Gov’t OIG audit: FIO has been busy, but needs to track work, meet deadlines

The Federal Insurance Office (FIO) should keep records and create a plan for its functions and operations, as well as mid its report deadlines, according to the Office of the Inspector General (OIG).

The audit offered insight into why the reports have been months late, into the focus of FIO to date, and into its apparent shortcomings in tracking its own activities.

Four of the five reports required by the 2010 Dodd-Frank Act were completed well after their due dates, from about 10 to 23 months, and the fifth one, on global reinsurance,  which was due Sept. 30, 2012, has not yet been completed, the report noted.

In addition, FIO hasn’t yet documented a strategy for accomplishing its legislative functions, or developed a comprehensive implementation plan to direct the development of operational processes and ensure critical deliverables are met, the May 14 report stated.

Thus, in the future, FIO will be timely of future reports document its priorities and implementation plan, provide for record keeping, and develop performance measures, according to the audit report’s agreement reached with the Treasury office.

According to FIO management, the reasons that FIO missed the required deadlines vary, the report stated. As expected, the modernization report went through many drafts: “FIO management told us that the insurance industry modernization report was highly anticipated by the insurance industry, and the report underwent an extensive review process to ensure that the information and recommendations contained within the report were not misinterpreted.”

Much of this review process was outside the hands of FIO, some have related. FIO had key drafts done months in advance of their final publishing date, but  reports went through a tough multi-agency vetting process.

FIO officials told the OIG auditor that the global reinsurance report has been delayed while FIO focuses resources on drafting a higher priority report by the President’s Working Group on the availability and affordability of insurance for terrorism risk.

According to Treasury officials, FIO’s primary operational focus to date, the report stated, has been on representing U.S. interests in international insurance matters and working to establish strategic relationships within the insurance industry.

FIO management also were reported to have stated that the delays were due, in large part, to the considerable amount of time required to identify, attract, and hire staff with the knowledge and experience in several areas of insurance regulation needed to perform its work relating to the reports.

Some in Congress have asked McRaith, referencing overdue or late reports, chief among them, the almost two-year overdue report on Financial Modernization, if his office is adequate for the needs of preparing the statutorily-required reports on time.

In this audit report, the OIG was told by an official that the  FIO staff of 15 was determined by using the human capital planning approach which apparently identified the purposes of the office, the skills required for the office, and the skills already available.

However, “FIO was unable to provide us with a copy of this analysis,” the auditor stated.

According to this official, once FIO reaches15 full time employees, an assessment will be made to further evaluate the sufficiency of the staff size, the report said.

The Dodd-Frank Act required FIO to issue five reports, of which two reports are an annual requirement and three reports were a one-time requirement. Four of the required reports, including both initial annual reports, were completed well after their due dates, and the other one has not yet been completed.

The audit report did find that FIO has engaged in numerous activities such as representing U.S. interests related to international insurance matters, worked to establish strategic relationships within the insurance sector, staffed the office, and drafted reports.
Although FIO has worked to develop the European Union- U.S. Insurance Regulatory Dialogue, participated in the U.S.–China Strategic and Economic Dialogue, is building relationships within the domestic insurance sector and has provided a forum for the discussion of insurance topics within the federal government and the insurance sector, the audit found that FIO was unable to provide formal documentation to support the extent of its involvement in such activities.

“We believe that FIO needs to maintain a more complete record of the material activities performed by the office and their results to provide for greater transparency and to conform to Treasury’s record policy,” the OIG report said.

However, the main audit objective was to evaluate the status and effectiveness of Treasury’s process to establish FIO in a way that enables it to perform its functions. Image

In a polite written response, the tone of both the audit report and the letters back, FIO Director Michael McRaith said it agreed with the recommendations and is taking steps to implement them by working to finish the global reinsurance report “with deliberate speed.”

McRaith wrote May 1 in a letter to James Lisle, Jr, the OIG auditor, a CPA, that FIO has built an office of 15 staff and increasingly serves a a resource of insurance expertise not only within Treasury but also for third parties, including the GAO, the Financial Stability Oversight Council (FSOC) and members of Congress.

McRaith wrote that FIO agreed with the recommendations and will document FIO’s priorities and implementation plan, undertake record-keeping and develop performance measures to document the office’s progress.

The auditor also stated that FIO must put the estimated dates for completing corrective actions in the Joint Audit Management Enterprise System (JAMES), Treasury’s audit recommendation tracking system.

Reference for audit: OIG-14-036; Treasury Made Progress to Stand Up the Federal Insurance Office, But Missed Reporting Deadlines

Photo:  A statue of Abraham Alfonse Albert Gallatin, the longest-serving Treasury Secretary (1801-1813) presides over Treasury’s section of Pennsylvania Avenue, NW

Author, Photo: Liz Festa