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Financial Management Discussion and Analysis

Financial Summary

The Office of the Comptroller of the Currency (OCC) received an unmodified opinion on its FY 2017 and FY 2016 financial statements. The OCC’s principal financial statements have been prepared to report the financial position and results of the agency’s operations, pursuant to the requirements of 31 USC 3515(b). While the statements have been prepared from the books and records of the agency 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), the statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same books and records.

The OCC’s financial statements consist of 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 2017 and FY 2016. The financial statements are followed by notes and the auditor’s report.

The OCC, in accordance with 12 USC 482, establishes its budget authority for a given fiscal year. The total budget authority available for use by the OCC in FY 2017 was $1,182.1 million, which represents an increase of $48.8 million, or 4.3 percent, from the $1,133.3 million budget in FY 2016. The OCC executed $1,103.1 million, or 93.3 percent, of the FY 2017 budget, compared with $1,083.7 million, or 95.6 percent, executed in FY 2016.

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.

The table "Key Components of Financial Condition" illustrates the OCC’s key components of financial condition, and the subsequent narrative sections address the OCC’s financial activities in FY 2017 and FY 2016.

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 2017 of $1,136.3 million reflected an increase of $27.8 million, or 2.5 percent, from $1,108.5 million in FY 2016. The change was due primarily to the increase in costs associated with the OCC’s payroll and benefits.

Revenues

The OCC’s operations are funded primarily by assessments and fees paid by banks and from interest received on investments in non-marketable U.S. Treasury securities and other income.

Total FY 2017 revenue of $1,205.3 million reflected a $41.8 million, or 3.6 percent, increase over FY 2016 revenue of $1,163.5 million. Total assets under the OCC’s supervision rose as of June 30, 2017, to $12.0 trillion, up 3.4 percent from $11.6 trillion a year earlier.

Interest revenue totaled $20.0 million in FY 2017, an increase of $1.9 million, or 10.3 percent, from the $18.1 million reported in FY 2016. The majority ($1.5 million) of the increase is attributable to the additional interest the OCC received on its overnight investments during the year, which resulted from higher interest rates established by the FRB. Other income includes revenue received from rental income and reimbursable activities with federal entities. The "Funding Sources" table shows the OCC’s funding sources for FY 2017 and FY 2016.

Assets

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 (CMPs) due the federal government through court-enforced legal actions.

As of September 30, 2017, total assets were $1,894.1 million, an increase of $109.2 million, or 6.1 percent, from the total assets of $1,784.9 million reported on September 30, 2016. The main factors contributing to the net increase in total assets are an increase in investments and related interest of $130.7 million, resulting from the investment of additional funds from increased assessment revenue collected this year. The increased assessment revenue was a result of an increase in total bank assets, offset by a decrease in property, plant, and equipment (PP&E) of $15.5 million. The decrease in PP&E resulted primarily from normal depreciation expense realized during the current year.

Investments

The OCC invests available funds in non-marketable 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 10 years. Laddering in this manner facilitates the ability to reinvest in short- and long-term U.S. Treasury securities while maintaining sufficient cash for the routine use of funds 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, 2017, the amortized book value of investments and related accrued interest was $1,792.8 million, compared with $1,662.1 million the previous year. The increase of $130.7 million, or 7.9 percent, reflects additional investments made with available funds from an increase in total bank assets and the related assessment revenue collected in FY 2017. The market value of the OCC’s investment portfolio in FY 2017 is $2.1 million lower than book value, a decrease of $21.5 million from the $19.4 million market value in excess of book value reported on September 30, 2016. This decrease is primarily attributable to the fluctuation in interest rates—when interest rates increase, the market value of bonds decrease—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, 2017, and September 30, 2016, was $1,154.5 million, or 64.4 percent, and $1,079.5 million, or 65.2 percent, respectively. The weighted average maturity of the portfolio decreased year over year to 1.97 years as of September 30, 2017, compared with 2.12 years as of September 30, 2016. This decrease is because many of the long-term investments made this year were in securities maturing within the earlier portion of the investment ladder. The portfolio earned an annual yield of 1.29 percent in FY 2017, compared with 1.28 percent in FY 2016. The OCC calculates annual portfolio yield by dividing the total interest earned during the year by the average ending monthly book value of investments.

