Letter From the Chief Financial Officer
I am pleased to present the Office of the Comptroller of the Currency’s (OCC) financial statements as an integral part of the 2018 Annual Report. This year, as in prior years, our independent auditors have issued an unmodified opinion, which indicates that our financial statements are fairly stated at September 30, 2018 and 2017. The independent auditor’s report indicates that the OCC does not have any significant deficiencies or material weakness in internal control over financial reporting. The OCC’s Assurance Statement, included in this report, speaks to the strength of our comprehensive internal control program and describes the assurance process we use to implement requirements in Office of Management and Budget (OMB) Circular A-123, “Management’s Responsibility for Enterprise Risk Management and Internal Control.” To fulfill these requirements, the OCC has established processes to identify and assess the risks it faces as an organization to effectively manage potential issues.
The OCC emphasizes accurate and timely financial reporting, strong internal controls, and sound fiscal corporate governance to operate efficiently and effectively. It continues to refine its budget, reducing planned expenses for fiscal year 2018. The OCC will continue to explore new ways of doing business—whether by conducting virtual meetings more frequently or optimizing use of space—without losing sight of its mission and by engaging its employees. With that in mind, the OCC has continued to expand its enterprise-wide workforce planning and leadership programs to develop a versatile, engaged, and skilled team capable of succeeding at the agency’s important mission.
In the years ahead, the OCC will continue to act as a responsible steward of its resources. It will foster an organization that is open to adapting to new ways of accomplishing its mission and working more efficiently and effectively. As we look forward to our future, I am proud of the OCC team and all that we have accomplished and will accomplish together.
The OCC received an unmodified opinion on its fiscal year (FY) 2018 and FY 2017 financial statements. The OCC presents the principal financial statements to report the financial position and results of the agency’s operations, pursuant to the requirements of 31 USC 3515(b). The OCC has prepared these statements from its books and records in accordance with U.S. generally accepted accounting principles (GAAP) for federal entities and the formats prescribed by the Office of Management and Budget (OMB). In addition, the OCC prepares financial reports to monitor and control budgetary resources using the same books and records.
The OCC’s financial statements consist of the Balance Sheets, the Statements of Net Cost, the Statements of Changes in Net Position, the Statements of Budgetary Resources, and the Statements of Custodial Activity. The OCC presents the financial statements and notes on a comparative basis, providing financial information for FY 2018 and FY 2017.
In accordance with 12 USC 482, the OCC establishes its own budget authority each fiscal year. The total budget authority available for use by the OCC in FY 2018 was $1,126.8 million. This amount excludes the additional pension contribution the OCC made to the Pentegra Defined Benefit (DB) Plan in October 2017. The FY 2018 budget authority was $55.3 million, or 4.7 percent lower than the $1,182.1 million budget in FY 2017. The OCC executed approximately $7.2 million less than in FY 2017.
The Statements of Budgetary Resources provide information about how budgetary resources were made available to the OCC for the year. These statements present the status of these resources and the net outlay of budgetary resources at the end of the year.
Table 7 illustrates the OCC’s key components of financial condition, and the subsequent narrative sections address the OCC’s financial activities in FY 2018 and FY 2017.
Cost of Operations
The OCC’s net cost of operations is reported in the Statements of Net Cost and the Statements of Changes in Net Position. The OCC uses an activity-based time reporting system to allocate costs among the agency’s programs. Costs are further divided into those resulting from transactions between the OCC and other federal entities (intragovernmental) and those between the OCC and nonfederal entities (with the public). The Statements of Net Cost present the full cost of operating the OCC’s three major programs—supervise, regulate, and charter banks.
Total program costs for FY 2018 of $1,281.6 million reflected an increase of $145.3 million, or 12.8 percent, from $1,136.3 million reported in FY 2017. FY 2018 costs include an additional $148.3 million pension contribution to the Pentegra DB Plan, which the OCC administers for employees who, as a result of the Dodd–Frank Wall Street Reform and Consumer Protection Act (as amended by the Economic Growth Act), were transferred to the OCC from the former Office of Thrift Supervision (OTS). (For more information, see Note 1.) Excluding the additional pension contribution to the Pentegra DB Plan, FY 2018 program costs represented a decrease of 0.3 percent from those in FY 2017.
The OCC’s operations are funded primarily by assessments, fees paid by banks, interest received on investments in nonmarketable U.S. Treasury securities, and other income.
Total FY 2018 revenue of $1,247.4 million reflects a $42.1 million, or 3.5 percent, increase from FY 2017 revenue of $1,205.3 million. Total assets under the OCC’s supervision rose as of September 30, 2018, to $12.5 trillion, an increase of 4.2 percent, from $12.0 trillion a year earlier.
Interest revenue totaled $23.8 million in FY 2018, an increase of $3.8 million, or 19.0 percent, from the $20.0 million reported in FY 2017. The change is due in large part to higher overnight interest rates in FY 2018. Other income includes revenue received from rental income and reimbursable activities with federal entities. Table 8 shows the OCC’s funding sources for FY 2018 and FY 2017.
The OCC’s assets include both “entity” and “non-entity” assets. The OCC uses entity assets, which belong to the agency, to fund operations. Non-entity assets are assets that the OCC holds on behalf of another federal agency. The OCC’s non-entity assets presented as accounts receivable are civil money penalties (CMP) due the federal government through court-enforced legal actions.
