Full text
Audit Report
OIG-22-028
CORONAVIRUS DISEASE 2019 PANDEMIC RELIEF
PROGRAMS
Audit of Treasury’s Implementation of the
Emergency Capital Investment Program
March 8, 2022
Office of Inspector General
Department of the Treasury
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Contents
Audit Report
Results in Brief .................................................................................................. 3
Background ...................................................................................................... 4
Audit Results .................................................................................................... 8
Finding 1 Treasury Made Progress Implementing ECIP but Missed the Statutory
Deadline .................................................................................... 17
Recommendation ........................................................................ 20
Appendices
Appendix 1: Objective, Scope, and Methodology ................................................. 22
Appendix 2: Management Response .................................................................. 26
Appendix 3: Major Contributors to This Report .................................................... 28
Appendix 4: Report Distribution......................................................................... 29
Abbreviations
BHC
Bank Holding Company
Federal Reserve Board
Board of Governors of the Federal Reserve System
CAA, 2021
Consolidated Appropriations Act, 2021
CDFI
Community Development Financial Institution
CDFI Fund
Community Development Financial Institutions Fund
COVID-19
Coronavirus Disease 2019
DAS
Deputy Assistant Secretary
DNP
Do Not Pay
ECIP
Emergency Capital Investment Program
FA
Financial Analyst
FAQ
Frequently Asked Questions
FBR
Federal Banking Regulator
FDIC
Federal Deposit Insurance Corporation
GAO
Government Accountability Office
LPA
Lending Plan Analyst
MDI
Minority Depository Institution
MFI
Median Family Income
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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MOU
Memorandum of Understanding
NAFCU
National Association of Federally-Insured Credit Unions
NCUA
National Credit Union Administration
OCC
Office of the Comptroller of the Currency
OFA
Office of Financial Agents
OGC
Office of General Counsel
OIG
Office of Inspector General
PII
Personally Identifiable Information
SLHC
Savings and Loan Holding Company
Treasury
Department of the Treasury
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Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
1
March 8, 2022
Noel A. Poyo,
Deputy Assistant Secretary for Community and Economic
Development
This report presents the results of our audit of the Department of
the Treasury’s (Treasury) implementation of the Emergency Capital
Investment Program (ECIP) authorized by Title V, Subtitle B,
“Community Development Investment,” under Division N of the
Consolidated Appropriations Act, 2021 (CAA, 2021).1 ECIP is to
provide up to $9 billion of emergency capital investments to low-
and moderate-income community financial institutions that support
small and minority-owned businesses and consumers responding to
the economic impact of the Coronavirus Disease 2019 (COVID-19).
Furthermore, the Treasury Office of Inspector General (OIG) is
required to submit a report twice a year to Congress2 and Treasury
on the oversight provided for the programs established under
Subtitle B, including any recommendations for improvement. In
accordance with this mandate, we conducted this audit.
Our audit objective was to assess Treasury’s progress made to
implement ECIP, including funding, staffing, processes, and internal
controls established, to ensure the effective and efficient
administration of the program. The scope of our audit included, but
was not limited to, reviewing the development of application and
participation requirements along with program guidance materials,
policies, procedures, plans, and activities to implement and
administer ECIP. Our audit scope period included pre-investment
1 P.L. 116-260 (December 27, 2020).
2 The committees of Congress named under Subtitle B include the Committee on Financial Services of
the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the
Senate.
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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activities related to understanding the design and implementation
of ECIP from December 27, 2020 through September 23, 2021.
To accomplish our objective, we reviewed applicable laws and
regulations; and ECIP guidance, including but not limited to, the
Application Instructions for Emergency Capital Investment Program
containing the Emergency Capital Investment Program Application
Form (ECIP Application),” investment term sheets,3 and the
Emergency Capital Investment Program’s Frequently Asked
Questions (FAQs). We also reviewed Memoranda of Understanding
(MOUs) with Federal Banking Regulators (FBRs)4 and the
Information Access and Confidentiality Agreement(s) with State
Banking Regulators. We interviewed key personnel to assess
Treasury’s progress to implement and administer investments
under ECIP. Although no investment review and approval decisions
were made within the scope period of this audit, we gathered
information to gain an understanding of the design of the ECIP
Application submission, review, and approval/disapproval
processes. In addition to interviews, Treasury showed us
preliminary application review procedures within the ECIP
Application Portal5 and explained management’s planned activities.
Although we gained an understanding of the design of the pre-
investment activities related to the program, our audit did not
include detailed testing of the design, implementation, and
operating effectiveness of processes and internal controls6
established over pre-investment and post-investment activities. As
such, we did not conclude on the design and operating
3 The investment term sheets include the Senior Preferred Stock Term Sheet, the Subordinated Debt
Term Sheet (Mutual Institutions and S Corporations), and the Credit Union Subordinated Debt Term
Sheet.
4 The FBRs include the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance
Corporation (FDIC), the Board of Governors of the Federal Reserve System (Federal Reserve Board),
and the National Credit Union Administration (NCUA).
5 As discussed later in this report, Treasury launched the ECIP Application Portal on March 4, 2021.
The portal combines public-facing application submission access with secure access for ECIP
management and staff to conduct application reviews and coordinate evaluations with banking
regulators.
6 The Government Accountability Office’s (GAO) Standards for Internal Control in the Federal
Government (GAO-14-704G; September 2014) sets internal control standards for federal entities. An
entity uses this to design, implement, and operate internal controls to achieve its objectives related
to operations, reporting, and compliance. A control cannot be effectively implemented if it was not
effectively designed. A control cannot be effectively operating if it was not effectively designed and
implemented.
