Skip to content

Judicial Watch • Treasuryreport

Treasuryreport

Treasuryreport

Page 1: Treasuryreport

Category:

Number of Pages:17

Date Created:October 25, 2012

Date Uploaded to the Library:October 14, 2014

Tags:Treasuryreport, fincen, SSBCI, coast, Restoration, challenge, institutions, Programs, Business, USDA, Department of the Treasury, cfpb, mexico, Small, Frank, program, treasury, funds, department, trust, office, IRS, financial


File Scanned for Malware

Donate now to keep these documents public!


See Generated Text   ∨

Autogenerated text from PDF

DEPARTMENT THE TREASURY 
WASHINGTON, D.C. 20220 

October 25, 2012 
OFFICE 
INSPECTOR GENERAL 

INFORMATION MEMORANDUM FOR 
FROM: 	Eric Thorson 
Inspector General 

SUBJECT: 	Management and Performance Challenges Facing the Department the Treasury (OJG-CA-13-002) accordance with the Reports Consolidation Act 2000, are providing you with our 
perspective the most serious management and performance challenges facing the Department the Treasury. assessing the Department's most serious challenges, are mindful the fragile state the 
economy. Despite the efforts the Administration and the Congress, the economic recovery 
the United States has been slow, paii, because economic conditions other parts the 
world such the European Union and China. Last year, acknowledged that, looking for 
ways address this country's budget deficit, cuts programs and operations were likely although the extent and the speci fie nature any cuts were m1known. That situation remains 
the same today. Very soon, the Administration and the Congress will need address the "fiscal 
cliff" relates the expiration the Bush-era tax cuts, the payroll tax holiday, and the 
automatic spending cuts from the sequestration agreement reached part the debt ceiling compromise last year. While the results the upcoming national election may bring some clarity the direction the federal govenm1ent will take address these matiers, that direction expected require significant sacrifices. 
With that backdrop, Treasury has, recent years, had administer additional responsibilities intended support and improve the country's economy. order so, 
nearly every case, the Department had start and administer these new responsibilities with very thin staffing and resources. July this year, the Department was given another new responsibility -the Gulf Coast Restoration Trust Fund -with additional resources administer it. know that the Department's senior leadership fully cognizant these pressures 
and the need for strong management. That said, the Department faced with reduced funding, office will monitor and examine the effect Treasury's programs and operations. Like last year ca1mot emphasize enough the Department's stakeholders the critical importance that
Treaswy resourced sufficiently maintain strong control enviromnent. 

This year are reporting four challenges, three which are repeated from last year. 
 
Transfom1ation Financial Regulation (Repeat Challenge) 
 
Management Treasury's Authorities Intended Support and Improve the Economy 
(Repeat Challenge) 
 
Anti-Money Laundering and TetTorist Financing/Bank Secrecy Act Enforcement (Repeat 
Challenge) 
 
Gulf Coast Restoration Trnst Fund Administration (New Challenge) removed one challenge from last year -Management Capital Investments -as the Department demonstrated improved governance the development two major investments, Treasury Network (TNet) and the Financial Crimes Enforcement Network (FinCEN) Bank Secrecy Act Infonnation Technology Modernization (BSA Mod) program. While the removal this challenge major accomplishment, caution that going forward, engaged senior management involvement essential any successful systems development effort. addition the above challenges, are rep01ting elevated concerns about three matters cyber security, cunency and coin production, and documenting key activities and decisions. also note the actions Treasury undertaking consolidate and restructure the Bureau the Public Debt (BPD) and the Financial Management Service (FMS) into the Bureau the Fiscal Service (BFS). 
2012 Management and Performance Challenges 
Challenge Transformation Financial Regulation (Repeat Challenge) response the need for financial reform, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) July 2010. Dodd-Frank established new responsibilities for Treasury and created new offices tasked fulfill those responsibilities. 
Dodd-Frank established the Financial Stability Oversight Council (FSOC), which you chair the Treasury Secretary. FSOC's mission identify risks financial stability that could arise from the activities large, interconnected financial companies respond any emerging tlueats the financial system; and promote market discipline. FSOC accomplished nun1ber things over the last year. 

Annual -As required, FSOC issued its second annual report July 2012. The 
report contained recommendations further refom1s address structural vulnerabilities key markets, (2) heighten risk management and supervisory attention specific areas, 
(3) take steps address refonn the housing finance market, and (4) ensure 
implementation and coordination financial regulatory refonn. 

designated eight financial market utilities systemically important. The financial market utilities are subject risk management standards governing the operations related the payment, clearing, and settlement activities and (2) additional examinations and repo11ing requirements, well potential enforcement actions. 

