YEAR 2000 COMPLIANCE EFFORT

AT THE

OFFICE OF THRIFT SUPERVISION

OIG-99-022 DECEMBER 23, 1998

Office of Inspector General

*******

United States Department of the Treasury
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MEMORANDUM FOR ELLEN SEIDMAN, DIRECTOR

OFFICE OF THRIFT SUPERVISION

FROM: David C. Williams

Inspector General

SUBJECT: Year 2000 Compliance Effort at the Office of 

Thrift Supervision

This memorandum presents the results of our assessment of the Office of Thrift

Supervision’s (OTS) Year 2000 conversion effort. We performed a limited review of this

effort. In addition to the OTS, the Office of Inspector General (OIG) evaluated and

reported on the Year 2000 efforts at other Treasury bureaus individually, as well as from a

Department-wide perspective. Subsequent work may be performed by us in the future and

will be reported to you in a separate report.

Overall, we concluded that the OTS established an infrastructure for managing its

conversion effort and minimizing the risk that a Year 2000 induced failure would have on

its mission critical operations. No significant reportable issues came to our attention.

However, the inherent nature of the Year 2000 dilemma denies the ability to completely

eliminate risk. The Year 2000 problem comes with inherent risks that all organizations

face and will continue to face, despite their best efforts and demonstrated success.

Accordingly, we developed three suggestions encouraging OTS, as well as other Treasury

bureaus, to sustain efforts in the areas of change management, data exchange, and

contingency planning for business continuity to minimize potential disruptions caused by

these inherent risks.

Although an official written response was not required because we made no

recommendations for corrective action, OTS provided their comments to our draft report.

The OTS generally concurred with the OIG findings and suggestions, and any technical

clarification provided by OTS was incorporated as appropriate. The full text of OTS’

response is included as Appendix 1.

OBJECTIVES, SCOPE, AND METHODOLOGY

Our overall objective was to evaluate OTS’ internal Year 2000 conversion effort for its

mission critical information technology (IT) systems. Our specific objectives were to

evaluate the following: (1) project management; (2) system conversion and certification;

and (3) contingency plans for business continuity. In addition, we performed a limited
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review of OTS’ Year 2000 strategy and progress for non-IT and telecommunications

systems.

Our review was limited to evaluating strengths and weaknesses in the management of the

Year 2000 conversion project. Specifically, we determined if processes existed and were

designed to mitigate the Year 2000 risk to an acceptable level for ensuring all mission

critical IT systems remain operable. Therefore, this memorandum is not intended to

represent or convey statements that any given system is Year 2000 compliant or that a

system will or will not work into the next millennium.

From June through August 1998, using a risk based audit approach, we reviewed and

evaluated applicable Year 2000 documentation, including: Treasury’s Year 2000

Vulnerability Assessment Report, dated October 1997; OTS’ monthly status reports;

OTS’ Year 2000 Project Plan, and other related documents. In addition, we interviewed

the appropriate officials within OTS that had responsibility for the Year 2000 project, and

we met with the General Accounting Office (GAO) auditors to discuss the results of their

previously performed OTS Year 2000 audit work.

AUDIT RESULTS

Overall, we concluded that OTS established an infrastructure for managing its conversion

effort and minimizing the risk that a Year 2000 induced failure would have on its mission

critical operations. OTS’ project management and strategies for conversion, testing, and

contingency planning were adequate to address their needs. No significant reportable

issues came to our attention. However, we made three suggestions which may assist the

OTS, as well as other bureaus, in sustaining their Year 2000 efforts. Details on the results

of our assessment, and our suggestions and OTS’ response to these suggestions are

provided below.

Project Management

OTS demonstrated a high level of awareness and dedication to its conversion effort. The

majority of costs associated with the conversion effort related to OTS’ oversight function

of the thrift industry. OTS was renovating its systems and using date expansion to the

four digit year, as prescribed by Treasury’s date standard. Of the 15 mission critical IT

systems at OTS, 13 have been repaired and implemented with the final systems scheduled

for implementation in late 1998.