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Program (OIG-22-028)
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effectiveness of the pre- and post-investment internal control. We
plan to perform this work as part of a future audit. We conducted
our fieldwork from April 2021 to October 2021. Appendix 1
contains a detailed description of our audit objective, scope, and
methodology.
Results in Brief
Treasury officials acted swiftly to establish ECIP but did not begin
accepting applications and issue rules to set required restrictions on
executive compensation, share buybacks, and dividend payments
by the 30-day statutory deadline of January 26, 2021. Treasury
officials worked steadily to develop the program, but did not launch
the ECIP Application Portal until March 4, 2021, to allow for
consultation with the FBRs. Furthermore, Treasury has not
completed key documentation such as policies and procedures to
include a post-investment compliance and monitoring plan to fully
implement and administer investments under ECIP.
We acknowledge Treasury’s efforts to complete critical
components of ECIP and begin accepting applications for the new
program on March 4, 2021. In designing the program, Treasury
officials (1) created and staffed a new program office, (2)
conducted outreach with stakeholders, (3) issued application
guidance materials and signed MOUs with FBRs, and (4) developed
the ECIP Application Portal to accept applications and coordinate
reviews with Federal and State banking regulators. Treasury
officials planned to make investment decisions within 120 days of
the September 1, 2021 application deadline. On December 14,
2021, Treasury announced that 186 financial institutions were
approved for ECIP capital investments totaling $8.7 billion. That
said, we are reporting one finding related to missing the statutory
deadline and the need to complete key documentation.
Accordingly, we recommend that the Deputy Assistant Secretary
for Community and Economic Development ensures that the Interim
Director of ECIP finalizes policies and procedures and key
documentation to govern full program implementation and
administration of ECIP investments, as well as effective internal
control over the program.
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In a written response, Treasury management generally agreed with
our recommendation and stated that it initially developed
procedures regarding ECIP’s investment decision-making process,
and provided documentation regarding those procedures to the
OIG. Management also noted that it recently published forms of
transaction documentation and data-collection requirements, which
will inform program monitoring and compliance. As Treasury works
toward closing the investments, management intends to finalize the
remaining documentation regarding the investment process, and
will adopt additional procedures for reporting, monitoring, and
compliance, so that appropriate controls are in place for post-
investment monitoring. Management’s planned corrective actions
meet the intent of our recommendation. We have summarized
management’s response in the recommendation section of this
report. Management’s written response, in its entirety, is included
in appendix 2 of this report.
Background
The CAA, 2021 authorized Treasury to establish ECIP to provide up
to $9 billion in capital to low- and moderate-income community
financial institutions to, among other things, provide loans, grants,
and forbearance for small and minority-owned businesses and
consumers, located in areas that may be disproportionately
impacted by the economic effects of the COVID-19 pandemic. Of
the $9 billion total available amount, $4 billion was to be set aside
to make (a) $2 billion available for financial institutions with less
than $500 million in assets, and (b) $2 billion available for financial
institutions with up to $2 billion in assets. Generally, Treasury can
invest up to $250 million per eligible financial institution. However,
additional limits are imposed on investments in financial institutions
with total assets in the following amounts:
• >$2 billion: up to 7.5 percent of total assets;
• <=$2 billion and >= $500 million: up to 15 percent of
total assets; or
• < $500 million: up to 22.5 percent of total assets.
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Treasury officials may also take into account target market(s)7
when determining final investment amounts. Officials will
collectively evaluate the entire pool of potential recipients to
determine whether the following objectives are met:
• potential recipients’ proposed target markets represent broad
geographic coverage throughout the United States, including
urban and rural areas;
• potential recipients’ capacity to invest in a diversity of Other
Targeted Populations;8 and
• the distribution of investments under ECIP are consistent
with statutory asset-based set-asides for participants.
If necessary and appropriate to achieve these objectives, Treasury
officials may modify the potential recipient pool, investment
amounts, or determine initially to invest only a portion of the total
available funding in order to comply with statutory asset-based set-
asides for ECIP or make additional funding available under a
separate application round at a later date.
The CAA, 2021 mandated Treasury to begin accepting applications
for investments and issue rules setting restriction on executive
7 A target market refers to one or more Investment Area(s) and/or Targeted Population(s). A
Community Development Financial Institution (CDFI) Investment Area is a geographic unit that meets
at least one of the following criteria: (1) a population poverty rate of at least 20 percent; (2) an
unemployment rate 1.5 times the national average; (3) a metropolitan area with a median family
income (MFI) at or below 80 percent of the greater of either the metropolitan or national metropolitan
MFI; (4) a non-metropolitan area with a MFI at or below 80 percent of the greater of either the
statewide or national non-metropolitan MFI; (5) wholly located within an Empowerment Zone or
Enterprise Community [federally designated geographic areas characterized by high levels of poverty
and economic distress where businesses and local governments may be eligible to receive federal
grants and tax incentives]; or a county population loss greater than or equal to 10 percent between
the two most recent census periods for Metro areas or five percent over last five years for Non-
Metro areas. Targeted Population(s) may include Low-Income Targeted Population(s) or Other
Targeted Population(s) in the organization’s service areas for which there exists a strong basis in
evidence that the group lacks access to loans, equity investments, and/or financial services.
8 “Other Targeted Population” is based on the characteristics of the borrower, not the borrower’s
location. This approach to defining “Other Targeted Population” is consistent with the CDFI Fund’s
definition of this term, which currently includes the following: Black Americans, Hispanics, Native
Americans, Native Alaskans residing in Alaska, Native Hawaiians residing in Hawaii, and Other
Pacific Islanders residing in Other Pacific Islands. Asian Americans are considered an Other Targeted
Population for a CDFI if the CDFI Fund has previously made such a determination for that CDFI.
