Federal Deposit
Insurance Corporation

Our experience has found that the reporting terminology outlined in the Inspector General Act of 1978, as amended, often confuses people. To lessen such confusion and place these terms in proper context, we present the following discussion:

The Inspector General Act defines the terminology and establishes the reporting requirements for the identification and disposition of questioned costs in audit reports. To understand how this process works, it is helpful to know the key terms and how they relate to each other:

The first step in the process is when the audit report identifying questioned costs is issued to FDIC management. Auditors question costs because of an alleged violation of a provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or document governing the expenditure of funds. In addition, a questioned cost may be a finding in which, at the time of the audit, a cost is not supported by adequate documentation; or, a finding that the expenditure of funds for the intended purpose is unnecessary or unreasonable.

The next step in the process is for FDIC management to make a decision about the questioned costs. The Inspector General Act describes a "management decision" as the final decision issued by management after evaluation of the finding(s) and recommendation(s) included in an audit report, including actions deemed to be necessary. In the case of questioned costs, this management decision must specifically address the questioned costs by either disallowing or not disallowing these costs. A "disallowed cost," according to the Inspector General Act, is a questioned cost that management, in a management decision, has sustained or agreed should not be charged to the government.

Once management has disallowed a cost and, in effect, sustained the auditor's questioned costs, the last step in the process takes place which culminates in the "final action." As defined in the Inspector General Act, final action is the completion of all actions that management has determined, via the management decision process, are necessary to resolve the findings and recommendations included in an audit report. In the case of disallowed costs, management will typically evaluate factors beyond the conditions in the audit report, such as qualitative judgements of value received or the cost to litigate, and decide whether it is in the Corporation's best interest to pursue recovery of the disallowed costs.The Corporation is responsible for reporting the disposition of the disallowed costs, the amounts recovered, and amounts not recovered.

Except for a few key differences, the process for reports with recommendations that funds be put to better use is generally the same as the process for reports with questioned costs. The audit report recommends an action that will result in funds to be used more efficiently rather than identifying amounts that may need to be eventually recovered. Consequently, the management decisions and final actions address the implementation of the recommended actions and not the disallowance or recovery of costs.

It is important to note that the OIG does not always expect 100 percent recovery of all costs questioned.

This table shows the corrective actions management has agreed to implement but has not completed, along with associated monetary amounts. In some cases, these corrective actions are different from the initial recommendations made in the audit reports. However, the OIG has agreed that the planned actions meet the intent of the initial recommendations. The information in this table is based on information supplied by the FDIC's Office of Internal Control Management (OICM). These 35 recommendations from 9 reports involve monetary amounts of over $12.4 million. OICM has categorized the status of these recommendations as follows:

Management Action in Process: (15 recommendations from 6 reports) Management is in the process of implementing the corrective action plan, which may include modifications to policies, procedures, systems or controls; issues involving monetary collection; and settlement negotiations in process.

Litigation: (20 recommendations from 3 reports) Each case has been filed and is considered "in litigation." The Legal Division will be the final determinant for all items so categorized.

For hard work and innovation while working together to organize an Emerging Issues Symposium for the Offices of Inspector General of the Federal Deposit Insurance Corporation, the Department of the Treasury, and the Board of Governors of the Federal Reserve System

• Thomas J. Mroczko
• Tiffani P. Kinzer
• H. Vernon Davis (formerly with FDIC OIG, now retired)
• Leslye Burgess (formerly with FDIC OIG, now with Treasury OIG)

For outstanding work performed on the Review of Issues Related to the Failure of Superior Bank, FSB, Hinsdale, Illinois

• Michael R. Lombardi
• Philip B. Anderson
• John J. Colantoni
• Jeff B. Smullen
• James F. Misch
• Daniel J. Olberding
• H. Vernon Davis (formerly with FDIC OIG, now retired)
• Leslye K. Burgess (formerly with FDIC OIG, now with Treasury OIG)

• Ted Baca

• Magdaleno Velasquez
• Leslee A. Bollea

OIG Hotline

The Office of Inspector General (OIG) Hotline is a convenient mechanism employees, contractors, and others can use to report instances of suspected fraud, waste, abuse and mismanagement within the FDIC and its contractor operations. The OIG maintains a toll-free, nationwide Hotline (1-800-964-FDIC), electronic mail address (IGhotline@FDIC.gov), and postal mailing address. The Hotline is designed to make it easy for employees and contractors to join with the OIG in its efforts to prevent fraud, waste, abuse, and mismanagement that could threaten the success of FDIC programs or operations.