System Conversion and Certification Process

OTS’ Year 2000 conversion process and certification plans were comprehensive and set

forth clear certification criteria. Notable efforts were the extensive end to end testing,

multiple certification testing, and the involvement by system owners in the testing of these

systems. For certification, OTS established a schedule of five time periods that

certification testing would take place. Depending on the work load during a scheduled
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time, certification may be performed several times. By final certification, OTS expected

that each mission critical system will have been certified at least twice.

Aside from the positive efforts noted above, we are making the following suggestions for

management to consider. As part of managing the Year 2000 conversion risk to an

acceptable level, strong change management controls for conversion integrity and

continued coordination with data exchange partners are two areas we believe warrant

mentioning.

Ensuring Year 2000 Conversion Integrity

It is important for OTS to ensure that subsequent modifications and environmental

changes do not nullify certified test results. Generally, the risk that a system may fail due

to system changes increases as January 1, 2000 approaches and the time available for

additional testing decreases. The risk associated with modifying a system will vary

depending on the timing and complexity of the changes. The closer system changes occur

to the end of testing and certification, the higher the risk. Additionally, the more

applications, programs, and interfaces affected by a specific change, the higher the risk to

conversion and testing integrity. As organizations complete system, integration, and end

to end testing, the likelihood increases that even small changes subsequent to these tests

could jeopardize the integrity of certification. Business users and management both have

critical roles for managing the risk of system changes. They both need to evaluate

potential changes in the context of Year 2000 compliance, and balance the risk to

operations of not implementing a change with the risk of rendering a system non-Year

2000 compliant.

One suggested practice to mitigate conversion risk is to adopt "freeze policies," or as done

by the Federal Reserve, put in place a "limitation window and moratorium policy1."

Whether an organization opts for a complete restriction or limited restriction, it is critical

that the timing of such a policy is driven by test schedules and progress. The more

systems that are tested and certified as Year 2000 compliant, or the more aggressive the

existing test schedule is, the lower the tolerance should be for approving changes.

Suggestion

1. We suggest that the OTS Director ensures a disciplined change management

process continues to maintain Year 2000 conversion integrity. Once a system has

been certified, steps need to be taken to ensure test integrity is maintained.

Subsequent changes, including platform upgrades, software enhancements, or any

system modification should be evaluated and approved with the understanding of

 

1

 Terms adopted from the Federal Reserve’s century date change management policy. The limitation

window is the period where there is a higher standard for requesting and approving system changes. A

moratorium would occur towards the end of the limitation window, closer to January 1, 2000, and would

further restrict changes.
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the implications. This could be accomplished by establishing specific criteria for

approving system changes. Criteria should address such factors as: nature, timing,

and extent of requested change; documented assessment of requested change;

extent of retesting required; and number of organizations and partners affected.

In response to this suggestion, OTS stated that additional testing during 1999 will

help ensure that changes to the system, the operating environment and external

interfaces have not impacted OTS’ Year 2000 readiness. Year 2000 testing of the

client server platform and the automated Report of Examination will be conducted

in 1999. Subsequent modifications to systems and the platform will be reviewed

by OTS’ Year 2000 IT team to assess the readiness risk.

Coordinating Pivots With Data Exchange Partners

Notable efforts at OTS include the thorough care in managing its interface inventory and

coordinating with its data exchange partners. OTS identified its data exchange partners

and mission critical and non-mission critical interfaces. The majority of the mission critical

interfaces were compliant. Bridges were developed, tested, and implemented for the noncompliant interfaces. OTS contacted all of its external exchange partners and reached

agreements on the resolution of any problems.

Nonetheless, for exchange partners using a windowing logic technique in lieu of a four

digit field expansion, special care needs to be given to coordinate pivots.2 For example,

all Treasury bureaus exchange payroll, budget, and accounting data with the Financial

Management Service (FMS) which uses the windowing logic technique. If exchange

partners choose different pivots, the century identifiers could be incorrectly inferred if

further processing, calculating, or sorting is performed on data transferred. For example,

if OTS is using a pivot date of 50 and its exchange partner is using a pivot date of 60, date

values in between 1950 through 1960 and 2049 through 2059 could be calculated in error.