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compensation, share buyback, and dividend payments no later than
30 days after enactment on December 27, 2020. Treasury is
required to consult with the appropriate FBRs to determine whether
the eligible financial institution may receive an investment.
Treasury’s authority to make new capital investments under ECIP
terminates six months after the date on which the national
emergency concerning the COVID–19 outbreak, declared by the
President on March 13, 2020 under the National Emergencies Act,9
terminates.
Eligibility
To be eligible under ECIP, a financial institution must be either a
certified community development financial institution10 (CDFI) or a
minority depository institution (MDI)11 that is:
• a bank holding company (BHC);12
• a savings and loan holding company (SLHC);13
9 50 U.S.C. 1601 et seq.
10 A CDFI has a primary mission of promoting community development; serves an Investment Area or
Targeted Population; provides development services in conjunction with equity investments or loans;
maintains accountability to residents of its Investment Area or Targeted Population; and is not an
agency or instrumentality of the United States or of any State or political subdivision of a State.
CDFIs include banks, loan funds (provide financing and technical assistance), credit unions, and
venture capital funds (provide equity and debt-with-equity services).
11 An MDI is an institution that meets any of the following criteria: (A) as defined in section 308 of the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1463 note), a
depository institution satisfies this definition if it is (1) a privately owned institution in which 51
percent is owned by one or more socially and economically disadvantaged individuals; (2) a publicly
owned institution in which 51 percent of the stock is owned by one or more socially and
economically disadvantaged individuals; or (3) a mutual institution in which the majority of the board
of directors, account holders, and the community that it services is predominantly minority; (B) an
institution considered to be an MDI by the OCC, FDIC, Federal Reserve Board, or NCUA; or (C) an
institution listed in the FDIC’s MDIs list published for the third or fourth quarter of 2020 or NCUA’s
MDIs list for the fourth quarter of 2020.
12 A BHC is a corporate entity that controls one or several operating bank companies. To be considered
a bank holding company, a firm must: (1) hold at least 25 percent of the voting shares in the bank;
(2) control the election of a majority of the directors or trustees; or (3) directly or indirectly influence
the management or policies of the bank.
13 A SLHC includes any company that directly or indirectly controls either a savings association or any
other company that is an SLHC.
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• a federally insured credit union; or
• a federally insured depository institution not controlled by an
eligible BHC or SLHC;
If a BHC or SLHC is not a CDFI or designated as a MDI, it is
ineligible to participate in ECIP. However, if an ineligible BHC or
SLHC has a subsidiary depository institution that is a CDFI or
designated as a MDI and is insured by the Federal Deposit
Insurance Corporation (FDIC), that subsidiary is eligible to apply to
ECIP.
According to Treasury’s FAQs, a financial institution relying on
CDFI status for eligibility must (1) be certified by Treasury’s
Community Development Financial Institutions Fund (CDFI Fund) as
of the date the financial institution’s ECIP Application is submitted,
and (2) have submitted its application for CDFI certification no later
than March 31, 2021.14 A financial institution relying on MDI
status must have such designation15 as of the date it submits its
ECIP Application. If a financial institution ceases to be a CDFI or an
MDI after it submits its ECIP Application but before Treasury
acquires preferred stock or subordinated debt, Treasury officials
have the discretion to determine that the financial institution is no
longer eligible to participate in ECIP.
Dividend and Interest Rates
Under the CAA, 2021, a financial institution approved to
participate in ECIP must issue either preferred stock or
subordinated debt to Treasury. The statute allowed Treasury to
require repayment no later than 10 years from the date of a capital
investment. However, ECIP management created a perpetual
14 The original deadline for submission of the CDFI certification application was December 27, 2020.
Treasury extended the deadline to March 31, 2021 as a result of the ECIP Application being
extended to September 1, 2021.
15 Commercial banks and savings associations can establish themselves as MDIs either when they apply
for federal deposit insurance or as they process notices of changes in control through the FDIC. For
credit unions to self-designate as a MDI, they must use the online NCUA Credit Union Profile
(CUOnline Profile), which is a web-based program used by credit unions and state supervisory
agencies to submit and certify operational and quarterly financial information to the NCUA, and
respond “yes” to both “Minority Depository Institutions Questions” in the CUOnline Profile.
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instrument for preferred stock to receive Tier 1 capital treatment16
and a thirty year maturity date for subordinated debt. In addition,
no dividends, interest, or other similar required payments shall have
a rate exceeding 2 percent per annum for the first 10 years after a
capital investment. Furthermore, no dividends, interest, or other
similar payments shall be due within the first 24-month period after
a capital investment. After that, the annual required payments of
dividend or interest shall be adjusted downward based on lending
performance by the financial institution. If the amount of lending
over the financial institution’s baseline lending17 has increased by
less than 200 percent of the investment amount, the annual
dividend or interest rate will not exceed 2 percent per annum. If
lending increases between 200 percent and 400 percent compared
to the lending baseline, the annual dividend or interest rate shall
not exceed 1.25 percent per annum; and if the amount increases
by more than 400 percent compared to the baseline, the annual
dividend or interest rate shall not exceed 0.5 percent per annum.
Audit Results
Treasury officials acted swiftly to establish ECIP but did not begin
accepting applications and issue rules to set required restrictions on
executive compensation, share buybacks, and dividend payments
by the 30-day statutory deadline of January 26, 2021. As
described below, Treasury officials worked steadily to develop the
program, but did not launch the ECIP Application Portal until
March 4, 2021, to allow for consultation with the FBRs.
Furthermore, Treasury has not completed other key documentation,
such as policies and procedures including an ECIP participant
compliance and monitoring plan to govern the program.
