to evaluate whether OTS could have 

taken more appropriate enforcement actions against those thrifts 

with substantive BSA deficiencies. Additionally, for those thrifts 

with compliance-related enforcement actions, we sought to 

determine whether these actions were issued comprehensively and 

promptly. Finally, we sought to determine if the BSA supervisory 

information captured in OTS TIMS was accurate and complete. 

The OIG conducted its fieldwork between August 2002 and May 

2003 at OTS Headquarters in Washington D.C. as well as 3 of the 

4 OTS regional offices located in San Francisco, California; Jersey 

City, New Jersey; and Atlanta, Georgia. We obtained general BSA 

guidance, including Treasury and OTS BSA regulations, as well as 

the enforcement actions issued against thrifts for deficiencies in 

compliance and in some cases, specifically in the area of BSA. At 

each regional office visited, we identified those thrifts with 

substantive BSA violations per TIMS and ROEs that were not

issued a written enforcement action as well as those cases when 

OTS initiated an enforcement action as a result of BSA problems. 

We also discussed the process for capturing and inputting BSA

citations into the BSA tracking system with regional officials and 

assessed the reliability of the BSA data captured in OTS’ tracking 

system. 

We identified 986 OTS-regulated thrifts totaling 1,261 compliance 

examinations for our review period from January 2000 to October 

2002. We then identified 321 of the 986 thrifts that had at least 

one BSA violation during one of their compliance examinations. 

Further analysis found that 180 of the 321 thrifts had at least one 

substantive BSA violation. The other 141 had only minor technical 

violations. 

We identified BSA violations to be either substantive or technical 

based on the description provided in the Treasury and OTS BSA 

Regulations. We discussed with OTS Headquarters personnel, and 

they concurred with our terminology and conclusions as to which 

violations were substantive or technical. We defined substantive 

violations to be those programmatic problems, such as inadequate 

BSA policy and weaknesses in internal controls or failure to file 

CTRs and SARs. Technical violations were defined as those 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 21 
Appendix 1 

Objectives, Scope, and Methodology

instances when thrifts submitted CTRs and SARs with minor errors 

and discrepancies. 

Of the 180 thrifts with substantive BSA violations, we found OTS 

issued BSA-related enforcement actions for 11 thrifts. To assess 

whether stronger actions were warranted for the remaining 169 

cases, we judgmentally sampled 68 of the thrifts. Once the 

sample was selected, we expanded our review coverage period 

from January 1996 to October 2002 so that we could review 

additional compliance examinations to determine if there were any 

recurring substantive BSA violations in the prior examinations. In 

evaluating whether stronger actions were warranted for these 68 

sampled thrifts, we reviewed the ROEs and corresponding 

workpapers to assess the number and types of BSA deficiencies 

found as well as actions taken by OTS. In performing this 

objective, we attempted to identify the first time examiners 

identified BSA problems, assessed OTS’ role in assisting thrift 

management to correct the problems, and reviewed subsequent

examinations to determine if these BSA problems were 

subsequently resolved. We were unable to project the 68 sampled 

thrift results to the total universe of 986 thrifts. 

OTS has at its discretion to use informal and formal enforcement 

actions to aid in carrying out its supervisory responsibilities when 

addressing violations of law and regulation including BSA. We 

were able to directly identify the number of BSA related actions 

from our review of TIMS and corresponding enforcement 

documents. Specifically, from TIMS, we identified 23 compliance 

related enforcement actions from January 1999 to October 2002. 

We then had to directly review all 23 enforcement action 

documents and found 11 contained a specific BSA provision. We 

sampled 9 of the 11 enforcement actions to assess the timeliness 

and completeness of these actions. To meet our objective, we 

reviewed ROEs, corresponding workpapers and the enforcement 

action documents. Specifically, we reviewed ROEs prior to the 

issuance of the enforcement action to determine if all BSA 

deficiencies found during the examination were addressed in the 

written action, and ROEs after issuance to assess the effectiveness 

of the actions in resolving the thrift’s BSA problems. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 22 
Appendix 1 

Objectives, Scope, and Methodology

To assess the reliability of the TIMS data information, we sampled 

182 of the 1,261 compliance examinations for our review period. 