Frank calls for consolidated supervision and heightened prudential standards for large, 
interco1U1ected nonbank financial companies. this regard, the Board Govemors the 
Federal Reserve System (FRB) responsible for supervising these finns and adopting 
specific prudential rules. April 2012, FSOC adopted final rule and interpretative 
guidance related designating nonbank financial companies for consolidated supervision. 
FSOC still has quite bit work ahead meet all its responsibilities. For example, still the process designating the first group non bank financial institutions for consolidated supervision. That said, FSOC continues its work monitoring the stability U.S. and European markets. Additionally, note that you the Secretary the Treasury recently released letter the urgent need for money market fund refonn completed either the Securities and Exchange Commission FSOC.  
The Council Inspectors General Financial Oversight (CIGFO), which chair, was also established Dodd-Frank. facilitates the sharing infom1ation among member inspectors general with focus reporting our concerns that may apply the broader financial sector and ways improve financial oversight. Accordingly, CIGFO important SO".lfCe independent analysis FSOC. required, CIGFO met quaiterly and issued its second annual report July 2012. CIGFO also established its first working group December 2011. This working group evaluated FSOC controls over non-public infomrntion and the manner which FSOC, 

whole, safeguarded information from unauthorized sources. The working group issued its report June 2012 which highlighted several areas for FSOC's consideration moves forward. the future, CIGFO will continue reviewing FSOC's compliance with Dodd-Frailk ensure continued rigorous oversight the U.S. financial system. 
Dodd-Frank also established two new offices within Treasury: the Office Financial Research (OFR) and the Federal Insurance Office (FI0).2 OFR the data collection, research and analysis am1 ofFSOC. December 2011, the President nominated Mr. Richard Bemer serve Director. The Director position currently remains vacant while Mr. Berner's confirmation under consideration the Senate. Among other duties, the OFR Director repo1t Congress annually the office's activities and its assessments systemic risk, with the first repo1t due The term "financial market utility" means any person that manages operates multilateral system for the purpose transferring, clearing, settling payments, securities, other financial transactions among financial institutions between financial institutions and that person. However, the term does not include entities such national securities exchanges, national securities associations, and many others. should noted that Dodd-Frank also established two other new offices within Treasury-the Offices Minority and Women Inclusion Depaitmental Offices and the Office the Comptroller the Currency. Our future work plan includes reviews these new offices. 
July 12. Despite not having confinned Director, OFR issued its annual report. Furthennore, June 2012, completed review the stand-up OFR and rep011ed that the months since OFR was created, efforts establish the office were still progress. The officials responsible for establishing OFR initially engaged high-level strategic and organizational planning and sought hire key personnel. They also focused their attention developing and facilitating the global acceptance universal Legal Entity Identifier (LEI). the summer 2011, after key operational personnel were brought board, noted that progress toward establishing comprehensive implementation planning and project management process accelerated. This culminated the approval methodology January 2012, strategic framework March 2012, and strategic "roadmap" April 2012. While well over year had passed since OFR was established, concluded that these documents and methodology, taken together, finally provide OFR with comprehensive implementation plan. This plan lays out the expected evolution OFR's capabilities, reaching mature state fiscal year 2016. Concurrent with the development its comprehensive implementation plan, OFR also began develop its analytic and data support for FSOC, and its Research and Analysis Center has sponsored seminars and published two working papers risk assessment topics. 
The FIO charged with monitoring the insurance. industry, including identifying gaps issues the regulation insurance that could contribute systemic crisis the insurance industry financial system. The FIO Director, whom you appointed March 11, advise FSOC insurance matters. are currently reviewing the stand-up FIO. 
The other regulatory challenges that discussed last year still remain. Specifically, since September 2007, 126 financial institutions supervised the Office the Comptroller the Currency (OCC) the fom1er Office Thrift Supervision (OTS) have failed, with estimated losses the Deposit Insurance Fund approximately billion. This increase financial institutions since last challenges memorandum. With more than 450 banks the Federal Deposit Insurance Corporation's troubled bank list, anticipate bank failures continue into the foreseeable future but lower rate than recent years. 
Although many factors contributed the tu11110il the financial markets, our failed bank reviews generally found that OCC and the former OTS did not identify early force timely correction unsafe and unsound practices numerous failed institutions under their respective supervision. Furthe1111ore, I0, the unprecedented speed which servicers foreclosed defaulted mo11gages revealed flaws the processing those foreclosures. response, the federal banking regulators completed review foreclosure practices major mortgage servicers. The review found deficiencies the servicers' foreclosure processes including weak management oversight, foreclosure docwnent deficiencies, poor oversight third parties involved the foreclosure process, and inadequate risk control systems. result, the federal banking regulate.rs issued fomrnl enforcement actions against mortgage servicers and third party providers subject the review. are currently reviewing OCC's oversight the servicers' efforts comply with the enforcement actions. While too soon tell whether LEI being developed the universal standard for identifying all parties financial contracts. key element OFR's efforts understand and monitor risks financial stability and meet its statutory mandate develop and promote data standards. 

