United States Government Publishing Office publisher pbl distributor dst United States Government Accountability Office General Government Division author aut Government Organization text government publication eng GAOREPORTS Legislative Agency Publications gao legislative 2010-08-12 U.S. Government Printing Office 1997-09-29 monographic deposited born digital 73 p. GA 1.13:GGD-97-181 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-97-181 P0b002ee180385274 f:gg97181 DGPO 2010-08-12 2011-03-28 GAOREPORTS-GGD-97-181 machine generated eng fdlp REPORT GAOREPORTS-GGD-97-181 GGD-97-181 Internal controls Auditing standards Bank examination Banking regulation Reporting requirements Audits Fines (penalties) International economic relations Foreign corporations Federal reserve banks Foreign Banking Organization Supervision Program Federal Reserve Uniform Financial Institutions Rating System Chapter Report GGD

Pursuant to a congressional request, GAO: (1) identified U.S. supervisors' expectations for adequate internal controls and audits in foreign banking organization (FBO) branches; (2) determined the the extent of serious weaknesses in FBO branches' internal controls and audits reported by U.S. supervisors during examinations; and (3) described U.S. supervisors' efforts to address these weaknesses.<p/>GAO noted that: (1) U.S. supervisors expect each U.S. FBO branch to have: (a) a system of internal controls that is consistent with the size and complexity of its operation and (b) an internal audit function of adequate scope and frequency or an adequate system of head office or external audits; (2) although few FBO branches' deposits are insured by the Federal Deposit Insurance Corporation (FDIC), U.S. supervisors have an interest in the activities of FBO branches because the supervisors wish to preserve standards that help ensure the efficiency of and confidence in U.S. markets; (3) a guiding principle for U.S. supervisors in assessing internal controls is that good internal control exists when employees are not in a position to make significant errors or perpetrate significant irregularities without timely detection; (4) in evaluating a FBO branch's overall system of internal control, U.S. supervisors are to consider the adequacy of controls and the level of adherence to them; (5) a significant number of the 254 FBO branches U.S. supervisors rated fair or lower had 1 or more of the weaknesses in internal control that U.S. supervisors identified as being among the most serious, and a majority of the FBO branches had 1 or more of the weaknesses in audit function identified as being among the most serious; (6) 67 percent of the 254 FBO branches whose examination reports GAO reviewed were reported to have had audits of inadequate scope; 41 percent were reported to have had audits of inadequate frequency; and 28 percent were reported to have had inadequate management response to audit criticisms; (7) according to U.S. supervisors, these audit weaknesses represent serious problems in managements' oversight of internal controls and could slow or limit improvement of internal controls at some FBO branches; (8) GAO found that U.S. supervisors are undertaking numerous efforts intended to address internal control and audit weaknesses at FBO branches; (9) the objectives of these efforts include helping to ensure: (a) detection of losses that have occurred as the result of an FBO branch's internal control and audit weaknesses; (b) timely correction by FBO branches of serious weaknesses in control procedures and audit functions; (c) increased understanding among multinational banks of the importance of adequate internal controls and audits; and (d) preparedness of supervisors to conduct effective assessments of internal controls; and (10) prompt attention to the development of a strategy for evaluating the results of these initiatives is now needed to determine whether progress is being made in improving the condition of internal controls at FBO branches. https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-97-181/html/GAOREPORTS-GGD-97-181.htm https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-97-181/pdf/GAOREPORTS-GGD-97-181.pdf GAO/GGD-97-181 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-97-181 Chapter Report GAO/GGD-97-181; Foreign Banks: Internal Control and Audit Weaknesses in U.S. Branches; Internal controls Auditing standards Bank examination Banking regulation Reporting requirements Audits Fines (penalties) International economic relations Foreign corporations Federal reserve banks Foreign Banking Organization Supervision Program Federal Reserve Uniform Financial Institutions Rating System Title 12 Section 3101et seq. 12 U.S.C. 3101et seq. Public Law 95-369 Public Law 102-242