As of September 30, 2018, total assets were $1,921.3 million, an increase of $27.2 million, or 1.4 percent, from the total assets of $1,894.1 million reported on September 30, 2017. The main factor contributing to the change is the increased amount of assets under OCC supervision in FY 2018, which resulted in additional assessment revenue and, subsequently, a larger volume of investments.
The OCC invests available funds in nonmarketable U.S. Treasury securities issued through the Treasury Department’s Bureau of the Fiscal Service consistent with the provisions of 12 USC 481 and 12 USC 192. The OCC manages risk by diversifying its portfolio holdings through laddering security maturities over a period not to exceed five years. Laddering in this manner facilitates the ability to reinvest in short- and long-term U.S. Treasury securities while maintaining sufficient cash for daily operating expenses. The OCC has the positive intent and ability to hold all U.S. Treasury securities to maturity and does not maintain any available for sale or trading securities.
On September 30, 2018, the amortized book value of investments and related accrued interest was $1,834.5 million, compared with $1,792.8 million the previous year. The difference of $41.7 million, or 2.3 percent, reflects additional investments made with available funds from an increase in assessment revenue collected in FY 2018, as a result of an increase in total bank assets under OCC supervision. The market value of the OCC’s investment portfolio in FY 2018 was $27.5 million lower than book value, as compared with FY 2017, when the market value was $2.1 million lower than book value. This change is primarily attributable to the recent rise in interest rates—when interest rates increase, the market value of bonds decreases—and the variation of portfolio holdings year-over-year. This fluctuation does not affect the reported value of securities held to maturity.
The OCC’s investment portfolio is composed of overnight and longer-term securities. The portion of the portfolio comprising longer-term investments as of September 30, 2018, and September 30, 2017, was $1,183.0 million, or 64.5 percent, and $1,154.5 million, or 64.4 percent, respectively. The weighted average maturity of the portfolio decreased year-over-year to 1.60 years as of September 30, 2018, compared with 1.97 years as of September 30, 2017. This change reflects the OCC’s decision to weight its portfolio more heavily toward shorter-term investments to maintain desired liquidity levels. The OCC portfolio earned an annual yield of 1.6 percent in FY 2018, compared with 1.3 percent in FY 2017. The OCC calculates annual portfolio yield by dividing the total interest earned during the year by the average ending monthly book value of investments.
The OCC’s liabilities represent the resources due to others or held for future recognition and are composed largely of deferred revenue, accrued annual leave, accrued payroll and benefits, and other actuarial liabilities. Deferred revenue represents the unearned portion of semiannual assessments.
As of September 30, 2018, total liabilities were $527.0 million, a net increase of $18.7 million, or 3.7 percent, from total liabilities of $508.3 million on September 30, 2017. This change is primarily due to increased accrued salary and benefits in FY 2018.
The OCC’s net position of $1,394.4 million as of September 30, 2018, an increase of $8.6 million, or 0.6 percent, over the $1,385.8 million reported for FY 2017, represents the cumulative net excess of the OCC’s revenues over the cost of operations. The net position is presented on both the Balance Sheets and the Statements of Changes in Net Position.
The OCC allocates a significant portion of the net position to its financial reserves, which includes a reserve for uninsured national trust banks and a reserve for uninsured federal branches or agencies of a foreign banking organization. The establishment of financial reserves is integral to the effective stewardship of the OCC’s resources, and the OCC has a disciplined process for reviewing its reserve balances and allocating funds appropriately to support its ability to accomplish the agency’s mission. The OCC’s financial reserves are available to reduce the impact on the OCC’s operations in the event of a significant fluctuation in revenues or expenses. The OCC also sets aside funds for ongoing operations to cover undelivered orders and capital investments.
All national banks insured by the Federal Deposit Insurance Corporation (FDIC) that are closed by the OCC are required to have the FDIC appointed as receiver. In FY 2018, the OCC established a receivership contingency fund of $86.6 million within its financial reserves to facilitate the conduct of receiverships of uninsured federal branches or agencies of a foreign banking organization. A federal branch or agency licensed by the OCC has never gone into receivership. Similarly, the OCC established a receivership contingency fund of $100.0 million within its financial reserves in FY 2017 to support receiverships of uninsured national trust banks.
As of September 30, 2018, the OCC’s financial reserves were $1,319.9 million. This represents an increase of 9.4 percent from the value at the end of FY 2017. These reserves are essential to a sound, prudent, and reasonable financial management strategy.
OCC Financial Statements
- Balance Sheets as of September 30, 2018 and 2017 (PDF)
- Statements of Net Cost for the Years Ended September 30, 2018 and 2017 (PDF)
- Statements of Changes in Net Position for the Years Ended September 30, 2018 and 2017 (PDF)
- Statements of Budgetary Resources for the Years Ended September 30, 2018 and 2017 (PDF)
- Statements of Custodial Activity for the Years Ended September 30, 2018 and 2017 (PDF) (PDF)
- Reconciliation of Net Cost of Operations to Budget for the Years Ended September 30, 2018 and 2017 (PDF)
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
Note 1—Significant Accounting Policies
The OCC was created as a bureau within the Treasury Department by an act of Congress in 1863. The mission of the OCC was to establish and regulate a system of federally chartered national banks. The National Currency Act of 1863, rewritten and reenacted as the National Bank Act of 1864, authorized the OCC to supervise national banks and regulate their lending and investment activities. With the passage of Dodd–Frank on July 21, 2010, the OCC assumed the responsibility for the supervision of federal savings associations and rulemaking authority for all savings associations.
