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In March 2006, we issued our opinions on the calendar year 2005 financial statements of the Bank Insurance Fund (BIF), the Savings Association Insurance Fund (SAIF), and the FSLIC Resolution Fund (FRF). We also issued our opinion on the effectiveness of the Federal Deposit Insurance Corporation's (FDIC) internal control over financial reporting (including safeguarding assets) and compliance as of December 31, 2005, and our evaluation of FDIC's compliance with significant provisions of selected laws and regulations for the three funds for the year ended December 31, 2005. The purpose of this report is to discuss issues identified during our audits of the 2005 financial statements regarding internal controls and accounting procedures that could be improved, and to recommend actions to address these weaknesses. Although these issues were not material in relation to the financial statements, we believe they warrant management's attention.

During our audits of the 2005 financial statements, we identified several internal control issues that affected FDIC's accounting for the funds it administers. Although we do not consider them to be material weaknesses or reportable conditions, we believe they warrant management's consideration. Specifically, we found that FDIC made errors in several of its operating expense allocation percentages. These errors would have resulted in misstatements in the BIF, SAIF, and FRF financial statements. FDIC did not detect several internal control deficiencies in its procurement process, two of which resulted in misstatements in the BIF, SAIF, and FRF financial statements, though the misstatements were not considered material. Further, FDIC did not detect allocation errors in its Supplemental Payment System. These errors resulted in misstatements in the BIF, SAIF, and FRF financial statements, though the misstatements were not considered material. Finally, FDIC lacked complete control over checks in its Dallas mailroom. The lack of effective safeguarding control procedures increased the risk of theft, loss, or misappropriation of assets.