these servicing deficiencies have been addressed, the time, the foreclosure crisis did not help already stressed housing market. last memorandw11, noted that Treasmy was successful standing the Bureau 
Consumer Financial Protection (CFPB). CFPB independent bureau FRB but Treasury 
has unique role its operations. Specifically, until Director confitmed the Senate, you 
are charged with exercising some, but not all, the Director's authorities. January 2012, the 
President made recess appointment Mr. Richard Cordray Director. However, recess 
appointments expire the end the Senate's next session -accordingly Mr. Cordray's 
appointment will end late 2013, when fonnally confi1med the Senate, when another 
individual nominated, confomed, and permanently appointed the position. Legislation has 
also been proposed change the form govemance over CFPB. The FRB Inspector General 
designated Dodd-Frank provide oversight CFPB. However, given Treasury's statutory 
role, our otlice will coordinate with the FRB Office Inspector General when necessary 
CFPB oversight matters. 
Clearly, have said the past, the intention Dodd-Frank most notably prevent, least minimize, the impact futme financial sector crisis the U.S. economy. accomplish this, Dodd-Frank has placed great responsibility within Treasury and with the Treasury Secretary. This management challenge from our perspective maintain effective FSOC process supported OFR and FIO within Treasury and build streamlined banking regulatory structure that timely identifies and strongly responds emerging risks. This especially important times economic growth and financial institution profitability, when such government action generally unpopular. 
Challenge Management Treasury's Authorities Intended Support and Improve the Economy (Repeat Challenge) 
Congress provided Treasury with broad authorities address the recent financial crisis w1der the Housing and Economic Recovery Act (HERA) and the Emergency Economic Stabilization Act (EESA) enacted 2008, the American Recovery and Reinvestment Act 2009 (Recovery Act), and the Small Business Jobs Act of2010. Certain authorities HERA and EESA have now expired but challenges remain managing Treasury's outstanding investments. large extent, Treasury's program administration under these acts has matured. However, the long-tern1 impact small business lending resulting from investment decisions under the Small Business Jobs Act programs are still not clear. Our discussion this challenge will begin with this act and then address the others for which Treasury responsible. the Small Business Fund and State Small Business Credit Initiative Enacted September 2010, the Small Business Jobs Act created $30 billion Small Business Lending Fund (SBLF) within Treasury and provided $1.5 billion Treasury allocate eligible state programs through the State Small Business Credit Initiative (SSBCI). These represent key initiatives the Administration increase lending small businesses, and thereby support job creation. Both programs were slow disburse funds, with Treasury 

approving the majority SBLF and SSBCI applications during the last quarter fiscal year 2011. Because the majority applicants waited until near the application deadlines apply, Treasury encountered significant delays implementing the two programs. result, Treasury was mshed making number SBLF investment decisions order meet the funding deadlines, and disbursed the initial installment SSBCI funds without establishing clear oversight obligations participating states. Now that Treasury has completed the approval process for these two programs, the challenge for Treasury exercise sufficient oversight ensure that funds are used appropriately, SBLF dividends owed Treasury are paid, and programs achieve intended results. 

SBLF -As September 2011, Treasury had disbursed more than billion 332 financial 
institutions across the country. the institutions funded, 41.3 percent used SBLF funds refinance securities issued under the Troubled Asset Relief Program (TARP) Capital Purchase Program. Institutions receiving investments under the SBLF program pay dividends Treasury rates that decrease the institutions increase their qualified small business lending activity. During the first 4Y2 years Treasury's investment, participating institutions initially pay dividends Treasury percent, but that rate may reduced low percent based institutions' self-repo1ied increases small business lending. Institutions are under obligation make dividend payments scheduled pay off previously missed payments before exiting the program. There are provisions for increased restrictions dividends are missed, including prohibition against institution paying dividends common stock and provision for Treasury appoint one two members the bank's board directors. The effectiveness these measures, however, can affected the institution's regulator has restricted from making dividend payments. 
Treasury faces challenges measuring program perfonnance and ensuring that the SBLF program meets its intended objective increasing lending small businesses. The intent the authorizing legislation was stimulate lending small businesses, but participating institutions are not required report how they use Treasury's investments and are under obligation increase their small business lending. Once pa11icipating institutions commingle SBLF disbursements with other funds, difficult track how the funds are used. Additionally, Treasury relies unverified information small business lending reported participating institutions measure perfo1mance and make dividend rate adjustments. 

-As September 2012, states, territories, and eligible municipalities (participating states) had been awarded $1.4 billion SSBCI funding. Funds awarded are disbursed one-third increments. date, Treasury disbursed $533 million the $1.4 billion awarded. States participating SSBCI may use funds awarded for programs that partner with private lenders extend credit small businesses. Such programs may include those that finance loan loss reserves; and provide loan insurance, loan guarantees, venture capital funds, and collateral support. States were required provide Treasury with plans for using their funding allocations and report qumierly and annually their use funds. conduct audits participating states detem1ine whether SSBCI funds are being used intended. this regard, the Small Business Jobs Act requires Treasury recoup funds 

identify having been recklessly intentionally misused, and Treasury may withhold 
disbursements from state based the audit results. 
-Primary oversight the use funds the responsibility each participating state. 
The states are required provide Treasury with quarterly assurances that their programs 
approved for SSBCI funding comply with program requirements. However, Treasury will 
face challenges holding states accountable for the proper use funds has not clearly 
commw1icated the prohibited uses funds and has changed program guidelines frequently, making difficult for states ensure the proper use funds. Treasury has also not defined what constitutes material adverse change state's financial operational condition that the state must repoti Treasury. result, Treasury will have difficulty finding states default program requirements and holding states accountable should our office find that state has intentionally recklessly misused funds. 