In designing the program, Treasury officials (1) created and staffed
a new ECIP program office, (2) conducted outreach with
stakeholders, (3) issued application guidance materials and signed
MOUs with FBRs, and (4) developed the ECIP Application Portal to
16 Tier 1 capital includes common stock, preferred stock, and retained earnings. It serves as a measure
of a bank’s strength from the perspective of a FBR. The Tier 1 capital ratio is the ratio of a bank’s
core Tier 1 capital (i.e. equity capital and disclosed reserves) to its total risk-weighted assets.
17 An ECIP recipient’s baseline will be calculated based on the total amount of qualified loans originated
for the annual period between September 30, 2019 and September 30, 2020. Since the baseline
counts loan originations, an ECIP recipient will receive full credit for loans sold.
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accept applications and coordinate reviews with FBRs and State
banking regulators.
Staffing
To administer and oversee ECIP, Treasury officials created a new
office under the Deputy Assistant Secretary (DAS) for the Office of
Community and Economic Development, and initially developed a
staffing plan with 31 positions (13 permanent positions and 18
detailees from FBRs) in anticipation of receiving approximately 500
ECIP Applications. However, Treasury only received 213
applications between March 4, 2021 and September 1, 2021.
Therefore, Treasury officials reassessed their staffing plan and
determined that 20 employees (10 full-time staff and 10
detailees18) and 11 contracted consultants would be sufficient for
implementing the program. The staffing plan includes 20 positions
comprised of the ECIP Program Director (also referred to as
Program Manager), Investment Director, Program Analysts,
Supervisory Financial Analysts, Financial Analysts (FA), and
Lending Plan Analysts (LPA).
To prepare for their roles, Treasury officials stated that new staff
and consultants were provided the opportunity to: (1) attend new
analyst orientation; (2) participate in application intake review
training (i.e. reviewing and evaluating sample applications and
discussing results as a teaching tool); (3) receive training from S&P
Global19 on its financial institutions database; and (4) participate in
investment team meetings on procedures development.
Stakeholder Outreach
Starting in January 2021, Treasury officials conducted outreach
with CDFIs, MDIs, trade associations, community groups, and civil
rights groups to raise awareness, educate, and provide an overview
of ECIP along with question and answer sessions. Outreach
sessions included meetings with the Community Development
Bankers Association, the National Community Reinvestment
18 Two (2) of the 10 detailees work part-time, which counts as one full time equivalent position.
19 Formerly known as Standard & Poor’s, S&P Global is a public company in the financial information
and analytics business that provides financial market research and intelligence, maintaining widely
followed market and securities indexes.
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Coalition, the National Association for the Advancement of Colored
People, the National Association of State Credit Union Supervisors,
and Inclusiv,20 among others. In addition, Treasury officials
participated in webinars on February 3, 2021 and May 24, 2021
and a Q&A session on August 12, 2021, which were held by
FBRs.
Issuance of Guidance Materials and Signed MOUs with
the FBRs
Prior to and throughout the application process, Treasury officials
issued guidance materials on Treasury’s ECIP public website to
provide potential applicants with information regarding the ECIP
Application and program details. On January 19, 2021, Treasury
officials issued a draft21 version of the “Application Instructions for
Emergency Capital Investment Program,” which included a sample
application form and an emergency investment lending plan
template. On March 4, 2021, Treasury officials published
preliminary versions of the Rate Reduction Incentive Guidelines,22
and investment term sheets for preferred stock and subordinated
debt. Additionally, on March 30, 2021, the first version of the
FAQs was published. Treasury officials also signed MOUs with the
FBRs on May 3, 2021, outlining the mutually agreed upon roles
and expectations of both parties.
By August 20, 2021, Treasury issued revised Application
Instructions for Emergency Capital Investment Program, and FAQs.
Also, Treasury updated the Rate Reduction Incentive Guidelines
and investment term sheets for preferred stock and subordinated
debt that showed a maximum dividend and interest rate of 2
percent per annum for preferred stock and subordinated debt, in
accordance with the CAA, 2021. In addition, the updated
investment term sheets stated that the payments for the capital
investments will not be due or accrue for the first 2 years and the
annual required payment of dividend or interest will be adjusted
20 Inclusiv is a certified CDFI intermediary whose mission is to help low- and moderate-income people
and communities achieve financial independence through credit unions.
21 Treasury officials noted that the document is for reference only, and is being provided so that
potential applicants may begin compiling the information that is expect to be required for
applications.
22 The Rate Reduction Incentive Guidelines provide the dividend/interest rate reduction criteria based on
the financial institution’s lending performance.
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downward based on the financial institution’s lending performance,
as shown in Figure 1.
Figure 1: Dividend/Interest Rate Table
Source: Treasury OIG summarization of ECIP term sheets.
*After Year 10, the interest rate is fixed until maturity based on the average
annual increase in lending in years 2 through 10 compared to the financial
institution’s baseline lending.
ECIP Application Portal
Treasury partnered with Salesforce23 to develop the ECIP
Application Portal, which combined public-facing application
submission with secure access for ECIP management and staff to
conduct application reviews and coordinate evaluations with
banking regulators. The FBR and State modules allow each banking
regulator to conduct their respective reviews. While considering the
FBR and State banking regulator evaluations, ECIP
personnel also assess the applicants by focusing on financial
condition, organizational capacity, and responsiveness to
community needs. The ECIP Application Portal launched on
March 4, 2021. In June 2021, we interviewed ECIP management
to gather information and gain an understanding of the design of
23 Salesforce is a customer relationship management platform that ECIP management and staff use in
the application process for ECIP recipients.
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the ECIP Application submission, review, and approval/disapproval
processes. In addition, Treasury showed us preliminary application
submission and review procedures within the ECIP Application
Portal and explained management’s planned activities for reviewing
and approving/disapproving ECIP Applications.