To achieve its goals and objectives, the OCC organizes its activities under three major programs: supervision, regulation, and chartering. These three programs support the agency’s overall mission by ensuring that banks operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations.
Basis of Accounting and Presentation
The OCC’s financial statements are prepared from the agency’s accounting records in conformity with GAAP as set forth by the Federal Accounting Standards Advisory Board (FASAB). The OCC’s financial statements are presented in accordance with the reporting guidance established by the OMB in Circular No. A-136, “Financial Reporting Requirements.”
With the update to OMB Circular No. A-136 in 2018, the FY 2018 Statement of Budgetary Resources (SBR) format was significantly modified from that presented in prior year financial statements. The FY 2017 SBR has been revised to conform to the presentation used in 2018, to provide for appropriate comparative analysis.
In addition, the OCC applies financial accounting and reporting standards pursuant to the FASAB’s Statement of Federal Financial Accounting Standards (SFFAS) No. 34, “The Hierarchy of Generally Accepted Accounting Principles.”
The financial statements reflect both the accrual and the budgetary bases of accounting. Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recognized when a liability is incurred, without regard to cash receipt or payment. The budgetary method recognizes the obligation of funds according to legal requirements, which in many cases is recorded before the occurrence of an accrual-based transaction. Budgetary accounting is essential for compliance with legal constraints and controls over the use of federal funds.
Use of estimates: In accordance with GAAP, the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Such estimates and assumptions could change as more information becomes known, which could affect the amounts reported and disclosed herein.
Entity and non-entity assets: Entity assets are those that the OCC has the authority to use in its operations and include the assessments that the OCC collects regularly from the banks it regulates in order to fund its operations. The OCC also collects CMPs as part of its operations. It records these as non-entity assets, since the OCC is responsible for transferring these funds to the Treasury. These non-entity assets are not fiduciary, as fiduciary funds are those that the federal government holds on behalf of non-federal individuals or entities that have an ownership interest.
Intragovernmental and governmental: Throughout these financial statements, assets, liabilities, earned revenues, and costs have been classified according to the entity responsible for these transactions. Intragovernmental earned revenues are collections or accruals of revenue from other federal entities, and intragovernmental costs are payments or accruals of expenditures to other federal entities.
Funds from dedicated collections: Funds from dedicated collections are financed by specifically identified revenue that is provided to the government by non-federal sources and reported by the OCC in accordance with SFFAS No. 43, “Funds From Dedicated Collections: Amending Statement of Federal Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds.” These funds are required by statute to be used for designated activities or purposes, and must be accounted for separately from the federal government’s Treasury General Fund. Typically, an agency reports these funds separately, but because all OCC funds are considered funds from dedicated collections, all net position amounts are recorded and classified as such.
Revenues and Other Financing Sources
The OCC derives its revenue primarily from assessments and fees paid by banks, from income on investments in non-marketable U.S. Treasury securities, and from rental income and reimbursable activities with other federal entities. The OCC does not receive congressional appropriations to fund the agency’s operations. Therefore, the OCC has no unexpended appropriations.
Federal statute stipulates that the OCC’s funds are neither government funds nor appropriated monies (12 USC 481). They are maintained in a U.S. government trust fund and remain available to cover the cost of the OCC’s operations in accordance with policies established by the Comptroller of the Currency.
Fund Balance With Treasury (FBWT)
The Department of the Treasury processes the OCC’s cash receipts and disbursements. The OCC’s Statements of Budgetary Resources reflect the status of the agency’s FBWT. (For more information, see Note 2.)
It is the OCC’s policy to invest available funds consistent with the provisions of 12 USC 481 and 12 USC 192. The OCC invests available funds in U.S. Government Account Series Treasury securities, which include bills, notes, and one-day certificates; Government Account Series securities are available to federal agencies that have specific authority to invest in these special, non‑marketable U.S. Treasury securities.
The OCC has the positive intent and ability to hold all U.S. Treasury securities to maturity in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 320, “Investments—Debt and Equity Securities.” (For more information, see Note 3).
In accordance with SFFAS No. 1, “Accounting for Selected Assets and Liabilities,” the OCC updates the allowance for loss on accounts receivable periodically to reflect the most current estimate of accounts that probably will be uncollectible. The OCC considers multiple factors when calculating the allowance, including how long the debt has been outstanding and what kind of debt it is. Once calculated, the OCC uses the allowance to reduce accounts receivable from the public. The OCC does not recognize any allowance for loss on intragovernmental accounts receivable. (For more information, see Note 4).
General Property, Plant, and Equipment, Net
General PP&E and internal-use software are accounted for in accordance with SFFAS No. 6, “Accounting for Property, Plant, and Equipment,” and SFFAS No. 10, “Accounting for Internal Use Software.”