Treasury responsible for overseeing estimated $150 billion Recovery Act funding and tax relief. Treasurys oversight responsibilities include programs that provide payments for specified energy prope1iy lieu tax credits, payments states for low-income housing projects lieu tax credits, grants and tax credits through the Community Development Financial Institutions (CDFI) Fund, economic recovery payments social security beneficiaries and others, and payments U.S. territories for distribution their citizens. Approximately $20 billion the $22 billion provided for non-Internal Revenue Service (IRS) programs has been disbursed recipients under Treasury's payments lieu tax credit programs -to persons for specified energy properties and states for low-income housing projects. date, all funds have been disbursed under the low-income housing program and the specified energy property program beghming wind down. the past, expressed concern about the small number Treasury staff dedicated these programs. However, noted there was process for the Department Energy's National Renewable Energy Laboratory perform technical review payment applications and advise Treasury award decisions. Also, for larger dollar payments, Treasury requires the applicant obtain review project costs independent public accounting firm. Nevet1heless, Treasury must continue ensure recipient compliance with award agreements for extended period time. Additionally, our Office oflnvestigations had several open matters involving claims for specified energy property projects. 

Through several HERA and EESA programs, Treasury injected much needed capital into financial institutions and businesses. 
Under HERA, Treasury continued support the financial solvency the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) which are under the conservatorship the Federal Housing Finance Agency. cover the losses the two government sponsored enterprises (GSE) and maintain positive net w01ih, 

Treasury agreed purchase senior prefeITed stock necessary. June 30, 2012, Treasury 
invested total $187 billion the two GSEs. The maximum amount available each GSE 
under its agreement with Treasury based fommlaic cap which will set December 31, 
2012, less than $200 billion per enterprise. For the first time since being placed under 
conservatorship, Fannie Mae and Freddie Mac reported positive net worth the first and 
second quarters 2012. The future both still question and prolonged assistance 
may required. However, noted above, the funding cap will set December 31, 2012. 
Prior the expiration its purchase authority December 2009, Treasury acquired $225 billion mortgage-backed securities (MBS) issued the two GSEs under temporary purchase program. light improved market conditions, Treasury started sell its MBS March 2011. March 2012, Treasury completed its sale remaining MBS and reported that overall, cash returns $250 billion were received from the MBS portfolio through sales, principal, and interest. 
Through the Housing Finance Agency Initiative supporting state and local finance agencies, Treasury purchased $15.3 billion securities issued Fannie Mae and Freddie Mac backed 
state and local Housing Finance Agency bonds (New Issue Bond Program) and committed $8.2 billion for participation interest the obligations Fannie Mae and Freddie Mac (Temporary 
Credit and Liquidity Program). Treasury received payments principal and interest its securities and currently holds investment approximately $14 billion. Additionally, several state and local housing agencies opted out the Temporary Credit and Liquidity Program reducing Treasury's commitment about billion. Treasury continues monitor its investment the Housing Finance Agency Initiative. required Dodd-Frank, Treasury and the Department Housing and Urban Development conducted study ending the conservatorship Fannie Mae and Freddie Mac and minimizing the cost taxpayers. The repo1i this study was presented Congress Febrnary 2011. Regarding the long-term structure housing finance, the report provided three options for consideration without recommending specific option. The three options are (1) privatized system housing finance with the govenunent insurance role limited the Federal Housing Administration (FHA), the U.S. Department Agriculture (USDA), and the Department Veterans Affairs (VA) with assistance for narrowly targeted groups borrowers; (2) privatized system housing finance with assistance from FHA, USDA, and for narrowly targeted groups b01rowers and guarantee mechanism scale during times crisis; and 
(3) privatized system housing finance with FHA, USDA, and assistance for low-and moderate-income boITowers and catastrophic reinsurance behind significant private capital. Although specific legislation has been proposed the Congress, the legislative process for housing finance refonn still fonnative stage and diflicult predict what lies ahead for winding down the Fannie Mae and Freddie Mac conservatorships and reforming housing finance. 
TARP, established under EESA, gave Treasury the authorities necessary bolster credit availability and address other serious problems the domestic and world financial markets. Treasury's Office Financial Stability administers TARP, and through several its programs, made purchases direct loans and equity investments many financial institutions and other 