ECIP Application Submission, Review, and Decision
Processes
Treasury officials provided us with the following 11-step process
that management plans to follow when receiving and evaluating
ECIP Applications:
1. Application Intake and Initial Checks – The ECIP Application
Portal is the sole mechanism for an eligible financial
institution to apply for an ECIP investment. Each applicant
must create an ID.me24 account to gain access and complete
an application. After the ECIP Application is submitted, an
ECIP Application Coordinator will conduct completeness and
eligibility reviews that include screening the application for
Personally Identifiable Information (PII),25 verifying the
applicant’s CDFI status, and checking if the applicant
appears on the Do Not Pay (DNP)26 list. For incomplete
applications, step 9 below covers the process to request
additional information, while step 10 covers how ECIP
management handles applicants determined ineligible.
2. Regulator Reviews – After ECIP Regulator Relationship
personnel assign the application to the applicable FBR in the
ECIP Application Portal, the FBR has no more than 30 days
(except National Credit Union Administration, which has 45
days) to review and complete the “ECIP Applicant
Supervisory Consultation Form.”27 State banking regulators’
24 ID.me is a certified commercial identity authentication provider. All ECIP applicants are required to
sign up with ID.me before they can access the ECIP Application Portal.
25 PII is information that can be used to distinguish or trace an individual’s identity, either alone or when
combined with other personal or identifying information that is linked or linkable to a specific
individual.
26 DNP, operated by Treasury’s Bureau of the Fiscal Service is available to agencies at no cost to check
many data sources at one time to verify a recipient's eligibility for a Federal payment.
27 The “ECIP Applicant Supervisory Consultation Form” includes questions regarding the applicant’s
eligibility to participate in the program, its supervisory ratings, and whether it is subject to
enforcement actions related to unsafe and unsound lending practices.
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reviews are optional. ECIP management and staff conduct an
initial review of applications to identify States with State-
chartered banking organizations that submitted ECIP
Applications and coordinate with those State banking
regulators. Upon being notified, State banking regulators
have no more than 30 days to review and provide feedback.
The FBR and the State banking regulator reviews may be
concurrent.
ECIP Regulator Relationship personnel reviews the FBR and
the State banking regulator inputs for completeness and may
follow-up with appropriate regulators if additional information
is needed. If an applicant is eligible, the process moves to
step 3. This process can advance without State Regulator
input up through Step 4 below, but not beyond unless: (1)
the State regulator has indicated it will not provide input or
(2) the 30 day window has expired.
3. Financial Agent Review – The Treasury Office of Financial
Agents (OFA)28 assigns ECIP Applications to financial
agents. The OFA makes the assignments after it receives
confirmation from the financial agents that they do not have
a conflict of interest with respect to specific applications.
The financial agents submit their reports back to the ECIP
team.
4. Financial Analyst (FA) and Lending Plan Analyst (LPA)
Review – The ECIP Investment Director assigns a FA and a
LPA to the application. The FA is responsible for leading the
underwriting analysis based on financial agent reports, the
ECIP Application, the FBR’s “ECIP Applicant Supervisory
Consultation Form,” and the State banking regulator review
forms, when available. The LPA is responsible for reviewing
and scoring an applicant’s lending plan. Both the FA and LPA
work collaboratively to prepare the Investment Committee
Memo. Thereafter, the ECIP Investment Director and/or ECIP
Director and additional ECIP staff conduct secondary reviews
of the Investment Committee Memo and underwriting
analysis and move forward with transmitting the Investment
28 Treasury’s Office of Financial Agents oversees the designation, management, and oversight of
financial agents who support a variety of stabilization and stimulus programs. Treasury has the
authority to designate financial institutions to provide services on behalf of Treasury.
Audit of Treasury’s Implementation of the Emergency Capital Investment
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Committee Memo to the Investment Committee if no issues
are noted.
5. Investment Committee Review – The Investment Committee
members are comprised of five Treasury staff29 who are not
part of the ECIP team. The Investment Committee will
review the Investment Committee Memo and express
concurrence or non-concurrence with ECIP management’s
recommendation regarding an applicant’s investment amount
and eligibility status. In the event that the Investment
Committee does not concur, additional information will be
gathered and discussed at subsequent meeting(s). All
decisions of the Investment Committee are recorded in
minutes. Applicants where the committee recommends a
determination of ineligibility be made are moved to step 7
and are excluded from the pool analysis.
6. Pool Analysis – After the Investment Committee’s approval
of the ECIP Application, the ECIP Investment Director, along
with the ECIP Program Director and staff, prepares an
Investment Amount Memo. The memo is sent to an ECIP
Application Coordinator to perform a validation of the Pool
Analysis30 Calculation prior to the memo being submitted to
the Investment Committee for review and approval. Once
approved, the ECIP Program Director, along with the ECIP
Investment Director and staff, prepares an Investment
Approval Memo for the DAS for the Office of Community
and Economic Development or designee. A Program Analyst
reconciles the Investment Approval Memo to the amounts
approved by the Investment Committee.
7. Preliminary Approval – The ECIP Application Coordinator
performs another review of the Investment Approval Memo
to ensure all recommendations are accurately reflected prior
29 The members of the Investment Committee are: (1) Director, Office of Financial Markets (chair); (2)
Assistant Director, Office of Financial Institutions Policy; (3) Director, CDFI Fund; (4) Director,
Federal Programs, Office of Financial Markets; and (5) Senior Adviser, Office of Domestic Finance.
30 Treasury will review the list of potential investment recipients to determine whether the pool of
recipients collectively meets the following objectives: (1) potential recipients’ proposed target
markets represent broad geographic coverage throughout the US, including urban and rural areas; (2)
potential recipients demonstrate the capacity to invest in a diversity of Other Targeted Populations;
and (3) the distribution of investments under ECIP are consistent with statutory asset-based set-
asides for ECIP participants.