General PP&E purchases and additions are stated at cost. General PP&E purchased at a cost greater than or equal to the established capitalization thresholds are capitalized at cost and depreciated or amortized, as applicable. Depreciation is expensed on a straight-line basis over the estimated useful life of the asset with the exception of major leasehold improvements, which are amortized on a straight-line basis over the lesser of the terms of the related leases or the estimated useful lives. Land, minor leasehold improvements, and internal-use software in development are not depreciated or amortized. Major alterations and renovations, including leasehold and land improvements, are capitalized, while maintenance and repair costs are expensed as incurred. All other general PP&E are depreciated or amortized, as applicable, on a straight-line basis over their estimated useful lives.
Allowable internal-use software costs are capitalized and amortized once the software is placed in service. The OCC recognizes as expenses purchases and software development costs that do not meet the capitalization criteria, such as normal repairs and maintenance, when received or incurred.
The OCC tests for impairment in accordance with SFFAS No. 44, “Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use,” and removes PP&E from its asset accounts in the period of disposal, retirement, or removal from service. Any difference between the book value of PP&E and amounts realized is recognized as a gain or loss in the same period that the asset is removed. (For more information, see Note 5).
The OCC records liabilities for amounts that are likely to be paid because of events that have occurred as of the relevant balance sheet dates. The OCC’s liabilities consist of routine operating accounts payable, accrued payroll and benefits, deferred revenue, and other liabilities. The OCC’s liabilities represent the amounts owed or accrued under contractual or other arrangements governing the transactions, including operating expenses incurred but not paid. The OCC accounts for liabilities in accordance with SFFAS No. 5, “Accounting for Liabilities of the Federal Government.”
Accounts payable: Accounts payable represent short-term liabilities to vendors and other entities. Interest penalties are paid when payments are late as prescribed by the Prompt Payment Act (31 USC 39). Discounts are taken when cost effective and when the invoices are paid within the discount period.
Accrued annual leave: The OCC accrues and funds annual leave as it is earned and reduces the accrual as leave is taken or paid. Each year, the balance in the accrued annual leave account is adjusted to reflect actual leave balances with current pay rates. Sick leave and other types of leave are expensed as incurred.
Deferred revenue: The OCC’s activities are primarily financed by assessments on assets held by banks. These assessments are due March 31 and September 30 of each year, based on each institution’s asset balance as of December 31 and June 30, respectively. Assessments are recognized as earned revenue on a straight-line basis. The unearned portions of collected assessments are classified as deferred revenue.
Contingent liabilities: The OCC recognizes and discloses contingencies for pending or threatened litigation and unasserted claims in accordance with SFFAS No. 12, “Recognition of Contingent Liabilities Arising From Litigation.” As such, the OCC accrues an estimated loss if it is probable and the OCC is able to reasonably estimate the amount. If the likelihood of an unfavorable outcome is more than remote, the OCC discloses the contingent liability. (For more information, see Note 12.)
Retirement plans: All of the OCC’s employees participate in one of three retirement systems—the Civil Service Retirement System (CSRS), the Federal Employees Retirement System (FERS), or the Pentegra DB Plan (i.e., the Financial Institutions Retirement Fund). CSRS and FERS are administered by the U.S. Office of Personnel Management (OPM). Pursuant to the enactment of Public Law 99-335, which established FERS, most OCC employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired before January 1, 1984, are covered by CSRS, with the exception of those who, during the election period, joined FERS.
The OCC does not report CSRS or FERS assets or accumulated plan benefits that may be applicable to its employees in its financial statements; these amounts are reported by the OPM. Although the OCC reports no liability for future payments to employees under these programs, the federal government is liable for future payments to employees through the various agencies administering these programs. The OCC recognizes future benefit costs as an imputed cost to the OPM.
In accordance with the provisions of Dodd–Frank (as amended by the Economic Growth Act), the OCC assumed the role of benefit administrator for the Pentegra DB Plan in FY 2011. The Pentegra DB Plan covers those employees transferred from the former OTS who elected the plan before October 8, 1989, when it was closed to new entrants.
The OCC does not report Pentegra assets or accumulated plan benefits that may be applicable to its employees in its financial statements; these amounts are reported by Pentegra. When the plan is in surplus (assets are greater than plan liabilities) the OCC’s annual costs equal plan expenses, which include administrative expenses and Pension Benefit Guaranty Corporation premiums. When the plan is not in surplus, the OCC’s expenses also include the present value of the benefits expected to be earned in the plan year (the target normal cost), and a portion of the unfunded liability. The plan is currently in surplus. The OCC is committed to adhering to sound financial policies and management oversight of the plan to ensure its sustainability for current and future retirees.
Thrift savings and 401(k) plans: The OCC’s employees are eligible to participate in the federal Thrift Savings Plan (TSP). FERS employees can receive up to 4.0 percent in OCC matching contributions, in addition to an automatic contribution of 1.0 percent of adjusted base pay. The OCC’s contributions to the TSP totaled $22.8 million and $22.4 million for FY 2018 and FY 2017, respectively, and are included as a component of “Operating expense: Personnel compensation and benefits” in Note 9, “Net Cost of Operations.”