businesses, well guaranteed other troubled mo1tgage-related and financial assets. Authority make new investments under the TARP program expired October 2010. Treasury, however, continuing make payments for programs which have existing contracts and commitments. One Treasury challenge this area managing and winding down its various investment programs. date, Treasury has repo1ted positive returns from the sale its investments the banking industry and the American International Group (AIG), and reduced its investments the auto industry. Treasury also still managing various housing programs provide mortgage relief homeowners and prevent avoidable foreclosures. Unless current conditions change and while acknowledge the continuing difficulties facing Treasury with the housing programs, recognition the substantial progress the Department has made exiting its investments not plan repo11 TARP future management and perfonnance challenges memoranda. also note EESA established special inspector general for TARP and imposed oversight and periodic reporting requirements both the special inspector general and Government Accountability Office. 
Umnet Mandate addition SBLF and SSBCI, the Small Business Jobs Act of2010 provided Treasury with 
authority guarantee the full amounts bonds and notes issued for community and economic 
development activities not exceed years. Under this authority, Treasury may issue guarantees less than $100 million each, but may not exceed billion total aggregate guarantees any fiscal year. the program administrator, CDFI Fund was tasked with setting regulations and implementing the program September 27, 2012. CDFI Fund experiencing challenges standing the program and has missed the program's statutory implementation date. Our office plans assess the progress the program's implementation 2013. 
Challenge Anti-Money Laundering and Terrorist Financing/Bank Secrecy Act Enforcement (Repeat Challenge) have reported the past, ensuring criminals and te1Torists not use our financial networks sustain their operations and/or launch attacks against the U.S. continues challenge. Treasury's Office Terrorism and Financial Intelligence (TFI) dedicated dismpting the ability terrorist organizations fund their operations. TFI brings together intelligence gathering and analysis, economic sanctions, international cooperation, and privatesector cooperation identify donors, financiers, and facilitators supporting terrorist organizations, and dismpt their ability fund them. Enhancing the transparency the financial system one the cornerstones this effort. Treasury carries out its responsibilities enhance financial transparency tluough the Bank Secrecy Act (BSA) and USA Patriot Act. FinCEN the Treasury bureau responsible for administering BSA. 
Over the past decade, TFI has made good progress closing the vulnerabilities that allowed money launderers and ten-orists use the financial system support their activities. Nonetheless, significant challenges remain. One challenge ensuring the continued cooperation and coordination all the organizations involved its anti-money lalllldering and combating terrorist financing efforts. large number federal and state entities participate with FinCEN 

ensure compliance with BSA, including the four federal banking agencies, IRS, the Securities and Exchange Commission, the Department Justice, and all the state regulators. Many these entities also participate efforts ensure compliance with U.S. foreign sanction programs administered Treasury's Office Foreign Assets Control (OFAC). effective, Treasury must establish and maintain working relationships with these numerous entities. Neither FinCEN nor OFAC have the resources capability maintain compliance with their programs without significant help from these other organizations. this end, FinCEN had signed memoranda understanding with federal and state regulators ensure that infonnation exchanged between FinCEN and the entities charged with examining for BSA compliance. While important promote the cooperation and coordination needed, should noted that these instruments are nonbinding and carry penalties for violations, and their overall effectiveness has not been independently assessed. 

Last year, financial institutions filed approximately million BSA reports, including over 
1.5 million suspicious activity reports (SAR). While the number SARs has been increasing since 2001, that alone does not necessarily indicate everything going well. Our audits have found problems with the quality the data reported. Other audits have also identified gaps the regulatory examination programs the bank regulators and examining agencies. 
Recently the vulnerability large institutions' monitoring transactions for money laundering and ten-orist financing was revealed. 2012, OCC filed consent cease and desist order against Citigroup for failure adopt and implement compliance program that adequately covers the required BSA/anti-money laundering program elements due its inadequate system internal controls and ineffective independent testing. The bank did not develop adequate due diligence foreign con-espondent bank customers and failed file SARs related its remote deposit capture/international cash letter instrument activity timely manner. OCC also found weaknesses with other large banks' BSA programs. July 2012 testimony related critical congressional report OCC's oversight ofHSBCs BSA program, the Comptroller the Currency mentioned several actions that OCC was planning take going forward. One such action was assure BSA deficiencies are fully considered safety and soundness context and taken into account part the "management" component bank's CAMELS rating.4 
FinCEN needs continue its efforts work with regulators and examining agencies ensure that financial institutions establish effective BSA compliance programs and file accurate and complete BSA reports, required. Furthennore, FinCEN needs complete work issue antimoney laundering regulations, detem1ines appropriate, for some non-bank financial institutions, such vehicle dealers; pawnbrokers; travel agents; finance companies; real estate closing and settlement services; and financial services intem1ediaries, such investment advisors. CAMELS system used federal banking agencies for evaluating the soundness financial institutions unifonn basis and for identifying those institutions requiring special supervisory attention concern. financial institution assigned composite rating and ratings six components: .Capital adequacy, quality Assets, the capability the board directors and Management, the quality and level J;arnings, the adequacy Liquidity, and ,Sensitivity market risk. 