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
15
to the DAS’ review. The DAS has the sole authority to make
eligibility determinations and investment decisions. After the
DAS determines an applicant eligible and approves the
investment decision, an ECIP team member will prepare and
send a Preliminary Approval Letter to the applicant. If the
DAS determines an applicant ineligible, an ECIP Application
Coordinator will prepare a draft preliminary ineligibility letter
and proceed with the ineligibility process as outlined in step
10.
8. Withdrawal – An applicant can withdraw an ECIP Application
at any point during the process by submitting a withdrawal
request. Once an ECIP Application Coordinator receives the
withdrawal request, ECIP management will contact the
applicant to confirm withdrawal. ECIP management will
notify relevant parties to stop application processing. ECIP
management will generate a withdrawal confirmation letter
and will verify if the applicant has received a preliminary
approval letter. If so, the funding allotted to that specific
applicant will be returned back to the investment fund pool.
9. Additional Information – At any point in the application
review process, an ECIP Application Coordinator may
contact the applicant if additional information is required.
The applicant must provide the requested information within
5 business days for it to be included in the application
review process as noted in step 1. If the applicant does not
complete this action in 5 business days, ECIP management
will continue the review process with the original
information.
10. Ineligibility – When an applicant is determined ineligible by
the DAS, an ECIP Application Coordinator will draft a
preliminary ineligibility letter and send it to the Treasury
Office of General Counsel (OGC) and the ECIP Director for
review and approval. The approved letter is then sent to the
applicant. If applicable, the applicant may submit further
information within 5 business days for eligibility
reassessment.
If the applicant provides further information, ECIP
management and the Treasury OGC will review and confirm
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
16
eligibility and proceed with the application review process.
Subsequently, the DAS has the sole authority to approve/
disapprove investment decisions. If assessed as ineligible,
then a final ineligibility letter will be drafted and distributed
to the applicant.
11. Denial – ECIP management will notify applicants not
recommended for investment and provide a second review
opportunity. If the applicant chooses not to request a second
review, no further action is needed. However, an applicant
wanting to be reconsidered must send a second review
request. A new ECIP team will be assigned to review the
application, if required (see step 4).
Although we gained an understanding of Treasury’s 11-step
process, we did not perform detailed tests of the design,
implementation, and operating effectiveness as no investment
decisions were made within the scope of this audit. Furthermore,
documented policies and procedures related to the 11-step plan
were not completed. See finding 1 for details of key documentation
not finalized at the time of our audit.
Demand for Emergency Capital Investments
Treasury received 20431 eligible ECIP Applications from banks,
BHCs, SLHCs, and credit unions.32 Applicants requested more than
$12.88 billion in capital investments (see Figure 2 below).
31 Treasury received 212 applications but immediately ruled out 8 applications as ineligible as they were
not submitted by depository institutions or holding companies.
32 Treasury posted announcement, “Treasury Sees Robust Demand for Emergency Capital Investment”
at https://home.treasury.gov/policy-issues/coronavirus/assistance-for-small-businesses/emergency-
capital-investment-program.
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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Figure 2: ECIP Applications and Requested Investment Amounts
Institution Description
Requested Investment
Amount
Number of Eligible
Applications
BHC
$ 7,847,871,850
93
Federally Insured
Credit Union
$3,234,333,045
91
Insured Depository
Institution not
controlled by a BHC or
SLHC
$1,145,631,000
13
Insured Depository
Institution controlled
by a BHC or SLHC
$341,663,000
5
SLHC
$313,140,000
2
Total
$12,882,638,895
204
Source: Treasury OIG summarization of data provided by the ECIP management.
Although Treasury progressed in its program design to meet the
CAA, 2021 requirements, management missed the statutory
deadline to implement ECIP, as well as to complete key
documentation as described in finding 1.
Finding 1
Treasury Made Progress Implementing ECIP but Missed
the Statutory Deadline
While we found that Treasury officials have been actively engaged
in developing the ECIP program and processes to meet the CAA,
2021 requirements, they missed the January 26, 2021 statutory
deadline to begin accepting ECIP Applications and issue required
rules pertaining to executive compensation, share buybacks, and
dividend payments. Furthermore, Treasury has not completed key
documentation such as policies and procedures, to include a
compliance and monitoring plan to fully implement and administer
investments under ECIP.
Under the CAA, 2021, Treasury officials were to begin accepting
applications for investments and issue rules setting required
restrictions on executive compensation, share buybacks, and
dividend payments by January 26, 2021. However, the ECIP
Application Portal was not opened until March 4, 2021 and the
Interim Final Rule for Emergency Capital Investment Program—
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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Restrictions on Executive Compensation, Share Buybacks, and
Dividends was issued on March 9, 2021. Furthermore, in April
2021, Treasury officials extended the ECIP Application initial
deadline submission33 from May 7, 2021 to July 6, 2021. On
July 1, 2021, Treasury officials announced that the deadline to
submit applications was extended again, to “14 days following the
publication of forthcoming guidance.” On August 11, 2021,
Treasury officials issued additional guidance including underwriting
criteria, and announced a new application deadline of September 1,
2021. Treasury officials planned to make investment decisions
within 120 days of the September 1, 2021 application deadline.
On December 14, 2021, Treasury announced that 186 financial
institutions were approved for ECIP capital investments totaling
$8.7 billion.
