4. Financial Statements and Notes
April 11, 2012
Mr. Steven J. Sebastian
Director, Financial Management and Assurance
U.S. Government Accountability Office
441 G Street, NW
Washington, DC 20548
Re: FDIC Management Response on the GAO 2011 Financial Statements Audit Report
Dear Mr. Sebastian:
Thank you for the opportunity to review and comment on the U.S. Government Accountability Office’s (GAO’s) draft report titled, Financial Audit: Federal Deposit Insurance Corporation Funds’ 2011 and 2010 Financial Statements, GAO-12-416. We are pleased that the Federal Deposit Insurance Corporation (FDIC) received an unqualified opinion for the twentieth consecutive year on the financial statements of its funds: the Deposit Insurance Fund (DIF) and the FSLIC Resolution Fund (FRF). Also, GAO reported that the FDIC had effective internal control over financial reporting and compliance with laws and regulations for each fund, and there was no reportable noncompliance with the laws and regulations that were tested. GAO did report a significant control deficiency in FDIC's process for deriving and reporting estimates of losses to the DIF from resolution transactions involving shared loss agreements.
During the audit year, the FDIC management and staff continued to take steps to strengthen and improve controls over the shared loss estimation process and will continue to focus on this area in the coming audit year. FDIC recognizes the important role a strong internal control program plays in an agency achieving its mission. Our dedication to sound financial management has been and will remain a top priority.
In complying with audit standards that require management to provide a written assertion about the effectiveness of its internal control over financial reporting, the FDIC has prepared Management’s Report on Internal Control over Financial Reporting (see attachment). The report acknowledges management’s responsibility for establishing and maintaining internal control over financial reporting and provides the FDIC’s conclusion regarding the effectiveness of its internal control.
We want to thank the GAO staff for their professionalism and dedication during the audit and look forward to a productive and successful relationship during the 2012 audit. If you have any questions or concerns, please do not hesitate to contact me.
Steven O. App
Deputy to the Chairman
and Chief Financial Officer
Managementís Report on Internal Control over Financial Reporting
The Federal Deposit Insurance Corporationís (FDICís) internal control over financial reporting
is a process effected by those charged with governance, management, and other personnel,
designed to provide reasonable assurance regarding the preparation of reliable financial statements
in conformity with U.S. generally accepted accounting principles (GAAP), and compliance
with applicable laws and regulations. The objective of the FDICís internal control over financial
reporting is to reasonably assure that (1) transactions are properly recorded, processed and
summarized to permit the preparation of financial statements in accordance with GAAP, and assets
are safeguarded against loss from unauthorized acquisition, use, or disposition; and (2) transactions
are executed in accordance with the laws and regulations that could have a direct and material
effect on the financial statements.
Management is responsible for establishing and maintaining effective internal control over
financial reporting. Management assessed the effectiveness of the FDICís internal control over
financial reporting as of December 31, 2011, through its corporate risk management program
that seeks to comply with the spirit of the following standards, among others: Federal Managersí
Financial Integrity Act of 1982 (FMFIA); Chief Financial Officers Act (CFO Act); Government
Performance and Results Act (GPRA); Federal Information Security Management Act (FISMA);
and OMB Circular A-123. In addition, other standards that the FDIC considers are the
framework set forth by the Committee of Sponsoring Organizations of the Treadway Commissionís
Internal Control Ė Integrated Framework and the U.S. Government Accountability Officeís (GAOís) Standards for Internal Control in the Federal Government.
Based on the above assessment, management concluded that, as of December 31, 2011, FDIC’s internal control over financial reporting is effective based upon the criteria established in FMFIA.
Federal Deposit Insurance Corporation
April 11, 2012