|
2007
Annual Report
IV. Financial Statements and Notes
GAO's Audit Opinion
Comptroller General
of the United States
United States Government Accountability Office
Washington, D.C. 20548 |
To the Board of Directors
The Federal Deposit Insurance Corporation
In accordance with Section 17 of the Federal Deposit Insurance Act,
as amended, we are responsible for conducting audits of the financial
statements of the two funds administered by the Federal Deposit
Insurance Corporation (FDIC). In our audits of the Deposit Insurance
Fund's (DIF) and the FSLIC Resolution Fund's (FRF) financial
statements for 2007 and 2006, we found
- the financial statements as of and for the years ended
December 31, 2007, and 2006, are presented fairly, in all
material respects, in conformity with U.S. generally accepted
accounting principles;
- FDIC had effective internal control over financial reporting
(including safeguarding assets) and compliance with laws and
regulations for each fund; and
- no reportable noncompliance with laws and regulations we
tested.
The following sections discuss in more detail (1) these conclusions;
(2) our audit objectives, scope, and methodology; and (3) agency
comments and our evaluation.
Opinion
on DIF's Financial Statements
The financial statements, including the accompanying notes, present
fairly, in all material respects, in conformity with U.S. generally
accepted accounting principles, DIFs assets, liabilities, and fund
balance as of December 31, 2007, and 2006, and its income and fund
balance and its cash flows for the years then ended.
As discussed in note 6 to DIF's financial statements, FDIC's insured
financial institutions faced increased challenges in 2007. The downturn
in housing markets led to asset-quality problems and volatility
in financial markets, which hurt banking industry performance and
threatened the viability of some institutions that had significant
exposure to higher-risk residential mortgages. It is uncertain how
long the effects of this downturn will last. In addition to a recorded
estimated liability of $124 million as of December 31, 2007, for
the anticipated failure of some DIF insured institutions, FDIC has
identified additional risk that could result in a further estimated loss
to the DIF of $1.7 billion should potentially vulnerable insured
institutions ultimately fail. FDIC continues to evaluate the risks to
affected institutions in light of evolving economic conditions, but
the impact of such risks on the DIF cannot be reasonably estimated
at this time. Actual losses, if any, will largely depend on future
economic and market conditions and could differ materially from
FDIC's estimates.
Opinion
on FRF's Financial Statements
The financial statements, including the accompanying notes, present
fairly, in all material respects, in conformity with U.S. generally
accepted accounting principles, FRF's assets, liabilities, and resolution
equity as of December 31, 2007, and 2006, and its income and
accumulated deficit and its cash flows for the years then ended.
Opinion on Internal Control
FDIC management maintained, in all material respects, effective
internal control over financial reporting (including safeguarding
assets) and compliance as of December 31, 2007, that provided
reasonable assurance that misstatements, losses, or noncompliance
material in relation to the financial statements for each fund would
be prevented or detected on a timely basis. Our opinion is based
on criteria established under 31 U.S.C. 3512 (c), (d), commonly
known as the Federal Managers' Financial Integrity Act (FMFIA).
We did identify certain control deficiencies during our 2007
audits. However, we do not consider these control deficiencies
to be significant deficiencies.1 We will be reporting separately
to FDIC management on these matters.
Compliance with Laws and Regulations
Our tests for compliance with selected provisions of laws and
regulations disclosed no instances of noncompliance that would
be reportable under U.S. generally accepted government auditing
standards. However, the objective of our audits was not to provide an
opinion on overall compliance with laws and regulations. Accordingly,
we do not express such an opinion.
Objectives, Scope, and Methodology
FDIC management is responsible for (1) preparing the annual financial
statements in conformity with U.S. generally accepted accounting
principles; (2) establishing, maintaining, and assessing internal
control to provide reasonable assurance that the broad control
objectives of FMFIA are met; and (3) complying with applicable
laws and regulations.
We are responsible for obtaining reasonable assurance about whether
(1) the financial statements are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting
principles, and (2) management maintained effective internal control,
the objectives of which are the following:
- financial reporting–transactions are properly recorded, processed,
and summarized to permit the preparation of financial statements
in conformity with U.S. generally accepted accounting principles,
and assets are safeguarded against loss from unauthorized acquisition,
use, or disposition, and
- compliance with laws and regulations–transactions are executed
in accordance with laws and regulations that could have a direct
and material effect on the financial statements.
We are also responsible for testing compliance with selected provisions
of laws and regulations that could have a direct and material effect
on the financial statements.
In order to fulfill these responsibilities, we
- examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements;
- assessed the accounting principles used and significant estimates made by management;
- evaluated the overall presentation of the financial statements;
- obtained an understanding of internal control related to financial reporting (including safeguarding assets) and compliance with laws and regulations;
- tested relevant internal controls over financial reporting and compliance, and evaluated the design and operating effectiveness of internal control;
- considered FDIC's process for evaluating and reporting on internal control based on criteria established by FMFIA; and
- tested compliance with certain laws and regulations, including selected provisions of the Federal Deposit Insurance Act, as amended, the Federal Deposit Insurance Reform Act of 2005.
We did not evaluate all internal controls relevant to operating
objectives as broadly defined by FMFIA, such as those controls
relevant to preparing statistical reports and ensuring efficient
operations. We limited our internal control testing to controls over
financial reporting and compliance. Because of inherent limitations
in internal control, misstatements due to error or fraud, losses, or
noncompliance may nevertheless occur and not be detected. We
also caution that projecting our evaluation to future periods is
subject to the risk that controls may become inadequate because
of changes in conditions or that the degree of compliance with
controls may deteriorate.
We did not test compliance with all laws and regulations applicable
to FDIC. We limited our tests of compliance to those laws and
regulations that could have a direct and material effect on the financial
statements for the year ended December 31, 2007. We caution that
noncompliance may occur and not be detected by these tests and that
such testing may not be sufficient for other purposes.
We performed our work in accordance with U.S. generally accepted government auditing standards.
FDIC Comments and Our Evaluation
In commenting on a draft of this report, FDIC's Chief Financial
Officer (CFO) reported the agency was pleased to receive unqualified
opinions on the DIF and FRF financial statements and that GAO
did not identify any material weaknesses or significant deficiencies
during the 2007 audits. FDIC's CFO also expressed appreciation for
GAOs recognition of FDIC's accomplishments during the 2007 audit
year. The CFO added that FDIC is dedicated to promoting the highest
standard of financial management and that FDIC will work diligently
to sustain that focus. Furthermore, the CFO added that continued
improvements in operations remain a priority for FDIC.
The complete text of FDIC's comments is reprinted in appendix I.
David M. Walker
Comptroller General of the United States
February 4, 2008
1 A significant deficiency is a control deficiency, or combination of deficiencies, that adversely
affects the entitys ability to initiate, authorize, record, process, or report financial data reliably
in accordance with generally accepted accounting principles such that there is more than a remote
likelihood that a misstatement of the entitys financial statements that is more than inconsequential
will not be prevented or detected.
|