Report No. 2011-17
Findings in the audit of the Department of Insurance, Financial Institutions and Professional Registration, Division of Finance
The Division of Finance of the Department of Insurance, Financial Institutions and Professional Registration (DOF) incorporates, regulates and licenses Missouri financial institutions, including residential mortgage brokers, state-chartered banks and savings and loan associations, non-depository trust companies, Missouri Certified Capital Companies and thousands of consumer credit companies. The DOF is required by state law to periodically examine these institutions to assess their solvency and ensure they are abiding by state laws and regulations. The DOF helps protect the financial interests of Missouri's citizens by taking actions to merge, close or otherwise address institutions with severe financial difficulties.
Access to Information
The DOF did not provide the State Auditor's Office access to most financial institution examination records. As such, we could not confirm whether the DOF is properly examining financial institutions and adequately protecting the financial interests of Missourians.
We identified instances of noncompliance from looking at the limited records the DOF did provide, as described below. Auditors need to review the withheld documents to check for other instances of noncompliance.
The State Auditor's Office is confident in its power to compel production of these documents. Because of the significance of the findings, we did not want to delay this audit report, but a subsequent audit will be completed which will pursue the production of these records.
Financial Institution Examinations
Section 369.324, RSMo, suggests the DOF must examine associations every 12 months. The DOF claims, however, that some associations can wait 18 months between examinations. Even using the DOF's more relaxed interpretation, the DOF was late performing association examinations 47 percent of the time.
There is no documentation that the DOF consistently completed all required procedures, employed supervisory reviews or used the most recent version of examination programs when reviewing banks which closed between March 2008 and April 2010. Without documentation it is impossible to know whether all necessary examination procedures are being performed.
The audit also uncovered several errors in the association examination tracking database. Access to the withheld documents is necessary to determine if additional mistakes occurred.
All three written agreements the DOF has with federal agencies for the sharing of examination responsibilities are outdated. The most recent agreement is from 2006, and the other agreements are from 1994 and 1993. Current written agreements are needed to clearly explain each agency's obligations.
Financial Institution Assessments
During the 3 years ended June 30, 2010, the DOF collected $1,546,000 more from banks than necessary to cover actual costs. The DOF is allowed to assess banks the actual costs incurred for conducting examinations, but the amount the DOF assessed for administrative costs exceeded actual costs. The DOF transferred the over-assessments for fiscal years 2008 and 2009 ($956,697) to the General Revenue Fund. After audit staff questioned this practice, however, the DOF used the fiscal year 2010 over-assessment to offset fiscal year 2011 assessments.
The DOF claims that overhead rates for association and trust assessments are reviewed annually, but there is no documentation of such a review and the rates have not changed in several years. The DOF adds a 40 percent overhead rate to association examination costs and a 25 percent overhead rate to trust examination costs to cover personnel costs. The DOF must review these rates for reasonableness each year and adjust them accordingly.
Although the overall performance of this entity in the areas audited was Fair*, the current rating is Incomplete, because the DOF denied auditors access to necessary documents. As noted above a subsequent audit will be completed which will review the requested documents.
American Recovery and Reinvestment Act 2009 (ARRA or Federal Stimulus)
The Department of Insurance, Financial Institutions and Professional Registration, Division of Finance did not receive any federal stimulus monies during the audited time period.
*The rating(s) cover only audited areas and do not reflect an opinion on the overall operation of the entity. Within that context, the rating scale indicates the following:
The audit results indicate this entity is very well managed. The report contains no findings. In addition, if applicable, prior recommendations have been implemented.
The audit results indicate this entity is well managed. The report contains few findings, and the entity has indicated most or all recommendations have already been, or will be, implemented. In addition, if applicable, many of the prior recommendations have been implemented.
The audit results indicate this entity needs to improve operations in several areas. The report contains several findings, or one or more findings that require management's immediate attention, and/or the entity has indicated several recommendations will not be implemented. In addition, if applicable, several prior recommendations have not been implemented.
The audit results indicate this entity needs to significantly improve operations. The report contains numerous findings that require management's immediate attention, and/or the entity has indicated most recommendations will not be implemented. In addition, if applicable, most prior recommendations have not been implemented.