Without coordination with exchange partners, bureaus may not adequately develop and

test new data exchange formats, nor apply the necessary bridges and filters to ensure the

exchanges will function properly. The greater the number and complexity of data

exchanges, the greater the challenge in identifying, synchronizing, and testing exchange

formats.

Suggestion

 

2 The windowing logic technique uses pivots to interpret a two digit year into a four digit year. All year

values above the pivot are understood to represent one century; while all values below the pivot are

understood to represent another century. Pivots refer to a number built into system logic to infer the 2

digit century identifier “19” or “20”. For example, a pivot of 50 infers 19 as the century identifier for

values 50-99 and infers 20 for values 0-49.
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2. We suggest that the OTS Director ensures data exchange procedures continue to

identify and coordinate pivot dates with its exchange partners. Where there are

differences in pivot dates, OTS should ensure that filters are installed to

synchronize and maintain the accuracy of century identifiers. This is especially

important between processing partners, i.e., those partners whose data is

transferred for further processing.

In response to this suggestion, OTS stated that it continues to monitor the Year

2000 compliance status of its external interfaces. Additionally, OTS contacted

FMS to ascertain the certification test plans and will continue to work with FMS

to ensure the exchange will function properly.

Contingency Plans for Business Continuity

OTS progressed significantly over the last few months in preparing business continuity

plans. OTS established clear guidance, expectations, and milestone dates for business

users with the responsibility for developing these plans. These plans were due for OTS

management review in September 1998. As of the end of our field work, these plans were

still being reviewed by OTS management and were not available for our evaluation.

It is management’s responsibility to reduce the risk of Year 2000 related failures and

maintain a minimum acceptable level of service. Contingency planning is required to

assure continuity of operations in the event of an unanticipated Year 2000 failure, and for

systems that will not be Year 2000 compliant. Contingency planning should address risks

not only with internal systems, but external risks with business partners and the public

infrastructure. Plans should identify resources, procedures, and appropriate training

required to carry out core business functions. Plans should clearly identify triggers for

implementation, be tested thoroughly, and continuously reevaluated. Steps should be

included that facilitate the restoration of normal services at the earliest possible time.

Suggestion

3. We suggest that the OTS Director ensures that management prioritizes and

facilitates the preparation and testing of contingency plans for each core business

function, as well as mission critical systems. As part of managing the development

and potential implementation of these plans, management should ensure that:

these plans consider both the internal and external risks; resources and

implementation triggers are identified; training in executing the plan is performed;

and the plans are periodically evaluated for reasonableness.

In response to this suggestion, OTS stated that it planned to develop contingency

plans later than recommended by GAO guidance. OTS’ approach called for

developing contingency plans after validation/certification testing took place. This

has enabled the Year 2000 compliance status of the system, its dependencies, and
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the validation testing results to be considered when assessing the risk for

contingency planning.

We appreciate the courtesies and cooperation provided to our auditors during the audit.

If you wish to discuss this report, you may contact me at (202) 622-1090 or a member of

your staff may contact Barry L. Savill, Director of Audit at (202) 283-0151.

cc: Treasury Departmental Offices

Assistant Secretary for Management and Chief Financial Officer

Deputy Assistant Secretary for Information Systems

and Chief Information Officer

Assistant Director of Information Technology Policy and Management

Director, Office of Organizational Improvement

Director, Office of Strategic Planning

Director Financial Management Division

Office of Budget

Desk Officer, Management and Controls Branch

Desk Officer, Office of Accounting and Internal Control

Office of Thrift Supervision

Cora Prifold Beebe, Executive Director of Administration

Arthur Oliver, Bureau OIG Liaison

Office of Management and Budget

Michael S. Crowley, Budget Examiner
Appendix 1

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MANAGEMENT RESPONSE
Appendix 1

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MANAGEMENT RESPONSE