Liabilities

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, 2017, total liabilities were $508.3 million, a net increase of $15.2 million, or 3.1 percent, from total liabilities of $493.1 million on September 30, 2016. This increase is attributed primarily to increases of $10.1 million in deferred revenue and $5.1 million in other actuarial liabilities.

Net Position

The OCC’s net position of $1,385.8 million as of September 30, 2017, an increase of $94.0 million, or 7.3 percent, over the $1,291.8 million reported for FY 2016, 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. The establishment of financial reserves is integral to the effective stewardship of the OCC’s resources. The OCC has a disciplined process for reviewing its reserve balances and allocating funds appropriately to support its ability to accomplish the OCC’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 or as a result of changes in risk at banks creating a need to reallocate resources. In FY 2017, a receivership contingency fund of $100.0 million was established within the financial reserves to facilitate the conduct of receiverships of uninsured national trust banks. Conversely, all national banks insured by the FDIC that are closed by the OCC are required to have the FDIC appointed as receiver. The OCC also sets aside funds for ongoing operations to cover undelivered orders, the consumption of assets, and capital investments.

The OCC ended FY 2017 with financial reserves of $1,206.1 million, which is $149.6 million less than the approved FY 2018 total budget authority of $1,355.7 million. The OCC’s ability to execute the FY 2018 approved budget will depend on collecting current year assessments and utilizing available financial reserves. These reserves are an essential component of a sound, prudent, and reasonable financial management strategy.

At the end of FY 2018, the OCC expects its financial reserves to total $1,091.2 million, which is 80.5 percent of the total FY 2018 budget authority. This reserve number is calculated by adding projected budget revenues ($1,240.8 million) and deducting projected budget expenses ($1,355.7 million) from the $1,206.1 million financial reserve amount as of September 30, 2017.

Financial Statements

Financial Statements

Notes to the Financial Statements 

Note 1—Significant Accounting Policies

Reporting Entity 
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 the lending and investment activities of federally chartered institutions. With the passage of Dodd–Frank on July 21, 2010, the OCC assumed the responsibility for the supervision of federal savings associations (FSAs) and rulemaking authority for all savings associations.

To achieve its goals and objectives, the OCC organizes its activities under three major programs: supervise, regulate, and charter banks. 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.”

In addition, the OCC applies financial accounting and reporting standards issued by the Financial Accounting Standards Board (FASB) only as outlined in FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 34, “The Hierarchy of Generally Accepted Accounting Principles,” including the “Application of Standards Issued by the Financial Accounting Standards Board.”

The financial statements reflect both the accrual and 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.

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.

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.

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 any of the agency’s operations. Therefore, the OCC has no unexpended appropriations.

By federal statute 12 USC 481, the OCC’s funds are not government funds or appropriated monies. They are maintained in a U.S. government trust fund and remain available to cover the annual cost of the OCC’s operations in accordance with policies established by the Comptroller of the Currency.

Funds From Dedicated Collections
In accordance with SFFAS No. 43, “Funds From Dedicated Collections: Amending Statement of Federal Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds,” all of the OCC’s revenue constitutes funds from dedicated collections.

Fund Balance With Treasury
The Treasury Department processes the OCC’s cash receipts and disbursements. The OCC’s Statements of Budgetary Resources reflect the status of the agency’s Fund Balance With Treasury (FBWT) (see Note 2).

Investments
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 FASB Accounting Standards Codification (ASC) Topic 320, “Investments—Debt and Equity Securities” (see Note 3).

Accounts Receivable
In accordance with SFFAS No. 1, “Accounting for Selected Assets and Liabilities,” the OCC updates the allowance for loss on accounts receivable annually or as needed to reflect the most current estimate of accounts that probably will be uncollectible. Accounts receivable from the public are reduced by an allowance for loss on doubtful accounts (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. Allowable internal-use software costs are capitalized. 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.

In addition, PP&E are depreciated or amortized, as applicable, over their estimated useful lives using the straight-line method and are removed from the OCC’s 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 (see Note 5).

Liabilities
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, and deferred revenue. 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 Chapter 39). Discounts are taken when cost effective and when the invoices are paid within the discount period.