When we inquired about the delays in implementing ECIP,
management provided several reasons. To begin, a new office had
to be established and staffed to manage the complex and labor-
intensive program requirements under the CAA, 2021. Treasury
officials had to conduct outreach to educate and raise awareness
of ECIP with CDFIs, MDIs, trade associations, community groups,
and civil rights groups. In addition, the ECIP Application deadline
was extended and program guidance was updated, in part, to
respond to stakeholders’ requests for extension and to provide
Treasury officials and the FBRs the opportunity to respond to
concerns. Furthermore, Treasury officials needed to work with the
FBRs to enable the preferred stock under the program to receive
Tier 1 capital treatment, which the banking regulators needed to
implement through notice-and-comment rulemaking.34
As of September 2021, Treasury officials had not yet completed
documentation to guide the overall implementation and
administration of ECIP. While Treasury officials provided an 11-step
process to review and approve or disapprove ECIP Applications, as
noted above, policies and procedures documenting the process
were not provided for our review. Treasury was still drafting
policies and procedures for post-investment compliance monitoring,
33 On March 4, 2021, Treasury published ECIP Application instructions and set the submission deadline
as May 7, 2021.
34 12 CFR parts 3, 5, 217, and 324, Regulatory Capital Rule: Emergency Capital Investment Program;
the Office of the Comptroller of the Currency, Federal Reserve Board, and FDIC issued the Interim
Final Rule on March 22, 2021.
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
19
and as such, they were not within the scope of this audit.
Furthermore, Treasury officials have not finalized the Interim Final
Rule for Emergency Capital Investment Program—Restrictions on
Executive Compensation, Share Buybacks, and Dividends.
According to the Government Accountability Office’s (GAO)
Standards for Internal Control in the Federal Government35 Principle
10, management should design control activities to achieve
objectives and respond to risks. Attribute 10.02, Response to
Objectives and Risk, provides suggested guidance that
“management designs control activities in response to the entity’s
objectives and risks to achieve an effective internal control system.
Control activities are the policies, procedures, techniques, and
mechanisms that enforce management’s directives to achieve the
entity’s objectives and address related risks.” Furthermore,
Principle 12 requires that management should implement control
activities through policies. Attribute 12.03, Documentation of
Responsibilities through Policies, suggests that “…Each unit, with
guidance from management, determines the policies necessary to
operate the process based on the objectives and related risks for
the operational process. Each unit also documents policies in the
appropriate level of detail to allow management to effectively
monitor the control activity.” In addition, Attribute 12.04 suggest
that “…Management communicates to personnel the policies and
procedures so that personnel can implement the control activities
for their assigned responsibilities.”
Treasury’s extended timeline for ECIP development has resulted in
delayed emergency support for recipient financial institutions and
communities. Although Treasury officials made investment
decisions within 120 days of the September 1, 2021 application
deadline, investments have not yet occurred. Treasury estimates
that closing and funding for approved investments will begin early
in calendar year 2022. Therefore, it is important to promptly
finalize internal control documentation that includes well-defined
policies and procedures to guide investment reviews, and
determinations, and to monitor ECIP participants’ compliance with
program terms and conditions. Without documented policies and
procedures and other key documentation, there is potential for lack
of continuity in administering ECIP, which could hamper Treasury’s
35 GAO, Standards for Internal Control in the Federal Government, GAO-14-704G (September 2014).
Audit of Treasury’s Implementation of the Emergency Capital Investment
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ability to support small and minority-owned businesses and
consumers disproportionately impacted by the economic impacts of
COVID-19.
Recommendation
We recommend the Deputy Assistant Secretary ensures the Interim
Director of ECIP finalizes policies and procedures and key
documentation to govern full program implementation and ongoing
administration of ECIP investments, as well as effective internal
control over the program.
Management Response
Treasury management generally agreed with our
recommendation and responded that it initially developed
procedures regarding ECIP’s investment decision-making
process, and provided documentation regarding those
procedures to the OIG. Management also noted that it recently
published forms of transaction documentation and data-
collection requirements, which will inform program monitoring
and compliance. As Treasury works toward closing the
investments, management intends to finalize the remaining
documentation regarding the investment process, and will adopt
additional procedures for reporting, monitoring, and compliance,
so that appropriate controls are in place for post-investment
monitoring. Management’s written response, in its entirety, is
included in appendix 2 of this report.
OIG Comment
Management’s planned corrective actions meet the intent of our
recommendation.
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
21
* * * * * *
We appreciate the courtesies and cooperation provided by your
staff. If you wish to discuss the report, you may contact me at
(202) 577-6609, or Julie Wong, Audit Manager at (202) 439-
6354. Major contributors to this report are listed in appendix 3. A
distribution list for this report is provided as appendix 4.
/s/
Cecilia K. Howland
Audit Director, State and Local Fiscal Recovery, RESTORE, and
CDFI Programs
Appendices
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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Appendix 1: Objective, Scope, and Methodology
Our objective was to assess the Department of the Treasury’s
(Treasury) progress made to implement the Emergency Capital
Investment Program (ECIP), including funding, staffing, processes,
and internal controls established to ensure the effective and
efficient administration of the program.
The scope of our audit included, but was not limited to, the
development of application and participation requirements along
with program guidance materials, policies, procedures, plans, and
activities to implement and administer ECIP. Our audit scope period
included ECIP’s activities related to understanding the pre-
investment design and implementation of ECIP, from December 27,
2020, through September 23, 2021. Our audit scope did not
include detailed testing of design, implementation, and operating
effectiveness of ECIP implementation activities, and as such,
testing of ECIP Applications was not part of this audit. Due to the
Coronavirus Disease 2019 pandemic, fieldwork was conducted
remotely from April 2021 to October 2021.
To accomplish this audit objective, we performed the following
procedures during audit fieldwork.