We selected 131 examinations with at least one BSA violation and 

51 examinations without BSA violations per TIMS. In performing 

this objective, we compared the list of BSA violations noted in 

TIMS to the BSA violations addressed in the corresponding ROEs. 

For this objective, we did not review workpapers. We again 

judgmentally selected our sample, and therefore, we could not 

project our results to the total universe of 1,261 examinations. 

The OIG discussed the results with OTS Headquarters and regional 

personnel, including senior BSA compliance officials to obtain their 

understanding as to why (1) enforcement actions were not issued 

for recurring BSA deficiencies, (2) enforcement actions were not 

always timely and comprehensive, and (3) BSA data reliability was 

lacking in some cases. 

The audit was conducted in accordance with generally accepted 

government auditing standards. 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 23 
Appendix 2 

Substantive BSA Violations Found at the 21 Sampled Thrifts

Thrifts Asset Substantive BSA Violations

Size 

(in mill) 

Date of 

Exam No BSA 

Policy 

Lack of Internal 

Controls 

Lack of Ind.

Testing 

Not Having a 

BSA Officer 

Lack of BSA 

Training 

CTR 

Omissions 

SAR 

Omissions 

1 $57 01/16/96

06/25/99 

08/22/01 

X 

X X 

X 

X

X 

X 

2 $119 02/20/96

01/11/99 

02/12/01 

X 

X 

X

X 

X 

3 $35 12/23/96

04/07/91 

02/17/01 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X X

X 

X 

4 $75 04/05/99

08/13/01 

X 

X 

X 

X 

X 

X 

X X

X 

5 $44 12/09/96

03/18/98 

04/26/99 

04/23/01 

X 

X 

X 

X X 

X 

X 

X 

X 

6 $30 07/12/99

08/15/01 

X 

X 

X

X 

X

X 

7 $44 05/03/99

06/26/01 

X 

X 

X

X X 

8 $166 06/03/96

01/19/99 

02/20/01 

X 

X 

X 

X

X 

X X 

X X 

9 $205 03/03/97

06/15/99 

10/15/01 

X X 

X 

X

10 $84 09/04/96

10/08/97 

08/28/00 

01/15/02 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

11 $105 10/15/96

03/15/99 

02/26/01 

X X

X 

X 

X 

X

12 $91 10/29/96

03/31/99 

04/29/02 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

X 

13 $47 02/10/97

10/26/98 

01/08/01 

X

X 

X X 

14 $131 02/08/99

05/15/00 

07/08/02 

X X

X 

X 

15 $115 03/03/97

10/27/99 

11/05/01 

X X

X 

X 

X

X 

X 

16 $74 09/28/98

11/20/00 X 

X

X 

X

17 $20 01/29/96

05/26/98 

07/05/00 

X 

X 

X 

X 

X X 

18 $35 11/04/96

03/08/99 

08/14/01 

X 

X 

X

X 

X 

X

X 

X 

19 $32 12/16/98

01/08/01 

X 

X 

X

X 

X

20 $64 06/29/98

07/31/00 

10/22/01 

X 

X 

X 

X

X 

X 

X 

X 

X 

X 

X 

21 $46 09/14/98

01/24/00 

X 

X 

X

X 

Source: OIG Analysis from OTS ROEs and Workpapers 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 24 
Appendix 3 

Management Comments

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 25 
Appendix 3 

Management Comments

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 26 
Appendix 3 

Management Comments

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 27 
Appendix 4 

Major Contributors To This Report

Inspector General, Office of Audit

Garrett W. Gee, Audit Manager 

Joseph K. Eom, Auditor-in-Charge 

Ernest T. Lui, Auditor

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 28 
Appendix 5 

Report Distribution 

U.S. Department of the Treasury

Office of the Undersecretary for Domestic Finance 

Office of the Assistant Secretary for Financial Institutions 

Director, Office of Accounting and Internal Control 

Director, Office of Strategic Planning and Evaluations 

Assistant Secretary for Public Affairs 

Director, Financial Crimes Enforcement Network 

Deputy Assistant Secretary, Executive Office for Terrorist Financing and Financial 

 Crime 

Office of Thrift Supervision

 Director 

Special Counsel, Audit Liaison 

Regional Directors (4) 

Office of Management and Budget

OIG Budget Examiner 

OTS: Enforcement Actions Taken for BSA Violations (OIG-03-095) Page 29