OCC employees also may elect to contribute a portion of their total pay to the OCC-sponsored 401(k) plan, subject to Internal Revenue Service regulations that apply to employee contributions in both the federal TSP and the OCC-sponsored 401(k) plan. The OCC matches 100 percent of the first 1.0 percent of employee contributions to the OCC 401(k) plan and provides an automatic employer contribution of 4.0 percent of adjusted base pay.
The amount of each participant’s matching contribution is based on the applicable retirement system under which each participant is covered. For those who participate in FERS, CSRS, or CSRS Offset, the OCC provides an automatic contribution of 4.0 percent of adjusted base pay and an additional matching contribution of up to 1.0 percent. For those who participate in the OTS 401(k) plan, the OCC provides an automatic contribution of 4.0 percent of adjusted base pay, an additional matching contribution of up to 3.0 percent to participants in the Financial Institutions Retirement Fund and 1.0 percent additional match to all other participants.
Employees who leave the OCC before the vesting period (three or more years of continuous credited service) forfeit the OCC’s matching contributions. The OCC uses these accounts to reduce future administrative plan expenses and to satisfy future employer contributions. The OCC did not use any forfeitures this year to defray employer contributions.
The OCC’s contributions to the 401(k) plans totaled $30.3 million and $28.8 million for FY 2018 and FY 2017, respectively, and are included as a component of “Operating expense: Personnel compensation and benefits,” in Note 9, “Net Cost of Operations.”
Federal Employees Health Benefits and Federal Employees’ Group Life Insurance: Employees and retirees of the OCC are eligible to participate in the Federal Employees Health Benefits and Federal Employees’ Group Life Insurance plans administered by the OPM, which involve a cost sharing of biweekly coverage premiums by OCC employees and the OCC. The OCC does not fund post-retirement benefits for these programs. Instead, the OCC’s financial statements recognize an imputed financing source and corresponding expense that represent the OCC’s share of the cost to the federal government of providing these benefits to all eligible OCC employees.
Post-retirement life insurance benefit plan: The OCC sponsors a life insurance benefit plan for current and retired employees. The OCC’s life insurance benefit plan is a defined-benefit plan for which the benefit is earned over the period from the employee’s date of hire to the date on which the employee is assumed to retire. The valuation of the plan is performed in accordance with generally accepted actuarial principles and practices, including the applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board. Specifically, the OCC uses the actuarial cost method as outlined in FASB ASC Topic 715, Compensation—Retirement Benefits, to determine costs for its retirement plans. Gains or losses owing to changes in actuarial assumptions are amortized over the service life of the plan. The actuarial assumptions and methods used in calculating actuarial amounts comply with the requirements for post-retirement benefits other than pensions as set forth in FASB ASC Topic 715, and for health benefit plans as set forth in American Institute of Certified Public Accountants Statement of Position 92-6, “Accounting and Reporting by Health and Welfare Benefit Plans.”
Net position is the residual difference between assets and liabilities, and is composed of Cumulative Results of Operations. The OCC allocates a significant portion of the net position to its financial reserves. The establishment of financial reserves is integral to the effective stewardship of the OCC’s resources, particularly because the agency does not receive congressional appropriations.
In FY 2018, the OCC established an $86.6 million receivership contingency fund within its financial reserves, designated for expenses associated with the potential failure and subsequent receivership of uninsured federal branches or agencies of a foreign banking organization. In FY 2017, the OCC similarly established a receivership contingency fund of $100.0 million within its financial reserves designated for expenses associated with the potential failure and subsequent receivership of an uninsured national trust bank. The two receivership funds are included in net position on the Balance Sheet.
Non-entity receivables, liabilities, and revenues are recorded as custodial activity in the Statements of Custodial Activity and include amounts collected for fines, CMPs, and related interest assessments. Revenues are recognized as cash collected that will be transferred to the General Fund of the U.S. Treasury. The OCC presents the Statements of Custodial Activity on the “modified accrual basis.” We recognize revenues as cash is collected and record a “non-cash accrual adjustment” representing the net increase or decrease during the reporting period in net revenue-related assets and liabilities.
In FY 2018, the OCC collected $21.8 million from qualified settlement funds established for the administration of payments to borrowers of OCC regulated institutions as a result of an Independent Foreclosure Review settlement. These funds were also transferred to the General Fund of the U.S. Treasury.
Effects of Recent Accounting Pronouncements
On December 23, 2014, the FASAB issued SFFAS No. 47, “Reporting Entity.” This release provides guidance for deciding which organizations should be included in the reporting entity’s general purpose federal financial reports for financial accountability purposes. The OCC adopted SFFAS No. 47 in FY 2018 without material effect.
The OCC examined its operations and has prepared these statements and notes in compliance with SFFAS No. 47. The OCC did not have a relationship with any entity that would require reporting as a related party as of September 30, 2018.
On October 4, 2018, the FASAB issued SFFAS No. 56, “Classified Activities.” This statement requires the following disclosure:
Accounting Standards require all reporting entities to disclose that accounting standards allow certain presentations and disclosures to be modified, if needed, to prevent the disclosure of classified information.
Note 2—Fund Balance With Treasury
The FBWT represents the budgetary resources available for the OCC’s use and is a reconciliation between budgetary and proprietary accounts. The OCC’s FBWT consists of one U.S. Treasury fund symbol designated as a trust fund and established by 12 USC 481, which governs the collection and use of assessments and other funds by the OCC.
