Our audit included an evaluation of selected Office of Financial Regulation (OFR) processes associated with the regulation of certified capital companies (CAPCOs), banks, credit unions, and securities entities.  Our audit, covering the period January 7, 2003, through February 29, 2004, disclosed the following:

Finding No. 1:        Although Section 288.99(8)(a), Florida Statutes, requires that the CAPCOs provide a detailed report relative to the use of CAPCO moneys invested, the statute does not require the CAPCOs to report how other State-provided CAPCO moneys were used.  As a consequence, the CAPCOs were not required to describe in annual reports how approximately $52 million in State-provided CAPCO moneys had been used.  While it is not our intent to suggest that the CAPCOs have failed to properly account for moneys provided under the CAPCO Act or to suggest that the moneys have been used by the CAPCOs in a manner not authorized by law, there is a need for the amendment of the statutory reporting requirements in order to facilitate full disclosure of the usage of State moneys.

Finding No. 2:        Section 288.99(10)(a), Florida Statutes, requires the OFR to conduct annual reviews of certified capital companies.  The OFR had not implemented written policies and procedures to govern the conduct of the CAPCO annual reviews, and the absence of written policies and procedures contributed to the OFR’s failure to properly document the nature, timing, and extent of the work performed.

Finding No. 3:        Our review of a total of 15 bank examinations performed by the Tampa, Orlando, and Tallahassee OFR Regional Offices (5 from each office) disclosed that the OFR had established reasonable methodologies for conducting these examinations and that examiners had generally complied with these methodologies during the conduct of their examinations.

Finding No. 4:        Applications for securities entities (securities dealers, investment advisers, branch offices, and associated persons) are submitted to the OFR for processing and review.  Our audit disclosed that, while a supervisory review of an application may be conducted if an OFR analyst develops concerns regarding disclosed disciplinary actions, supervisory evaluations are not conducted of other applications.  The absence of documented supervisory evaluations of analysts’ decisions to approve applications increases the risk that the OFR may issue a securities permit to an entity that does not meet established eligibility requirements.

Finding No. 5:        The OFR uses electronic examination modules to guide the conduct of examinations of securities entities.  For two of the ten securities examinations reviewed, the then most current version of the examination module was not used.  The failure to use the appropriate examination module may lead to the conduct of examinations which do not, in scope, adequately address applicable laws and rules.

The Commissioner's response to the findings and recommendations contained in this report can be viewed on the Auditor General's Web site.