FinCEN faces the continuing challenge enhance financial transparency order strengthen efforts combat financial crime. far this effort FinCEN's attention has been clarifying and strengthening customer due diligence (e.g., know your customer) regulatory requirements and supervisory expectations. This includes requiring institutions identify beneficial ownership their accountholders that the true identities their customers are not hidden. FinCEN issued advance notice proposed rulemaking March 2012 address this. 
FinCEN became the authoritative source for BSA data when transitioned the collection, 
processing, and storage all BSA data from IRS January 2012. FinCEN's BSA Mod 
program, begun 2008, being built ensure efficient management, safeguarding, and use 
BSA information. BSA Mod will reengineer BSA data architecture, update the infrastructure, 
implement more innovative web services and enhanced electronic filing, and provide increased 
analytical tools. FinCEN believes modernization will provide increased data integrity, and 
maximize value for its state and federal partners. completed two audits the program which concluded that FinCEN generally meeting schedule and cost milestones, and had 
appropriate oversight structure place. the modernization effort moves toward completion, FinCEN needs continue maintain heightened oversight this program. 
FinCEN mandated the use its BSA E-Filing network effective July 2012, and for all BSA reports, March 2013. BSA E-Filing allows financial institutions file reports with FinCEN electronically. anticipate that this will improve data quality that data will more quickly entered into the database and that some the enors ornissions that previously occurred through paper filings should reduced not eliminated. However, until this can verified, FinCEN will need continue monitor data quality. noted that FinCEN has particularly difficult challenge dealing with money service businesses (MSB). that end, FinCEN has taken steps improve MSB examination coverage and compliance. For example, past years, FinCEN finalized new rules and increased enforcement designed ensure MSBs comply with BSA requirements, including registration and report filing requirements. However, ensuring MSBs register with FinCEN has been continuing challenge. Furthermore, IRS serves the examining agency for MSBs, but has limited resources inspect MSBs even identify urrregistered MSBs. FinCEN engaged the states participate joint MSB examinations with IRS, and for outreach programs aimed these nonbank institutions. FinCEN, IRS, and the states need work together ensme that MSBs operating this country are identified, properly registered, and compliance with all applicable laws and regulations. 
FinCEN has also been concerned with MSBs that use infom1al value transfer systems and with MSBs that issue, redeem, sell prepaid access, through physical (cards other devices) nonphysical (e.g., code, electronic serial number, mobile identification number, and/or personal identification number) means. MSBs using infonnal value transfers have been identified number attempts launder proceeds criminal activity .finance terrorism. Similarly, prepaid access can make easier for some engage money laundering tenorist financing. September 2010, FinCEN notified financial institutions vigilant and file SARs MSBs that may inappropriately using infom1al value transfers when they use financial institutions store currency, clear checks, remit and receive funds, and obtain other financial services. 2011, FinCEN issued final rule applying customer identification, recordkeeping, and rep011ing 

obligations providers and sellers prepaid access, and continues issue clarifying guidance 
for institutions implement the requirements. Ensuring institutions properly implement these 
rules and maintain compliance will major challenge. detect possible illicit wire transfer use the financial system, FinCEN also proposed 
regulatory requirement for certain depository institutions and MSBs repot1 cross-border 
electronic transmittals funds. FinCEN determined that establishing centralized database will 
greatly assist law enforcement detecting and ferreting out transnational organized crime, 
multinational drug cartels, teITorist financing, and international tax evasion. Ensuring financial 
institutions, particularly MSBs, comply with the cross-border electronic transaction rep011ing 
requirements, well managing this new database, another significant challenge for 
FinCEN. should noted that this system cam1ot fully implemented until FinCEN 
completes work its BSA Mod program, scheduled for 2014. 
Other matters concern are beginning appear are the horizon. One concern reported before that the focus safety and soundness resulting from the recent financial crisis may have reduced the attention financial institutions have given BSA and OFAC compliance. Another concern the increasing use mobile devices for banking, internet banking, internet gan1ing, and peer-to-peer transactions. FinCEN, AC, and other regulatory agencies will need ensure that providers these services ensure transactions are transparent and conform BSA requirements. Monitoring the transactions tomoITow may prove increasingly difficult for Treasury. 
Given the criticality this management challenge the Department's mission, continue consider anti-money laundering and combating terrorist financing inherently high-risk. this regard, have on-going BSA-related audits FinCEN's MSB compliance program and OCC's BSA and USA Patriot Act examinations and enforcement actions. With respect OFAC, are reviewing its licensing program (where OFAC may grant exceptions sanction progran1 allowed under law) and performing case study review its Libyan sanctions program. plan complete these audits fiscal year 2013. 
Challenge Gulf Coast Restoration Trust Fund Administration response the Deepwater Horizon oil spill, Congress enacted part 112-141, the Resources and Ecosystems Sustainability, Tourist Oppo1tunities, and Revived Economies the Gulf Coast States Act 2012 (Restore Act). This law established within Treasury the Gulf Coast Restoration Trust Fund and requires Treasury deposit the Trust Fund, percent administrative and civil penalties paid responsible parties for the Deepwater Horizon oil spill. estimated that the Trust Fund could receive tens billions dollars from these penalties distributed for eligible activities affecting the Gulf Coast states (Alabama, Florida, Louisiana, Mississippi, and Texas). Treasury, consultation with the Departments the Interior and Commerce, required develop policies and procedures administer the Trnst Fund January 2013. The procedures are include (1) procedures assess whether programs and activities comply with applicable requirements, (2) auditing requirements ensure that amounts the Trust Fund are expended intended, and (3) procedures for identification and allocation funds available Treasury under other provisions law that may necessary pay administrative expenses directly attributable the management the Trnst Fund. The Restore Act authorizes our office conduct, supervise, and coordinate audits and investigations projects, programs and activities funded under this legislation. Neither Treasury nor our office was provided specific funding the act for crurying out our respective responsibilities. 
The Restore Act established the allocation available amounts the Trust Fund during any fiscal year. 
 percent the Gulf Coast states!' equal shares for expenditure for ecological and economic restoration the Gulf Coast region 
 percent the Gulf Coast Ecosystem Restoration Council (Gulf Restoration Counci1)5 pursuant the council's approval its comprehensive plan unde11ake projects and programs using the best available science that would restore and protect the Gulf Coast region's natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches, coastal wetlands, and economy 
 percent the Gulf Restoration Council for allocation the Gulf Coast states for eligible oil spill restoration activities, pursuant the council's approval the state's plan improve the ecosystems economy the Gulf Coast region, using regulatory fonnula 
 
