January 2008 Report No. AUD-08-004 Verification of the FDIC's Data…

January 2008
Report No. AUD-08-004


Verification of the FDIC's Data
Submissions through the
Governmentwide Financial Report
System as of September 30, 2007




            AUDIT REPORT
Federal Deposit Insurance Corporation                                                                 Office of Audits
3501 Fairfax Drive, Arlington, VA 22226                                                  Office of Inspector General




DATE:                                     January 28, 2008

MEMORANDUM TO:                            Bret D. Edwards
                                          Director, Division of Finance


                                          /Signed/
FROM:                                     Russell A. Rau
                                          Assistant Inspector General for Audits

SUBJECT:                                  Attestation Report Entitled, Verification of the FDIC's Data
                                          Submissions through the Governmentwide Financial Report
                                          System as of September 30, 2007 (Report No. AUD-08-004)


This report presents the results of our attestation engagement related to the FDIC's financial data
transmitted to the Department of the Treasury (Treasury) to satisfy submissions for the
September 30, 2007 governmentwide financial statements. The FDIC's Office of Inspector
General (OIG) was requested, and agreed, to assist with the FDIC's submission of financial data
for the governmentwide financial statements. For this engagement, we performed procedures
that were agreed-upon by the FDIC's Division of Finance (DOF), which was responsible for
preparing the FDIC's financial statements. The attestation objective was to verify, through the
agreed-upon procedures, whether financial data, submitted by the FDIC through the
Governmentwide Financial Report System (GFRS) as of the September 30, 2007 yearend, were
recorded in accordance with the FDIC's policies and procedures. This yearend is used for the
financial statements of the U.S. Government that include certain FDIC data. The agreed-upon
procedures we performed were to:

     1. Verify the financial amounts submitted in the GFRS to source FDIC records. The source
        for unaudited data (that is, other than the FDIC's audited calendar-yearend information)
        was the FDIC's New Financial Environment (NFE), which incorporates the FDIC's
        general ledger.

     2. Review the FDIC's identification of all federal trading partners and verify that any
        differences between the FDIC's records and the trading partners' records are noted and
        evaluated for materiality.

     3. Review the FDIC-provided footnotes to the GFRS financial statement data.

     4. "Lock" the GFRS financial statement data submissions after the FDIC submits its data.
        The "lock" is based on the items we reviewed using procedures 1 through 3.
   5. Obtain the FDIC's interim management and legal representation letters for the fiscal year
      ended September 30, 2007.

   6. Summarize OIG work and conclusions formally through an attestation report.


BACKGROUND

Over the years, various federal statutes have been enacted regarding the preparation of financial
statements by federal agencies, including the FDIC. The statutes require federal agencies to
provide financial information to the Secretary of the Treasury for the preparation of
governmentwide financial reports. The procedures for providing financial data to the Treasury
are described in the Treasury Financial Manual (the Manual), which describes how agencies are
to submit data through the GFRS. The Manual requires the Inspector General of each verifying
agency, except those agencies with a yearend other than September 30, to opine on data entered
into the GFRS, regarding their consistency with the audited consolidated, department-level
financial statements. The verifying agencies with a yearend other than September 30 are subject
to all requirements of the Manual except for the requirement for an audit of the agencies' GFRS
data. The FDIC falls within this exception because the Corporation reports annual financial
results on a December 31 yearend basis. Therefore, the OIG developed agreed-upon procedures
to perform a validation function, called "locking," of the data the FDIC entered into various
modules within the GFRS as of the September 30, 2007 yearend.


ATTEST ENGAGEMENT SCOPE

We performed this engagement in accordance with attestation standards established by the
American Institute of Certified Public Accountants and the Government Auditing Standards,
issued by the Comptroller General of the United States. The procedures we performed and our
associated conclusions are presented in the Appendix to this report. The sufficiency of the
agreed-upon procedures is solely the responsibility of DOF. Additionally, FDIC management is
responsible for the proper accounting, presentation, and reporting of (1) its consolidated financial
statements and (2) the information in the GFRS.

We were not engaged to, and did not perform, an audit of the matters addressed herein, the
objective of which would be the expression of an opinion on such information. Accordingly, we
do not express such an opinion. Had we performed additional procedures, other matters might
have come to our attention that would have been reported to you.

