Foreign Banks: Internal Control and Audit Weaknesses in U.S. Branches

摘要

In September 1995, Daiwa Bank, one of the largest multinational banks in theworld, reported to the Federal Reserve that it had incurred losses exceeding $1 billion from illegal securities trading activities that had occurred at one of its New York branches over an 11-year period. Weaknesses in the branch's internal controls, including inadequate segregation of duties in trading and electronic funds transfer activities, had enabled an employee to trade illegally and to hide the activities and resulting losses. The Chairman of the Federal Reserve Board said that before the losses were reported, the Federal Reserve had noted, but had not fully appreciated, the seriousness of some of the branch's weaknesses in internal control. One reason for this, according to the Federal Reserve Board Chairman, was that those weaknesses did not appear to be extraordinary in comparison to those found at other U.S. branches and agencies of foreign banking organizations (FBO branches). In response to concern about possible risks to the U.S. financial system, the Chairwoman and the Ranking Minority Member, Subcommittee on Financial Institutions and Consumer Credit, House Committee on Banking and Financial Services, requested that GAO (1) identity U.S. supervisors' expectations for adequate internal controls and audits in FB0 branches, (2) determine the extent of serious weaknesses in FBO branches' internal controls and audits reported by U.S. supervisors during examinations, and (3) describe U.S. supervisors' efforts to address these weaknesses.