2.5 percent the National Oceanic and Atmospheric Administration for its Gulf Coast Ecosystem Restoration Science, Observation, Monitoring, and Teclmology Program. This program established January 2013 carry out research, observation, and monitoring support the long-tenn sustainability the ecosystem, fish stocks, fish habitat, and the recreational, commercial, and charter fishing industry the Gulf Mexico 
 
2.5 percent the Gulf Coast states, equal shares, for competitive grant awards nongovernmental entities and consortia the Gulf Coast region, including public and private institutions higher education, establish centers for excellence conduct Gulf Coast region reseruch 
The Restore Act prescribes how each distribution funds will further distributed and the conditions that must met receive funds. These conditions include that the amounts distributed used accordance with the legislation, that procurement rules and regulations followed, and that the Secretary the Treasury has the authority withhold funding the conditions are not met. 
Treasury's Office the Fiscal Assistant Secretary (OFAS) cmi-ently developing regulations for the new program. have been meeting with OFAS staff and providing our perspectives controls the regulations are being developed. What makes the administration the act challenging that regulations ru1d associated policies and procedures need established 

and put into place quickly; (2) many the entities/councils that are receive and further allocate funding were not created before the enactment the legislation and need establish their own policies and procedures; and (3) there are many entities/councils that must cooperate for the funds distributed and spent appropriate manner. Treasury also challenged the fact that must use existing resources administer its responsibilities for the Trust Ftmd, and not member the entity, the Gulf Restoration Council, that will directly control how over half the available amounts are spent. 
Challenge Removed 

Management Capital Investments have repo1ied past years, managing large capital investments, particularly information technology investments, difficult challenge for any organization, whether public private. the past, have also repo1ied number capital investment projects that either failed had serious problems. However, believe Treasury's implementation activities for two capital investments, TNet and FinCEN's BSA Mod, while not perfect, demonstrated that the Department has made sufficient, sustainable improvement managing and mitigating investment risk warrant removal this area from our list the most serious management and perforn1ance challenges. 
1Net -Treasury plans spend $3.7 billion during the life cycle its Information Technology Infrastructure Telecommunications Systems and Services investment. Treasury was originally have begun implementation of1Net, major component, November 2007 but the project was delayed until August 2009. September 2011, reported serious problems with the initial contracting and project management ofTNet that contributed the delay and the unnecessary expenditure million maintain the prior telecommunications system the interim. TNet now operational across Treasury. While not yet fully compliant with all Federal security requirements, Treasury has committed correcting the weaknesses timely manner and has taken other steps strengthen security. 
FinCEN BSA Mod -As discussed Challenge Treasury, through FinCEN, undertaking the BSA Mod program and achieved major milestone when successfully transitioned BSA data from IRS January 2012. The project expected cost about $120 million and track completed 2014. P'ursuant Congressional directive, completed two series audits BSA Mod. The first audit reported that FinCEN had developed sound business case for the program and the Department and FinCEN had implemented strong governance system. The audit did identify one issue dealing with the mapping BSA data from the new system legacy IRS systems, which was addressed. The second audit found that the program was schedule and within budgeted cost. did note concern with changes program oversight, which concluded had not adversely impacted the program far but would area follow-up our work going forward. note that have stru1ed aimed audits two on-going and costly capital investments detem1ine whether sound project management and effective governance aie place. 

BEP -BEP Enterprise, BEN, intended integrate the Bureau Engraving and Printing's (BEP) manufactming and administrative components unified platform simplify and standardize procedures, increase efficiency, and eliminate unnecessary processes. The goals are increase quality, reduce spoilage, and improve accountability. The cost for BEN estimated $123 million for initial implementation and $400 million over the 10-year life the project. initiated audit BEN 2012 which anticipate completing fiscal year 2013. 

Common -The Treasury Enterprise Identity, Credential and Access Management (TEICAM) eff011 implement Homelai1d Security Presidential Directive requirements for common identity standard. Started 2007, the investment's targeted life cycle through 2018. The estimated TEICAM cost $178 million this writing, which has increased $31 million since the estimate last challenges memorandum. Although recently Treasury rep01ted the investment schedule, within cost, and operating planned, the investment has inctmed significant schedule variances. August 2012, the Treasury Chieflnfom1ation Officer assessed the investment medium risk. plan begin audit TEI CAM fiscal year 2013. 
While removed challenge, because the billions dollars risk both tenns proctrrement and mission effectiveness, Treasury should continue exercise vigilance managing the capital investments described above and others has underway and may undertake the future. 
Matters Concern 
Although are not yet reporting these management and perfonnance challenges, want highlight areas concern -cyber security, currency and coin production, and documenting key activities and decisions. 