• Reviewed applicable laws and regulations:
o P.L. 116-260, Title V, Subtitle B in Division N
of Consolidated Appropriations Act 2021 (CAA,
2021), December 27, 2020;
o 31 CFR Part 35, Interim Final Rule Emergency Capital
Investment Program—Restrictions on Executive
Compensation, Share Buybacks, and Dividends, effective
date: March 9, 2021, comment due date: April 8, 2021;
o 12 CFR Parts 3, 5, 217, and 324, Interim Final Rule,
Regulatory Capital Rule: Emergency Capital Investment
Program, effective date: March 22, 2021, comment due
date: May 21, 2021;
o 12 CFR Part 3, Capital Adequacy Standards, October 11,
2013;
o 12 CFR Part 709.5, Payout Priorities
in Involuntary Liquidation, February 23, 2021;
Appendix 1: Objective, Scope, and Methodology
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
23
o Government Accountability Office’s (GAO) Standards for
Internal Control in the Federal Government (GAO-14-
704G; September 2014); and
o GAO, Assessing Data Reliability, December 2019.
• Reviewed GAO’s Standards for Internal Control in the Federal
Government to identify the components of internal control and
principles that related to the context of the audit objective.
Specifically, evaluated the control environment, risk
assessment, and control activities; and assessed policies,
procedures, and guidance against the following principles: (1)
management should establish an organizational structure, assign
responsibility, and delegate authority to achieve the objectives;
(2) management should commit to recruiting, developing, and
retaining competent personnel; (3) management should identify,
analyze, and respond to risks related to achieving the defined
objectives; (4) management should design control activities to
achieve objectives and respond to risks; and (5) management
should implement control activities through policies.
• Reviewed GAO’s Assessing Data Reliability guidance, which
states that a data reliability determination does not involve
attesting to the overall reliability of the data or database. For
this audit, the audit team only determined the reliability of the
specific data sources needed to support the findings,
conclusions, or recommendations in the context of the audit
objectives. In this regard, we compared the information in the
Salesforce ECIP Application Portal to the information reported
on the ECIP public website and the information obtained from
interviews with Treasury officials, to gather consistent
information relevant to understanding the design of the ECIP
Application submission, review, and approval/disapproval
processes. We determined that the data sources were
sufficiently reliable for the purpose of answering our audit
objective.
• Reviewed Treasury’s ECIP guidance to include:
o Application Instructions for Emergency Capital Investment
Program containing the Emergency Capital Investment
Program Application Form (ECIP Application),
Appendix 1: Objective, Scope, and Methodology
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
24
(January 19, 2021, March 4, 2021, August 11, 2021,
and August 20, 2021 versions);
o “ECIP Application Portal: Create an ID.me Account,”
March 2021;
o Emergency Capital Investment Program’s Frequently
Asked Questions, (March 30, 2021, August 11, 2021,
and August 20, 2021 versions);
o Rate Reduction Incentive Guidelines, (March 4, 2021 and
August 11, 2021 versions);
o Application and Lending Plan Evaluation Form,
August 11, 2021;
o Senior Preferred Stock Term Sheet, (March 4, 2021 and
August 12, 2021 versions);
o Credit Union Subordinated Debt Term Sheet, (March 4,
2021 and August 12, 2021 versions); and
o Subordinated Debt Term Sheet (Mutual Institutions and S
Corporations), (March 9, 2021 and August 12, 2021
versions).
• Reviewed Treasury’s ECIP website page,
https://home.treasury.gov/policy-issues/coronavirus/assistance-for-
small-businesses/emergency-capital-investment-program
• Reviewed National Credit Union Administration (NCUA) and the
National Association of Federally-Insured Credit Unions (NAFCU)
website pages:
o NCUA’s website page for the ECIP webinar,
https://www.ncua.gov/newsroom/press-
release/2021/federal-financial-regulators-hold-webinar-
emergency-capital-investment-program
o NAFCU’s website page for ECIP information,
https://www.nafcu.org/newsroom/fed-treasury-offer-ecip-
updates-during-ask-fed-webinar
• Reviewed the Memoranda of Understanding with Federal Banking
Regulators – the Office of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the Board of Governors of
the Federal Reserve System, (Federal Reserve Board) and the
National Credit Union Administration, dated May 3, 2021.
Appendix 1: Objective, Scope, and Methodology
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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• Interviewed key ECIP personnel to gain an understanding of the
design of the ECIP Application submission, review, and
approval/disapproval processes. No investment review and
approval/disapproval decisions were made within the scope of this
audit, and as such, we did not test and assess their design,
implementation, and operating effectiveness. We plan to perform
this work in a future audit.
• Interviewed key ECIP personnel:
o Interim Director, ECIP;
o Deputy Assistant General Counsel;
o Office of General Counsel detailee from the Federal
Reserve Board; and
o Program Analyst.
We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require that
we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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Appendix 2: Management Response
Appendix 2: Management Response
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
27
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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Appendix 3: Major Contributors to This Report
Julie Wong, Audit Manager
Alexis Satterwhite, Auditor-in-Charge
Clare Granville, Auditor
Tanisha Dunn, Auditor
Kristin Prestel, Auditor
Anita Smith, Referencer
Audit of Treasury’s Implementation of the Emergency Capital Investment
Program (OIG-22-028)
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Appendix 4: Report Distribution
Department of the Treasury
Secretary
Deputy Secretary
Deputy Assistant Secretary for Community and Economic
Development
Office of Strategic Planning and Performance Management
Office of the Deputy Chief Financial Officer, Risk and Control
Group
Emergency Capital Investment Program
Interim Director
Deputy Assistant General Counsel
Office of Management and Budget
OIG Budget Examiner
U.S. Senate
Chairman and Ranking Member
Committee on Banking, Housing, and Urban Affairs
U.S. House of Representatives
Chairman and Ranking Member
Committee on Financial Services
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