Accrued Annual Leave: In accordance with SFFAS No. 5, annual leave is accrued and funded by the OCC as it is earned, and the accrual is reduced 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.

Employment Benefits
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 Defined Benefit (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 via imputing to the OPM.

The OCC assumed the role of benefit administrator for the Pentegra DB Plan in FY 2011. The Pentegra DB Plan covers some of the employees transferred from the former Office of Thrift Supervision and is closed to new entrants in accordance with the provisions of Dodd–Frank. 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.

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 $22.4 million and $21.1 million for FY 2017 and FY 2016, respectively, and are included as a component of “Operating expense: Personnel compensation and benefits” in Note 9, “Net Cost of Operations.”

OCC employees also can elect to contribute a portion of their base 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 Financial Institutions Retirement Fund, the OCC provides an automatic contribution of 4.0 percent of adjusted base pay and an additional matching contribution of up to 3.0 percent.

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 401(k) plan contribution was defrayed by $2.0 million in forfeited accounts in FY 2017 and by $0 in FY 2016.

The OCC’s contributions to the 401(k) plans totaled $28.8 million and $29.9 million for FY 2017 and FY 2016, 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.”

Receivership Contingency Fund
In FY 2017, a receivership contingency fund of $100.0 million was established within the OCC’s financial reserves designated for expenses associated with the potential failure and subsequent receivership of an uninsured national trust bank.

Custodial Activity
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.

Effects of Recent Accounting Pronouncements
On September 22, 2017, the FASAB issued Statement of Federal Financial Accounting Concepts (SFFAC) No. 8: “Federal Financial Reporting.” This SFFAC discusses the role of financial statements and required supplementary information and their relationship to other reported financial and non-financial information. The OCC adopted SFFAC No. 8 upon issuance without material effect.

On January 19, 2016, the FASAB issued Technical Release No. 16, “Implementation Guidance for Internal Use Software.” This release provides implementation guidance to assist reporting entities in implementing SFFAS 10, “Accounting for Internal Use Software.” Since the FASAB issued SFFAS 10 in 1998, software development practices have changed dramatically, and reporting entities have experienced challenges applying the standards because of the new terminology and techniques that have evolved. The OCC adopted Technical Release No. 16 upon issuance, as required, without material effect.

 

Note 2—Fund Balance With Treasury

The status of the FBWT represents the budgetary resources that support the FBWT 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 OCC’s non-budgetary FBWT account balance represents investment accounts that reduce the status of the FBWT.

As of September 30, 2017, there were no unreconciled differences between U.S. Treasury records and balances reported on the OCC’s general ledger.

The "Fund Balance With Treasury" table depicts the OCC’s FBWT amounts for FY 2017 and FY 2016.

 

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 $1,786.5 million on September 30, 2017, and $1,677.7 million on September 30, 2016. The overall portfolio earned an annual yield of 1.29 percent for FY 2017 and 1.28 percent for FY 2016.

The yield-to-maturity on the non-overnight portion of the OCC’s investment portfolio ranged from 0.8 percent to 2.9 percent on September 30, 2017, and from 0.5 percent to 2.9 percent on September 30, 2016. See the tables "FY 2017 and FY 2016 Investments and Related Interest" for more information.

 

Note 4—Accounts Receivable

Accounts receivable represent monies due from the public 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 Office of Thrift Supervision 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.

See the tables "2016 and 2017 Accounts Receivable" for more information.

 

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 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, 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.

For FY 2017 and FY 2016, the OCC recognized $1.9 million and $15.0 million, respectively, of fully depreciated assets or expired leasehold assets removed from service. In FY 2017 and FY 2016, the OCC did not recognize any losses on asset disposal. The figures shown in the table "FY 2017 and FY 2016 General Property, Plant, and Equipment (Net)" present the OCC’s capitalization thresholds and the general PP&E balances as of September 30, 2017 and 2016.

The OCC’s assets include a building and the land where it is located in Washington, D.C. The building is a rental-income property that the OCC uses to supplement its operating budget (see Note 6).

 

Note 6—Leases

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 through FY 2023 and thereafter, not including renewals, are shown in the tables "FY 2017 and FY 2016 Future Lease Payments."