The OCC’s FBWT consists of unobligated and obligated balances that reflect the budgetary authority remaining for disbursement against current or future obligations. The unobligated balance represents the cumulative amount of budgetary authority that has not been set aside to cover outstanding obligations and is classified as available for future OCC use. The obligated balance not yet disbursed represents funds that have been obligated for goods that have not been received or services that have not been performed. It also represents goods and services that have been delivered or received but for which payment has not been made. The majority of the OCC’s non-budgetary FBWT account balance represents investment accounts that reduce the status of the FBWT.
As of September 30, 2018, and September 30, 2017, there were no unreconciled differences between U.S. Treasury records and balances reported on the OCC’s general ledger.
Table 9 depicts the OCC’s FBWT amounts for FY 2018 and FY 2017.
Note 3—Investments and Related Interest
The OCC’s investments are stated at amortized cost and the related accrued interest. Premiums and discounts are amortized over the term of the investment using the effective interest method. The fair market value of investment securities was $1,802.8 million on September 30, 2018, and $1,786.5 million on September 30, 2017. The overall portfolio earned an annual yield of 1.60 percent for FY 2018 and 1.29 percent for FY 2017.
The yield-to-maturity on individual securities in the non-overnight portion of the OCC’s investment portfolio ranged from 0.9 percent to 2.9 percent on September 30, 2018, and from 0.8 percent to 2.9 percent on September 30, 2017.
Note 4—Accounts Receivable
Accounts receivable represent monies due for services and goods provided that are retained by the OCC upon collection. The amounts shown for federal receivables include pension-sharing costs for former OTS employees transferred to other federal agencies in accordance with the provisions of Dodd–Frank. CMP receivables are amounts assessed against people or banks for violations of law, regulation, and orders; unsafe or unsound practices; and breaches of fiduciary duty. Because CMPs are not debts owed to the OCC, the amount outstanding does not enter into the calculation for the allowance for uncollectible accounts. (For more information on how the OCC calculates the allowance, see Note 1.)
Note 5—General Property, Plant, and Equipment, Net
General PP&E purchased at a cost greater than or equal to the established capitalization thresholds are capitalized at cost and depreciated or amortized, as applicable. Depreciation is expensed on a straight-line basis over the estimated useful life of the asset with the exception of major leasehold improvements, which are amortized on a straight-line basis over the lesser of the terms of the related leases or the estimated useful lives. Land, minor leasehold improvements, and internal-use software in development are not depreciated or amortized. Major alterations and renovations, including leasehold and land improvements, are capitalized, while maintenance and repair costs are expensed as incurred. All other general PP&E are depreciated or amortized, as applicable, on a straight-line basis over their estimated useful lives.
In FY 2018, the OCC recognized $21.4 million of fully depreciated assets or expired leasehold assets removed from service, as compared to $1.9 million in FY 2017. The majority of the change is due to $20.2 million in internal-use software that the OCC retired in FY 2018. In both FY 2018 and FY 2017, the OCC did not recognize any losses on asset disposal. The figures in tables 14 and 15 present the OCC’s capitalization thresholds and the general PP&E balances as of September 30, 2018 and 2017.
The OCC’s assets include a building and associated land in Washington, D.C. The building is a rental-income property that the OCC uses to supplement its operating budget (see Note 6).
OCC as Lessee
The OCC leases equipment and office space for its headquarters operations in Washington, D.C., and for district and field operations. All of the OCC’s leases are recorded as operating leases, and the costs are included in the Statements of Net Cost. These leases are non-cancelable and have remaining terms ranging from one to approximately 10 years, the majority with renewal options. The leases provide for future increased payments based on increases in real estate taxes, operating costs, or selected price indexes. The future minimum lease payments to non-federal lessors through FY 2024 and thereafter, not including renewals, are shown in table 16. The OCC has one lease with a federal lessor with an end date of February 2019 and total future minimum lease payments are immaterial.
OCC as Lessor
In FY 2012, the OCC entered into a 20-year occupancy agreement with another federal agency for space in a building the OCC owns. This agreement expires in 2032 and provides renewal options. The agreement provides for annual base rent and additional rent for building operating expenses. The agreement also provides for fixed future increases in rents over the term of the agreement. The OCC is also continuing to enter into lease agreements with retail tenants to comply with the District of Columbia’s requirement to have retail establishments on the plaza level. The future minimum rental income through FY 2024 and thereafter, not including renewals, is shown in table 17.
Note 7—Other Actuarial Liabilities
The OCC’s other actuarial liabilities are reported on the Balance Sheets and include the following components.
Post-Retirement Life Insurance Benefits
The OCC sponsors a life insurance benefit plan for current and retired employees. The weighted-average discount rate used in determining the post-retirement life insurance benefits, also known as the accumulated post-retirement benefit obligation, was 4.3 percent in FY 2018, as compared with FY 2017, when the rate was 4.0 percent. There were several reasons for the difference, including a change in the discount rate, a new mortality projection scale, and the impact of demographic experience. Gains or losses owing to changes in actuarial assumptions are amortized over the service life of the plan.
