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Without an Inspector General, FHFA Lacks Independent Oversight

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[Update 1: Adds information provided by FHFA] Ed Kelley still comes to work in the same Washington DC building in the same office as he did when he was the independent inspector general (IG) of the Federal Housing Finance Board (FHFB). But with the dissolution of the FHFB and the creation of the Federal Housing Finance Agency (FHFA), his ability to audit the new entity is severely limited. The long simmering issue boiled over publicly earlier this week, when the Huffington Post first broke the story of Kelley's predicament, alleging that the FHFA itself had fired its own inspector general. When the FHFB was dissolved on July 30, 2009 and the FHFA was established in its place, the former FHFB employees were automatically given similar positions at the same grade and pay level at the new agency. One position that wasn’t filled however, was Kelley’s job as inspector general. By law, inspectors general are appointed by the president and confirmed by the US Senate. So while Kelley technically works for the FHFA, it’s as the associate director for internal audit, reporting to the office of FHFA acting director Edward DeMarco, not as head of an independent auditing authority to oversee the operations of the government-sponsored enterprises (GSE), and the 12 Federal Home Loan Banks. Inspector general offices are empowered to conduct criminal investigations and provide protection to whistleblowers. “Independence is the core difference between the two offices. An internal audit office reports to management of the agency and are accountable to management,” Kelley told HousingWire. “An inspector general reports to Congress and president and to the head of the agency. That dual reporting requirement and transparency is what provides the basis for the independence of the IG’s operations.” In a statement, the FHFA said it sought the guidance of the Department of Justice and its own Office of Legal Counsel (OLC) on whether Kelley, as inspector general of FHFB, could serve as interim inspector general. The two legal teams said the agency could not appoint its own inspector general, a decision Kelley doesn’t necessarily agree with. “My authority with the FHFB is gone, that agency’s abolished, and under the OLC’s opinion, we never had authority in this new agency to operate, even though for a number of months, we were going back and forth on the legal opinions,” Kelley said. “I have my view and OLC offered their view that we all have to live with.” FHFA officials said the director and inspector general are the only presidentially-appointed positions within the agency, but referred questions regarding the timeline for appointing an inspector general to the White House. The White House press office did not immediately respond to HousingWire’s request for comment. Kelley said he believes Congress intended for FHFA to have an independent inspector general from day one, but the “statute which created this agency did not get it done.” “That was Congress’ intent, but the law is the law,” Kelley said. “Being someone who, over the years, has had responsibility for holding accountable to their compliance, the law and regulations, I’d be the last one to say if the law doesn’t allow it, we should still do it.” In a recent Senate Banking Committee hearing, DeMarco faced questions from Sen. Jim Bunning (R-Ky) on his agency’s lack of an inspector general. “I'd like to be very clear I want an inspector general. I would like it, and I would like it now, because I in fact believe, Senator, that inspector generals can be very important elements of the functioning of a federal regulatory agency,” DeMarco told the committee, adding he has communicated with the Obama administration on when an inspector general would be appointed, “multiple times.” Write to Austin Kilgore.

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