Not surprisingly, Treasury's systems are interconnected and critical the core functions government and the Nation's financial infrastructtrre. Information security remains constant area concern and potential vulnerability for Treasury's systems. result, economic and national security challenge for which Treasury must prepared, provide leadership defend against the full spectrum threats against financial institutions particular, and the financial sector general. Many U.S. banks face cyber threats their infrastrncture continuous basis. Recent examples include denial service attacks against number large U.S. banks. Organized hacking groups leverage known and new vulnerabilities and use different methods make attacks hard detect and even harder prevent. Given the evolving cyber-threat environn1ent, Treasury will need 

build existing pa11nerships among financial institutions, regulators, and private entities the financial sector, order well-positioned identify and respond emerging cyber threats against financial institutions and the broader financial sector. 

and Coin Production have issued two reports related the delayed introduction the NexGen $100 notes caused creasing some the finished notes. Our first report, issued May 2011, discussed deficiencies related the physical security over notes and sheets the production facilities; noted that BEP promptly addressed those matters. Our second report, issued January 2012, reported deficiencies with BEP's NexGen $100 note production process, project management, and the need complete comprehensive cost-benefit analysis for the disposition the 1.4 billion finished NexGen $100 notes already printed but not accepted FRB. Oiiginally planned issued February 2011, decision still needs made regarding the introduction the NexGen $100 note into circulation although production has resumed. this regard, FRB, the issuing authority, will make that determination. Another matter related cwrnncy redesign that should kept mind meaningful access U.S. cmTency for blind and visually impaired individuals. response court ruling that matter, you discussed several methods that Treasury plans use provide such access. Among them, you described the inclusion raised tactile features and high-contrast nmnerals that would help them distinguish denominations U.S. currency notes. The lessons learned with NexGen $100 note underscore the need for sound and comprehensive project mnagement BEP undertakes this redesign effort. 
Challenges also exist with coin production. recent years, the Mint reported that the cost producing pe1my and nickel coins were double their face value and that metal prices have caused the production costs higher than the coins' face value for the past years. Treasury also suspended production the dollar coins save money production and storage costs due excess supplies on-hand and low demand for the coins. Even though the demand not there, the fiscal year 2011 production costs the dollar coin were approximately fifth the coin's face value. the medium-to long-tenn future, the impact alternative payment systems and other technological advances -such stored value cards, the Internet, and smartphones -to BEP' and the Mint's respective business models and practices must considered. This especially the case light the profound effect that such technology had the U.S. Postal Service's business model. Accordingly, will become more and more imperative that BEP and the Mint factor this into their business model and future planning and interactions with their customer, FRB. 

Activities and Decisions Two recently completed audits office highlighted lapses the Department 
maintaining complete and concurrent record key activities and decisions. 

One audit involved the selection financial agents for Treasury's investment Fannie Mae and Freddie Mac MBS. The other audit involved Treasury's consultative role with the Department Energy's Solyndra loan guarantee. both cases, while some documentation was available, were only able piece together what had happened through extensive interviews with perso1mel and email reviews. was only then that could conclude that the case the selection financial agents, that Treasury followed reasonable approach, and the case the Solyndra loan guarantee, that consultation Treasury did occur, albeit rushed. On-going work office shows that these are not isolated instances. are often told that the exigencies the time precluded the preparation more complete documentation. While appreciate the pressures that are involved, especially during times economic crisis, maintaining proper documentation fw1damental tenet govenunent accountability and transparency. Maintaining proper documentation also the best longte1m interest the Department, should, later date, want repeat its actions they called into question. this regard, appropriate documentation can simple contemporaneous notes providing record why decisions were made, the way they were made, and how the government satisfied itself that the decisions were the best course. note that Treasury has issued policy that addresses documentation requirements, such Treasury Directive Publication 80-05, Records and Information Management Program. our view, this matter Treasury management pers01mel needing remain aware and vigilant, especially during times economic crisis. have final observation and this regards the Depai1ment's October 2012 consolidation and restructuring BPD and FMS into BFS. Expected save money the long rw1, the initiative laudable. Furthermore, early indications from our on-going review the consolidation, that planning for the consolidation, well communication with affected personnel, has been extensive. That said, such consolidations entail risk separate processes, systems, and workplace cultures are meshed together. Comprehensive plaiming and the involvement senior leadership has been key other recent and successful restmcturings government operations, such with CFPB and the transfer the fw1ctions the f01mer OTS. this stage, encourage Treasury's senior leadership least maintain its cmTent level effo11 this important w1dertaking. would pleased discuss our views the management and perfonnance challenges and the other matters this memorandum more detail. 
cc: Nani Coloretti Acting Assistant Secretary for Management Treasury's Financial Agent Selection Process for the Agency Mortgage Backed Securities Purchase Program Was Not Fully Documented (OIG-12-061; issued July 31, 2012); Consultation Solyndra Loan Guarantee Was Rushed (OIG-12-048; issued April 2012) The Gulf Restoration Council consists the following members, designees: (1) the federal level, the Secretaries the Interior, Am1y, C01m11erce, Agriculture, the head the department which the Coast Guard operating (cmTently the Secretary Homeland Security), and the Administrator the Environmental Protection Agency; and (2) the state level, the Governors Alabama, Florida, Louisiana, Mississippi, and Texas.