Total periodic post-retirement life insurance benefit expenses are recognized as program costs in the Statements of Net Cost. Any gains or losses from changes in long-term assumptions used to measure liabilities for post-retirement life insurance benefits are displayed separately in the Statements of Net Cost, as required. Table 19 presents a reconciliation of the beginning and ending post-retirement life insurance liability and provides material components of the related expenses.
Federal Employees’ Compensation Act
The Federal Employees’ Compensation Act provides income and medical cost protection to cover federal civilian employees injured on the job, employees who have incurred a work-related occupational disease, and beneficiaries of employees whose death is attributable to a job-related injury or occupational disease. Claims incurred for benefits for OCC employees covered under the Federal Employees’ Compensation Act are administered by the U.S. Department of Labor and billed to the OCC. The FY 2018 present value of these estimated outflows was calculated using a discount rate of 2.72 percent for wage benefits and 2.34 percent for medical benefits. For FY 2017, the discount rates for wage and medical benefits were 2.68 percent and 2.22 percent, respectively.
Pentegra Defined Benefit Plan
The Pentegra DB Plan is a tax-exempt, multiple-employer, defined benefit pension plan in which all costs are paid by the employer into one general account. The OCC does not report Pentegra assets or accumulated plan benefits that may be applicable to its employees in its financial statements; these amounts are reported by Pentegra.
At retirement, employees may either receive a lump sum payment or choose an annuity/lump sum split. The Pentegra DB Plan year begins in July and ends in June.
In FY 2018 and FY 2017, the OCC paid $2.7 million and $16.6 million, and recognized plan expenses of $2.8 million and $17.2 million, respectively. At September 30, 2018 and 2017, the OCC had accrued $0.8 million and $4.8 million, representing the portion of the plan expenses from July to September of each fiscal year that is paid in the following fiscal year. The OCC made the Minimum Required Contribution for the 2018–2019 plan year expenses.
On October 5, 2017, the OCC made an additional pension contribution of $148.3 million to the Pentegra DB Plan to fully fund the plan to a pre-Moving Ahead for Progress in the 21st Century Act level. This payment will enable the OCC to achieve significant savings by lowering or avoiding certain future costs, but it is difficult to quantify these amounts until they actually occur.
Note 8—Net Position
Net position represents the net result of operations since inception and includes cumulative amounts related to investments in capitalized assets held by the OCC. The OCC allocates a portion of its net position as financial reserves for use at the Comptroller’s discretion. These funds include a receivership contingency fund of $86.6 million established within the financial reserves in FY 2018 to facilitate the conduct of receiverships of uninsured federal branches or agencies of a foreign banking organization. The reserves also include $100.0 million for a receivership contingency fund established in FY 2017 to facilitate the conduct of receiverships of uninsured national trust banks. This fund decreases the financial risk of unexpected costs associated with the potential receivership and resolution of an uninsured national trust bank. In addition to both of these, the OCC sets aside funds to cover the cost of ongoing operations, including undelivered orders and capital investments. Table 20 reflects balances for FY 2018 and FY 2017.
Note 9—Net Cost of Operations
The net cost of operations represents the OCC’s operating costs deducted from assessments and fees paid by banks and other income earned. The operating costs include the gain or loss from actuarial experience and assumption changes per the guidance in SFFAS No. 33, “Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains and Losses From Changes in Assumptions and Selecting Discount Rates and Valuation Dates.” The imputed financing sources for net cost of operations are reported in the Statements of Changes in Net Position; in Note 10, “Imputed Costs and Financing Sources”; and in Note 11, “Reconciliation of Net Cost of Operations to Budget.” Table 21 illustrates the OCC’s operating expense categories for FY 2018 and FY 2017.
Note 10—Imputed Costs and Financing Sources
In accordance with SFFAS No. 5, federal agencies must recognize the portions of employees’ pension and other retirement benefits to be paid by the OPM trust funds. These amounts are recorded as imputed costs and imputed financing for other agencies. Annually, the OPM provides federal agencies with cost factors for computing current year imputed costs. These cost factors are multiplied by the current year salary or number of employees, as applicable, to provide an estimate of the imputed financing that the OPM trust funds will provide for each agency.
The imputed cost categories for FY 2018 and FY 2017 are listed in the table below. These imputed costs are included on the Statements of Net Cost. The financing sources absorbed by the OPM are reflected in the Statements of Changes in Net Position and in Note 11, “Reconciliation of Net Cost of Operations to Budget.” The year-to-year change in imputed cost is related to increases in OPM cost factors for Retirement and Federal Employees Health Benefits.
Note 11—Reconciliation of Net Cost of Operations to Budget
The Reconciliation of Net Cost of Operations to Budget explains the difference between the budgetary net obligations and the proprietary net cost of operations.
For FY 2018, the reconciliation shows total resources used exceeding offsetting collections by $8.3 million. This is a net decrease of $93.4 million from FY 2017, when offsetting collections exceeded resources used by $85.1 million. The year-over-year change resulted primarily from a $125.4 million increase in obligations incurred.
Note 12—Contingent Liabilities
The OCC recognizes and discloses contingencies in accordance with SFFAS No. 12. The OCC is party to various administrative proceedings, legal actions, and claims brought against the agency, including threatened or pending litigation involving federal employment claims, some of which may ultimately result in settlements or decisions against the federal government.
