Follow-Up to OIG’s Audit of the Municipal Depositories Designation Process

The City of Chicago Office of Inspector General (OIG) has completed a follow-up to its August 2021 audit of the Department of Finance’s (DOF) administrative process for designating municipal depositories. Banks designated as depositories hold and pay interest on funds deposited by the City and the Chicago Board of Education, essentially serving as the City’s checking accounts. Based on the Department’s responses, OIG concludes that DOF has partially implemented corrective actions related to the audit findings.

The purpose of the 2021 audit was to determine whether DOF ensured that banks applying for municipal depository designations submitted the required information, and whether DOF used the information to ensure that the City partners with institutions that not only have the capacity to fulfill its banking needs, but also provide inclusive and equitable financial services across Chicago’s communities. OIG found that although DOF ensured that banks submitted all documentation required by the Request for Proposals (RFP), it did not evaluate whether the banks provided inclusive and equitable financial services throughout Chicago. Furthermore, OIG found that DOF, City Council, and the City of Chicago Treasurer’s Office had not coordinated their roles in the municipal depository designation process to achieve the City’s inclusivity and equity goals.

Based on the results of the audit, OIG recommended that DOF, in collaboration with City Council’s Committee on Finance, develop and implement a process to evaluate banks’ lending and deposit records for equitable financial services provision. OIG recommended that the process include provisions related to sharing evaluation results with Council and applicant banks. OIG also recommended that DOF collaborate with Council and the Treasurer’s Office to develop a coordinated municipal depository designation process that aligns with the City’s equitable banking goals and allows the City to deposit public funds with banks that share and live up to those goals. In its response to the audit, DOF described corrective actions it would take.

In September 2021, City Council passed an updated version of the Municipal Depositories Ordinance that expands applicant banks’ reporting requirements and directs DOF to fulfill its related duties in a more transparent manner. The Committee on Finance held subject matter hearings in December 2021 and 2022, as required by the Ordinance. During the hearings, DOF shared information about applicant banks’ lending performance and the Woodstock Institute shared its analysis of applicant banks’ lending performance. The hearings allowed for public and aldermanic comment on persistent lending disparities in Chicago.

In June 2022, OIG inquired about corrective actions taken by DOF in response to the audit. Based on DOF’s follow-up response, OIG concludes that DOF partially implemented corrective actions. Specifically, DOF formed an Evaluation Committee with staff from Council’s Committee on Finance, the Treasurer’s Office, and the City of Chicago Department of Housing (DOH) to ensure that RFP submissions are complete. Furthermore, DOF revised its RFP language to reflect Ordinance updates and published applicant banks’ responses through the Chicago Data Portal. DOF has not, however, set targets for equitable lending and deposit activity or defined the goals of the municipal depository designation process.

Once fully implemented, OIG believes the corrective actions reported by DOF may reasonably be expected to resolve the core findings noted in the audit. OIG urges DOF to fully implement a designation process based on evaluation results and defined goals, and to substantively explore and promote equitable lending opportunities throughout all of Chicago’s communities.