The board has also established standing  committees to conduct certain oversight functions, such as monitoring the  implementation of audit report recommendations, to help manage the  agency. These  delegations are extensive and have been reviewed periodically to ensure  they are appropriate for FDIC’s current size and structure, and the current  banking environment. The committee also oversees the agency’s financial  reporting and internal controls, including reviewing and approving plans  for compliance with the audit and financial reporting provisions applicable  to government corporations, assessing the sufficiency of FDIC’s internal  control structure, and ensuring compliance with applicable laws,  regulations, and internal and external audit recommendations, all for the  purpose of rendering advice to the chairman of the board of directors. However, there are some activities that the board  cannot delegate. In response to the Inspector General’s recommendations, FDIC  is currently reviewing specific delegations of authority. FDIC Has Taken a Number of Actions to Strengthen Its Human Capital Framework and Align Its Human Capital Strategies with Its Mission and Goals

Effective management of human capital, where the workload can shift  dramatically depending on conditions in the economy and the banking  industry, is critical at FDIC. FDIC Created the Corporate Employee Program to Provide a Capable and Flexible Workforce, but Its Effects on Mission Critical Functions Are Unknown

A key part of FDIC’s human capital strategy is the Corporate Employee  Program, which cross trains employees in multiple FDIC divisions with the  objective of training them to respond rapidly to shifting priorities and  changes in workload. FDIC has also developed criteria  for hiring and training new employees in certain divisions. Also, some regional and field office employees stated they  had opportunities to ask questions about the program as it was being  developed, provided input into the development of the Corporate  Employee Program or were kept abreast of developments in the program  by their managers. But some of FDIC’s  evaluations were not done regularly or comprehensively. In  addition to its supervision of individual institutions, FDIC also conducts  broad monitoring and analysis of risks and trends in the banking industry  as a whole. According to FDIC officials,  the biggest dangers to the deposit insurance fund are large-scale bank  failures. FDIC Reviews Some of Its Risk Assessment Activities, but Some Evaluations Were Incomplete and Responsibility for Overseeing Evaluations Is Unclear

FDIC officials told us that evaluation and monitoring of its risk assessment  activities are critical parts of the agency’s mission and that such activities  are ingrained in the organization. FDIC has conducted simulations designed to test its plans for addressing a  key risk—increase in troubled and failed large institutions. FDIC has developed an extensive system for managing risk and has  developed structures and processes to ensure that the various parts of the  agency are working together to address key risks facing the agency. Clearly defining  how the agency will monitor and evaluate its risk activities could assist  FDIC in addressing or preventing weaknesses in its evaluations. Appendix I: Objectives, Scope, and Methodology

This report responds to a mandate included in the Federal Deposit  Insurance Reform Conforming Amendments Act of 2005 requiring the  Comptroller General to report on the appropriateness of FDIC’s  organizational structure. Specifically, this report focuses on three areas  that influence the effectiveness of FDIC’s organizational structure and  reflect key internal controls: (1) mechanisms used by the FDIC board of  directors to oversee and manage the agency; (2) FDIC’s human capital  strategies and how training and development programs are evaluated; and  (3) FDIC’s process for monitoring and assessing risks to the industry and  the deposit insurance fund and how that process is overseen and  evaluated. To obtain more information on how FDIC’s board  manages and oversees the agency, we conducted interviews with members  of FDIC’s current board of directors and the board’s Audit Committee  members.
Why GAO Did This Study

The Federal Deposit Insurance Reform Conforming Amendments Act of 2005 requires GAO to report on the effectiveness of Federal Deposit Insurance Corporation's (FDIC) organizational structure and internal controls. GAO reviewed (1) mechanisms the board of directors uses to oversee the agency, (2) FDIC's human capital strategies and how its training initiatives are evaluated, and (3) FDIC's process for monitoring and assessing risks to the banking industry and the deposit insurance fund, including its oversight and evaluation. To answer these objectives, GAO analyzed FDIC documents, reviewed recommended practices and GAO guidance, conducted interviews with FDIC officials and board members, and conducted site visits to FDIC regional and field offices in three states.

What GAO Found

FDIC's five-member board of directors is responsible for managing FDIC. Information and communication channels have been established to provide board members with information on the agency's operations and to help them oversee the agency. The board also has four standing committees for key oversight functions. For example, the audit committee primarily oversees the agency's implementation of FDIC Inspector General audit recommendations. Finally, because the board cannot oversee all day-to-day operations, the board delegates certain responsibilities to senior management. FDIC has procedures for issuing and revising its delegations of authority, which help ensure that the delegations are appropriate for its current structure and banking environment. FDIC has reviewed specific delegations on occasion at the request of a board member, management, and more recently in response to an Inspector General report's recommendation. Management of human capital is critical at FDIC because the agency's workload can shift dramatically depending on the financial condition of the banking industry. FDIC uses an integrated approach, where senior executives come together with division managers, to develop human capital initiatives, and the agency has undertaken activities to strengthen its human capital framework. FDIC created the Corporate Employee Program to develop new employees and provide training in multiple disciplines so they are better prepared to serve the needs of the agency, particularly when the banking environment changes. Some FDIC employees thought the program had merit, but they expressed concerns about whether certain aspects of the program could slow down the development of expertise in certain areas. FDIC, through its Corporate University, evaluates its training programs, and officials are developing a scorecard that includes certain output measures showing progress of key training initiatives towards its goals. Officials told us that they would like to have outcome measures showing the effectiveness of their key training initiatives but have faced challenges developing them. However, outcome measures could help address employee concerns and ensure that the Corporate Employee Program achieves the agency's goals. FDIC has an extensive system for assessing and monitoring external risks. FDIC's system includes supervision of individual financial institutions and analysis of trends affecting the health of financial institutions. FDIC has also developed contingency plans for handling the greatest dangers to the deposit insurance fund--particularly the failure(s) of large institutions. In addition to risk assessment, a key internal control is monitoring risk assessment activities on an ongoing basis. FDIC has evaluated several of its risk activities, but most of the evaluations we reviewed were not conducted regularly or comprehensively. For example, some simulations of its plans for handling large bank failures were either out of date or inconsistent with FDIC's guidance. Developing policies and procedures and clearly defining how it will monitor and evaluate its risk activities could assist FDIC in addressing or preventing weaknesses in its evaluations.