As of September 30, 2018, there was one contingency for litigation involving the OCC. Because the risk of loss is probable and the amount is estimable, the OCC recorded a liability of $545,000, which includes back pay plus interest, and legal fees. In FY 2017, the OCC neither identified nor recognized any contingent liabilities.
Note 13—Undelivered Orders at the End of the Period
Undelivered Orders represent the amount of goods and/or services ordered to perform the OCC’s mission objectives, but which have not been received.
Pursuant to OMB Circular A-136, issued in July 2018, the detailed information in the Table 23 is new and is only required for FY 2018. The total amount of undelivered orders unpaid at September 30, 2017 was $83,145 thousand.
Note 14—Custodial Revenues
The OCC assesses fines and penalties against people or banks for violations of law, regulation, and orders; unsafe or unsound practices; and breaches of fiduciary duty. These amounts typically are collected in the same year that the OCC assesses them, and are recognized as cash collected that will be transferred to the General Fund of the U.S. Treasury. The change in FY 2018 is due to a significant increase in penalties assessed against regulated institutions.
Independent Auditor's Report
See the Independent Auditor's Report (PDF) prepared by Williams Adley.
Improper Payments Elimination and Recovery Improvement Act
The Improper Payments Elimination and Recovery Improvement Act (IPERIA) requires federal agencies to review all programs and activities annually and identify those that may be susceptible to significant improper payments. For programs and activities in which the risk of improper payments is determined to be significant, agencies are required to estimate the amount of improper payments made in those programs and activities, and meet specific reporting requirements.
IPERIA Risk Assessment
Each year, the Treasury Department provides the OCC with guidance, in accordance with OMB Circular A-123, “Management’s Responsibility for Enterprise Risk Management,” appendix C, to complete an annual risk assessment of programs and activities to identify those susceptible to significant improper payments. In FY 2018, the OCC performed a risk assessment on the following five programs:
- Federal employee payments, including payroll
- Entitlements and benefits other than payroll
- Travel card
- Contract payments and/or invoices
- Purchase card
These five programs are reported in the three more general categories of “salary and benefits,” “travel payments,” and “vendor payments.” The results of the agency’s risk assessment indicate that none of the OCC’s programs or activities are susceptible to significant improper payments at or above thresholds established by the OMB and that, therefore, the OCC is not required to determine a statistically valid estimate of improper payments, perform additional reporting on corrective actions or root causes, or provide corrective actions.
Analysis of Erroneous Payments
The OCC analyzed payments made during FY 2018 in the general categories of salary and benefit payments, travel payments, and vendor payments, and identified 146 improper payments in the fiscal year requiring adjustments totaling $96,995. As of September 30, 2018, the agency recaptured 82 percent of these payments, totaling $79,971. During FY 2018, the OCC collected 97.7 percent of travel and vendor payments; salary and benefits amounts are considered fully collectible.
Improper payments are identified through pre- and post-payment audits, recurring quality control reviews, and other controls, such as vendor reviews before contract award, Treasury pay file reviews, Do Not Pay (DNP) continuous monitoring efforts, and other recapture auditing. The OCC ensures that effective controls are in place to limit payments to ineligible vendors and to meet the DNP requirements of IPERIA.
The OCC monitors improper payments to increase the likelihood of prompt recovery. The underlying causes and contributing factors are identified quickly, and control measures are implemented to prevent additional improper payments. Table 25 summarizes the OCC’s erroneous payments for FY 2018 and FY 2017.
Secretary of the Treasury
Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC) is responsible for managing risks and maintaining effective internal control to meet the objectives of section 2 and section 4 of the Federal Managers' Financial Integrity Act (FMFIA), as well as implementing the requirements of the Federal Financial Management Improvement Act (FFMIA). The implementation guidelines related to these acts are included in the internal control requirements of the Office of Management and Budget (OMB) Circular A-123, Management's Responsibility for Enterprise Risk Management and Internal Control. The objectives of OMB Circular A-123, including its appendices, are to ensure (1) alignment of strategic goals with the agency's mission, (2) effective and efficient operations, (3) reliable financial reporting, and (4) compliance with applicable laws and regulations.
The OCC conducted our assessment of internal controls over financial reporting in accordance with OMB Circular A-123, Appendix A, Management of Reporting and Data Integrity Risk. Based on the results of this assessment, the OCC provides reasonable assurance that the internal controls over financial reporting as of June 30, 2018, were operating effectively and no material weaknesses were found in the design or operation of the internal control over financial reporting.
In addition, the OCC conducted an assessment of its financial management systems in accordance with OMB Circular A-123, Appendix D, Compliance with the Federal Financial Management Improvement Act of 1996. Based on the results of this assessment, the OCC provides assurance that our financial management systems substantially complied with FFMIA as of September 30, 2018.
The OCC's executives and managers were responsible for implementing management practices that identify, assess, respond to, and report on risks. Risk management practices were taken into account when designing internal controls and assessing their effectiveness. The OCC conducted our assessment of risk and internal controls in accordance with OMB Circular A-123. Based on the results of this assessment, we provide reasonable assurance that the internal controls over strategic, operational, non-financial reporting, and compliance objectives were operating effectively as of September 30, 2018.
As part of the evaluation process, the OCC considered results of extensive testing and assessment across the organization and independent audits.