OCC as Lessor
In FY 2012, the OCC entered into a 20-year occupancy agreement with a federal agency for space in a building the OCC owns. The agreement with the federal agency 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 entering 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 2023 and thereafter, not including renewals, is shown in the tables "FY 2017 and FY 2016 Future Rental Income."

 

Note 7—Other Actuarial Liabilities

The OCC’s other actuarial liabilities are reported on the Balance Sheets and include the components shown in the table "Actuarial Liabilities."

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 accumulated post-retirement benefit obligation was 4.0 percent in FY 2017, as compared to FY 2016, when the rate was 3.9 percent. 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.

The table "Reconciliation of Beginning and Ending Post-Retirement Liability and the Related Expenses" 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 2017 present values of these estimated outflows were calculated using a discount rate in the first year of 2.68 percent for wage benefits and 2.22 percent for medical benefits. For FY 2016 the discount rates for wage and medical benefits were 2.78 percent and 2.26 percent, respectively, in the first year.

Pentegra Defined Benefit Plan
In accordance with the provisions of Dodd–Frank, the OCC assumed the role of benefit administrator for the Pentegra DB Plan, a legacy retirement system, in FY 2011. 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.

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 2017 and FY 2016, the OCC paid $16.6 million and $5.4 million, and recognized plan expenses of $17.2 million and $8.2 million, respectively. At September 30, 2017 and 2016, the OCC had accrued $4.8 million and $4.2 million, which represents 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 2017–2018 plan year expenses. See Note 13, “Subsequent Events,” for information on an additional contribution that the OCC made to the Pentegra DB Plan.

 

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 reserves 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, funds are set aside to cover the cost of ongoing operations.

The table "Net Position Availability" reflects balances for FY 2017 and FY 2016.

 

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.”

The table "Net Cost of Operations by Expense Category" illustrates the OCC’s operating expense categories for FY 2017 and FY 2016.

 

Note 10—Imputed Costs and Financing Sources

In accordance with SFFAS No. 5, “Accounting for Liabilities of the Federal Government,” 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 costs categories for FY 2017 and FY 2016 are listed in the table "Imputed Costs Absorbed by the OPM". These imputed costs are included on the Statements of Net Cost. The financing sources absorbed by the OPM are reflected on the Statements of Changes in Net Position and in Note 11, “Reconciliation of Net Cost of Operations to Budget.”

 

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 2017, the reconciliation on the next page shows total offsetting collections exceeding resources used by $85.1 million. This is a net increase of $13.7 million from FY 2016, when offsetting collections exceeded resources used by $71.4 million. The year-over-year change resulted primarily from a $31.4 million decrease in spending authority from offsetting collections.

 

Note 12—Contingent Liabilities

The OCC recognizes and discloses contingencies in accordance with SFFAS No. 12, “Recognition of Contingent Liabilities Arising From Litigation.” 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.

For FY 2017 and FY 2016, the OCC neither identified nor recognized any contingent liabilities.

 

Note 13—Subsequent Events

On October 5, 2017, the OCC made a $148.3 million payment 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 costs, but it is difficult to quantify such future amounts until they actually occur.

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 erroneous payments. For programs and activities in which the risk of erroneous payments is determined to be significant, agencies are required to estimate the amount of erroneous 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, appendix C, to complete an annual risk assessment of programs and activities to identify those susceptible to significant erroneous payments. In FY 2017, 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 erroneous payments at or above thresholds established by the OMB and that, therefore, the OCC is not required to determine a statistically valid estimate of erroneous 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 2017 in the general categories of salary and benefit payments, travel payments, and vendor payments, and identified 147 erroneous payments in FY 2017 requiring adjustments totaling $120,117. As of September 30, 2017, the agency recaptured 80.7 percent of these payments, totaling $96,893. During FY 2017, the OCC collected 94.8 percent of non-payroll payments, excluding payroll amounts, which are considered fully collectible. 

Erroneous 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 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 Do Not Pay requirements of IPERIA. 

The OCC monitors erroneous 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 erroneous payments. 

The table "Erroneous Payments" summarizes the OCC’s erroneous payments for FY 2017 and FY 2016.

Independent Auditor's Report

See the Independent Auditor's Report (PDF) prepared by Williams Adley.