FDII NEWS RELEASE
FIDElA1 DEPOSIT INSUIANa COIPOaATION
FOR IMMEDIATE RELEASE PR-61-87 (3-25-87)
FDIC TO ·TEST USING ACCOUNTANTS
TO SUPPLEMENT EXAMINATION STAFF
The Board of Directors of the Federal Deposit Insurance Corporation has
voted to proceed with a pilot program involving the use of public accounting
firms to s~pplement the agency's field examination staff, FDIC Chairman L.
William Seidman today told a Bank Administration Institute conference in
Boston.
Chairman Seidman said the project is intended to determine whether private
accountants feasibly can be used to help reduce the FDIC's examination
backlog. "A limited workforce and an increasing supply of problem banks have
caused us to fall significantly behind schedule in our examinations," he said.
Mr. Seidman announced that Arthur Young and Arthur Anderson &Co. have
been selected to participate in the test program~ The firms' accountants will
be trained to work with FDIC staff in examining banks in the Dallas and Kansas
City Regions. "If this team examination approach is successful," Mr. Seidman
said, "we will move from the pilot phase to a competitive bid program in the
near futur~."
Chairman Seidman also announced that the FDIC last week activated a "red
flags" warning system for use by · its examiners. This is an innovative
detection tool to help examiners and auditors uncover early signs of possible
fraud and gives guidance on pursuing such signs.
The "red flags" early warning system focuses on a dozen particular areas
of banking operations, including such activities as linked financing/brokered
transactions, loan participations, insider transactions, wire transfers and
money laundering.
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth SL, N.W., Washington, D.C. 20429 • 202-898-6996
FIDElA1 DEPOSIT INSUIANa COIPOaATION
FOR IMMEDIATE RELEASE PR-61-87 (3-25-87)
FDIC TO ·TEST USING ACCOUNTANTS
TO SUPPLEMENT EXAMINATION STAFF
The Board of Directors of the Federal Deposit Insurance Corporation has
voted to proceed with a pilot program involving the use of public accounting
firms to s~pplement the agency's field examination staff, FDIC Chairman L.
William Seidman today told a Bank Administration Institute conference in
Boston.
Chairman Seidman said the project is intended to determine whether private
accountants feasibly can be used to help reduce the FDIC's examination
backlog. "A limited workforce and an increasing supply of problem banks have
caused us to fall significantly behind schedule in our examinations," he said.
Mr. Seidman announced that Arthur Young and Arthur Anderson &Co. have
been selected to participate in the test program~ The firms' accountants will
be trained to work with FDIC staff in examining banks in the Dallas and Kansas
City Regions. "If this team examination approach is successful," Mr. Seidman
said, "we will move from the pilot phase to a competitive bid program in the
near futur~."
Chairman Seidman also announced that the FDIC last week activated a "red
flags" warning system for use by · its examiners. This is an innovative
detection tool to help examiners and auditors uncover early signs of possible
fraud and gives guidance on pursuing such signs.
The "red flags" early warning system focuses on a dozen particular areas
of banking operations, including such activities as linked financing/brokered
transactions, loan participations, insider transactions, wire transfers and
money laundering.
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth SL, N.W., Washington, D.C. 20429 • 202-898-6996
-2-
"We recognize that no system can detect all instances of apparent fraud
and insider abuse," remarked Chairman Seidman. "But, potential problems can
often be uncovered when certain warning signs are evident. The system is
intended to help examiners and auditors recognize and follow up on those
warning signs."
Mr. Seidman noted that banks that are deteriorating tend not to invite
review of their operations. He pointed out that only 17 percent of the banks
that failed in 1986 had a full-scope audit within one year of their failure,
compared to an average of 65 percent for operating national banks, according
to a recent survey:·~ "It 1ooks 1i ke the tendency to have an audit decreases as
the potential for failure increases," Mr. Seidman said. He noted that the
banking agencies are studying the feasibility of requiring an annual
independent audit for banks with a size cutoff.
Mr. Seidman said the FDIC and other bank regulators have taken the
following steps to detect and control fraud and insider abuse:
A white collar crime school is now operating, training examiners to
identify the sophisticated means by which fraud and abuse are
committed.
The FDIC is developing a corps of specialists skilled in conducting
complex fraud investigations.
The banking agencies have joined with the Justice Department and the
FBI in a Bank Fraud Enforcement Working Group that meets monthly to
review specific cases and important developments.
A new computer system for tracking criminal cases is aiding the
agencies in spotting trends, geographic patterns and emerging problems.
###
"We recognize that no system can detect all instances of apparent fraud
and insider abuse," remarked Chairman Seidman. "But, potential problems can
often be uncovered when certain warning signs are evident. The system is
intended to help examiners and auditors recognize and follow up on those
warning signs."
Mr. Seidman noted that banks that are deteriorating tend not to invite
review of their operations. He pointed out that only 17 percent of the banks
that failed in 1986 had a full-scope audit within one year of their failure,
compared to an average of 65 percent for operating national banks, according
to a recent survey:·~ "It 1ooks 1i ke the tendency to have an audit decreases as
the potential for failure increases," Mr. Seidman said. He noted that the
banking agencies are studying the feasibility of requiring an annual
independent audit for banks with a size cutoff.
Mr. Seidman said the FDIC and other bank regulators have taken the
following steps to detect and control fraud and insider abuse:
A white collar crime school is now operating, training examiners to
identify the sophisticated means by which fraud and abuse are
committed.
The FDIC is developing a corps of specialists skilled in conducting
complex fraud investigations.
The banking agencies have joined with the Justice Department and the
FBI in a Bank Fraud Enforcement Working Group that meets monthly to
review specific cases and important developments.
A new computer system for tracking criminal cases is aiding the
agencies in spotting trends, geographic patterns and emerging problems.
###