This report is intended solely for the information and use of the United States Office of
Management and Budget (OMB), Government Accountability Office (GAO), Treasury, and the
FDIC and is not intended to, and should not, be used by anyone other than these specified
parties.




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                                                                                      APPENDIX



    VERIFICATION OF THE FDIC'S DATA SUBMISSIONS THROUGH THE
 GOVERNMENTWIDE FINANCIAL REPORT SYSTEM AS OF SEPTEMBER 30, 2007


Procedure 1

Verify the financial amounts submitted in the GFRS to source FDIC records. The source for
unaudited data (that is, other than the FDIC's audited calendar-yearend information) was the
FDIC's New Financial Environment (NFE), which incorporates the FDIC's general ledger.

Conclusions:

       1) The financial amounts submitted in the GFRS were supported by the FDIC's general
          ledger balances maintained in the NFE.

       2) The FDIC's September 30, 2007 financial information, which included unaudited
          calendar-yearend information, must be modified to include routine FDIC-generated
          yearend adjustments that bring the FDIC's financial statements into compliance with
          the federal government financial reporting standards. Necessary adjustments totaling
          over $700 million were required for fair financial presentations at September 30,
          2007 and for the fiscal year then ended and exceeded our testing materiality
          threshold. We reviewed the adjustments to ensure they were appropriate.

       3) The September 30, 2007 fiscal yearend financial information included audited FDIC
          data for one quarter--October 1, 2006 through December 31, 2006. Any adjustments
          proposed and posted by the FDIC's external auditor, GAO, could impact the
          September 30, 2007 fiscal-yearend data submitted into GFRS. GAO did not propose
          audit adjustments for the December 31, 2006 calendar yearend.



Procedure 2

Review the FDIC's identification of all federal trading partners and verify that any differences
between the FDIC's records and the trading partners' records are noted and evaluated for
materiality.

Conclusions:

       1) We traced the FDIC's trading partner activities/balances from the GFRS
          intragovernmental transactions trading partner data (data submitted by the verifying
          agencies) to the FDIC's supporting reconciliation schedules. We noted only
          immaterial differences.

       2) The FDIC had contacted all of its trading partners in an effort to explain noted
          differences in intragovernmental activity, but in a number of instances, responses



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           from the applicable trading partners were not received. Without cooperation from the
           other trading partners, the FDIC cannot completely reconcile its intragovernmental
           activities.

       3) The FDIC was not able to reconcile all of its intragovernmental activities and
          balances reported in the GFRS trading partner data to the transactions reported by its
          trading partners. GAO noted this as an internal control weakness dating to 2003 and
          further noted that the FDIC had increased the number of reconciliations performed in
          an effort to reconcile intergovernmental activity. The trading partner balances not
          successfully reconciled as of September 30, 2007 were well under our testing
          materiality thresholds and were insignificant to the overall FDIC balance sheet, and,
          therefore, had no material impact on the September 30, 2007 fiscal-yearend GFRS
          data submissions.



Procedure 3

Review the FDIC-provided footnotes to the GFRS financial statement data.

Conclusion:

       The FDIC properly provided footnote data in the GFRS.



Procedure 4

"Lock" the GFRS financial statement data submissions after the FDIC submits its data. The
"lock" is based on the items we reviewed using procedures 1 through 3.

Conclusion:

       The OIG locked the FDIC's GFRS data submissions for financial information as of
       September 30, 2007 and the fiscal year then ended, in accordance with GFRS
       requirements as defined in the Treasury Financial Manual.



Procedure 5

Obtain the FDIC's interim management and legal representation letters for the fiscal year ended
September 30, 2007.




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Conclusion:

       We obtained the FDIC's management and legal representation letters for the FDIC
       financial representations at September 30, 2007 and the fiscal year then ended. DOF
       provided copies to OMB and GAO in accordance with the Treasury Financial Manual.
       There were no disclosures in either of these documents that would impact the financial
       data submitted into GFRS for the fiscal-yearend September 30, 2007.



Procedure 6

Summarize OIG work and conclusions formally through an attestation report.

       This report presents the results of our attestation engagement.




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